DBRS Morningstar Finalizes Provisional Ratings on BBCMS Mortgage Trust 2020-C7

This press release was amended on August 7, 2020, in connection with the updates to the North American CMBS Multi-Borrower Rating Methodology (the North American CMBS Methodology).

For more information about the North American CMBS Methodology update, please see the August 7, 2020, press release: https://www.dbrsmorningstar.com/research/365370

Further to the above-referenced update to the North American CMBS Methodology, DBRS, Inc. (DBRS Morningstar) reviewed the disclosures in connection with the relevant DBRS Morningstar ratings on the BBCMS Mortgage Trust 2020-C7 transaction. DBRS Morningstar determined that it materially deviated from the results of the CMBS Insight Model in respect of its rating on Class F, and is amending the disclosures regarding these material deviations from the results of the CMBS Insight Model.

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-C7 issued by BBCMS Mortgage Trust 2020-C7 (BBCMS 2020-C7):

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-F at B (high) (sf)
-- Class F at B (sf)

All trends are Stable. Classes D, X-E, E, X-F, and F will be privately placed.

The transaction consists of 49 fixed-rates loans secured by 153 commercial and multifamily properties. The transaction is of a sequential-pay pass-through structure. Six loans, representing 33.5% of the pool, are shadow-rated investment grade by DBRS Morningstar. The conduit pool was analyzed to determine the final ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Morningstar Net Cash Flow and their respective actual constants, the initial DBRS Morningstar Weighted-Average (WA) Debt Service Coverage Ratio (DSCR) of the pool was 2.23 times (x). Five loans, accounting for 9.8% of the pool balance, had a DBRS Morningstar DSCR below 1.32x, a threshold indicative of a higher likelihood of midterm default. The pool additionally includes 15 loans, comprising a combined 18.3% of the pool balance, with a DBRS Morningstar Loan-to-Value Ratio (LTV) in excess of 67.1%, a threshold generally indicative of above-average default frequency. The DBRS Morningstar WA LTV of the pool at issuance was 54.5%, and the pool is scheduled to amortize down to a DBRS Morningstar WA LTV of 50.7% at maturity. These credit metrics are based on A note balances.

Eleven loans, representing 34.4% of the pool, are in areas identified as DBRS Morningstar Market Ranks 7 or 8, which are generally characterized as highly dense urbanized areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. DBRS Morningstar Market Ranks 7 or 8 benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. Urban markets represented in the deal include New York, San Francisco, Seattle, and Los Angeles. Term default risk is low, as indicated by a strong DBRS Morningstar DSCR of 2.23x. Even with the exclusion of the shadow-rated loans, representing 33.5% of the pool, the deal exhibits a very favorable DBRS Morningstar DSCR of 1.73x.

While the pool demonstrates favorable loan metrics with DBRS Morningstar WA Issuance and Balloon LTVs of 54.5% and 50.7%, respectively, it also exhibits heavy leverage barbelling. There are six loans accounting for 33.5% of the pool with investment-grade shadow ratings and a WA LTV of 35.7%. The pool also has nine loans, comprising 13.3% of the pool balance, with an issuance LTV lower than 59.3%, a threshold historically indicative of relatively low-leverage financing. There are 15 loans, comprising 18.3% of the pool balance, with an issuance LTV higher than 67.1%, a threshold historically indicative of relatively high-leverage financing and generally associated with above-average default frequency. The WA expected loss of the pool’s investment-grade component was approximately 0.1%, while the WA expected loss of the pool’s conduit component was substantially higher at more than 2.4%, further illustrating the barbelled nature of the transaction. The DBRS Morningstar WA expected loss exhibited by the loans that were identified as representing relatively high-leverage financing was 4.5%. This is considerably higher than the conduit component’s WA expected loss of 2.4%, and the pool’s credit enhancement reflects the higher leverage of this component of 15 loans with an issuance LTV in excess of 67.1%.

