DBRS Morningstar Assigns New Ratings to Four Classes, Upgrades 16 Classes, and Confirms 31 Classes of Oceanview Mortgage Loan Trust 2020-SBC1

DBRS, Inc. (DBRS Morningstar) upgraded the ratings on 16 classes of Mortgage-Backed Securities, Series 2020-SBC1 issued by Oceanview Mortgage Loan Trust 2020-SBC1 as follows:

-- Class M1-A to AAA (sf) from AA (sf)
-- Class M1-B to AAA (sf) from AA (sf)
-- Class M1-C to AAA (sf) from AA (sf)
-- Class M1-XA to AAA (sf) from AA (sf)
-- Class M1-XB to AAA (sf) from AA (sf)
-- Class M1-XC to AAA (sf) from AA (sf)
-- Class M1-XD to AAA (sf) from AA (sf)
-- Class M1-XE to AAA (sf) from AA (sf)
-- Class M2-A to AA (low) (sf) from A (sf)
-- Class M2-B to AA (low) (sf) from A (sf)
-- Class M2-C to AA (low) (sf) from A (sf)
-- Class M2-XA to AA (low) (sf) from A (sf)
-- Class M2-XB to AA (low) (sf) from A (sf)
-- Class M2-XC to AA (low) (sf) from A (sf)
-- Class M2-XD to AA (low) (sf) from A (sf)
-- Class M2-XE to AA (low) (sf) from A (sf)

In addition, DBRS Morningstar confirmed its ratings on the following 31 classes:

-- Class A1-A at AAA (sf)
-- Class A1-B at AAA (sf)
-- Class A1-C at AAA (sf)
-- Class A1-XA at AAA (sf)
-- Class A1-XB at AAA (sf)
-- Class A1-XC at AAA (sf)
-- Class A1-XD at AAA (sf)
-- Class A1-XE at AAA (sf)
-- Class M3-A at BBB (sf)
-- Class M3-B at BBB (sf)
-- Class M3-C at BBB (sf)
-- Class M3-XA at BBB (sf)
-- Class M3-XB at BBB (sf)
-- Class M3-XC at BBB (sf)
-- Class M3-XD at BBB (sf)
-- Class M3-XE at BBB (sf)
-- Class M4-A at BBB (low) (sf)
-- Class M4-B at BBB (low) (sf)
-- Class M4-C at BBB (low) (sf)
-- Class M4-XA at BBB (low) (sf)
-- Class M4-XB at BBB (low) (sf)
-- Class M4-XC at BBB (low) (sf)
-- Class M4-XD at BBB (low) (sf)
-- Class M4-XE at BBB (low) (sf)
-- Class B1-A at BB (high) (sf)
-- Class B1-B at BB (high) (sf)
-- Class B1-XA at BB (high) (sf)
-- Class B1-XB at BB (high) (sf)
-- Class B1-XC at BB (high) (sf)
-- Class B2 at BB (low) (sf)
-- Class B3 at B (low) (sf)

In addition, following a request from the issuer, DBRS Morningstar assigned new ratings to the following four classes:

-- Class XP1 at AAA (sf)
-- Class XP2 at AAA (sf)
-- Class XP3 at AAA (sf)
-- Class XP4 at AAA (sf)

The trends on all classes are Stable.

DBRS Morningstar was recently asked by the issuer to assign ratings to Classes XP1, XP2, XP3, and XP4 (the XP Classes), which were not rated at issuance. The XP Classes reference the Initial Exchangeable Classes A1-XB and A1-XC, which are interest only (IO) classes, plus Class P, which does not bear interest but entitles the holder to receive Prepayment Premiums. The holder of the Class P Notes may proportionally exchange all or any portion of such Class P Notes, together with the Class A1-XB and A1-XC Notes, for the Class XP1, XP2, XP3, and XP4 Notes, and vice versa. DBRS Morningstar rated Classes A1-XB and A1-XC at issuance, but did not rate Class P or the exchangeable XP Classes. DBRS Morningstar’s ratings on the Class XP1, XP2, XP3, and XP4 Notes are based solely on the ratings on Classes A1-XB and A1-XC and do not address the payment of prepayment premiums associated with the Class P Notes.

