DBRS Morningstar Upgrades Four Ratings of Asset-Backed Notes Issued by Selkirk 2014-3A

DBRS Limited (DBRS Morningstar) upgraded the ratings of the following classes of Asset-Backed Notes issued by Selkirk 2014-3A:

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

DBRS Morningstar also confirmed the ratings of the following classes:

-- Class A2 at AAA (sf)
-- Class F at BB (sf)

All trends are Stable.

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. As of the February 2020 remittance, there has been a collateral reduction of 71.7% since issuance, as 24 of the original 62 loans remain in the pool. Over the last 12 months, 10 loans have paid out of the trust, contributing a principal repayment of $159.7 million for the transaction. As of February 2020, there were no loans in special servicing and no loans on the servicer’s watchlist. Based on the most recent year-end reporting available, the top 10 loans, representing 71.9% of the current pool balance, are reporting a weighted-average debt service coverage ratio (DSCR) of 1.67 times (x).

The largest loan remaining in the pool, 750 East Pratt (Prospectus ID#4; 12.8% of the pool balance), is secured by a 336,462-square-foot office building located in Baltimore. The loan reported performance declines due to the rent abatement period associated with two tenants throughout 2018 as the YE2018 DSCR was 0.77x compared with the YE2017 DSCR of 1.54x. This loan was previously on the servicer’s watchlist as Exelon Business Services Co. LLC, which formerly occupied 45.4% of the net rentable area, provided notice to the borrower that it would be vacating its space upon lease expiration in YE2017.

Since that time, however, the borrower has been successful in re-leasing the majority of the vacant space to John Hopkins University (Johns Hopkins), KPMG, Maryland Health Benefit Exchange, and the Armstrong Institute for Patient Safety and Quality. Both Johns Hopkins and KPMG had lease commencement dates in January 2018 and May 2018 and began paying rent in January 2019 and April 2019, respectively, following the rent abatement period. As part of the review, the loan was analyzed with an elevated probability of default to reflect the elevated risk associated with the decline in performance in 2018. 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, representing 24.5% of the pool, a factor that is particularly noteworthy given the Coronavirus Disease (COVID-19) outbreak of 2020 and its impact on retail traffic nationwide as cities, governors, and company chief executive officers have taken measures to address the virus’ spread by ordering stores and restaurants to close. DBRS Morningstar will be monitoring these loans closely as the coronavirus pandemic extends and its full impact on the economy and commercial real estate becomes known.

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.

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 loan in the transaction:

-- Prospectus ID#4–750 East Pratt (12.8% 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 U.S. dollars unless otherwise noted.

The principal methodology is the 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 info@dbrsmorningstar.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.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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