DBRS Morningstar Confirms Ratings on All Classes of PFP 2019-5, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of secured floating-rate notes issued by PFP 2019-5, Ltd.:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the continued stable performance of the transaction. Per the April 2021 remittance report, 25 loans were secured by 29 commercial properties with a balance of $546.8 million remaining in the trust, representing a 28.5% collateral reduction since issuance. Seven loans were fully repaid over the previous 12 months. The collateral currently comprises mortgage assets with an aggregate principal balance of $541.5 million as well as $5.3 million in the Permitted Funded Companion Participation Acquisition Account. The trust is able to purchase the remaining companion notes until April 2021. The Q1 2021 portfolio update provided by the servicer noted that $4.7 million of funded companion notes were available for purchase. The analysis assumed that the trust purchases the remaining companion note balance and that $570,327 of cash remains in the trust.

The depositor retained 100% of the Class F notes, Class G notes, and Preferred Shares, accounting for 12.6% of the trust balance. An Over-Collateralization Trigger tied to Class D is tested with each monthly remittance report, which is calculated by taking the cumulative balance of funded loans in the trust and outstanding cash in the deal less any defaulted or modified loans divided by the cumulative balance of the offered bonds. As of the April 2021 remittance report, the ratio was 126.5% compared with the threshold of 102.9%.

Fourteen loans, totaling 51.2% of the trust balance, are secured by commercial properties with a DBRS Morningstar Market Rank of 3 or less. It should be noted that a large concentration (44.3% of the trust balance) is secured by multifamily properties, which have generally been more resilient during the Coronavirus Disease (COVID-19) pandemic than other property types. The trust is also relatively concentrated in loans secured by office properties, totaling 37.9% of the trust balance. Probability of default adjustments were made for office properties in weaker demand submarkets, which tended to exhibit higher vacancy rates compared with vacancy rates at issuance as a result of the pandemic.

Per the April 2021 remittance report, 13 loans, totaling 55.9% of the trust balance, are on the servicer’s watchlist, with 12 of those loans placed on the watchlist for either a low debt service coverage ratio (DSCR) or low occupancy rate. The underlying properties are in the process of stabilizing and tend to exhibit low occupancy rates and DSCRs until stabilized. DBRS Morningstar made appropriate probability of default adjustments to loans that have had business plans delayed.

The largest loan in the trust, Ross Tower (Prospectus ID#1; 14.6% of the trust balance), is on the watchlist for a low DSCR. The subject loan is secured by a 45-story Class A/B office property located on the edge of the Arts District in the Dallas central business district. The sponsor plans to stabilize the property by continuing to lease up vacant space as common area capital improvement projects have been completed, with the goal of selling or securing permanent debt on the property upon stabilization. The February 2021 rent roll showed the property was 68.2% occupied compared with 63.3% occupied at issuance. The lease-up plan stalled in 2020 because of the pandemic and the submarket demand deteriorated. Reis data as of Q4 2020 noted that the submarket’s average vacancy rate increased to 29.3% from 29.0% as of Q4 2019 and is projected to further increase to 31.2% as of Q4 2021. Similar vintage properties reported an even greater average vacancy rate of 32.2% as of February 2021. The probability of default was increased as it appears unlikely that the sponsor will achieve its business plan during the extended loan term. For illustrative purposes, DBRS Morningstar concluded a stabilized vacancy rate of 19.8% at issuance.

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.

The DBRS Morningstar Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 the North American CMBS Surveillance Methodology (March 26, 2021), 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 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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