DBRS Morningstar Confirms Remaining Class of Canadian Commercial Mortgage Origination Trust 2015-3, Discontinues Ratings on Three Classes

DBRS Limited (DBRS Morningstar) confirmed the rating of the following class of Commercial Mortgage Pass-Through Certificates, Series 2015-3 issued by Canadian Commercial Mortgage Origination Trust 2015-3 as follows:

-- Class G at BB (low) (sf)

The trend is Stable. DBRS Morningstar also discontinued its ratings on Classes D, E, and F, as they have been repaid in full.

The rating confirmation reflects the increased credit support to the bonds as a result of successful loan repayments since the last review. At issuance, the transaction consisted of 42 fixed-rate loans secured by 59 properties, with a trust balance of $570.1 million. As of the March 2021 remittance, only two loans remained in the trust, with a balance of $16.6 million, representing a collateral reduction of 97.1% due to loan repayments and scheduled loan amortization. The remaining rated Class G bond has an outstanding principal balance of just $4.5 million as of the March 2021 remittance.

As of the March 2021 remittance, there was one loan, St. James Square (Prospectus ID#11, representing 74.2% of the remaining pool balance) in special servicing. The loan is secured by a 131,906-square-foot (sf) mixed-use retail and office complex in Winnipeg, Manitoba. The loan was previously on the servicer’s watchlist after the then second-largest tenant, Staples Canada (22.3% of net rentable area (NRA), vacated its space upon lease expiration in September 2017. The departure resulted in an occupancy decline from 91.6% at YE2016 to 59.4% according to the November 2020 rent roll provided by the servicer. The loan matured in December 2019 and the servicer ultimately transferred the loan to the special servicer in March 2020 after a replacement loan was not obtained. A loan modification was negotiated, which further extended the maturity date to January 2021, at an increased interest rate. As of March 2021, the loan remains outstanding and will likely require an additional loan modification.

The second remaining loan in the pool, Vic East Landing (Prospectus ID#38, representing 25.7% of the remaining pool balance), is secured by a 17,526-sf mixed-use retail and office property in Regina, Saskatchewan, which is 100% occupied by two tenants. The loan had an original maturity date of June 1, 2020, but due to uncertainty surrounding the pandemic, and ongoing lease negotiations with the largest tenant, Farm Credit Canada (68.4% of NRA), which had a lease expiration in February 2021, the borrower was unable to obtain takeout financing. The borrower was granted a short-term extension to September 1, 2020, but was still unable to obtain financing and the loan transferred to the special servicer in November 2020. The borrower was later able to negotiate a five-year renewal with Farm Credit Canada, with a new lease expiration date in February 2026, though at a lower rental rate, resulting in a lower projected net operating income. As of March 2021, the servicer reported that the borrower was continuing to work toward obtaining a replacement loan, with the servicer also looking to pursue remedies including foreclosure. Although this loan is not tagged as specially serviced in the servicer’s reporting, it appears the loan is being handled by the special servicing arm of the issuer.

Given the $12.1 million remaining in the unrated Class H bond for this transaction, there is significant cushion against loss for the two remaining loans in the pool, which combine for a balance of $16.6 million. The cushion suggests the remaining loans would have to experience a loss severity in excess of 70.0% for the Class H bond to take a loss, which is well above the projected losses assumed by DBRS Morningstar in the analysis for this review.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.

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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577