DBRS Morningstar Confirms Ratings on BDS 2021-FL10 Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of notes issued by BDS 2021-FL10 Ltd. as follows:

-- 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.

The rating confirmations reflect the overall stable performance of this transaction since issuance. The pool remains in its reinvestment period, which is scheduled to end in November 2023, and most loans are in a period of transition with plans to stabilize and improve asset values. DBRS Morningstar reviewed the collateral manager updates provided and concluded that the majority of loans appear to be performing in line with expectations. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update rating report with in-depth analysis and credit metrics for the transaction and business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

The transaction is a managed collateralized loan obligation pool, which includes a 180-day ramp-up acquisition period and subsequent 24-month reinvestment period that will end with the November 2023 Payment Date. The ramp-up acquisition period will be used to increase the trust balance to a total target collateral principal balance of $1.23 billion. According to the July 2023 remittance report, the pool consists of 40 floating-rate mortgages secured by 43 properties with an aggregate trust balance of $1.23 billion. As of July 2023 reporting, the Reinvestment Account had a balance of $1,947, signaling the loans are approaching their maximum balance. As of the July 2023 reporting, two loans with a former cumulative trust balance of $43.4 million, have been repaid from the transaction. One of the loans, totaling $25.0 million, was purchased out of the transaction by the collateral manager at par.

Twenty-seven of the outstanding loans, representing 66.1% of the current trust balance, are scheduled to mature by YE2024; however, all loans have remaining extension options. While required performance tests may not be met across all collateral properties, borrowers and lenders may agree to terms to allow loan maturity dates to be extended. As of July 2023, there are no loans in special servicing, and 10 loans are on the servicer’s watchlist, representing 27.6% of the current trust balance. These loans are primarily being monitored for deferred maintenance items and low debt service coverage ratios as the borrowers execute their business plans. Occupancy rates and cash flow may remain depressed at select properties as the borrowers work toward property stabilization.

The transaction benefits from a significant concentration of loans backed by multifamily properties, representing 91.1% of the current trust balance, followed by manufactured housing properties (4.4% of the current trust balance) and industrial properties (1.8% of the current trust balance). The loans are primarily secured by properties in suburban markets with 34 loans, representing 85.4% of the current trust balance, in locations with DBRS Morningstar Market Ranks of 3, 4, and 5. One additional loan, representing 1.6% of the pool, is secured by a property in an urban location with a DBRS Morningstar Market Rank of 7 and five loans, representing 13.0% of the pool, are secured by properties in tertiary markets. In terms of leverage, the pool has a current weighted-average (WA) appraised loan-to-value ratio (LTV) of 73.5% and a WA stabilized LTV ratio of 60.6%. By comparison, these figures were 71.6% and 65.1%, respectively, as of November 2021. DBRS Morningstar recognizes the current market value of the collateralized properties may have declined given the increased interest rate and widening capitalization rate environments currently facing borrowers and lenders.

Through July 2023, the collateral manager advanced $58.5 million in loan future funding to 32 individual borrowers to aid in property stabilization efforts. The largest advance, $5.4 million, was made to the borrower of The American Steel Collection (1.8% of the current pool balance), which is secured by a portfolio of four industrial properties in Oakland, California. The borrower’s business plan centers on improving property management, investing approximately $51.0 million in capital expenditures and tenant improvements, and stabilizing operations by increasing occupancy and executing leases at market rents. In addition to this loan, DBRS Morningstar identified a few loans that are lagging in their original business plans. DBRS Morningstar’s analysis includes additional adjustments to the loan-level probability of default for these assets to reflect this.

An additional $74.2 million of loan future funding allocated to 29 individual borrowers remains available. The largest unadvanced portion of $29.8 million is also allocated to the borrower of The American Steel Collection.

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/416784 (July 4, 2023).

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 U.S. 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 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 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 Version 1.1.0.0, https://www.dbrsmorningstar.com/research/410913

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022), https://www.dbrsmorningstar.com/research/402646/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria

North American Commercial Mortgage Servicer Rankings (September 8, 2022), https://www.dbrsmorningstar.com/research/402499/north-american-commercial-mortgage-servicer-rankings

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/legal-criteria-for-us-structured-finance

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/417279.

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