DBRS Morningstar Assigns Provisional Ratings to BBCMS Mortgage Trust 2020-C8

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-C8 to be issued by BBCMS Mortgage Trust 2020-C8 (BBCMS 2020-C8):

-- Class A-1 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 AA (low) (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class X-D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class F at BB (high)(sf)
-- Class G at BB (high) (sf)
-- Class H at BB (low) (sf)
-- Class X-FG at BBB (low) (sf)
-- Class X-H at BB (sf)
-- Class J-RR at B (sf)

All trends are Stable. The Class X-D, X-FG, X-H, D, E, F, G, H, J-RR, and K-RR Certificates will be privately placed.

The Class X-A, X-B, X-D, X-FG, and X-H balances are notional.

Coronavirus Disease (COVID-19) Overview

With regard to the coronavirus pandemic, the magnitude and extent of performance stress posed to global structured finance transactions remain 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 impact on both the CRE 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.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases: https://www.dbrsmorningstar.com/research/357883 and https://www.dbrsmorningstar.com/research/358308.

Based on the information provided by the borrowers as of July, August, and September 2020, despite the coronavirus pandemic, no borrowers in the pool have requested forbearance, debt service relief, or loan modification. The August and September 2020 debt service have been collected on all loans that have closed and commenced principal and interest payments. On an aggregate basis, 99% and 98% of the August and September 2020 rent payments were collected, respectively.

The collateral consists of 48 fixed-rate loans secured by 127 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. DBRS Morningstar analyzed the conduit pool to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Two loans, representing 19.9% of the pool balance, are shadow-rated investment grade by DBRS Morningstar. 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 2.27x. Five loans, representing 19.1% of the pool balance, had a DBRS Morningstar DSCR below 1.30x, a threshold indicative of a higher likelihood of midterm default. The DBRS Morningstar WA Loan-to-Value Ratio (LTV) of the pool at issuance was 59.3%, and the pool is scheduled to amortize down to a DBRS Morningstar WA LTV of 54.3% at maturity. These credit metrics are based on A note balances. Eleven loans, representing 24.8% of the pool balance, were originated in connection with the borrower’s acquisition of the related mortgage property. Thirty-four loans, representing 64.4% of the pool balance, were originated in connection with the borrower’s refinancing of a previous mortgage loan. The remaining loans were originated in connection with either recapitalization or a combination of acquisition/refinance of the property. DBRS Morningstar views acquisition loans as more favorable in the context of recent-vintage conduit and fusion transactions. Cash-equity infusions from a sponsor in a transaction typically result in a greater alignment of interests between the lender and borrower, especially compared with a refinancing scenario where the sponsor may be withdrawing equity from the transaction.

The collateral features two loans, representing 19.9% of the pool balance, that DBRS Morningstar assessed as investment grade: One Manhattan West and MGM Grand & Mandalay Bay. One Manhattan West exhibits credit characteristics consistent with a shadow rating of “A” and MGM Grand & Mandalay Bay exhibits credit characteristics consistent with a shadow rating of AAA. For more information on these two loans, please refer to their respective loan summaries in the presale report.

Six loans, representing 21.5% of the aggregate pool balance, are in areas with DBRS Morningstar Market Ranks 7 and 8, which benefit from locations in urban and liquid markets, driven by consistently strong investor demand, even during times of economic stress. Urban markets represented in this deal include New York, Miami, and Seattle. In addition, 12 loans, representing 41.0% of the pool balance, have collateral located in metropolitan statistical area (MSA) Group 3, which represents the best-performing group in terms of historical commercial mortgage-backed securities (CMBS) default rates among the top 25 MSAs. MSA Group 3 has a historical default rate of 17.2%, which is nearly 40.0% lower than the overall CMBS historical default rate of approximately 28.0%.

Seventeen loans, representing 37.8% of the pool by allocated loan balance, exhibited a DBRS Morningstar LTV at issuance of equal to or less than 60.0%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency.

Term default risk is low as indicated by a strong DBRS Morningstar WA DSCR of 2.27x. Even with the exclusion of the shadow-rated loans, representing 19.9% of the pool, the deal exhibits a favorable DBRS Morningstar DSCR of 1.79x.

Five loans, representing 26.3% of the pool balance, have sponsorship that DBRS Morningstar deems as Strong. Only four loans, representing 5.8% of the pool balance, have sponsorship and/or loan collateral associated with a voluntary bankruptcy filing, a prior discounted payoff, a loan default, limited net worth and/or liquidity, a historical negative credit event, and/or inadequate commercial real estate experience.

DBRS Morningstar did not deem any of the sampled loans as Below Average or Poor property quality. Seven sampled loans, representing 31.6% of the pool balance, exhibited Average +, Above Average, or Excellent property quality. Additionally, two of the top three loans, One Manhattan West and MGM Grand & Mandalay Bay, are secured by collateral with property quality that DBRS Morningstar deemed as Excellent.

Eleven loans, representing 19.3% of the pool balance, including two portfolios, are secured by properties that are either fully or partially leased to a single tenant. In ExchangeRight Net Leased Portfolio 38, 11 of the 13 individual properties are occupied by investment-grade credit-rated tenants, and the leases are directly with rated entities or have guarantees from such entities. ExchangeRight Net Leased Portfolio 32 consists of eight different tenants, six of which are investment grade. Investment-grade tenants occupy 21 properties and account for 53.1% of the net rentable area. The DBRS Morningstar WA LTV at issuance for the single-tenant properties is 62.1%, which is considered to be relatively low-leverage financing and generally associated with below-average default frequency.

