DBRS Morningstar Confirms Ratings of IMSCI 2013-4

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2013-4 issued by Institutional Mortgage Securities Canada Inc., Series 2013-4 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at B (high) (sf)
-- Class G at B (low) (sf)

All trends are Stable, except for Classes F and G, which have Negative trends.

The Negative trends on Classes F and G reflect DBRS Morningstar’s concerns surrounding two loans in the pool: Nelson Ridge (Prospectus ID#4; 10.4% of the pool) and Franklin Suites (Prospectus ID#12; 5.2% of the pool).

Outside of the above-mentioned loans, which have been negatively affected by the sustained downturn in the oil market and resulting difficulties for the Fort McMurray economy and larger Alberta economy, the pool has generally performed in line with DBRS Morningstar’s expectations. At issuance, the transaction consisted of 33 loans secured by 33 commercial properties at an original trust balance of $330.4 million. Per the February 2020 remittance, 16 loans remain in the trust at a current balance of $167.5 million, representing a collateral reduction of approximately 49.3% since issuance due to loan repayment and scheduled amortization. The top 10 loans (excluding defeasance; 84.1% of the pool) benefit from healthy amortization over their respective loan terms, with a weighted-average expected amortization over the life of the loans of approximately 24.8%. The pool also benefits from defeasance, as one loan (10.0% of the pool) is fully defeased.

Per the February 2020 remittance, there are six loans (33.6% of the pool) on the servicer’s watchlist, including three loans in the top 10. The second-largest watchlisted loan, Nelson Ridge, is secured by a 225-unit multifamily property in Fort McMurray. There has been a significant decline in cash flows since issuance due to the adverse market conditions in Fort McMurray. The loan was approved for a forbearance in December 2018, with the terms of the loan modification requiring scheduled principal paydowns to total $4.0 million by June 2020. The property is expected to be sold or refinanced at the end of the forbearance period in December 2021. To date, the sponsor has been in compliance with all terms of the forbearance.

Franklin Suites is secured by a 95-key limited-service hotel in Fort McMurray, with cash flow difficulties over the last several years for the same reasons as outlined above for the Nelson Ridge loan. Both loans do benefit from full recourse to their respective sponsors; however, given the sustained cash flows well below issuance expectations and the continued difficulty for the local economy, DBRS Morningstar believes the overall risks are significantly increased from issuance. As such, for the purposes of this review, DBRS Morningstar significantly increased the probability of default in its analysis to reflect the increased risk with these loans.

For additional information on these loans, please see the loan commentary in the DBRS Viewpoint platform, for which information has been provided below.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to Calloway Courtenay (Prospectus ID#1; 15.4% of the pool). With this review, DBRS Morningstar confirms that the performance of this loan remains consistent with investment-grade loan characteristics.

DBRS Morningstar materially deviated from its principal methodology when determining the rating assigned to Class X; the rating assigned to Class X materially deviates from the lower ratings implied by the quantitative results. 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 rating. The material deviation is warranted, as consideration was given for actual loan, transaction, and sector performance where a rating based on the lowest-rated notional class may not reflect the observed risk.

Class X is an interest-only certificate that references multiple rated tranches.

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

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

-- Prospectus ID#4–Nelson Ridge (10.4% of the pool)
-- Prospectus ID#12–Franklin Suites (5.2% 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 commercial mortgage-backed security 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 Canadian dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

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.

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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