DBRS Assigns Provisional Ratings to CD 2019-CD8 Mortgage Trust

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-CD8 (the Certificates) to be issued by CD 2019-CD8 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class X-D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class X-F at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (low) (sf)

All trends are Stable. The notional amount of the Class X-A Certificates will be equal to the aggregate certificate balance of the Class A-1, Class A-2, Class A-SB, Class A-3, Class A-4 and Class A-M Certificates. The notional amount of the Class X-B Certificates will be equal to the aggregate certificate balance of the Class B and Class C Certificates. The notional amount of the Class X-D Certificates will be equal to the aggregate certificate balance of the Class D and Class E Certificates. The Class X-A, Class X-B, Class X-D and Class X-F Certificates (collectively, the Class X Certificates) will not be entitled to distributions of principal. The notional amount of each class of the Class X Certificates is subject to change depending on the final pricing of the principal balance certificates. The exact initial Certificate Balances of the Class A-3 and Class A-4 Certificates are unknown and will be determined based on the final pricing of those classes of Certificates. However, the respective initial Certificate Balances, weighted-average (WA) lives and principal windows of the Class A-3 and Class A-4 Certificates are expected to be within the applicable ranges. The aggregate initial Certificate Balance of the Class A-3 and Class A-4 Certificates is expected to be approximately $515,081,000, subject to a variance of plus or minus 5.0%. Class X-B, Class X-D, Class X-F, Class D, Class E, Class F, Class G-RR, Class H-RR, Class J-RR and Class VRR are non-offered certificates.

The collateral consists of 33 fixed-rate loans secured by 58 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. The conduit pool was analyzed to determine provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Three loans, representing a combined 16.3% of the pool, are shadow rated investment grade by DBRS. When the cut-off loan balances were measured against the DBRS Stabilized net cash flow (NCF) and their respective actual constants, no loans had a DBRS Term debt service coverage ratio (DSCR) below 1.15 times, a threshold indicative of a higher likelihood of mid-term default. The pool additionally includes five loans, representing a combined 14.3% of the pool by allocated loan balance, with DBRS Issuance loan-to-value (LTV) ratios above 67.1%, a threshold historically indicative of above-average default frequency. The WA DBRS LTV of the pool was 56.5% at issuance and the pool is scheduled to amortize down to a WA DBRS LTV of 54.1% at maturity.

The deal exhibits ample property-type diversification with no single property type accounting for more than 29.9% of the pool by allocated loan balance. The largest concentrations include retail, office, hospitality and mixed use, which account for 29.9%, 19.3%, 18.1% and 15.7% of the pool, respectively. There are three shadow-rated loans – Woodlands Mall (rated AA (sf) by DBRS), Moffett Towers II – Buildings 3 & 4 (rated AA (sf) by DBRS) and Crescent Club (rated AA (high) (sf) by DBRS) – that represent 16.3% of the pool. Ten loans, representing 41.2% of the pool, are secured by properties located in markets ranked six, seven or eight. Markets ranked six through eight are generally more densely urban in nature and benefit from greater liquidity, even during times of economic stress. Overall, the pool has a WA market rank of 5.2. The deal has favorable credit metrics as evidenced by a WA DBRS Issuance LTV and WA DBRS Balloon LTV of 56.5% and 54.1%, respectively. In addition, only one loan, representing 4.9% of the trust balance, has a DBRS Issuance LTV of 75.0% or higher. Historical data generally demonstrates that loans with lower LTVs at issuance have a lower probability of default (POD).

Twenty-two loans, representing 76.4% of the pool and including 12 of the top 15 loans in the pool, are structured with full-term interest-only (IO) payments. An additional seven loans, comprising 13.0% of the pool, have remaining partial IO periods ranging from 24 months to 36 months. The POD is calculated using a DSCR that includes amortizing debt service. The DBRS Balloon LTV is also incorporated into the POD. Furthermore, partial IO loans are penalized in the model.

The pool has a relatively high concentration of loans secured by non-traditional property types, such as self-storage and hospitality which, on a combined basis, represent 20.1% of the pool by allocated loan balance across eight loans. There are five loans, representing 18.1% of the pool by allocated loan balance, secured by hotels and thee loans, representing 2.0% of the pool by allocated loan balance, secured by self-storage properties. Each of these asset types is vulnerable to high NCF volatility because of the relatively short-term nature of their respective leases compared with other commercial properties, which can cause NCF to quickly deteriorate in a declining market. While not historically considered a core property type, commercial mortgage-backed security (CMBS) loans secured by self-storage properties have performed better than other property types over the past two decades and have displayed very strong cash flow growth over time. With respect to the loans in the pool secured by hotel properties, the DBRS WA expected loss is approximately 50% greater than that of the overall pool.

The pool is relatively concentrated based on loan size as there are only 33 loans and the pool has a concentration profile similar to that of 20 equally sized loans. The ten-largest loans represent 60.8% of the pool by allocated loan balance and the largest three loans represent 26.5% of the pool by allocated loan balance. While the concentration profile is like a pool of 20 equally sized loans – which is typically worse than most fixed-rate conduit transactions – the transaction benefits from favorable property-type diversification. The DBRS CMBS Insight Model accounts for loan size concentration within its pooling analysis simulation. As a result, the AAA credit enhancement represents a very high multiple of the pool’s base expected loss.

Classes X-A, X-B, X-D and X-F are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS’s methodology, DBRS used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American CMBS Multi-borrower Rating Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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