The rating upgrades and confirmations reflect the overall improved credit support for the transaction. At issuance, the trust consisted of 637 individual fixed- and floating-rate loans secured by 761 commercial, multifamily, and single-family rental (SFR) properties with an average loan balance of $428,354. The transaction is configured with a sequential-pay pass-through structure. As of the May 2022 remittance report, 498 loans remained in the pool with an average loan balance of $435,865, representing a collateral reduction of approximately 20.5% since issuance. Per the most recent reporting, 14 loans, representing 2.0% of the pool, were at least 30 days delinquent, while two loans, representing 0.7% of the pool, were in foreclosure. There have been no realized losses to date. For its review, DBRS Morningstar elevated the probability of default for loans more than 60 days delinquent to reflect the increased risk to the trust. The May 2022 remittance report also included a notice to certificateholders that 98 loans were in “Active COVID Forbearance,” with no further details regarding the terms of the forbearance.

The pool is diverse, based on loan size, as the 10 largest loans represent only 8.7% of the overall pool balance. Increased pool diversity helps to insulate the higher-rated classes from loan-level event risk. Of the 498 remaining loans, 317 loans, representing 61.4% of the pool, have a fixed interest rate with an average rate of 6.83%. The floating-rate loans have interest rate life floors ranging from 2.00% to 10.3%, with a straight average of 7.04%. All but two of the loans fully amortize over their respective remaining loan terms, resulting in 99.9% expected amortization, virtually eliminating refinance risk.

While the monthly investor reporting package (IRP) classifies all loans as “other” for property type, at issuance, DBRS Morningstar noted that the pool was mostly secured by traditional property types (retail, multifamily, office, and industrial) with no exposure to hospitality properties and minimal exposure to manufactured housing, which represented 0.2% of the pool balance. The pool is heavily concentrated with multifamily properties, representing 39.1% of the initial pool. Additionally, the pool was mostly concentrated in California, Florida, and Texas, representing 20.0%, 13.4%, and 7.7% of the pool, respectively. DBRS Morningstar received limited borrower and property-level information at issuance and considered the overall property quality to be Average –/Below Average based on those properties sampled; this sample comprised 8.4% of the issuance pool balance. Cash flow and occupancy figures were not provided in the May 2022 IRP.

DBRS Morningstar noted that 46 loans, representing 3.1% of the issuance trust balance, were secured by SFR properties. The North American CMBS Multi-Borrower Rating Methodology does not currently contemplate ratings on SFR properties. To address this, at issuance and for this review, DBRS Morningstar considerably increased the expected loss on these loans by approximately 2.9 times over the average non-SFR expected loss.

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 Classes M2-A and M3-A as the quantitative results suggested a higher rating. The material deviations are warranted given uncertain loan-level event risk. While there has been a notable amount of collateral reduction since issuance, it has largely been a result of prepayments and is not necessarily indicative of the performance of the remaining loans in the pool, which could also be affected by adverse selection as better-performing loans that are able to refinance or otherwise pay off are removed from the trust, which becomes more concentrated with loans that were not as readily able to refinance.

Classes A1-XA, A1-XB, A1-XC, A1-XD, A1-XE, XP1, XP2, XP3, XP4, M1-XA, M1-XB, M1-XC, M1-XD, M1-XE, M2-XA, M2-XB, M2-XC, M2-XD, M2-XE, M3-XA, M3-XB, M3-XC, M3-XD, M3-XE, M4-XA, M4-XB, M4-XC, M4-XD, M4-XE, B1-XA, B1-XB, and B1-XC are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche as IO classes have the same payment priority as the obligation tranche.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the North American CMBS Surveillance Methodology (March 4, 2022) and Rating North American CMBS Interest-Only Certificates (December 13, 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.

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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