Morningstar DBRS Assigns Provisional Credit Ratings to MF1 2024-FL15 LLC

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes (the Notes) to be issued by MF1 2024-FL15 LLC (the Issuer).

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

All trends are Stable.

The initial collateral consists of 24 floating-rate mortgage loans (two loans are cross-collateralized as part of the Mandrake BTR Roll-Up and treated as one loan) secured by 31 transitional multifamily properties. The collateral is encumbered by $2.0 billion of debt, composed of $845.7 million going into the trust, $138.9 million in future funding, and $1.1 billion of funded pari passu debt. Five loans in the pool, representing 22.4% of the initial pool balance, are delayed-close mortgage assets, which are identified in the data tape and included in the Morningstar DBRS analysis. The Issuer has 45 days after closing to acquire the delayed-close assets.

The transaction is a managed vehicle, which includes a 24-month reinvestment period. As part of the reinvestment period, the transaction includes a 120-day ramp-up acquisition period during which the Issuer is expected to increase the trust balance by $54.3 million to a total target collateral principal balance of $900 million. All tables, charts, and metrics referenced in this presale report reflect the $900 million target pool balance, inclusive of $54.3 million of hypothetical ramp loans. Morningstar DBRS assessed the ramp loans using a conservative pool construct and, as a result, the ramp loans have expected losses above the pool WA loan expected losses.

Reinvestment of principal proceeds during the reinvestment period is subject to Eligibility Criteria, which, among other criteria, includes a rating agency no-downgrade confirmation (RAC) by Morningstar DBRS for all new mortgage assets and funded companion. If a delayed-close asset is not expected to close or fund prior to the purchase termination date, the Issuer may acquire any delayed-closed collateral interest at any time during the ramp-up acquisition period. The Eligibility Criteria indicates that only multifamily, manufactured housing, student housing, and senior housing properties can be brought into the pool during the stated ramp-up acquisition period. Additionally, the Eligibility Criteria establishes minimum DSCR, LTV, and Herfindahl requirements. Furthermore, certain events within the transaction require the Issuer to obtain RAC. Morningstar DBRS will confirm that a proposed action or failure to act or other specified event will not, in and of itself, result in the downgrade or withdrawal of the current rating. The Issuer is required to obtain RAC for all acquisitions of companion participations.

The loans are secured by cash flowing assets, many of which are in a period of transition with plans to stabilize and improve the asset value. In total, 14 loans, representing 60.7% of the pool, have remaining future funding participations totaling $138.9 million, which the Issuer may acquire in the future. Please see the chart below for the participations that the Issuer will be allowed to acquire.

All of the loans in the pool have floating rates, and Morningstar DBRS incorporates an interest rate stress that is based on the lower of a Morningstar DBRS stressed rate that corresponds to the remaining fully extended term of the loans or the strike price of an interest rate cap with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the debt service payments were measured against the Morningstar DBRS As-Is NCF, all 23 loans had a Morningstar DBRS As-Is DSCR of 1.00x or below, a threshold indicative of default risk. Additionally, the Morningstar DBRS Stabilized NCF for 21 of the 23 loans, representing 92.8% of the initial pool balance, was below 1.00x, which is indicative of elevated refinance risk. The properties are often transitioning with potential upside in cash flow; however, Morningstar DBRS does not give full credit to the stabilization if there are no holdbacks or if other structural features in place are insufficient to support such treatment. Furthermore, even with the structure provided, Morningstar DBRS generally does not assume the assets will stabilize above market levels.

Morningstar DBRS¿ credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related principal amounts, the interest distribution amounts, and the deferred interest amounts for the rated classes.

Morningstar DBRS¿ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Default Interest and Interest on Unpaid Interest.

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 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 at (January 23, 2024), https://dbrs.morningstar.com/research/427030.

Classes F-E, F-X, G-E, G-X, H-E, and H-X are MASCOT notes and reference the Exchangeable Notes, Class F, Class G, and Class H. Classes F-X, G-X and H-X reference a single rated tranche and the credit ratings mirror the reference obligation tranche, in accordance with the priority of payment. The MASCOT notes are expected to have a $0 balance at closing.

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 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.

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS¿ methodology, Morningstar DBRS used the data file outlined in the independent accountant¿s report in its analysis to determine the credit ratings referenced herein.

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 notes 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 notes 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.
22 West Washington Street
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://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797

--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

-- Interest Rate Stresses for U.S. Structure Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623

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

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