DBRS Morningstar Finalizes Provisional Ratings on Ready Capital Mortgage Financing 2023-FL12, LLC

DBRS, Inc. (DBRS Morningstar) finalized provisional ratings on the following classes of notes issued by Ready Capital Mortgage Financing 2023-FL12, LLC, a Delaware limited liability company (the Issuer or the Trust):

-- 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.

RATING RATIONALE/DESCRIPTION
The initial collateral pool consists of 35 floating-rate mortgage loans secured by 59 mostly transitional properties with a cut-off date balance of $648.6 million. The loans have an aggregate $178.9 million of pari passu debt, $15.7 million of subordinate junior participations, $90.2 million of unfunded future funding commitment of the future funding participations, and $634,738 of unfunded junior participations. The holder of the future funding companion participations has full responsibility to fund the pari passu future funding participations. The transaction will consist of a fully identified static pool of assets with no ability to add unidentified assets after the closing date. However, all or a portion of the pari passu future funding participations are eligible to be acquired and held by the Issuer to become a part of the trust, with the exception of the future funding participations associated with SAMO Apartments Portfolio, Mission Matthews Place and Waterford Hills, and Champion Student Housing Portfolio. The Issuer has a limited right to use principal proceeds to acquire pari passu future funding participations subject to stated criteria during the Permitted Funded Companion Participation Acquisition Period, which begins on the closing date and ends on the payment date in June 2025. Acquisitions of future funding participations of $500,000 or greater will require rating agency confirmation (RAC). Interest can be deferred for the Class F, Class G, and Class H Notes, and interest deferral will not result in an event of default unless it occurs at on the Final Rated Maturity date. In addition, the Issuer will make a $500,000 deposit into an Interest Reserve at closing. At the sole discretion of the majority of the holder(s) of the Class H Notes, reserves may be transferred by the trustee for distribution as interest proceeds, which are limited to the shortfall of that specific pay period. The transaction will have a sequential-pay structure.

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. All loans are closed and have origination dates ranging from December 2019 to May 2023. Additionally, there are two loans, representing 6.7% of the initial pool balance, that will reach their fully extended maturity dates in the next 18 months. In total, 33 loans, representing 93.3% of the pool, have remaining future funding participations totaling $90.2 million; however, the Issuer can acquire only $68.8 million in the future.

All of the loans in the pool have floating rates, and DBRS Morningstar incorporates an interest rate stress that is based on the lower of a DBRS Morningstar stressed rate that corresponds to the remaining fully extended term of the loans or the strike price of an interest rate cap with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the debt service payments were measured against the DBRS Morningstar As-Is Net Cash Flow (NCF), 33 of the 35 loans, representing 90.6% of the initial pool balance, had a DBRS Morningstar As-Is Debt Service Coverage Ratio of 1.00 times (x) or below, a threshold indicative of default risk. Additionally, the DBRS Morningstar Stabilized NCF for 27 loans, representing 77.2% of the initial pool balance, was below 1.00x, which is indicative of elevated refinance risk. 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 structural features in place are insufficient to support such treatment. Furthermore, even with the structure provided, 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 (May 17, 2022).

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 North American CMBS Multi-Borrower Rating Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410913/north-american-cmbs-multi-borrower-rating-methodology).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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].

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022)
https://www.dbrsmorningstar.com/research/402646)

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023)
https://www.dbrsmorningstar.com/research/415687

North American Commercial Mortgage Servicer Rankings (September 8, 2022)
https://www.dbrsmorningstar.com/research/402499

North American CMBS Insight Model v 1.1.0.0
https://www.dbrsmorningstar.com/research/410913