The pool has a relatively high concentration of loans secured by office properties, comprising 10 loans, representing 38.9% of the pool by allocated loan balance. The ongoing coronavirus pandemic continues to pose challenges globally, and the future demand for office space is uncertain with corporate downsizings and more companies extending their remote-working strategy. The largest loan, One Manhattan West, comprising 9.997% of the pool balance, is shadow-rated investment grade by DBRS Morningstar. The office properties in the pool exhibit a favorable DBRS Morningstar WA DSCR of 2.37x and DBRS Morningstar WA LTV of 58.7%, which mitigate some of DBRS Morningstar’s concerns about this property type. In a closer context, 70% of these offices have DBRS Morningstar LTVs of less than 65%, while 40% have a DBRS Morningstar DSCR of higher than 2.00x. Three of the office loans, representing 19.6% of the office concentration, are secured by office properties located in areas with a DBRS Morningstar Market Rank of 7 and 8, which are in desirable primary markets. For the loans secured by office properties in more suburban areas, the WA expected loss is more than 2 times the expected loss of the overall pool. Three of the loans, representing 19.0% of the office concentration, are backed by sponsors that DBRS Morningstar deems as Strong because they meet certain net worth and liquidity multiple thresholds and have substantial real estate experience with limited past credit issues.

Sixteen loans, representing 48% of the pool balance, are structured with full-term interest-only (IO) periods. An additional 17 loans, representing 36.4% of the pool balance, are structured with partial-IO terms ranging from 12 months to 60 months. Two full-term IO loans, One Manhattan West and MGM Grand & Mandalay Bay, are shadow-rated investment grade and represent 41.5% of the full-term IO concentration. The loan metrics on these IO loans are favorable with a DBRS Morningstar WA DSCR and DBRS Morningstar WA LTV of 2.30x and 59.0%, respectively, for the full-term IO loans.

The pool features a relatively high concentration of loans secured by properties located in less favorable suburban, tertiary, and rural market areas. Thirty-four loans, representing 57.9% of the pool balance, are secured by properties predominately located in areas with a DBRS Morningstar Market Rank of 1 through 4. Loans in markets with a DBRS Morningstar Market Rank of 1 through 4 typically have higher probability of default and, on average, produce higher expected losses than similar loans; therefore, the component of the pool that is concentrated in these weaker markets resulted in higher deal-level credit enhancement with the average expected loss of 3.10%, compared with the overall deal-level expected losses of 1.96%.

Five loans, accounting for 24.6% of the transaction, have collateral that is subject to a condominium regime. The borrowers generally exercise sufficient voting rights to exercise control over those structures that would prevent actions taken that could affect the collateral. The 7 Powder Horn Drive loan is subject to a condominium in which the borrower holds 30.4% of the interests and, therefore, does not have control of the condominium board. Both properties securing the 44 Mercer Street and 471 Broadway loan are subject to condominium regimes. In neither case does the borrower have control of the condominium board.

Four loans with an original loan amount exceeding $20 million, representing 12.8% of the pool balance, lack the requirements for a nonconsolidation opinion in the loan document. Per the representations and warranties in the Mortgage Loan Purchase Agreement, each mortgage loan with a cut-off date balance of $30 million or more has a counsel’s opinion regarding nonconsolidation of the mortgagor.

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-D, X-FG, and X-H 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#01 – One Manhattan West (9.97% of the pool)
-- Prospectus ID#02 – SoCal & South Miami Medical Office Portfolio (9.97% of the pool)
-- Prospectus ID#03 – MGM Grand & Mandalay Bay (9.925% of the pool)
-- Prospectus ID#04 – PGH17 Self Storage Portfolio (5.3% of the pool)
-- Prospectus ID#05 – ExchangeRight Net Leased Portfolio 38 (4.2% of the pool)
-- Prospectus ID#06 – 9th & Thomas (3.7% of the pool)
-- Prospectus ID#07 – Abele Business Park (3.7% of the pool)
-- Prospectus ID#08 – Airport Plaza (3.1% of the pool)
-- Prospectus ID#09 – Newpark Town Center (3.1% of the pool)
-- Prospectus ID#10 – 711 Fifth Avenue (2.9% of the pool)
-- Prospectus ID#11 – Museo Vault Storage (2.9% of the pool)
-- Prospectus ID#12 – Southeast Texas Multifamily Portfolio (2.8% of the pool)
-- Prospectus ID#13 – ExchangeRight Net Leased Portfolio 32 (2.8% of the pool)
-- Prospectus ID#14 – 7 Powder Horn Drive (2.4% of the pool)
-- Prospectus ID#15 – 3700 Geary Boulevard (2.3% of the pool)
-- Prospectus ID#16 – FedEx Portfolio (2.2% of the pool)
-- Prospectus ID#17 – Goldman Chicago Multifamily Portfolio (2.1% of the pool)
-- Prospectus ID#18 – 313 Powell Street (1.9 % of the pool)
-- Prospectus ID#19 – BoxVault Storage (1.9% of the pool)
-- Prospectus ID#20 – Cedar Branch Apartments (1.6% of the pool)
-- Prospectus ID#21 – Rio San Diego (1.5% of the pool)
-- Prospectus ID#22 – CH Robinson Plano (1.4% of the pool)
-- Prospectus ID#23 – 2260 University Drive (1.4% of the pool)
-- Prospectus ID#30 – 21 Airport Road (0.9% of the pool)
-- Prospectus ID#32 – WoodSpring Suites San Angelo (0.8% of the pool)
-- Prospectus ID#34 – McCarthy Ranch (0.7% of the pool)
-- Prospectus ID#36 – 228 Spaces (0.6% of the pool)
-- Prospectus ID#43 – Secure Storage Highland (0.4% 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 the North American CMBS Multi-Borrower Rating Methodology (Aug 7, 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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