DBRS Morningstar Upgrades Six Classes and Confirms Two Classes of Exantas Capital Corp. 2020-RSO8, Ltd.

On December 1, 2021, DBRS Morningstar updated this press release to include language noting a material deviation in its rating of the Class G Notes.

DBRS, Inc. (DBRS Morningstar) upgraded the following six classes of Exantas Capital Corp. 2020-RSO8, Ltd. (the Issuer) as follows:

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

DBRS Morningstar confirmed the two remaining classes as follows:

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of successful loan repayment as well as the generally stable outlook for the remaining loans in the pool. Additionally, the unrated first-loss piece has a balance of $37.2 million, representing 14.3% of the transaction as of October 2021 and there have been no losses to date. In conjunction with this press release, DBRS Morningstar published its Surveillance Performance Update 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 pool consisted of 32 floating-rate mortgage loans secured by 35 transitional properties totaling $522.6 million. As of the October 2021 remittance, 19 loans remain in the pool, resulting in a collateral reduction of 50.2% since issuance. According to the collateral manager, a total of $13.7 million of future funding across 15 loans has been advanced to individual borrowers to aid in property stabilization. An additional $12.1 million of loan future funding allocated to 17 individual borrowers remains outstanding, including two borrowers that have yet to receive any loan future funding dollars, totaling $1.1 million. The transaction is also structured with a three-year Participation Acquisition Period whereby the Issuer can purchase funded loan companion participations into the trust. As of October 2021 reporting, the Participation Acquisition Account had a balance of $2.1 million.

The collateral is concentrated by property type as there are 13 loans (65.1% of the current pool balance) secured by multifamily properties and five loans (31.7% of the current pool balance) secured by office properties. As of October 2021 reporting, all loans remain current and there are two loans on the servicer’s watchlist, representing 6.3% of the pool balance. These loans include Valleybrook Apartment (Prospectus ID#24; 3.9% of pool) and Dwell on Riverside (Prospectus ID#30; 2.4% of pool). Valleybrook Apartments is being monitored for cash flow concerns as the loan reported a Q2 2021 debt service coverage ratio of 0.95 times. While cash flow is up when compared with issuance figures, the borrower has been unable to execute on its business plan to date as the State of California extended its eviction moratorium through September 2021, limiting the number of units available for renovation. As of the September 2021 rent roll the property was 95.2% occupied.

While not on the servicer’s watchlist, the pool’s largest loan, Legacy Bank Plaza II (Prospectus ID#5, 9.8% of the pool), remains of concern. The $25.4 million loan is secured by a four-story, Class B office property in Plano, Texas. As of October 2021 reporting, the lender had not advanced any future funding dollars to the borrower for accretive leasing costs; however, the original leasing reserve has decreased to $13,000 from $250,000. As of the July 2021 rent roll, occupancy decreased to 76.1%, down from 90.1% at issuance; however, occupancy is expected to increase to 85.0% after the borrower signed a lease with Third Coast Bank for 10,651 square feet. The property faces significant rollover risk in 2022 as the three largest tenants, representing 21.7% of the property’s net rentable area, have leases scheduled to expire throughout 2022. Compounding this risk, the loan matures in July 2022; however, the loan is structured with two one-year extension options.

ESG CONSIDERATIONS
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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Class G as the quantitative results suggested a higher rating. The material deviation is warranted due to uncertain loan level event risk. Given the pool’s significant collateral reduction, our primary concern is adverse selection across the remaining loans including the pool’s two largest loans, Legacy Bank Plaza and 209 West Jackson. Both loans are secured by office properties and face a heightened risk due to rollover concerns across a number of large tenants.

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 the following loans in the transaction:

-- Prospectus ID#5 – Legacy Bank Plaza (9.8% of the pool)
-- Prospectus ID#9 – 209 West Jackson (4.0% of the pool)
-- Prospectus ID#6 – Rivington House (8.6% of the pool)
-- Prospectus ID#7 – Pine Forest Place and Park (8.5% of the pool)
-- Prospectus ID#8 – Villas de la Cascada (8.3% of the pool)

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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 [email protected].

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