DBRS Morningstar Changes Trends on Four Classes, Confirms All Ratings on Institutional Mortgage Securities Canada Inc., Series 2015-6

DBRS Limited (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates, Series 2015-6 issued by Institutional Mortgage Securities Canada Inc., Series 2015-6:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class X at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at B (sf)

DBRS Morningstar also changed the trends on Classes B, C, D, and E to Positive from Stable; all other trends remain Stable.

The rating confirmations reflect the overall stable performance of the transaction, while the trend changes reflect the likelihood of loan repayments during the first half of 2022 for the eight loans, representing 27.9% of the pool, that have upcoming loan maturities.

As of the December 2021 remittance, 34 of the original 47 loans remain in the pool, with an aggregate trust balance of $187.0 million, representing a collateral reduction of approximately 42.5% since issuance. In addition, three loans, representing 19.9% of the pool, have been fully defeased, including the largest loan in the pool, Distillery District (Prospectus ID#1, 10.9% of the pool). The transaction is concentrated by property type, with 46.2% of the current trust balance secured by retail.

There are no loans in special servicing nor are any loans delinquent; however, there are six loans, representing 23.1% of the current pool balance, on the servicer’s watchlist. Four of these loans, representing 16.1% of the current pool balance, were added to the watchlist given their upcoming maturity dates in the next six months. DBRS Morningstar believes the likelihood of repayment for these loans is high given current performance and amortization to date. The two remaining loans on the watchlist, Comfort Inn & Suites Airdrie (Prospectus ID#9, 5.8% of the pool) and U-Haul Oakville (Prospectus ID#33, 1.2% of the pool), which is part of the U-Haul SAC 3 Portfolio, are being monitored for low debt service coverage ratio (DSCR).

The Comfort Inn & Suites Airdrie loan is secured by a 103-key limited-service hotel in Airdrie, Alberta, approximately 30 kilometres north of Calgary. While the loan has full recourse to the sponsor, Avonos Airdrie Ltd., the guarantor has 35 years of experience in oil and gas exploration, which has been heavily affected in recent years. The loan was added to the servicer’s watchlist in February 2017 due to low DSCR as the property has been severely affected by the downturn of the oil and gas sectors and more recently by the Coronavirus Disease (COVID-19) pandemic. The servicer initially approved a loan modification in May 2018 that allowed for a 24-month interest-only (IO) period that expired in December 2020; however, this was subsequently extended through February 2022. As of the December 2021 remittance, the loan is current on the modified debt service obligation. While the modifications have allowed the loan to stay current, the sponsor’s financial position is still uncertain; with loan maturity in May 2022 and the prospects for substantial improvements in operating metrics quite slim in the near term, the loan remains an elevated risk despite remaining current on payments.

Occupancy at the Airdrie hotel was reported at 15.0% in December 2020, 54.0% in December 2018, and 81.0% at issuance. According to the running 28-days of October 2021 STR, Inc. report, occupancy, average daily rate (ADR), and revenue per available room (RevPAR) was 31.5% (+2.3% since September 2021), $109.71 (+27.2%), and $34.54 (+30.1%), respectively. Comparatively, during the same period, the competitive set reported an occupancy, ADR, and RevPAR of 61.1%, $102.98, and $62.94, respectively. Net cash flow (NCF) in YE2020 was $74,450, 75.1% below the YE2019 NCF and 94.7% below the issuer’s underwritten NCF of $1.4 million due to a 41.7% drop in room revenue from YE2019.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings to South Hill Shopping Centre (Prospectus ID#2, 9.3% of the pool), Markham Town Square (Prospectus ID#8, 2.5% of the pool), and U-Haul SAC 3 Portfolio (7.6% of the pool). DBRS Morningstar has confirmed that the performance of these loans remains consistent with the investment-grade loan characteristics.

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 rating assigned to Class G as the quantitative results suggested a higher rating on the class. The material deviation is warranted given the uncertain loan-level event risk, particularly the Comfort Inn & Suites Airdrie loan, as previously outlined.

Class X is an IO certificate that references multiple rated tranches. When determining the rating assigned to Class X, consideration was given for actual loan, transaction, and sector performance where a rating based on the lowest-rated applicable reference obligation may not reflect the observed risk.

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#2 – South Hill Shopping Centre (9.3% of the pool)
-- Prospectus ID#9 – Comfort Inn & Suites Airdrie (5.8% of the pool)

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 Canadian 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 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

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