DBRS Morningstar Provides Update on Review of 192 Classes Within 36 U.S. CMBS Transactions Placed Under Review With Negative Implications in 2020

DBRS, Inc. (DBRS Morningstar) released a status update on its review of 192 Classes within 36 U.S. CMBS transactions that were placed Under Review With Negative Implications in 2020.

DBRS Morningstar placed the ratings of 192 classes within 36 Single-Asset/Single-Borrower commercial mortgage-backed securities (CMBS) transactions Under Review with Negative Implications primarily because of the negative impact of the Coronavirus Disease (COVID-19) pandemic on the underlying collateral of the respective transactions, which generally comprise hotel and retail properties.

In the individual press releases outlining the rating actions that took place throughout 2020, DBRS Morningstar noted that, while it typically endeavors to resolve an Under Review rating action within 90 days, these rating actions would likely be resolved over a prolonged period, given the circumstances driving the increased stress on these transactions, the length of time expected for some of the issues to bear out, and the necessary support information to become available. As of the date of this press release, the bulk of the classes placed Under Review with Negative Implications in 2020 remain Under Review.

DBRS Morningstar continues to monitor these transactions as pandemic-driven events unfold and concrete information becomes more widely available. DBRS Morningstar will address the classes and transactions affected by these Under Review rating actions on a deal-by-deal basis, with individual press releases outlining the ratings rationale for each transaction published as those reviews are completed.

DBRS Morningstar has been monitoring the affected transactions closely for developments including, but not limited to, changes in special servicing and/or delinquency status, updated values of the collateral backing defaulted loans, and updates on the status of performing loans that requested coronavirus-related relief. While the vast majority of the underlying loans in these transactions either never requested coronavirus-related relief or received a short-term forbearance but otherwise paid as agreed, several loans remain with the special servicer awaiting resolution plans. (The status of those transactions is attached as Appendix A.)

DBRS Morningstar has also been monitoring the receipt of YE2020 financial reporting for the underlying loans, including performing loans, to identify those most hard hit by the effects of the pandemic. DBRS Morningstar generally expects to see significant drops in cash flow for most hotel and many retail properties, with the most drastic declines at hotels in fly-to markets or markets heavily dependent on business travel and convention traffic and at retail properties in secondary markets. While an interruption or decrease in cash flow generated at a property, if temporary, may not be indicative of a permanent impairment, the resolution of these Under Review designations will take into account any material and enduring negative effect on a property’s performance and/or value.

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