DBRS Morningstar Assigns Provisional Ratings to BANK 2019-BNK22

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the Commercial Mortgage Pass-Through Certificates, Series 2019-BNK22 to be issued by BANK 2019-BNK22 as follows:

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

All trends are Stable.

Classes D, X-D, E, X-F, F, X-G, G, X-H, H, X-J and J will be privately placed.

The collateral consists of 58 fixed-rate loans secured by 131 commercial and multifamily properties. The transaction is of a sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Three loans, representing a combined 26.1% of the pool, are shadow-rated investment grade by DBRS Morningstar. When the cut-off loan balances were measured against the DBRS Morningstar Stabilized Net Cash Flow and their respective actual constants, the initial DBRS Morningstar Weighted-Average (WA) Debt Service Coverage Ratio (DSCR) of the pool was 2.90 times (x). None of the loans had a DBRS Morningstar Term DSCR below 1.30x, a threshold indicative of a higher likelihood of mid-term default. The WA loan-to-value (LTV) of the pool at issuance was 52.9%, and the pool is scheduled to amortize down to a WA LTV of 51.5% at maturity. The pool includes ten loans, representing a combined 14.3% of the pool by allocated loan balance, with issuance LTVs equal to or in excess of 65.0%, a threshold historically indicative of above-average default frequency. Forty-five loans, representing 75.2% of the pool balance, were originated in connection with the borrower’s refinancing of a previously mortgage loan. Ten loans, representing 19.3% of the pool, were originated in the connection with the borrower’s acquisition of the related mortgage property. The remaining pool was originated in connection with the recapitalization of the related property.

While the pool-level credit enhancement is quite low for the given ratings assigned by DBRS Morningstar, these are appropriate given the low leverage of the pool, the high concentration of loans shadow-rated investment grade, the concentration of low-leverage residential co-operative loans and the very favorable locations of the properties in the pool. If the three loans shadow-rated investment grade and the 18 residential co-operative loans were removed, which have very low loan-level credit enhancement at the AAA level and near-zero loan-level credit enhancement at the BBB (low) level, the implied credit enhancement at AAA (Class B) and BBB (low) (Class F) is far higher at approximately 22.625% and 6.500%, respectively.

The transaction includes three loans, representing a combined 26.1% of the total pool balance, that are shadow-rated investment grade by DBRS Morningstar, including Park Tower at Transbay, 230 Park Avenue South and Midtown Center. Park Tower at Transbay exhibits credit characteristics consistent with a AAA shadow rating, 230 Park Avenue South exhibits credit characteristics consistent with a BBB (low) shadow rating and Midtown Center exhibits credit characteristics consistent with an AA shadow rating. For more information on Park Tower at Transbay, 230 Park Avenue South and Midtown Center, please see pages 15, 20 and 24, respectively, in the related presale report.

There are 18 loans in the pool, representing 7.4% of the transaction, that are backed by residential co-operatives. Residential co-operatives tend to have minimal risk given the low leverage and the risk to residents should the co-operative associations default on their mortgages. The WA LTV for these loans is 12.8%.

Nineteen loans, representing an extremely high 49.1% of the aggregate pool balance, are in areas identified as DBRS Morningstar Market Ranks 7 and 8, which are characterized as a highly dense urbanized area, such as New York or San Francisco. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets, therefore, tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. This pool represents the third-highest concentration of such market ranks out of over 400 conduit deals brought to the market since 2010.

Thirty-two loans, representing 64.2% of the pool, have collateral located in Metropolitan Statistical Area (MSA) Group 3, which represents the lowest grouping by historical commercial mortgage-backed security (CMBS) default rate of the top 25 MSAs. This MSA Group has a historical default rate that is just over half that of the overall CMBS historical default rate of approximately 28.0%.

Five of the top ten loans, representing 27.0% of the pool, have Strong sponsorship. Furthermore, ten loans, which combined represent 16.3% of the pool, have sponsorship and/or loan collateral associated with a voluntary bankruptcy filing, a prior discounted payoff, a loan default, limited net worth and/or liquidity, a historical negative credit event and/or inadequate commercial real estate experience.

Twenty-four loans, representing a combined 39.3% of the pool by allocated loan balance, exhibit beginning LTVs of equal to or less than 60.0%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency.

No loans were deemed to be of Average (-), Below Average or Poor property quality. Additionally, five loans, representing 23.6% of the pool balance, exhibited Average (+), Above Average or Excellent property quality. Two of the top ten loans, including the pool’s largest loan, Park Tower at Transbay, are secured by collateral that DBRS Morningstar deemed to be of Excellent property quality.

Because of the transaction’s high concentration in collateral located in New York MSA, DBRS Morningstar believes that the transaction may be exposed to elevated event risk beyond the levels captured within the expected loss multiple ranges described in the “North American CMBS Multi-Borrower Methodology” as these ranges have been derived from a universe of more typically diversified CMBS pools. To address this risk when determining its ratings on the bonds, DBRS Morningstar applied expected loss multiples that are outside the high end of the methodology ranges. DBRS Morningstar materially deviated from its “North American CMBS Multi-borrower Rating Methodology” when determining the ratings assigned to Classes D, E, F and G. DBRS Morningstar considers a material deviation from a methodology to exist when there may be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider the material deviation to be a significant factor in evaluating the ratings.

Classes X-A, X-B, X-D, X-F, X-G, X-H and X-J are interest-only (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 Morningstar.

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

DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Park Tower at Transbay (9.6% of the pool)
-- Prospectus ID#2 – 230 Park Avenue South (9.2% of the pool)
-- Prospectus ID#3 – Midtown Center (7.4% of the pool)
-- Prospectus ID#4 – Metro 14 Self Storage Portfolio (7.0% of the pool)
-- Prospectus ID#5 – Storage Post Portfolio (5.4% of the pool)
-- Prospectus ID#6 – ExchangeRight 29 Portfolio (5.2% of the pool)
-- Prospectus ID#7 – 127 West 25th Street (5.1% of the pool)
-- Prospectus ID#8 – 360 North Crescent Drive (4.6% of the pool)
-- Prospectus ID#9 – Tysons Tower (3.7% of the pool)
-- Prospectus ID#10 – East Side Manhattan Multifamily Portfolio (3.7% of the pool)
-- Prospectus ID#11 – Bronx Multifamily Portfolio I (2.7% of the pool)
-- Prospectus ID#12 – Tesoro Apartments (2.5% of the pool)
-- Prospectus ID#13 – ExchangeRight REIT Portfolio 1 (2.5% of the pool)
-- Prospectus ID#14 – National Anchored Retail Portfolio (2.5% of the pool)
-- Prospectus ID#15 – Alan Luke Portfolio (1.5% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

DBRS Morningstar notes that the presale report associated with the above press release was amended on October 30, 2019, to update certain tables and charts in connection with the pari passu loans to reflect corrected loan per square feet and LTV ratios. The provisional ratings assigned to this transaction remain unchanged. The amendments were minor and would not impact the understanding of the reader.

DBRS Morningstar notes that the above press release was amended on November 15, 2019, to update the material deviation language with respect to Classes D, E, F and G. DBRS Morningstar also corrected its rating on Class X-B to AA (high) (sf) on its website, which was incorrectly listed as AAA (sf). The Class X-B rating was listed correctly in the above press release and related presale report. The provisional ratings assigned to this transaction remain unchanged.

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

With regard to due diligence services, DBRS Morningstar 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 Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American CMBS Multi-borrower Rating Methodology, which can be found on 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 Morningstar 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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