Morningstar DBRS Confirms All Credit Ratings on CSMC 2019-ICE4

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2019-ICE4 issued by CSMC 2019-ICE4 as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class HRR at B (high) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the underlying collateral. The loan has exhibited significant cash flow growth since issuance and benefits from an experienced operator in Lineage Logistics, which has the largest temperature-controlled storage, warehousing, and logistics company in North America.

At issuance, the collateral consisted of 64 industrial cold storage and distribution facilities totaling about 17.7 million square feet (sf) in 22 states. Two properties have been released to date, which resulted in a nominal decrease of the loan balance to $2.34 billion as of the February 2024 remittance from $2.35 billion. The transaction features a partial pro rata/sequential-pay structure, where, in the event properties are released, the first 20% of the principal balance will be paid pro rata. All remaining properties are master-leased to Lineage Logistics, following its assumption of Southeast Frozen Foods Company's operations in 2021.

The interest-only, floating-rate loan is currently on the servicer’s watchlist because its final maturity is in May 2024 as the loan has exercised all its extension options. Per the most recent servicer commentary, the borrower has expressed its intent to repay the loan by the maturity date. In the event that the loan is not repaid by maturity, a cash sweep would be triggered.

According to the trailing 12-month period ended (T-12) September 30, 2023, financials, the net cash flow (NCF) improved to $341.3 million, compared with the YE2022 NCF of $275.6 million and the Morningstar DBRS NCF of $226.6 million. The growth in cash flow is primarily due to increases in both rental revenue and other income. However, debt service has increased given the floating-rate nature of the loan, with the T-12 September 30, 2023, debt service coverage ratio (DSCR) of 2.35 times (x), compared with the YE2022 DSCR of 4.09x. Despite the DSCR decline, the figure is still healthy and the loan is well-positioned to refinance as the collateral remains 100% occupied.

Considering the near-term maturity, Morningstar DBRS took a conservative approach and maintained the issuance sizing in its analysis, which is based on the Morningstar DBRS NCF of $226.6 million and a capitalization rate of 8.75%, resulting in a Morningstar DBRS value of $2.6 billion, which represents a 21.8% haircut from the issuance appraised value of $3.3 billion. Morningstar DBRS applied positive qualitative adjustments totaling 7.5% to reflect the low cash flow volatility, good property quality, and strong market fundamentals.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024; https://dbrs.morningstar.com/research/427030).

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://dbrs.morningstar.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 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.

Morningstar DBRS 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://dbrs.morningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023; https://dbrs.morningstar.com/research/422174)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://dbrs.morningstar.com/research/415687)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://dbrs.morningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://dbrs.morningstar.com/research/419592)

Legal Criteria for U.S. Structured Finance (December 7, 2023; https://dbrs.morningstar.com/research/425081)

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279. (July 17, 2023)

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