DBRS Morningstar Finalizes Provisional Ratings on PATH 2023-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings to the Single-Family Rental Pass-Through Certificates (the Certificates) issued by Pagaya AI Technology in Housing Trust 2023-1 (PATH 2023-1):

-- $140.5 million Class A at AAA (sf)
-- $48.3 million Class B at AA (high) (sf)
-- $20.4 million Class C at A (high) (sf)
-- $24.7 million Class D at A (low) (sf)
-- $26.8 million Class E-1 at BBB (high) (sf)
-- $33.3 million Class E-2 at BBB (low) (sf)
-- $26.8 million Class F at BB (sf)
-- $34.3 million Class G at B (sf)

The AAA (sf) rating on the Class A Certificates reflects 66.9% of credit enhancement provided by subordinated notes in the pool. The AA (high) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), BBB (low) (sf), BB (sf), and B (sf) ratings reflect 55.6%, 50.8%, 44.9%, 38.6%, 30.8%, 24.5%, and 16.4% of credit enhancement, respectively.

Other than the classes specified above, DBRS Morningstar does not rate any other classes in this transaction.

The PATH 2023-1 Certificates are supported by the income streams and values from 1,149 rental properties. The properties are distributed across 11 states and 32 metropolitan statistical areas (MSAs) in the United States. DBRS Morningstar maps an MSA based on the ZIP code provided in the data tape, which may result in different MSA stratifications than those provided in offering documents. As measured by broker-price-opinion value, 65.5% of the portfolio is concentrated in three states: Georgia (25.6%), Florida (24.5%), and Arizona (15.4%). The average value is $373,503. The average age of the properties is roughly 24 years. All properties in the collateral pool have three or more bedrooms. The Certificates represent a beneficial ownership in an approximately five-year, fixed-rate, interest-only loan with an initial aggregate principal balance of approximately $424.9 million.

The sponsor intends to satisfy its risk-retention obligations under the U.S. Risk Retention Rules. The sponsor does not make any representation with respect to whether such risk retention satisfies EU Risk Retention Requirements and UK Risk Retention Requirements by Class I, which is 9.1% of the initial total issuance balance, either directly or through a majority-owned affiliate.

DBRS Morningstar assigned the provisional ratings for each class of Certificates by performing a quantitative and qualitative collateral, structural, and legal analysis. This analysis uses DBRS Morningstar’s single-family rental subordination analytical tool and is based on DBRS Morningstar’s published criteria. (For more details, see www.dbrsmorningstar.com.) DBRS Morningstar developed property-level stresses for the analysis of single-family rental assets. DBRS Morningstar assigned the provisional ratings to each class based on the level of stresses each class can withstand and whether such stresses are commensurate with the applicable rating level. DBRS Morningstar's analysis includes estimated base-case net cash flows (NCFs) by evaluating the gross rent, concession, vacancy, operating expenses, and capital expenditure data. The DBRS Morningstar NCF analysis resulted in a minimum debt service coverage ratio of more than 1.0 times. (For more details, see the Analysis section in the DBRS Morningstar presale report.)

Furthermore, DBRS Morningstar reviewed the third-party participants in the transaction, including the property manager, servicer, and special servicer. These transaction parties are acceptable to DBRS Morningstar. (For more details, see the Property Manager and Servicer Summary section in the DBRS Morningstar presale report.) DBRS Morningstar also conducted a legal review and found no material rating concerns. (For details, see the Scope of Analysis section in the DBRS Morningstar presale report.)

DBRS Morningstar’s credit ratings on the Certificates address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment 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.

ENVIRONMENTAL, SOCIAL, AND 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).

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

The principal methodology applicable to the credit ratings is Rating and Monitoring U.S. Single-Family Rental Securitizations (November 23, 2022; https://www.dbrsmorningstar.com/research/405662).

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 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.

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

-- 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)

-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023; https://www.dbrsmorningstar.com/research/420106)

-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023; https://www.dbrsmorningstar.com/research/420107)

-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023; https://www.dbrsmorningstar.com/research/414076)

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