DBRS Morningstar Confirms Ratings on Ready Capital Mortgage Financing 2020-FL4, LLC

DBRS Limited (DBRS Morningstar) confirmed its ratings on the notes issued by Ready Capital Mortgage Financing 2020-FL4, LLC as follows:

-- 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 overall stable performance of the transaction.

At issuance, the pool consisted of 56 floating-rate mortgages secured by 63 mostly transitional properties with an aggregate principal balance of $405.3 million, excluding $147.5 million of future funding commitments. The transaction is structured with an initial 24-month acquisition period whereby the Issuer may acquire future funding participations with principal repayment proceeds into the trust, limited to a cumulative amount of $65.0 million. This period is scheduled to end with the July 2022 payment date.

As of April 2021 reporting, 50 of the original 56 loans remain in the pool with an aggregate principal balance of $403.6 million. Approximately $116.3 million of outstanding future funding commitments have yet to be released to individual borrowers to aid in the completion of the respective business plans contemplated at loan closing. Since issuance, six loans (4.1% of the initial pool balance) have repaid in full, while two portfolio loans (7.2% of the initial pool balance) secured by multiple properties have had partial loan repayments, as a result of collateral releases. To date, $23.2 million of funded loan participations across 27 loans have been purchased the trust. All loans have interest-only (IO) terms ranging from 24 to 48 month, with extension options available based on certain criteria, including minimum debt service coverage ratio (DSCR) and loan-to-value (LTV) requirements. The majority of the loans will amortize during the respective extension options.

There are currently no loans that are delinquent, in special servicing, or on the servicer’s watchlist. No loans in the pool are secured by hospitality properties, while only three loans (6.2% of the pool) are secured by retail or student housing properties. The pool is concentrated by loans secured by industrial (29.2% of the current pool balance), office (24.9% of the current pool balance), and multifamily (24.6% of the current pool balance) properties. There are 37 loans (76.2% of the current pool balance) in the trust that represent acquisition financing. The acquisition financings within this securitization generally required the respective sponsor(s) to contribute material cash equity as a source of funding in conjunction with the mortgage loans, resulting in a higher sponsor cost basis in the underlying collateral.

One of the loans that had partial repayment, RealOp & Bain Portfolio (Prospectus ID#5, 5.1% of the initial pool balance), was originally secured by three industrial properties located across three different states, totaling 862,602 square feet (sf). Initial loan proceeds of $16.5 million, along with $14.6 million of borrower equity, were primarily used to acquire the property, with $8.6 million of future funding available for stabilization through an estimated $4.0 million of capital improvements, $2.9 million of TI/LC reserves, and $1.1 million to cover projected debt service and operating shortfalls.

In September 2020, the Wilmar Boulevard property located southwest of Charlotte, North Carolina, was repaid at 105.0% of the allocated fully funded loan amount for the property, totaling $7.1 million. The property had been leased to MSS Solutions, LLC in 2019 on a 12-year lease through September 2031. The two remaining collateral assets are the Tampa Park of Commerce, secured by a 364,082-sf, Class B property in Tampa, and 109 Kirby Drive (Kirby), secured by a 219,767 sf, Class C+ property in Portland, Tennessee. The Tampa Park of Commerce is currently fully occupied by Refresco Beverages US Inc. on a lease through January 2031; however, a potential property release is not known at this time. The Kirby asset is 40 miles north of Nashville near I-65 and remains vacant as of the most recent update provided by the collateral manager. Reportedly, the strategic location could result in demand from warehousing and logistics users seeking access to key markets in the southeast. The sponsor has dedicated approximately $1.5 million in the renovation of the property and build out the space to attract a future tenant.

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 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 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

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577