Morningstar DBRS Finalizes Provisional Credit Ratings on Canadian Commercial Mortgage Origination Trust 6

DBRS Limited (Morningstar DBRS) finalized provisional credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-6 (the Certificate) issued by Canadian Commercial Mortgage Origination Trust 6 (the Trust):

-- Class A at AAA (sf)
-- Class A-J at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

Classes A-J, X, B, C, D, E, F, and G will be privately placed.

The collateral consists of 28 fixed-rate loans, including five pari passu pooled interests, secured by 39 commercial properties. The transaction is a sequential-pay pass-through structure. Morningstar DBRS rolled up the five pari passu hotel loans into a single loan to account for the cross-collateralized and cross-defaulted nature of the loan interests (Vancouver Hotel Pooled Interest, Ottawa Hotel Pooled Interest, Edmonton DoubleTree Hotel Pooled Interest, Bessborough Hotel Pooled Interest, and Edmonton Home2Suites Hotel Pooled Interest (collectively, Silverbirch Hotel Portfolio Pooled Interests)). Throughout the remainder of this report, the collateral pool will be referred to as a 23-loan pool. The loan pool was analyzed to determine the provisional credit ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. The collateral pool has an issuance Morningstar DBRS weighted average loan-to-value ratio (WA LTV) of 58.4% and scheduled amortization to a Morningstar DBRS Balloon LTV of 52.9%. When the cut-off loan balances were measured against the Morningstar DBRS Stabilized Net Cash Flow (NCF) and their respective actual constants, the initial Morningstar DBRS WA Debt Service Average Ratio (DSCR) for the pool was 1.48x.

Thirteen loans, representing a combined 48.7% of the pool balance, exhibit Morningstar DBRS Issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. All loans in the pool, except one loan (Fonthill Retail), representing 1.0% of the pool, have been given full or partial recourse credit in the Morningstar DBRS CMBS Insight model because of some form of recourse to individuals and REITs or established corporations. Recourse generally results in lower POD over the term of the loan. While it is generally difficult to quantify the impact of recourse, all else being equal, there is a small shift lowering the loan’s POD for warm-body or corporate sponsors that give recourse. Recourse can also serve as a mitigating factor to other risks, such as single-tenant risk, by providing an extra incentive for the loan sponsor to make debt service payments if the sole tenant vacates. Additionally, three Morningstar DBRS-modelled loans, representing 11.3% of the pool, have Strong sponsor strength.

The Morningstar DBRS sample included 12 of the 23 Morningstar DBRS-modelled loans or 16 of 28 Issuer-counted loans in the pool. Site inspections were performed on 23 of the 39 properties in the portfolio (77.3% of the pool by allocated loan balance). Morningstar DBRS conducted meetings with the on-site property manager, leasing agent, or a representative of the borrowing entity for 10 Morningstar DBRS-modelled loans or 12 Issuer-counted loans, representing 74.2% of the pool. The Morningstar DBRS sample had an average NCF variance of -6.0% and ranged from -14.2% (Adgar Office) to +4.2% (Silverbirch Hotel Portfolio).

Morningstar DBRS notes that Royal Bank of Canada, which serves as Fiscal Agent and provides backup principal and interest advancing, is only being held to a gross negligence standard with regard to its obligations under the Pooling and Servicing Agreement.

Morningstar DBRS’ credit ratings on the Certificates address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS’ credit ratings does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Yield Maintenance Charges.

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, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or 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).

Class X is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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 Canadian dollars unless otherwise noted.

The principal methodology is North American CMBS Multi-Borrower Rating Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428797).

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 [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.

-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- Legal Criteria for Canadian Structured Finance (June 20, 2023), https://dbrs.morningstar.com/research/416101
-- 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
-- North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797

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/410863.

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