DBRS Morningstar Confirms Ratings on All Classes of Canadian Commercial Mortgage Origination Trust 4

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-4 issued by Canadian Commercial Mortgage Origination Trust 4 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class X at A (high) (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

With this review, DBRS Morningstar confirmed that the overall performance of the transaction remains in line with expectations at issuance. At issuance, the trust consisted of 53 fixed-rate loans secured by 53 commercial properties. As of the December 2020 remittance, 45 loans remain in the pool with a collateral reduction of 13.9% caused by scheduled amortization and loan repayments. The transaction is composed of a relatively diverse set of collateral, with loans backed by retail, office, and industrial properties representing 31.9%, 29.4%, and 25.7% of the pool, respectively. As of December 2020 remittance, there was only one remaining loan that is backed by a hospitality property, which represents 4.2% of the pool. Given the unique stresses for hotel properties amid the Coronavirus Disease (COVID-19) pandemic, this is considered a strength for the transaction. Based on the YE2019 financials, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.45 times (x) compared with the WA DSCR of 1.51x at YE2018 and DBRS Morningstar DSCR of 1.33x at issuance.

As of the December 2020 remittance, there were five loans on the servicer’s watchlist, representing 12.4% of the pool, and no delinquent or specially serviced loans. One loan on the watchlist is being monitored for a decline in the occupancy rate while the remaining loans were flagged for loan modifications as a result of pandemic-related forbearance requests. According to the servicer, the modified terms for these loans include an interest-only (IO) period of three months with deferred principal repayments to be made over a 12-month period.

The Homewood Suites by Hilton loan (Prospectus ID#6; 4.2% of the pool balance) is on the servicer’s watchlist as the borrower advised the servicer that the property was unoccupied in July 2020. As of December 2020, the loan remains current and, as of December 2020, the property’s website indicates that the hotel is accepting reservations. The loan collateral is a 140-key full-service hotel in Vaughan, Ontario, approximately 25 kilometres from Toronto’s downtown core. The borrower has not reported YE2019 financials; however, the property has historically outperformed its competitive set based on the occupancy, average daily rate, and revenue per available room metrics with a DBRS Morningstar Term DSCR of 1.55x. In addition, the loan benefits from full recourse to experienced and well-capitalized sponsors.

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 [email protected].

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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