DBRS Morningstar Finalizes Provisional Ratings on Exantas Capital Corp. 2020-RSO8, Ltd.

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes (the Notes) issued by Exantas Capital Corp. 2020-RSO8, Ltd. (the Issuer):

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

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

The initial collateral consists of 32 floating-rate mortgage loans secured by 35 transitional properties totaling $522.6 million (93% of the total fully funded balance), excluding $36.9 million of remaining future funding commitments. The asset classes in the pool are office properties (15.0%), multifamily properties (76.6%), manufactured housing properties (3.1%), self-storage (2.6%), and a limited-service hotel (2.7%). The loans 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. Of these loans, 28 have remaining future funding participations totaling $36.9 million, which the Issuer may acquire in the future. The Issuer may direct principal proceeds to acquire a portion of one or more companion participations without rating agency confirmation (RAC), subject to the Replenishment Criteria. The Replenishment Criteria requires, among other things, for the underlying mortgage loan not to be a defaulted mortgage loan or specially serviced loan, for no event of default to have occurred or be continuing, and for certain note protection tests to be satisfied. Commercial real estate collateralized loan obligation (CRE CLO) transactions often allow for principal prepayment proceeds to be held in an account and used to purchase pari passu companion participations of existing trust assets instead of being used to pay down bonds. Typically, if a RAC is not required to acquire these participations, DBRS Morningstar performs a paydown analysis whereby it assumes the loans in the pool with the lowest expected loss (EL) that have no future funding pay off, and then all future funding is brought in, with the pool balance staying constant. The effect of this paydown analysis is that the EL migrates to a higher level, as DBRS Morningstar assumes a worst-case scenario where only good loans pay off. As a result, the pool loss levels are higher than they would be on the pool as it stands at closing.

Given the floating-rate nature of the loans, the index DBRS Morningstar used (one-month Libor) was the lower of DBRS Morningstar’s stressed rate that corresponded to the remaining fully extended term of the loans and the strike price of the interest-rate cap with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When measuring the cutoff date balances against the DBRS Morningstar As-Is net cash flow, 25 loans, representing 78.2% of the mortgage loan cutoff date balance, had a DBRS Morningstar As-Is debt service coverage ratio (DSCR) below 1.00 times (x), a threshold indicative of default risk. Additionally, the DBRS Morningstar Stabilized DSCR for 15 loans, comprising 50.5% of the initial pool balance, is below 1.00x, which indicates elevated refinance risk. The properties are often transitioning with potential upside in cash flow; however, DBRS Morningstar does not give full credit to the stabilization if there are no holdbacks or if the other loan structural features are insufficient to support such treatment. Furthermore, even if the structure is acceptable, DBRS Morningstar generally does not assume the assets will stabilize above market levels. The transaction will have a sequential-pay structure.

The pool benefits from relatively strong diversity for a CRE CLO, with a Herfindahl score of 22.3. Texas, Georgia, Florida, South Carolina, Nevada, and California have the largest percentages of property concentrations, with 18.3%, 16.6%, 11.1%, 10.8%, 7.8%, and 7.7%, respectively.

Twenty-six loans, comprising 75.9% of the initial trust balance, represent acquisition financing wherein sponsors contributed material cash equity as a source of funding in conjunction with the mortgage loan. Cash equity infusions from a sponsor in a transaction typically result in the lender and borrower having a greater alignment of interests, especially compared with a refinancing scenario where the sponsor may be withdrawing equity from the transaction.

The pool benefits from a high multifamily concentration as 24 loans, representing 76.6% of the pool, are secured by multifamily properties. Historically, multifamily properties have defaulted at much lower rates than the overall commercial mortgage-backed security universe.

DBRS Morningstar sampled and visited 18 of the 32 loans in the pool, representing 75.1% of the pool by allocated cutoff loan balance. DBRS Morningstar met with the on-site property manager, leasing agent, or representative of the borrowing entity for 14 loans, comprising 68.3% of the initial pool balance.

The pool consists of mostly transitional assets. DBRS Morningstar performed physical site inspections, including management meetings. Also, when DBRS Morningstar analysts visit the markets, they may actually 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.

All loans in the pool have floating interest rates and are interest only during the initial loan term, which ranges from 36 months to 48 months, creating interest-rate risk.

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 sponsors will not execute their 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, in each instance, considered the business plan to be rational and the future funding amounts to be sufficient to execute such plans. In addition, DBRS Morningstar analyzes loss given default based on the as-is loan-to-value ratio, 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.dbrsmorningstar.com.

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

-- Prospectus ID#1 – Forest Cove Apartments (9.9% of the pool)
-- Prospectus ID#2 – Tribeca North Luxury Apartments (7.8% of the pool)
-- Prospectus ID#3 – Waterside Greene (7.4% of the pool)
-- Prospectus ID#4 – The Monroe (5.4% of the pool)
-- Prospectus ID#5 – Legacy Bank Plaza (4.9% of the pool)
-- Prospectus ID#6 – Rivington House (4.1% of the pool)
-- Prospectus ID#7 – Pineforest Place & Park Apartments (4.0% of the pool)
-- Prospectus ID#8 – Villas de la Cascada (4.0% of the pool)
-- Prospectus ID#9 – 209 West Jackson (4.0% of the pool)
-- Prospectus ID#10 – 1800 Ashley West (3.4% of the pool)
-- Prospectus ID#11 – Park at Le Blanc (3.2% of the pool)
-- Prospectus ID#12 – 1370 Valley Vista (3.2% of the pool)
-- Prospectus ID#13 – Springbook Apartments (3.0% of the pool)
-- Prospectus ID#14 – Lantern Ridge (2.9% of the pool)
-- Prospectus ID#16 – Hampton Inn Plymouth Meeting (2.7% of the pool)
-- Prospectus ID#24 – Valleywood Apartments (1.7% of the pool)
-- Prospectus ID#29 – Cascade Oaks (1.2% of the pool)
-- Prospectus ID#30 – Dwell on Riverside (1.2% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.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 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.

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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