DBRS Morningstar Upgrades Ratings on Three Classes of Institutional Mortgage Securities Canada Inc., Series 2015-6

DBRS Limited (DBRS Morningstar) upgraded its ratings on three classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-6 issued by Institutional Mortgage Securities Canada Inc., Series 2015-6 as follows:

-- Class E to AA (sf) from AA (low) (sf)
-- Class F to A (sf) from BBB (low) (sf)
-- Class G to BB (low) (sf) from B (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class X at AAA (sf)
-- Class D at AA (high) (sf)

All trends are Stable.

The rating upgrades reflect the continued strong performance of the pool which, with the exception of the Comfort Inn & Suites Airdrie loan (the Airdrie loan, Prospectus ID#9, 8.7% of the pool), are performing above issuance expectations. DBRS Morningstar reviewed this transaction in January 2022 and again in November 2022 and noted the CMBS Insight Model results for both reviews suggested higher ratings for some classes (Class G in January 2022 and Classes E, F, and G in November 2022), primarily the result of the significant paydown since issuance. However, at the time of those reviews, DBRS Morningstar maintained a conservative approach given the uncertain loan level event risk for the pool, primarily related to the Airdrie loan. As further discussed below, in the time since the November 2022 review, the transaction has further seasoned, with updated property level cash flows for most loans in the pool and reporting a weighted-average (WA) debt service coverage ratio (DSCR) of above 1.60 times (x) for the pool, additional amortization, and, most notably, a lack of further deterioration in the outlook for the Airdrie loan. These developments support the upgrades with this review and, as noted in the disclosures toward the end of this press release, the CMBS Insight Model results continue to suggest higher ratings than assigned with this review, providing cushion against future cash flow volatility and/or increased concentration risk as the transaction continues to season.

As of the July 2023 remittance, 26 of the original 47 loans remain in the trust, with an aggregate balance of $120.9 million, representing a collateral reduction of 62.8% since issuance, as a result of loan repayments and scheduled amortization. Three loans, representing 28.9% of the pool, are fully defeased. There are no loans in special servicing and six loans, representing 32.1% of the pool, on the servicer’s watchlist. Five of the six loans are being monitored for outdated financials; however, none of these loans have exhibited financial stress in the past.

The Airdrie loan, which is secured by a limited-service hotel in Airdrie, Alberta, located approximately 30 kilometres north of Calgary, is the only loan currently being monitored on the watchlist for performance issues. While the loan has full recourse to the sponsor, Avonos Airdrie Ltd., the guarantor has 35 years of experience in oil and gas exploration, which has been heavily affected in recent years. The loan was added to the servicer’s watchlist in February 2017 due to low DSCR as the property has been severely affected by the downturn of the oil and gas sectors and more recently by the Coronavirus Disease (COVID-19) pandemic. The sponsor has continuously paid out of pocket to cover operating shortfalls and has managed to keep the loan current. The servicer initially approved a loan modification in May 2018 that allowed for a 24-month interest-only (IO) period that expired in December 2020; however, this was subsequently extended into 2023. According to servicer commentary, principal and interest payments have resumed as of May 2023 and the loan’s maturity date has been extended to May 2024.

According to the June 2022 STR report, the property reported trailing-12-months occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of 38.8%, $109, and $42, respectively. Occupancy, ADR, and RevPAR have increased 55.5%, 21.3%, and 88.7%, respectively, over the June 2021 figures, however, the property continues to underperform relative to its competitive set as evidenced by its RevPAR penetration rate of 80.3%. The loan most recently reported year-end 2021 financials with a DSCR of 0.14x. Despite the significant increases in all three metrics, cash flow is expected to remain depressed through 2023. DBRS Morningstar analyzed this loan with an elevated probability of default to reflect its current risk profile, resulting in an expected loss that was more than 12 times the pool average expected loss.

At issuance, DBRS Morningstar shadow rated South Hill Shopping Centre (Prospectus ID#2, 13.4% of the pool), Markham Town Square (Prospectus ID#8, 2.1% of the pool), and U-Haul SAC 3 Portfolio (10.7% of the pool) as investment grade. With this review, DBRS Morningstar confirmed that the performance of these loans remains consistent with the investment-grade loan characteristics.

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 (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

Class X is an IO certificate that references 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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

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

The credit ratings assigned to Classes F and G materially deviate from the credit ratings implied by the predictive model. DBRS Morningstar typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is uncertain loan-level event risk given the sustained poor performance for the Airdrie loan and, as the pool continues to season, to provide cushion against cash flow volatility and adverse selection.

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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit 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)

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 Canadian Structured Finance (June 20, 2023; https://www.dbrsmorningstar.com/research/416101)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.

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