DBRS Morningstar Takes Rating Actions on 76 Freddie Mac Transactions and Seven ReREMIC Transactions

On November 3, 2023, DBRS Morningstar finalized its "North American CMBS Multi-Borrower Rating Methodology" (the Methodology) and CMBS Insight Model Version 1.2.0.0 (the Model). The Methodology and the Model present the framework for which DBRS Morningstar's credit ratings on North American commercial mortgage-backed securities (CMBS) multi-borrower transactions are assigned and/or monitored. A more detailed explanation of the updates and their rationales can be found in the press release "DBRS Morningstar Publishes Final North American CMBS Multi-Borrower Rating Methodology and Predictive Model" at https://www.dbrsmorningstar.com/research/422861.

As noted in the press release, DBRS Morningstar deemed two of the updates to be material changes, both of which were expected to have a positive impact on the outstanding DBRS Morningstar credit ratings on Freddie Mac Agency transactions (K-Series), including ReREMICs of K-Series securities. These material updates were related to the probability of default (POD) assumptions used for five-year original term loans with stabilized property cash flows (in conduit and agency transactions), where the treatment will be the same as 10-year loans, and loans backed by multifamily properties in Freddie Mac K-Series transactions. With respect to the K-Series transactions, a POD factor of 80% was applied as an adjustment to the POD regression estimate. The update reflects the review of the stronger performance, in terms of delinquency, of agency multifamily loans relative to the historical multifamily cohort of predominantly nonagency multifamily loans on which the model was trained.

As a result of the application of the above Methodology and Model, inclusive of consideration for updated transaction performance data, DBRS Limited (DBRS Morningstar) took rating actions on 297 classes from 38 Freddie Mac CMBS transactions, 169 classes from 38 Freddie Mac Structured Pass-Through Certificate transactions, and 87 classes from seven ReREMIC transactions. Of the 553 classes, DBRS Morningstar confirmed its credit ratings on 425 classes, upgraded 109 classes across 20 Freddie Mac transactions and 14 classes across three ReREMIC transactions, and discontinued five classes because of repayment. All trends are Stable. The credit rating confirmations reflect the overall stable performance of the transactions, with the reported cash flows and other performance metrics for most loans generally in line DBRS Morningstar's expectations. The credit rating upgrades generally reflect the significantly increased credit support, whether through principal repayments or increased defeasance, as well as the lack of a significant concentration of loans showing performance declines since issuance.

The full listing of the ratings of the classes along with the performance metrics for these transactions are found at the end of this press release.

The rating actions reflect DBRS Morningstar's expanded review process as outlined in the "North American CMBS Surveillance Methodology" (March 16, 2023). Based on the October 2023 remittance reports, the affected transactions were analyzed to identify changes since the most recent DBRS Morningstar rating action for each. Applicable changes included developments such as loan repayments, increased defeasance, cash flow and/or occupancy changes for the collateral properties, new values for loans in special servicing, or additions to the servicer's watchlist. DBRS Morningstar also incorporated a stressed refinance analysis scenario for all loans, which considered the property's performance trajectory as well as interest rates in the current lending environment to identify loans that may have increased maturity default risk. Where loans were exhibiting performance declines from issuance and/or were reporting metrics that suggested increased refinance risk in the analysis, POD adjustments were made on a sliding scale, with the severity of the POD penalty increasing based on the specifics of the increased risks. In some cases, loss given default adjustments were also made, reflecting DBRS Morningstar's concerns surrounding potential performance-based value declines from the issuance figures.

The analysis generally reflected that (1) all defeased loans were excluded from the Model runs and were liquidated at 100% recovery and (2) specially serviced loans that were expected to be resolved with a loss to the respective trusts were also excluded from the Model runs and were liquidated based on recent information, such as updated appraised values. The combination of these two actions resulted in a liquidated credit enhancement for the bond stack, which was compared with the multiple ranges referred to in the Methodology. DBRS Morningstar then overlayed this analysis with the aforementioned stressed refinance analysis scenario on a cumulative basis to measure each transaction's exposure to potential increased refinance risk.

The credit rating actions included seven ReREMIC transactions collateralized by underlying Freddie Mac K-Series transactions, some of which are not rated by DBRS Morningstar. The credit ratings depend on the performance of the underlying transactions. In general, the performance of the Freddie Mac K-Series transactions exhibited healthy performance metrics evidenced by the weighted-average debt service coverage ratio (DSCR) in excess of 1.36 times based on the most recent financials. Based on the October 2023 remittance reports, only three Freddie Mac K-Series transactions have delinquent and/or specially serviced loans, with the largest concentration representing less than 3.0% of the subject pool balance. In addition, realized losses to date across all transactions have been generally minimal and total defeasance was 18.5% of the aggregate principal amount, with transaction-level defeasance concentrations ranging from 0.0% to 63.5%. Loans on the servicer's watchlist totaled 8.2% of the aggregate principal amount, ranging between 1.3% and 64.3% for the respective transaction pool balance. FREMF 2017-K724 Mortgage Trust, Series 2017-K724 has the highest watchlist concentration considering all loans are scheduled to mature by December 2023. When excluding this transaction, the high range of transaction-level watchlist concentration is only 17.2%. Generally, loans on the servicers' watchlists are being monitored for performance and nonperformance reasons, including deferred maintenance, upcoming maturity, a low DSCR, and/or a low occupancy rate.

For more information of the performance metrics for each deal, please refer to the document at the end of this press release.

DBRS Morningstar also applied its criteria for rating CMBS interest-only (IO) certificates, as referenced in the "Rating North American CMBS Interest-Only Certificates" methodology. As such, rating changes on the applicable reference obligations may have triggered an action on the CMBS IO certificate as well.

A summary of the credit rating actions, along with the credit rating action for each class, can be found by clicking the following link: https://www.dbrsmorningstar.com/research/423696

A summary of the performance metrics for each rated Freddie Mac K-Series transactions along with nonrated Freddie Mac K-Series transactions tied to ReREMICs can be found by clicking the following link: https://www.dbrsmorningstar.com/research/423698

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.

DBRS Morningstar notes that the above press release and related 17g-7 disclosure were amended on October 16, 2024, to reflect the correct credit rating upgrade on the Structured Pass-Through Certificates, Series K-077, Class A-M certificates in the Freddie Mac Structured Pass-Through Certificates, Series K-077 transaction to AA (high) (sf) rather than AAA (sf).

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

The principal methodology is the 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 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 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.

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

DBRS Limited
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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 (November 3, 2023)/North American CMBS Insight Model Version 1.2.0.0, https://www.dbrsmorningstar.com/research/422859

-- 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 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 U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

A description of how DBRS Morningstar analyzes 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].