DBRS Morningstar Assigns Provisional Ratings to BINOM CDN RMBS I LP, Series 2023-1

DBRS Limited (DBRS Morningstar) assigned provisional ratings to the Mortgage Pass-Through Notes, Series 2023-1 to be issued by BINOM CDN RMBS I LP (the Issuer) as follows:

-- AAA (sf) to the Class A Mortgage Pass-Through Notes, Series 2023-1 (the Class A Notes)
-- A (sf) to the Class B Mortgage Pass-Through Notes, Series 2023-1 (the Class B Notes; together with the Class A Notes, the Notes)

The finalization of the ratings is contingent upon receipt of final documents conforming to information already received by DBRS Morningstar.

DBRS Morningstar considered the following factors in its analysis:

(1) The level of credit enhancement (15% and 6% for the Class A and Class B Notes, respectively) provided by subordination and the Equity Notional Principal Amount is commensurate with the respective rating levels of each class of Notes.

(2) A bankruptcy-remote structure that provides increasing enhancement to the Notes as principal is repaid sequentially. Monthly principal collections will be used to repay principal in respect of the Class A Notes prior to the repayment of any principal on the Class B Notes. Additionally, excess collections, net of transaction costs, are directed toward repayment of the Notes upon the occurrence of a Trigger Event.

(3) The collateral comprises a pool of approximately $163.3 million first-lien fixed-rate uninsured Canadian residential mortgages with a weighted-average LTV ratio of 68.1% and a weighted-average credit score of 724, in each case, as of the Cut-Off Date. The Mortgage Loans were initially originated between 2021 and 2022, and the weighted-average seasoning of the Mortgage Pool is 8 months since initial origination date or latest renewal, where applicable. None of the loans have ever defaulted, and all are current as of the Cut-Off Date.

(4) The Mortgage Loans were sourced and underwritten by Equitable Bank (Equitable) and funded by Cortage S.à r.l., an indirect subsidiary of Blackstone Real Estate Debt Strategies IV Holdings L.P., an investment vehicle of a private equity fund managed by Blackstone Real Estate Debt Strategies. The Mortgage Loans are also serviced by Equitable, the seventh largest Schedule I Bank and a leader in uninsured single-family residential mortgage lending through the broker channel in Canada. Equitable has significant experience underwriting, servicing and managing securitizations, all of which performed or are performing within expectations.

DBRS Morningstar uses the Canadian residential mortgage-backed securities (RMBS) model that calculates estimated default frequency (more than 90 days in arrears), loss severity, and expected loss on a loan-level basis. The Canadian RMBS model output does not include the risk of mortgage default at maturity (i.e., balloon risk). Balloon risk is considered to be low in this transaction because of the generally high credit scores and low LTV ratios and structural features for loans that are not renewed at maturity. If a performing loan has not been renewed within the Mortgage Pool or renewed or refinanced with Equitable or any other lender prior to its maturity date and remains unpaid on its maturity date, the Servicer (or a Replacement Servicer) will extend the maturity date of the mortgage up to 12 months at a rate equal to the Equitable Prime Rate + 7%, in order to prevent the mortgage from becoming delinquent or defaulted at maturity. To assess balloon risk, DBRS Morningstar nevertheless considers a hypothetical percentage of loan defaults as a result of nonrenewal. The balloon risk is in addition to the credit risk estimated by the Canadian RMBS model. When determining the loss severity of loans that default as a result of nonrenewal, as such borrowers have been current on their mortgage payments and the timing of default is known, DBRS Morningstar considers scheduled mortgage payments and a certain level of house price appreciation during the mortgage term.

With the Canadian RMBS model results and adjustment for balloon risk, DBRS Morningstar runs a proprietary cash flow engine that incorporates the transaction structure and assumptions for timing of default, interest rates, and prepayments. As the Servicer will not advance any scheduled principal and interest (P&I) on delinquent mortgages, DBRS Morningstar ran cash flow scenarios that incorporated no P&I advancing. The result was that the Notes, with the proposed structure, could withstand each stress scenario with no loss. The Issuer’s ability to repay interest and principal of the Notes is consistent with the respective ratings.

The Servicer, Equitable, is rated BBB (high) and R-1 (low) with Stable trends by DBRS Morningstar as of November 28, 2022 and June 14, 2023, respectively. It is a Canadian Schedule I bank with $60 billion of loans under management as at June 2023.

DBRS Morningstar’s credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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/416784 (July 4, 2023).

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

The principal methodology applicable to the credit rating is Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages (November 3, 2022; https://www.dbrsmorningstar.com/research/404833)

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 credit rating action.

DBRS Morningstar did have 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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.

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

Operational Risk Assessments for Canadian Structured Finance (April 4, 2023; https://www.dbrsmorningstar.com/research/412270)

Predictive model: Canadian RMBS Model (Version 5.0.0.3; https://www.dbrsmorningstar.com/models/)

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].