DBRS Morningstar Finalizes Provisional Ratings of BDS 2020-FL5 Ltd.

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings of the following classes of notes (the Notes) issued by BDS 2020-FL5 Ltd. (the Issuer):

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B as AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable. Classes F and G are privately placed.

The initial collateral consists of 24 floating-rate mortgage loans secured by 26 mostly transitional real estate properties, with a cut-off pool balance of approximately $492.2 million. During the ramp-up period, the Issuer plans to acquire up to $57.8 million of additional mortgage assets (the Ramp loans) using the proceeds from the sale of the Notes, the Senior Preferred Shares, and the Junior Preferred Shares that will comprise the remainder of the initial portfolio of mortgage assets. The loans in the initial pool are mostly secured by cash-flowing assets, most of which are in a period of transition with plans to stabilize and improve the asset value. The transaction has a two-year Reinvestment Period (including a six-month ramp-up acquisition period) that is expected to expire in February 2022. Reinvestment is subject to Eligibility Criteria, which includes a rating agency condition by DBRS Morningstar for funded companion participations that are being acquired for more than $1.5 million and for any other mortgaged assets. Additionally, DBRS Morningstar assessed the Ramp loans using a worst-case pool construct, and as a result, the Ramp loans have enhancement higher than the loan pool average.

The loans are generally secured by traditional property types (i.e., retail, multifamily, and office) with only three loans, comprising 10.7% of the cut-off date pool balance, secured by hospitality properties. Additionally, only one of the multifamily loans in the pool is secured by a student housing property, which often exhibit higher cash flow volatility than traditional multifamily properties. Only one loan, comprising 8.9% of the initial pool balance, is secured by a property located in an area with a DBRS Morningstar market rank of two or lower. Areas with a DBRS Morningstar market rank of two or lower are generally considered to be tertiary or rural markets. Additionally, four loans, representing 14.7% of the initial pool balance, are secured by properties located in areas with a DBRS Morningstar market rank of six or higher. Areas with a DBRS Morningstar market rank of six or higher are generally characterized as urbanized locations. These markets benefit from increased liquidity that is driven by consistently strong investor demand; therefore, such markets tend to benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. Areas with a DBRS Morningstar market rank of seven or eight are especially densely urbanized and benefit from significantly elevated liquidity; three loans, comprising 12.4% of the initial pool balance, are secured by properties located in such areas.

The pool generally consists of transitional assets. Given the nature of the assets, DBRS Morningstar determined a sample size representing 88.2% of the cut-off date pool balance. This is higher than the typical sample size for a traditional conduit commercial mortgage-backed security (CMBS) transaction. Physical site inspections were also performed, including management meetings. DBRS Morningstar also notes that, in the future when DBRS Morningstar visits the markets, it may visit properties more than once to follow the progress (or lack thereof) toward stabilization. The servicer is also in constant contact with the borrowers to track progress. Based on the initial pool balances, the overall weighted-average (WA) DBRS Morningstar As-Is Debt Service Coverage Ratio (DSCR) of 0.89 times (x) and WA Issuance Loan-to-Value (LTV) of 83.6% are generally reflective of high-leverage financing. The assets are generally well positioned to stabilize, and any realized cash flow growth would help to offset a rise in interest rates and improve the overall debt yield of the loans. The DBRS Morningstar As-Is DSCR at issuance does not consider the sponsor’s business plan, as the DBRS Morningstar As-Is Net Cash Flow (NCF) was generally based on the most recent annualized period. The sponsor’s business plan could have an immediate impact on the underlying asset performance that the DBRS Morningstar As-Is NCF is not accounting for. Furthermore, when measured against the DBRS Morningstar Stabilized NCF, the WA DBRS Morningstar As-Stabilized DSCR is estimated to improve to 1.32x, suggesting the properties are likely to have improved NCFs once the sponsor’s business plan has been implemented.

DBRS Morningstar has analyzed the loans to a stabilized cash flow that is, in some instances, above the current in-place cash flow. There is a possibility that the sponsor will not execute its business plans as expected and that the higher stabilized cash flow will not materialize during the loan term. Failure to execute the business plan could result in a term default or the inability to refinance the fully funded loan balance. DBRS Morningstar made relatively conservative stabilization assumptions, and the modeled probability of default for each loan is influenced by the perceived risk of execution based on a business plan score. In addition, DBRS Morningstar analyzes LGD based on the as-is LTV assuming the loan is fully funded.

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 updated analysis and in-depth commentary on the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1–Cobalt Springs (8.9% of the pool)
-- Prospectus ID#2–The Julia Apartments (frequently known as (fka) FIVE46 Apartments; 7.7% of the pool)
-- Prospectus ID#3–3500 The Vine (7.4% of the pool)
-- Prospectus ID#4–One Skyline Tower (7.1% of the pool)
-- Prospectus ID#5–The Collective (fka Burlington Apartments; 7.2% of the pool)
-- Prospectus ID#6–The Life at Westpark (fka Park Village; 5.2% of the pool)
-- Prospectus ID#7–Tiger Towne Apartments (5.1% of the pool)
-- Prospectus ID#8–77 Corporate Drive (4.8% of the pool)
-- Prospectus ID#9–The Life at Greenbriar (fka Pines at Greenbriar; 4.2% of the pool)
-- Prospectus ID#10–Carte Hotel San Diego Downtown (4.1% of the pool)
-- Prospectus ID#11–The Life at Pine Grove (fka Laurel Park Apartments; 3.7% of the pool)
-- Prospectus ID#12–The Reserve Apartments (3.6% of the pool)
-- Prospectus ID#13–Park Long Beach Portfolio (3.6% of the pool)
-- Prospectus ID#14–The Normandy Hotel (3.6% of the pool)
-- Prospectus ID#15–18 Spencer Street (3.5% of the pool)
-- Prospectus ID#17–Iron Gate Apartments (2.8% of the pool)
-- Prospectus ID#23–Lilly Garden Apartments (1.8% of the pool)
-- Prospectus ID#24–102 Convent Avenue (1.7% 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.

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 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 Morningstar 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar 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 [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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