DBRS Morningstar Upgrades and Confirms Ratings of Canadian Commercial Mortgage Origination Trust 2015-3

DBRS Limited (DBRS Morningstar) upgraded the ratings of the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-3 issued by Canadian Commercial Mortgage Origination Trust 2015-3 as follows:

-- Class C to AA (sf) from A (sf)
-- Class D to A (sf) from BBB (sf)
-- Class E to BBB (high) (sf) from BBB (low) (sf)
-- Class F to BB (high) (sf) from BB (sf)
-- Class G to BB (low) (sf) from B (sf)

DBRS Morningstar also confirmed the ratings of the following classes:

-- Class A at AAA (sf)
-- Class A-J at AAA (sf)
-- Class B at AA (sf)
-- Class X at AA (sf)

All trends are Stable. The trend for Class G was changed to Stable from Negative as a result of the repayment in full of the Clearwater Suites Hotel (Prospectus ID#7) loan with the March 2020 remittance, which was secured by a hotel property located in Fort McMurray, Alberta, and had been previously monitored for sustained performance declines from issuance.

The rating upgrades reflect the increased credit support to the bonds as a result of successful loan repayments as well as the overall strong performance of the remaining collateral. At issuance, the transaction consisted of 42 fixed rated loans secured by 59 properties, with a trust balance of $570.1 million. As of the March 2020 remittance, 13 loans remained in the trust with a balance of $173.4 million, representing a collateral reduction of 69.6% due to loan repayments and scheduled loan amortization.

Loans representing 100.0% of the current pool balance are reporting a YE2018 weighted-average (WA) debt service coverage ratio and WA debt yield of 2.01 times (x) and 13.2%, respectively.

As of the March 2020 remittance, there was one loan, representing 7.5% of the pool balance, on the servicer’s watchlist, and no loans were in special servicing. The watchlisted loan, St James Square (Prospectus ID#11), is secured by a mixed-use retail and office complex in Winnipeg, Manitoba. Staples Canada (22.3% of the net rentable area) vacated the subject upon lease expiration in September 2017, driving occupancy down to 69.0% as of October 2017, down from 91.2% at YE2016 and 86.5% at YE2015. According to the servicer, the space remains vacant with no solid prospects to date. In addition, the loan missed the scheduled maturity date in December 2019; the servicer has stated the borrower expects to repay the loan in the near term. The loan was analyzed with an elevated probability of default to reflect the increased refinance risk, as part of the review. For additional information on this loan, please see the loan commentary in the DBRS Viewpoint platform.

DBRS Morningstar does note the transaction’s exposure to a concentration of retail properties in the top 10 loans in the pool, a factor that is particularly noteworthy given the Coronavirus Disease (COVID-19) outbreak of 2020 and the impact to retail traffic around the world as government officials, property owners, and company chief executive officers alike have taken measures to address coronavirus’s spread by ordering stores and restaurants closed. DBRS Morningstar notes that most of the retail properties securing loans in the subject transaction have tenants that are considered as essential services, such as food, energy, and fuel, that are expected to continue to stay open and operate during the coronavirus outbreak.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class X is an interest-only (IO) certificate that references 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#11 – St James Square (7.5% 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.

The principal methodology is North American CMBS Surveillance Methodology, which can be found on dbrsmorningstar.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 dbrsmorningstar.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 [email protected].

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.dbrsmorningstar.com or contact us at [email protected].

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