DBRS Morningstar Confirms Ratings on LoanCore 2021-CRE4 Issuer Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on the notes issued by LoanCore 2021-CRE4 Issuer Ltd. as follows:

-- Class A 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 performance of transaction, which has remained in line with DBRS Morningstar’s expectations. In conjunction with this press release, DBRS Morningstar has published a rating action report with in-depth analysis and credit metrics for the transaction with business plan updates on the select loans. To access this report, please click on the link under Related Documents below or by contacting us at [email protected].

The initial collateral consisted of 16 floating-rate mortgages secured by 22 mostly transitional properties with a cut-off date balance totaling approximately $600.4 million, excluding approximately $79.4 million of future funding commitments and $30.0 million of funded companion participations. Most loans are in a period of transition with plans to stabilize performance and improve the asset value. The collateral pool for the transaction is static with no ramp-up or reinvestment period; however, during the Replenishment Period, the Issuer may acquire funded Future Funding Participations and permitted Funded Companion Participations with principal repayment proceeds. The transaction has a sequential-pay structure. Interest can be deferred for Note F and Note G, and interest deferral will not result in an event of default.

All the loans in the pool have floating interest rates initially indexed to Libor and are interest only through their initial terms. As such, to determine a stressed interest rate over the loan term, DBRS Morningstar used the one-month Libor index, which was the lower of DBRS Morningstar’s stressed rates that corresponded to the remaining fully extended term of the loans and the strike price of the interest rate cap with the respective contractual loan spread added. When the fully funded loan balances were measured against the DBRS Morningstar As-Is Net Cash Flow, nine loans, representing 53% of the initial pool balance, had a DBRS Morningstar As-Is Debt Service Coverage Ratio (DSCR) below 1.00 times (x), a threshold indicative of elevated term default risk. Additionally, the DBRS Morningstar Stabilized DSCR for five loans, representing 23.7% of the fully funded pool balance, is below 1.00x, which is indicative of elevated refinance risk. The properties are often transitioning with potential upside in cash flow; however, DBRS Morningstar does not give full credit to the stabilization if there are no holdbacks or if other loan structural features in place are insufficient to support such treatment. Furthermore, even with the structure provided, DBRS Morningstar generally does not assume the assets to stabilize above market levels.

The transaction is highly concentrated by loans secured by office properties, representing 38.9% of the pool. Additionally, the pool has moderate exposure to the retail sector, with four loans representing 19.8% of the pool. To account for the elevated risk, DBRS Morningstar typically analyzes retail (more specifically, unanchored retail) with higher probabilities of default and loss given defaults compared with other property types. For certain retail properties, DBRS Morningstar did not include upside from the sponsor’s business plan or accepted only minimal upside.

As of the August 2021 remittance report, one loan (2221 Park Place, formerly 6.7% of the pool) has repaid from the trust. The remaining 15 loans are secured by 21 properties across 10 states, primarily in core markets. The top 10 loans represent 84.0% of the pool. Nine loans, totaling 58.9% of the initial pool balance, represent refinance transactions. At issuance, only two of the nine refinance loans, representing 10.9% of the pool, have a current occupancy of less than 80.0%. As of the most recent reporting, $59.6 million of the original $70.4 million of future funding remains.

Per the Issuer, five loans were granted forbearances and/or loan modifications in connection with the Coronavirus Disease (COVID-19) pandemic (One Whitehall, The Parking REIT Portfolio, University Square, Parke Green, and 1404-1408 3rd Street Promenade), representing a combined 29% of the cut-off date pool balance. The majority of the forbearances and modifications were short term in nature and included deferring or reducing the interest rates, waiving monthly reserves, and/or reapplying reserves to cover operating or other shortfalls caused by the pandemic. All payment deferments are required to be replenished or paid back within a year. Some modifications also included loan extensions from the initial terms. In addition, some tenants at certain properties have also requested rent relief, and landlords and tenants are considering such requests on a case-by-case basis.

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.

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].

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