DBRS Morningstar Upgrades Ratings on Three Classes of A10 Bridge Asset Financing 2019-B, LLC, Changes Trend to Stable on One Class

DBRS, Inc. (DBRS Morningstar) upgraded its ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2019-B issued by A10 Bridge Asset Financing 2019-B, LLC (the Issuer) as follows:

-- Class B to AAA (sf) from AA (low) (sf)
-- Class C to A (high) (sf) from A (low) (sf)
-- Class D to BBB (sf) from BBB (low) (sf)

DBRS Morningstar also confirmed its ratings on three classes as follows:

-- Class A-S at AAA (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

In addition, DBRS Morningstar discontinued its rating on Class A as it was paid in full with the June 2022 remittance. Finally, DBRS Morningstar changed the trend on Class F to Stable from Negative, while the trends on all other classes remain Stable.

The rating upgrades and trend change reflect the increased credit support to the bonds as a result of successful loan repayment, representing a collateral reduction of 57.4% since issuance based on the June 2022 remittance. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

The initial collateral consisted of 36 fixed-rate and eight floating-rate mortgages secured by cash-flowing assets, many of which are in a period of transition with plans to stabilize and improve the asset value. At issuance, the pool had an initial trust balance of $281.1 million, excluding approximately $83.3 million of available future funding commitments. The transaction included a 24-month reinvestment period that expired in September 2021, at which point the bonds began to amortize sequentially with loan repayment and scheduled loan amortization.

In total, 42 loans have been repaid from the trust, and 14 loans were added to the pool during the reinvestment period. According to the June 2022 remittance report, 16 loans remain in the pool with a current principal balance of $136.4 million. According to the collateral manager, cumulative loan future funding of $15.7 million has been advanced to nine individual borrowers to date to aid in business plan completion. An additional $27.4 million of loan future funding allocated to 12 individual borrowers remains outstanding. There are two loans in special servicing (22.3% of the current trust balance) and four loans on the servicer’s watchlist (36.1% of the current trust balance).

The second-largest loan in the pool, Gowanus Assemblage (Propectus ID#4, 12.0% of the current trust balance), was originally secured by four adjacent mixed-use buildings, totalling 57,418 square feet (sf), located in Brooklyn, New York. The loan transferred to special servicing in August 2020 for payment default after the borrower informed the servicer it would no longer be able to fund debt service because the coworking space tenant, Fresh Space Gowanus LLC (dba The Yard, 58.4% of the net rentable area), had stopped making rental payments. The loan last paid its debt service in April 2020 and the collateral manager is currently pursuing collection efforts against the guarantor as a May 2022 hearing resulted in a $31.4 million judgment in favor of the trust. It is unknown whether the collateral manager will ultimately be able to succeed those collections efforts given the guarantor’s financial wherewithal and propensity for litigation. Based on the July 2021 appraisal, the property was valued at $18.4 million, a 40.6% decline from the issuance value of $31.0 million. The decline in value stemmed not only from the unrealized business plan but the reduction in collateralized improvements, as the borrower demolished one building from closing but has yet to rebuild it. DBRS Morningstar applied a liquidation scenario in its analysis for this review with a projected whole loan loss severity in excess of 50.0% and an A note loss severity in excess of 40.0%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Class F as the quantitative results suggested a higher rating. The material deviation is warranted given the sustainability of loan performance trends has not been demonstrated, as several properties securing loans in the transaction continue to work toward their respective business plans.

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:

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 4, 2022), 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.

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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