DBRS Morningstar Upgrades Ratings on 10 Classes of Silver Hill Trust 2019-SBC1, Confirms Ratings on Remaining Four Classes

DBRS Limited (DBRS Morningstar) upgraded its ratings on 10 classes of secured floating-rate notes issued by Silver Hill Trust 2019-SBC1 (the Issuer) as follows:

-- Class M1 to AAA (sf) from AA (sf)
-- Class M1-IO to AAA (sf) from AA (sf)
-- Class M2 to AA (high) (sf) from A (high) (sf)
-- Class M2-IO to AA (high) (sf) from A (high) (sf)
-- Class M3 to AA (sf) from BBB (high) (sf)
-- Class M3-IO to AA (sf) from BBB (high) (sf)
-- Class B1 to BB (high) (sf) from BB (sf)
-- Class B1-IO to BB (high) (sf) from BB (sf)
-- Class B2 to BB (low) (sf) from B (high) (sf)
-- Class B2-IO to BB (low) (sf) from B (high) (sf)

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

-- Class A1 at AAA (sf)
-- Class A1-IO at AAA (sf)
-- Class A2 at AAA (sf)
-- Class A2-IO at AAA (sf)

All trends are Stable.

The rating upgrades and confirmations reflect the overall improved credit support for the transaction, which comprises individual fixed- and floating-rate small-balance loans secured by commercial, multifamily, and single-family rental properties. According to the June 2022 reporting, 607 of the original 978 loans remain in the pool, with an aggregate trust balance of $267.5 million (average loan balance of approximately $440,670), representing a collateral reduction of 17.7% since DBRS Morningstar’s last review in August 2021, or 39.5% since issuance.

Most of the loans that have been repaid were paid in advance of their respective maturity dates, with most repayments including applicable prepayment penalties. As of the June 2022 reporting, 12 loans were prepaid, totaling $7.3 million in principal curtailments and $0.3 million in prepayment premiums. This figure reflects a voluntary constant prepayment rate (CPR) of 27.5%, well above the life CPR of 17.3%.

Approximately 99.2% of the current pool is fully amortizing, compared with 97.5% of the pool at issuance. There are 32 loans, representing 4.6% of the current pool balance, with maturity dates through the remainder of 2022 and 46 loans, representing 8.5% of the current pool balance, with maturity dates in 2023.

As of the June 2022 reporting, there were 18 loans reported as over 30 days delinquent, representing 5.2% of the current pool balance. This represents a decline from the June 2021 reporting, which showed 81 loans, representing 11.1% of the pool balance, that were over 30 days delinquent. There are also eight loans that are either in foreclosure or are real estate owned; however, these loans represent only 1.4% of the pool balance. There have been no realized losses to date. With this review, DBRS Morningstar elevated the probability of default (POD) levels on all loans discussed above to reflect the increased credit risk to the trust.

The pool is well-diversified, a factor that combines with the increased credit support to the rated classes from issuance to generally reduce the loan-level event risk for the transaction. By loan balance, the top 15 loans represent 10.0% of the pool, with the largest loan representing just 0.9% of the pool. The collateral properties are located across 34 states, with the largest concentrations in Florida (16.2% of the pool), California (13.6% of the pool), and New York (10.4% of the pool). By property type, the pool has concentrations of loans secured by commercial use properties (44.2% of the pool), multifamily properties (22.7% of the pool), and mixed-use properties (12.9% of the pool).

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.

The transaction is configured with a sequential-pay pass-through structure.

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.

Classes A1-IO, A2-IO, M1-IO, M2-IO, M3-IO, B1-IO, and B2-IO are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche in the waterfall.

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 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 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.

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

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