Morningstar DBRS Takes Credit Rating Actions on 38 Freddie Mac Transactions, 38 Freddie Mac SPC Transactions, and Nine ReREMIC Transactions

DBRS, Inc. (Morningstar DBRS) took credit rating actions on 287 classes from 38 Freddie Mac commercial mortgage-backed securities (CMBS) transactions (Freddie Mac K-Series transactions), 163 classes from 38 Freddie Mac Structured Pass-Through Certificate (SPC) transactions, and 102 classes from nine ReREMIC transactions. Of the 552 classes across the three transaction types, Morningstar DBRS confirmed its credit ratings on 505 classes, upgraded 43 classes, and discontinued four classes because of repayment. In one ReREMIC transaction, Morningstar DBRS changed the trends on three classes to Negative from Stable. All other 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 with Morningstar DBRS' expectations as of the most recent servicer reporting available for each transaction. The credit rating upgrades generally reflect significantly increased credit support, whether through principal repayments or increased defeasance, as well as the lack of a concentration of loans showing performance declines since issuance.

The full list of the credit ratings on each class, along with the performance metrics for these transactions, is found at the end of this press release.

The credit rating actions reflect Morningstar DBRS' expanded review process as outlined in the "North American CMBS Surveillance Methodology" (March 1, 2024) (the Methodology). Based on the September 2024 remittance reports, the affected transactions were analyzed to identify changes since the most recent Morningstar DBRS credit 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. Morningstar DBRS 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, Morningstar DBRS made probability of default (POD) adjustments on a sliding scale, with the severity of the POD penalty increasing based on the specifics of the increased risks. In some cases, Morningstar DBRS also made loss given default adjustments, reflecting Morningstar DBRS' concerns surrounding potential performance-based value declines from the issuance figures.

The analysis generally reflected that (1) all defeased loans were excluded from North American CMBS Insight Model (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 Morningstar DBRS compared with the multiple ranges referred to in the Methodology. Morningstar DBRS then overlaid 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 nine ReREMIC transactions collateralized by underlying Freddie Mac K-Series transactions, some of which are not rated by Morningstar DBRS. The credit ratings depend on the performance of the underlying transactions. In general, the Freddie Mac K-Series transactions exhibited healthy performance metrics evidenced by the weighted-average (WA) debt service coverage ratio (DSCR) in excess of 1.90 times (x) based on the most recent financials. Based on the September 2024 remittance reports, only two Freddie Mac K-Series transactions have delinquent and/or specially serviced loans, with the largest concentration representing less than 1.0% of the subject pool balance. In addition, realized losses to date across all transactions have been generally minimal and total defeasance was approximately 18.4% of the aggregate principal amount, with transaction-level defeasance concentrations ranging from 0.0% to 49.4%.

Loans on the servicer's watchlist totaled approximately 11.4% of the aggregate principal amount, ranging between 0.0% and 58.3% for the respective transaction pool balance. The two deals with the largest concentrations of loans on the watchlist, FREMF 2017-K729 Mortgage Trust, Series 2017-K729 and FREMF 2015-K42 Mortgage Trust, Series 2015-K42, are in wind-down, with the majority of loans scheduled to mature by December 2024. There are only three other deals with concentrations of loans on the watchlist above 20.0%: FREMF 2019-K98 Mortgage Trust, Series 2019-K98; FREMF 2018-K78 Mortgage Trust, Series 2018-K78; and FREMF 2020-K105 Mortgage Trust, Series 2020-K105. While these deals generally benefit from healthy performance characteristics, as evidenced by WA DSCRs ranging between 1.62x and 2.15x, there are a few larger loans in each pool being monitored for performance-related reasons.

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

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/442237.

A summary of the performance metrics for each rated Freddie Mac K-Series transaction, along with nonrated Freddie Mac K-Series transactions tied to ReREMICs, can be found by clicking the following link: https://www.dbrsmorningstar.com/research/442238.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Classes that are interest-only (IO) certificates reference 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 U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

The credit ratings assigned to eleven classes materially deviate from the credit ratings implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is uncertain loan-level event risk.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS, Inc.
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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 Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

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