DBRS Morningstar Assigns Provisional Ratings to RIAL 2022-FL8, Issuer Ltd.

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by RIAL 2022-FL8 Issuer, Ltd. (the Issuer):

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (low) (sf)
-- Class G Notes at B (low) (sf)

All trends are Stable.

The initial collateral consists of 18 mortgage loans consisting of 24 mostly transitional real estate properties with a cutoff balance totaling $769.3 million (81.9% of the total fully funded balance) exclusive of $163.2 million in remaining future funding commitments and $7.3 million of pari passu debt. Of the 18 loans, one loan is a delayed-close loan as of Friday, April 8, 2022: Ace Hotel Brooklyn (#6), representing a total initial pool balance of 7.1%. The Issuer has 90 days following closing to acquire the delayed-close assets. Two loans (Claradon Village and Fox Creek) are cross-collateralized and are treated as a single loan in the DBRS Morningstar analysis, resulting in a modified loan count of 17. All figures below and throughout this report reflect this modified loan count.

The holder of the Permitted Funded Companion Participations will be RIAL IV AIV II, LP (the Seller), a wholly owned subsidiary of FS Credit Real Estate Income Trust, Inc., or an affiliate of the Seller. The holder of each future funding participation has full responsibility to fund the future funding companion participations. The collateral pool for the transaction is static, and during the period beginning on the Closing Date and ending on Payment Date in May 2024, the Issuer will cause all or a portion of Permitted Principal Proceeds to be deposited into the Permitted Funded Companion Participation Acquisition Account to be available for a period not to exceed the earlier of (1) 180 days from the date of the deposit and (2) the end of the Permitted Funded Companion Participation Acquisition Period. Either all or a portion of a Future Funding Participation that has been funded is subject to the satisfaction of the Future Funding Acquisition Criteria. Among the criteria required to acquire each Funded Companion Participation is a No Downgrade Confirmation from DBRS Morningstar with respect to such collateral interest given that the principal balance of the Funded Companion Participation being acquired is less than $500,000.

The loans are mostly secured by cash-flowing assets, many of which are in a period of transition with plans to stabilize and improve the asset value. In total, 13 loans, representing 74.4% of the pool, have remaining future funding participations totaling $163.2 million, which the Issuer may acquire in the future.

For the floating-rate loans, DBRS Morningstar used the one-month Libor index for all loans, which is based on the lower of a DBRS Morningstar-stressed rate that corresponded to the remaining fully extended term of the loans or the strike price of the interest rate cap with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the cutoff balances were measured against the DBRS Morningstar as-is net cash flow, 16 loans, comprising 92.5% of the initial pool balance, had a DBRS Morningstar as-is debt service coverage ratio (DSCR) of 1.0 times (x) or below, a threshold indicative of default risk. Furthermore, nine loans, representing 60.3% of the initial cutoff balance, exhibit a DBRS Morningstar Stabilized DSCR below 1.0x. 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 assets to stabilize above market levels.

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.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American CMBS Multi-Borrower Rating 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. 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

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