DBRS Morningstar Maintains the Under Review with Negative Implications Status of Five Classes of Institutional Mortgage Securities Canada Inc., Series 2013-3

DBRS Limited (DBRS Morningstar) maintained the Under Review with Negative Implication status on the following classes of Commercial Mortgage Pass-Through Certificates Series 2013-3 issued by Institutional Mortgage Securities Canada Inc., Series 2013-3:

-- Class X at A (sf), Under Review with Negative Implications
-- 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

These ratings do not carry trends.

DBRS Morningstar maintained the Under Review with Negative Implications designation on the aforementioned classes due to the uncertainty surrounding the resolution of two loans that transferred to special servicing 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) are both secured by office properties in Calgary and were transferred to special servicing after Strategic Group LLC (Strategic Group), a Calgary-based real estate investment firm, submitted an initial application filing under Canada’s Companies’ Creditors Arrangement Act (CCAA). The filing affected entities affiliated with 50 commercial properties within Strategic Group’s 171-property portfolio, including the two aforementioned properties. The interim receiver assigned at the time of the CCAA proceedings was recently replaced by Trillium Property Group and the property manager is now Jones Lang LaSalle.

According to the February 2020 appraisals, the Deerfoot Court property’s as-is value was reported at $9.5 million (down from $15.6 million at issuance) and the Airways Business Plaza property’s as-is value was reported at $10.0 million (down from $12.0 million at issuance). Given the soft market, depressed oil prices, as well as the general risks to the Canadian economy amid the Coronavirus Disease (COVID-19) pandemic, DBRS Morningstar believes the workout period for these loans could be extended, with the value declines suggesting significantly increased risk of losses to the trust at disposition. 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. 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 continues to monitor increased risks for three loans secured by multifamily properties in Fort McMurray, Alberta: Lunar and Whimbrel Apartments (Prospectus ID#10, 5.2% of the pool), Snowbird and Skyview Apartments (Prospectus ID#11, 4.9% of the pool), and Parkland and Gannet Apartments (Prospectus ID#17, 4.3% of the pool). All three collateral properties have seen significant performance declines amid the turmoil in the oil and gas markets over the last several years. The loans, which spent time in special servicing in 2016 and 2018, were modified to allow for an extension of the maturity dates, with the most recent extension granted to February 2022. The economic impact of the coronavirus pandemic has compounded previous difficulties for the collateral properties, a factor in the borrower’s recent request for payment relief, which was granted by the servicer and allows for a nine-month deferral of scheduled principal and interest payments between April 2020 and December 2020. The deferred payments along with compounded interest are due at the extended loan maturity date.

In addition, DBRS Morningstar is monitoring a coronavirus-related relief request submitted by the borrower for the third-largest loan, Marche Terrabone (Prospectus ID#8, 8.3% of the pool), which is secured by a retail property in Terrabonne, Québec. The servicer approved a modification to allow for interest-only (IO) payments from May 2020 to July 2020, with deferred payments to be repaid over a six-month period, which began in August 2020.

As information (e.g., updated property-level financials, rent rolls, new valuations for specially serviced loans, and workout and/or modification specifics) becomes available, DBRS Morningstar will address the Under Review with Negative Implication rating actions over the near to moderate term. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period, but the circumstances surrounding these rating actions may result in a prolonged resolution period.

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 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 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 Canadian dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 6, 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 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.

This rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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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