Morningstar DBRS Assigns Provisional Credit Ratings to Harvest Commercial Capital Loan Trust 2024-1

DBRS, Inc. (Morningstar DBRS) assigned provisional ratings to the following notes to be issued by Harvest Commercial Capital Loan Trust 2024-1 (Harvest 2024-1):

-- $136,139,000 Class A Notes at AAA (sf)
-- $26,660,000 Class M-1 Notes at AA (sf)
-- $14,204,000 Class M-2 Notes at A (sf)
-- $9,834,000 Class M-3 Notes at BBB (sf)
-- $10,161,000 Class M-4 Notes at BB (sf)
-- $7,758,000 Class M-5 Notes at B (sf)

CREDIT RATING RATIONALE/DESCRIPTION

The provisional ratings are based on Morningstar DBRS' review of the following analytical considerations:

The transaction's capital structure and available credit enhancement. Note subordination, cash held in the Reserve Account, cash held in the Capitalized Interest Account, and available excess spread, as well as other structural provisions, create credit enhancement levels which are sufficient to support Morningstar DBRS' stressed cumulative net loss (CNL) hurdle rate assumptions of 30.88%, 22.50%, 16.51%, 12.63%, 8.92%, and 6.03%, respectively, for each of the AAA (sf), AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) rating categories.

The transaction parties' capabilities with regard to originating, underwriting, and servicing of SBA 504, conventional, and investor first lien commercial real estate loans:
-- Morningstar DBRS performed an operational review of Harvest and found it to be an acceptable originator and servicer for the collateral.
-- In addition, US Bank, which is an experienced servicer of CRE backed loans, is the Backup Servicer and custodian for the transaction.

A review by Morningstar DBRS of Harvest's historical collateral performance since Harvest began originating, which found minimal defaults and no net losses.

A review of the initial collateral pool as of the statistical cut-off date of April 30, 2024, which possesses diversity by property type and business type, among other metrics, as well as strong overall credit characteristics, most notably with a weighted average obligor FICO score of 748 and a weighted average current loan-to-value ratio of 51.91%. The average loan balance is approximately $1.5 million. All loans in the pool are backed by business purpose 1st lien CRE and include personal guarantees. Average time in business is approximately 15 years.

Harvest's underwriting process, which evaluates the small business borrower's ability to repay the loan primarily from the business cash flows of normal operations (recurring income sources) to service both its existing debt and the requested loan. The average debt service coverage ratio (DSCR) for loans in the initial pool is 2.33x.

A review of the collateral pool's industry concentrations against historical performance of SBA data for significant industry concentrations as well as aggregate vintage performance.

Collateral eligibility and concentration limits built into the Pre-Funding Parameters that ensure that the final collateral pool continues to maintain strong credit characteristics and collateral diversification.

The legal structure and expected legal opinions that will address the true sale of the receivables, the nonconsolidation of the assets of the Issuer, that the Indenture Trustee has a valid first-priority security interest in the assets, and consistency with Morningstar DBRS' Legal Criteria for U.S. Structured Finance.

The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios For Rated Sovereigns March 2024 Update, published on March 27, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

Morningstar DBRS' credit ratings on the notes referenced herein address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for the Class A and Class M-1 Notes are the Interest Payment Amount (including any unpaid interest from prior periods) and the Note Principal Balance. The associated financial obligations for the Class M-2, M-3, M-4, and M-5 Notes are the Interest Payment Amount, the Interest Carryforward Amount, and the Note Principal Balance.

Morningstar DBRS' credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations. The associated contractual payment obligation that is not a financial obligation for each of the rated notes is the Net WAC Rate Carryover Amount and the Prepayment Interest Shortfalls.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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, AND 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 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 https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (January 23, 2024).

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

The principal methodology applicable to the credit rating is Rating U.S. Structured Finance Transactions at https://dbrs.morningstar.com/research/431204/rating-us-structured-finance-transactions (April 15, 2024).

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

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

Global Methodology for Rating CLOs and Corporate CDOs and the CLO Insight Model v1.0.1.0 (February 23, 2024)
https://dbrs.morningstar.com/research/428544/global-methodology-for-rating-clos-and-corporate-cdos

Operational Risk Assessment for U.S. ABS Servicers (March 21, 2024)
https://dbrs.morningstar.com/research/430003/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (March 21, 2024)
https://dbrs.morningstar.com/research/430004/operational-risk-assessment-for-us-abs-originators

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024)
https://dbrs.morningstar.com/research/428623/interest-rate-stresses-for-us-structured-finance-transactions

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.