DBRS Morningstar Finalizes Provisional Ratings on BDS 2022-FL12 LLC

DBRS, Inc. (DBRS Morningstar) finalized provisional ratings on the following classes of notes issued by BDS 2022-FL12 LLC (the Issuer or the Trust):

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

All trends are Stable.

DBRS Morningstar discontinued and withdrew its ratings on the Class B-E and Class B-X certificates initially contemplated in the offering documents, as they were removed from the transaction.

RATING RATIONALE/DESCRIPTION

The initial collateral consists of 24 short-term, floating-rate mortgage assets with an aggregate cut-off date balance of $708.1 million secured by 27 properties. Two loans, Haven at Towne Center and Haven Townhomes at P83, have been rolled up and treated as a portfolio (Arizona Rollup) because of their related sponsor groups, pool concentration, and geographic proximity. The aggregate unfunded future funding commitment of the future funding participations as of the cut-off date is approximately $98.3 million. The holder of the future funding companion participations will be the seller, BDS IV Loan Seller LLC, or affiliates of BDS IV REIT, Inc. (Bridge REIT), which has full responsibility to fund the future funding companion participations on the closing date. The transaction will consist of a fully identified static pool of assets with no ability to add unidentified assets after the Closing Date. In addition, during the Replenishment Period, subject to satisfaction of the Replenishment Criteria and the Acquisition and Disposition Requirements, the Issuer may use available Principal Proceeds to acquire all or a portion of any Funded Companion Participation. Finally, in respect to transaction structure, interest can be deferred for the Class C, D, E, F, and G Notes (and related MASCOT Notes, as applicable), for so long as a note with a higher priority is outstanding, and such interest deferral will not result in an event of default. In the event that a note protection test is not satisfied, Interest Proceeds available for the Retained Notes will instead be used to redeem the Offered Notes and the MASCOT P&I Notes, if applicable, in accordance with the Priority of Payments until the note protection tests are satisfied.

All 24 loans are secured by multifamily assets. The loans are mostly secured by cash-flowing assets, most of which are in a period of transition with plans to stabilize and improve the asset value. Two loans are whole loans and 22 are participations with companion participations that have remaining future funding commitments totaling $98.3 million, of which two of these are loans with companion participations that are pari passu. The future funding for each loan is generally for capex to renovate the property. Please see the chart below for loans with future funding companion commitments and their uses. All of the loans in the pool have floating interest rates initially indexed to Libor or Secured Overnight Financing Rate (SOFR) and are interest only (IO) through their initial terms. As such, to determine a stressed interest rate over the loan term, DBRS Morningstar used a stressed index, which was the lower of DBRS Morningstar’s stressed rates that corresponded to the remaining fully extended term of the loans and the strike price of the interest rate cap with the respective contractual loan spread added. 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 the other loan structural features are insufficient to support such treatment. Furthermore, even if the structure is acceptable, DBRS Morningstar generally does not assume the assets will stabilize above market levels.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) 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 C-X, D-X, and E-X are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior 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.

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.

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.

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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