DBRS Morningstar Confirms One and Places Two Transactions Under Review With Developing Implications Following Release of Global Credit Tenant Lease Methodology

DBRS Morningstar confirmed its credit ratings on one transaction and placed two transactions Under Review with Developing Implications following the release of the DBRS Morningstar “Global Methodology for Rating Credit Tenant Leases” (the Methodology).

DBRS Morningstar published the Methodology on October 11, 2023, for its immediate use.

As a result, DBRS Morningstar confirmed its credit rating on the following transaction:

-- South Block (Concert) Ltd. and Jawl Precinct Lands Corporation – 525 Superior Street at AA (high) with Stable trend.

The transaction is a credit tenant lease (CTL) transaction whereby the rating of the tenant serves as the basis for the credit rating of the notes. The loan is secured by a 2017 vintage office building at 525 Superior Street in Victoria. DBRS Morningstar’s current credit rating of the mortgage loan reflects the rating of the credit tenant, the Government of the Province of British Columbia (the Tenant; rated AA (high) with a Stable trend by DBRS Morningstar), which occupies 99% of the total net rentable area and has a lease that is co-terminous with the fully amortizing loan term with no rights to early termination. The net cash flow from the tenant’s lease is sufficient to cover the financial obligations of the borrowers related to the mortgage loan. Any change to the DBRS Morningstar rating of the tenant during the loan term is likely to have an effect on the credit rating of the mortgage loan.

In addition, DBRS Morningstar placed the following two transactions Under Review with Developing Implications:

-- 1 tranche in Morguard Corporation & 131 Queen Street Limited
-- 1 tranche in SEC LP and ARCI Ltd. (Suncor Energy Centre)

The transactions placed Under Review with Developing Implications are viewed as CTL transactions where the rated notes do not fully amortize during the corresponding lease terms for the credit tenant(s) (a single-asset/single-borrower quasi-CTL transaction). The credit ratings are placed Under Review with Developing Implications until a full review can be completed in the upcoming months. An initial review conducted by DBRS Morningstar did not find a change in credit rating to be expected solely based on the assignment of the credit rating under the new methodology; however, as part of its on-going surveillance efforts, DBRS Morningstar will also take into consideration updated performance information of the asset(s), its location with the market, and overall property sector performance expectations. DBRS Morningstar generally endeavors to resolve Under Review designations within 90 days.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Credit rating actions on the Province of British Columbia are likely to have an impact on South Block (Concert) Ltd. and Jawl Precinct Lands Corporation – 525 Superior Street (Province of British Columbia).

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 Rating, 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 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 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.

This credit rating is Under Review with Developing Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

DBRS, Inc.
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Tel. +1 212 806-3277

DBRS, Inc.
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Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

Global Methodology for Rating Credit Tenant Leases (October 11, 2023; https://www.dbrsmorningstar.com/research/421764)
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)
North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)
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)

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