DBRS Morningstar Downgrades Two Classes of CoreVest American Finance 2018-2, Upgrades One Class, and Removes Five Classes from Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) downgraded two classes of Commercial Mortgage Pass-Through Certificates Series 2018-2 issued by CoreVest American Finance 2018-2 Trust as follows:

-- Class F to B (sf) from BB (sf)
-- Class G to CCC (sf) from B (sf)

DBRS Morningstar also confirmed the following classes as follows:

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

In addition, DBRS Morningstar upgraded Class X-B to BBB (sf) from BBB (low) (sf). The rating upgrade reflects the application of the “Rating North American CMBS Interest-Only Certificates Methodology,” which contemplates a rating for interest-only (IO) classes that is, typically, a pass-through of the rating of the lowest applicable reference obligation(s), possibly adjusted upward by one notch.

Class F carries a Negative trend to reflect the continuing performance challenges for the underlying collateral, including losses to the deal and the significant concentration of loans in the pool currently in special servicing.

The trends on all other classes are Stable.

DBRS Morningstar placed five classes Under Review with Negative Implications in January 2023 as part of the update of the “Rating and Monitoring U.S. Single-Family Rental Securitization Methodology”, which notes that DBRS Morningstar typically uses the “North American CMBS Multi-Borrower Rating Methodology” to rate multi-borrower (MB) single-family rental (SFR) transactions. At the time of that rating action, DBRS Morningstar cited concerns in the subject pool’s high servicer’s watchlist concentration and relatively high delinquency rate. Watchlist reasons included cash flow declines, late financial reporting, and significant maintenance problems observed at the servicer’s site inspections. These reasons have persisted, with the percentage of loans on the servicer’s watchlist increasing to 56.4% as of June 2023 from 49.2% in January 2023. Although the delinquency rate has declined slightly, from 6.8% at January 2023 to 4.9% at June 2023, it remains elevated compared with other MB SFR transactions rated by DBRS Morningstar. To date, the trust has experienced a net loss of only 0.86%; however, DBRS Morningstar is concerned the large concentration of watchlisted loans and relatively high delinquency rate could translate to increased losses over the near to moderate term. DBRS Morningstar generally analyzed the loans contributing to this view with stressed probability of default and loan-to-value assumptions, with the resulting expected losses for the pool supporting the rating downgrades for Classes F and G and the Negative trend for Class F.

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

Classes X-A and X-B 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.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023), which can be found on https://www.dbrsmorningstar.com/research/410912.

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

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. 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913).

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

Rating and Monitoring U.S. Single-Family Rental Securitization Methodology (November 23, 2022; https://www.dbrsmorningstar.com/research/405662)

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

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

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

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

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