DBRS Morningstar Upgrades Four Classes of Asset-Back Notes Issued by Selkirk 2013-1

DBRS Limited (DBRS Morningstar) upgraded its ratings on the following classes of Asset-Back Notes issued by Selkirk 2013-1 (the Trust):

-- Class C to AA (high) (sf) from AA (sf)
-- Class D to AA (low) (sf) from A (high) (sf)
-- Class E to BBB (high) (sf) from BBB (sf)
-- Class F to BB (sf) from BB (low) (sf)

DBRS Morningstar also confirmed its ratings on the following classes:

-- Class A2 at AAA (sf)
-- Class B at AAA (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of scheduled loan amortization, successful loan repayments, and the overall stable performance of the remaining collateral in the pool. As of the February 2021 remittance, there had been a collateral reduction of 80.4% since issuance, with 6.8% of the collateral reduction occurring in the last 12 months; eight loans have repaid from the Trust over the past year, contributing $62.5 million in principal reduction to the senior bonds. According to the February 2021 remittance, of the original 55-loan pool, 10 loans remain and have an aggregate outstanding principal balance of $180.5 million. As of the February 2021 remittance, there were no loans on the servicer’s watchlist or in special servicing.

Based on the YE2019 reporting for the remaining loans in the pool (most recent available), overall performance remained healthy, with a weighted-average (WA) debt service coverage ratio (DSCR) and WA loan-to-value ratio of 2.02 times (x) and 52.1%, respectively. The reported figures represented a WA net cash flow (NCF) growth of 27.1% over the DBRS Morningstar NCF figures from issuance. The largest two loans, PetSmart Corporate Headquarters (Prospectus ID#1, 28.4% of the pool) and 777 Long Ridge Road — Long Ridge Office Park (Prospectus ID#4, 21.3% of the pool), are both secured by single-tenant office properties, which reported YE2019 DSCR figures of 3.33x and 1.03x, respectively.

Although there is concentration exposure for the pool with just 10 loans remaining, the resulting expected loss for the pool suggested the rated bonds in the transaction remain well insulated from near- to moderate-term uncertainty for the underlying collateral. DBRS Morningstar also considered the repayment of eight loans over the course of the last 12 months, much of which occurred amid the Coronavirus Disease (COVID-19) pandemic, as a positive sign for the pool overall, as the remaining loans have similar credit profiles to those that were repaid.

The 777 Long Ridge Road — Long Ridge Office Park loan is secured by a three-building Class B office property totalling 313,682 square feet in Stamford, Connecticut. The loan exhibited a decline in performance, as the YE2019 DSCR was reported at 1.03x compared with the YE2018 DSCR of 1.71x, driven by an increase in professional fees, rent abatements, and prepayment of January 2019 rent in December 2018. The property is fully occupied by Office Finance International Holdings, which originally signed a 10-year lease in September 2016 through April 2026 after General Electric vacated the subject property. The tenant received a significant leasing incentive package with the lease execution in September 2016, including an extended rental abatement period that lasted from October 2016 to March 2017.

Subsequently, the tenant extended its lease through April 2030 and was given an additional six months of free rent, one of which was taken in December 2019. Once the remaining rental concessions have burned off, DBRS Morningstar expects the DSCR to be in line with the issuance expectations through loan maturity.

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.

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Notes:
All figures are in U.S. 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.

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 info@dbrsmorningstar.com.

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