DBRS Morningstar Finalizes Provisional Ratings on Freddie Mac Structured Pass-Through Certificates, Series K-738

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Structured Pass-Through Certificates, Series K-738 issued by Freddie Mac Structured Pass-Through Certificates, Series K-738:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X1 at AAA (sf)

All trends are Stable.

The Class X1 balance is notional.

With regard to the Coronavirus Disease (COVID-19) pandemic, the magnitude and extent of performance stress posed to global structured finance transactions remains highly uncertain. This considers the fiscal and monetary policy measures and statutory law changes that have already been implemented or will be implemented to soften the impact of the coronavirus crisis on global economies. Some regions, jurisdictions, and asset classes are, however, feeling more immediate effects. Accordingly, DBRS Morningstar may apply additional short-term stresses to its rating analysis—for example, by front-loading default expectations and/or assessing the liquidity position of a structured finance transaction with more stressful operational risk and/or cash flow timing considerations.

DBRS Morningstar is aware that Freddie Mac will offer forbearance for up to 90 days based on certain criteria and restrictions. Forborne borrower debt service amounts will be advanced by the Master Servicer, which will advance those forborne payments in the traditional manner. The only way to cut off or reduce such advancing obligations is through a nonrecoverability determination (NRD). Master servicers will not make an NRD in connection with forborne amounts during the Forbearance Period (three months). They have all agreed to follow the Servicing Standard (Freddie Mac Servicing Practices) during such period as communicated to them by Freddie Mac. Once the forborne repayment period begins on the fourth month, should a borrower experience difficulty in payment of either scheduled payments or repayment of forborne amounts, Master Servicers can determine whether to make an NRD. Borrowers will be required to repay any such advances over a 12-month period immediately following the Forbearance Period. As of the date of this rating report, DBRS Morningstar is aware that one loan within this transaction, The Village at Western Branch (representing 0.5% of the total cut-off-date pool balance), has initiated the forbearance process with Freddie Mac but is not yet in forbearance. Because of the lack of information regarding this one loan, DBRS Morningstar has not applied any stresses to its modeling assumptions.

Furthermore, as of the date of this rating report, DBRS Morningstar does not have any specific market or loan-level data that would support an adjustment to its loan-level net cash flow analysis. As of April 13, 2020, Freddie Mac has reported 327 forborne securitized loans, representing approximately 1.4% of Freddie Mac’s securitized loans and equating to roughly $1.7 billion in outstanding unpaid principal balance. Freddie Mac additionally reported that approximately one-quarter of all securitized deals exhibited at least one forborne loan. The data reported by Freddie Mac was sourced via four different master servicers, including three external servicers and Freddie Mac, which serves as Master Servicer for roughly 85.0% of the reported forborne loans.

Freddie Mac guarantees the (1) timely payment of interest; (2) payment of related principal on the distribution date following the maturity date of each mortgage loan to the extent that such principal would have been distributed to the underlying Class A-1 and A-2 certificates; (3) reimbursement of any realized losses and additional trust fund expenses allocated to the Class A-1, A-2, and AM certificates; and (4) ultimate payment of principal by the assumed final distribution date for the underlying Class A-1, A-2, and AM certificates. All classes will be subject to ongoing surveillance by DBRS Morningstar after the date of issuance. The ratings DBRS Morningstar assigns at issuance are based exclusively on the credit provided by the transaction structure and the underlying assets of FREMF 2020-K738 Mortgage Trust, Series 2020-K738 without regard to the Freddie Mac guarantee. DBRS Morningstar may take the Freddie Mac guarantee into consideration for future rating actions.

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 X1 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.

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:

-- ProspectusID#01 – IMT Dayton Station (11.3% of the pool)
-- ProspectusID#02 – Hensley at Corona Pointe (10.9% of the pool)
-- ProspectusID#03 – Solana Olde Town Station (8.7% of the pool)
-- ProspectusID#04 – IMT Hyland Hills (7.8% of the pool)
-- ProspectusID#05 – Sofi Westminster (5.6% of the pool)
-- ProspectusID#06 – 2803 Riverside Apartments (5.1% of the pool)
-- ProspectusID#07 – Renton Sage (4.5% of the pool)
-- ProspectusID#08 – IMT Chimney Rock (3.9% of the pool)
-- ProspectusID#09 – IMT Desert Palm Village Apartments (3.8% of the pool)
-- ProspectusID#10 – South Wind Apartments (3.8% of the pool)
-- ProspectusID#11 – Country Club Verandas Apartments (3.7% of the pool)
-- ProspectusID#12 – IMT Pavilion Place (3.7% of the pool)
-- ProspectusID#13 – Latitude at the Commons (3.2% of the pool)
-- ProspectusID#14 – Woodland Estates Apartment Homes (3.2% of the pool)
-- ProspectusID#15 – Estates at McDonough (3.0% of the pool)
-- ProspectusID#16 – The Mill at Chastain (2.9% of the pool)
-- ProspectusID#20 – Aspenwood Apartments (2.1% of the pool)
-- ProspectusID#21 – Westerly Shores (2.0% 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.

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 the North American CMBS Multi-Borrower Rating Methodology (March 9, 2020), 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 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.dbrsmorningstar.com or contact us at [email protected].

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