Twenty-five loans, representing a combined 63.9% of the pool by allocated loan balance, are structured with full-term interest-only (IO) periods. An additional 12 loans, representing 22.6% of the pool, have partial IO periods ranging from 12 months to 60 months. Expected amortization for the pool is only 5.5%, which is less than recent conduit securitizations. Of the 25 loans structured with full-term IO periods, 10 loans, representing 31.5% of the pool by allocated loan balance, are located in areas with a DBRS Morningstar Market Rank of 6, 7, or 8. These markets benefit from increased liquidity even during times of economic stress. Six of the 25 identified loans, representing 33.5% of the total pool balance, are shadow-rated investment grade by DBRS Morningstar: Parkmerced, 525 Market Street, The Cove at Tiburon, Acuity Portfolio, F5 Tower, and 650 Madison Avenue.

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 crisis on global economies. Some regions, jurisdictions, and asset classes are, however, feeling more immediate effects. DBRS Morningstar continues to monitor the ongoing coronavirus pandemic and its impacts on both the commercial real estate sector and the global fixed income markets. 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 materially deviated from the stressed pool losses generated from the CMBS Insight Model when determining the rating assigned to Class F, which deviated from the higher ratings implied by the model results. DBRS Morningstar considers a material deviation from a model to exist when there is a three or more notch differential between a rating determined by a rating committee and the rating implied by a predictive model (in this case the CMBS Insight Model) that is a substantial component of a rating methodology. The material deviations are warranted given the expected dispersion of loan-level cash flows post-issuance and uncertain loan-level event risk.

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.

Classes X-A, X-B, X-E, and X-F are IO certificates that 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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

-- Prospectus ID#1 - Parkmerced (7.4% of the pool)
-- Prospectus ID#2 - 525 Market Street (7.4% of the pool)
-- Prospectus ID#3 - The Cove at Tiburon (6.2% of the pool)
-- Prospectus ID#4 - Inland Self Storage Michigan Portfolio (6.2% of the pool)
-- Prospectus ID#5 - Weston South Carolina Industrial Portfolio (6.1% of the pool)
-- Prospectus ID#6 - ExchangeRight Net Leased Portfolio 32 (5.6% of the pool)
-- Prospectus ID#7 - SSTIV Self Storage Portfolio (5.0% of the pool)
-- Prospectus ID#8 - Acuity Portfolio (5.0% of the pool)
-- Prospectus ID#9 - F5 Tower (4.9% of the pool)
-- Prospectus ID#10 - The Arbors (4.5% of the pool)
-- Prospectus ID#11 - Santa Monica Physician's Center (2.9% of the pool)
-- Prospectus ID#12 - 725 Fourth Avenue (2.8% of the pool)
-- Prospectus ID#13 - 650 Madison Avenue (2.7% of the pool)
-- Prospectus ID#14 - One Stockton (2.6% of the pool)
-- Prospectus ID#15 - Vernon Tower (2.1% of the pool)
-- Prospectus ID#16 - One Bel Air (2.1% of the pool)
-- Prospectus ID#19 - Bronx Multifamily Portfolio (1.8% of the pool)
-- Prospectus ID#20 - 1st & Pine (1.7% of the pool)
-- Prospectus ID#21 - West Side Plaza (1.6% of the pool)
-- Prospectus ID#24 - DFW Retail Portfolio (1.2% of the pool)
-- Prospectus ID#26 - Kemper Pointe (1.1% of the pool)
-- Prospectus ID#30 - Silver Creek Apartments Portfolio (0.8% of the pool)
-- Prospectus ID#35 - Cool Creek Village (0.5% of the pool)
-- Prospectus ID#40 - Ranch at Cooper River Apartments (0.4% of the pool)
-- Prospectus ID#43 - Brookside MHC (0.4% of the pool)
-- Prospectus ID#46 - Katy Village MHC (0.2% 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 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.

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 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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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