DBRS Morningstar Confirms Three Classes of Institutional Mortgage Securities Canada Inc., Series 2013-3, Maintains Four Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) confirmed three classes of Commercial Mortgage Pass-Through Certificates, Series 2013-3 issued by Institutional Mortgage Securities Canada Inc., Series 2013-3 as follows:

-- Class A-3 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)

All three classes carry a Stable trend.

In addition, DBRS Morningstar has maintained four classes Under Review with Negative Implication as follows:

-- Class D at BBB (sf), Under Review with Negative Implications
-- Class E at BBB (low) (sf), Under Review with Negative Implications
-- Class F at B (sf), Under Review with Negative Implications
-- Class G at B (low) (sf), Under Review with Negative Implications

DBRS Morningstar has also placed Class X, rated at A (sf), Under Review with Negative Implications. Classes D, E, F, G, and X carry ratings that do not have trends assigned.

DBRS Morningstar has maintained the Under Review with Negative Implications designation on the aforementioned classes because of the uncertainty surrounding the resolution of two loans that transferred to the special servicer in January 2020. Deerfoot Court (Prospectus ID#5, 9.0% of the pool) and Airways Business Plaza (Prospectus ID#12, 6.0% of the pool) transferred to the special servicer after Strategic Group, a Calgary-based real estate investment firm, submitted an initial application filing under Canada’s Companies’ Creditors Arrangement Act. The filing affects entities affiliated with 50 commercial properties in the company’s 171-property portfolio, including the collateral properties for the Deerfoot Court and Airways Business Plaza loans. As a result of the increased risk that the bottom-rated bonds may experience interest payment disruption because of this uncertainty, DBRS Morningstar has placed the rating of Class X Under Review with Negative Implications.

Given the soft market and declining oil prices, DBRS Morningstar believes the ultimate sales prices will be stressed beyond the respective current appraised values. Both loans have recourse to the borrowing entity and sponsor for the full amount of the outstanding debt; however, there is substantial uncertainty surrounding the financial wherewithal of the recourse providers and actual timeline for the loan resolutions. For further information on these loans, please see the DBRS Viewpoint platform, for which information has been provided below.

In addition to the assets above, DBRS Morningstar remains concerned with three loans secured by multifamily properties in Fort McMurray, Alberta: Lunar and Whimbrel Apartments (Prospectus ID#10, 5.3% of the pool), Snowbird and Skyview Apartments (Prospectus ID#11, 5.0% of the pool), and Parkland and Gannet Apartments (Prospectus ID#17, 4.3% of the pool). All three loans have seen significant performance declines, driven by an extended period of contraction in the provincial and local economies, which has led to significant occupancy and rental rate declines for the collateral. The loans were transferred to the special servicer in October 2016 and again in January 2017 and have since been modified to allow for an extension of the maturity dates to May 2021 from May 2018.

The remaining rating confirmations reflect the stable performance of the transaction outside of the previously mentioned loans. At issuance, the trust was secured by 38 loans at an original trust balance of $250.0 million. Per the March 2020 remittance, 22 loans remain in the trust at a current balance of $95.1 million, representing a collateral reduction of 62.0% since issuance as a result of loan repayment and scheduled loan amortization.

Class X certificates are interest-only (IO) and 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.

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

-- Prospectus ID#5 – Deerfoot Court (9.0% of the pool)
-- Prospectus ID#12 – Airways Business Plaza (6.0% 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 Canadian dollars unless otherwise noted.

The principal methodology is 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.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada