DBRS Morningstar Upgrades Rating on One Class of Cherrywood SB Commercial Mortgage Loan Trust 2016-1

DBRS Limited (DBRS Morningstar) upgraded its ratings on one class of Commercial Mortgage Pass-Through Certificates, Series 2016-1 (the Certificates) issued by Cherrywood SB Commercial Mortgage Loan Trust 2016-1 (the Trust) as follows:

-- Class M-2 to AA (high) (sf) from AA (sf)

Additionally, DBRS Morningstar confirmed its ratings on the remaining classes of the Certificates issued by the Trust as follows:

-- Class M-1 at AAA (sf)
-- Class M-3 at A (sf)
-- Class M-4 at BBB (high) (sf)
-- Class B-1 at BB (sf)
-- Class B-2 at B (sf)

All trends are Stable.

The rating upgrade and confirmations reflect the overall improved credit support for the transaction since issuance, with collateral reduction of 70.4% as of the February 2021 remittance, 54 of the original 205 loans remaining in the pool, and a trust balance of $33.2 million. At issuance, the collateral consisted of 151 individual loans secured by 205 commercial and multifamily properties with a trust balance of approximately $112.5 million. Fifteen of the remaining loans are sponsored by cross-collateralized borrowing groups; therefore, those loans were analyzed as six portfolio loans at issuance and again as part of this review. All loans remaining in the pool as of the February 2021 remittance are amortizing loans.

The pool remains relatively granular as the largest 15 loans comprise 54.1% of the pool balance. The pool also benefits from a high concentration of multifamily loans, representing 29.0% of the pool balance, and also the lack of exposure to hotel property types, which are generally more volatile and have been particularly stressed amid the Coronavirus Disease (COVID-19) pandemic. There are noteworthy risks for the pool in that the loan sponsors are generally less sophisticated operators of commercial real estate with limited real estate portfolios and experience. These risks are partially mitigated by borrower or guarantor recourse, regardless of credit history. Ongoing property financials are not provided to DBRS Morningstar as part of the surveillance reviews. DBRS Morningstar assigned a Bad (Litigious), Weak, or Average sponsor strength to all loans in the pool to reflect the relative inexperience of the loan sponsors.

As of the February 2021 remittance, there were 11 loans, representing 33.0% of the pool balance, with the special servicer for delinquent payments and six of those, representing 16.7% of the pool balance, that were in the foreclosure process or are already real estate owned. DBRS Morningstar applied a probability of default penalty to these 11 loans in the analysis for this review, significantly increasing the expected loss for each.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Classes B-1 and B-2, as the quantitative results suggested a higher rating on the classes. The material deviations are warranted given the uncertain loan-level event risk with the loans in special servicing.

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 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 [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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

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