DBRS Morningstar Upgrades Ratings on Four Classes of CSWF Trust 2018-TOP

DBRS, Inc. (DBRS Morningstar) upgraded its ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2018-TOP issued by CSWF Trust 2018-TOP as follows:

-- Class B to AAA (sf) from AA (sf)
-- Class C to AA (high) (sf) from A (high) (sf)
-- Class D to AA (sf) from A (low) (sf)
-- Class E to A (low) (sf) from BBB (low) (sf)

DBRS Morningstar also confirmed its ratings on the remaining classes as follows:

-- Class F at BB (low) (sf)
-- Class G at B (sf)
-- Class H at B (low) (sf)

All trends are Stable.

The ratings upgrades are directly associated with the continued release of collateralized properties and the resultant prepayments to the trust. Two additional properties were released since the prior ratings review, including the portfolio’s largest property (Millennium Corporate Park, 24.4% of original balance) in December 2020. This release resulted in $148.8 million passing through the trust’s waterfall, repaying Class A in full and significantly paying down Class B. In total, five properties have been released since issuance, reducing the deal’s balance by 55.5%.

The loan and deal structures include a number of features that were designed to adjust as the loan pays down. On the deal level, prepayment proceeds on the first 20% of the pool balance were to be distributed pro rata, with proceeds above that threshold to be distributed sequentially. With the most recent repayments, the 20% threshold has been met and the sequential payment structure is now being followed. In addition, there was a tiered property release premium that has increased from the initial requirement of 105.0% of the allocated principal balance to 115.0% of the allocated principal balance with the most recent property releases.

The ten properties remaining in the trust total 1.8 million square feet and are primarily located in secondary markets across the U.S. including Charlotte, North Carolina; San Bernardino, California; Tampa, Florida; Chantilly, Virginia; Tempe, Arizona; San Antonio, Texas; Lawrenceville, Georgia; Burbank, California; and Nashville, Tennessee. Major tenants in the remaining properties include Bank of America; Wells Fargo; Bristol Myers Squibb Company; and Amazon.com, Inc.

For the purposes of this analysis, DBRS Morningstar considered both a base-case stress and an upgrade stress on the property values for the remaining collateral. The base-case stress was based on the values derived by DBRS Morningstar as part of the rating actions taken in April 2020, when ratings were assigned under the DBRS Morningstar entity. The resulting value is $308.0 million, a -13.4% variance to the aggregate appraised value of the remaining properties. The DBRS Morningstar net cash flow (NCF) for the remaining properties is $25.2 million, a -3.4% variance from the Issuer’s NCF, and implying an 8.2% weighted-average cap rate on the pool. The upgrade stress assumed a 20% haircut to the base-case values given the increased concentration risk for the remaining collateral and the continued unknowns posed by the Coronavirus Disease (COVID-19) pandemic.

DBRS Morningstar made negative qualitative adjustments to the final loan-to-value sizing benchmarks used for this rating analysis, totaling -4.0% to account for cash flow volatility, property quality, and market fundamentals.

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 updated analysis and in-depth commentary in 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 at dbrsmorningstar.com/about/methodologies. 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 info@dbrsmorningstar.com.

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