Morningstar DBRS Changes Trends on Six Classes of BBCMS Mortgage Trust 2020-C6 to Negative from Stable, Confirms Credit Ratings on All Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-C6 issued by BBCMS Mortgage Trust 2020-C6 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D at A (low) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class F-RR at BBB (low) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (high) (sf)
-- Class J-RR at B (low) (sf)

Morningstar DBRS also confirmed its credit ratings on the loan-specific certificates as follows:

-- Class F5T-A at BBB (high) (sf)
-- Class F5T-B at BB (high) (sf)
-- Class F5T-C at B (high) (sf)
-- Class F5T-D at CCC (sf)

Morningstar DBRS changed the trends on Classes E, F-RR, G-RR, H-RR, J-RR, and X-D to Negative from Stable. The trends on all remaining classes are Stable, apart from Class F5T-D, which has a credit rating that typically does not carry a trend in commercial mortgage-backed securities (CMBS) transactions.

The Negative trends reflect Morningstar DBRS' loss projections for 2000 Park Lane (Prospectus ID#17; 3.0% of the pool), secured by a suburban office property in Pittsburgh, and its further concerns about the two largest loans in the pool: Parkmerced (Prospectus ID#1; 7.3% of the pool), a multifamily complex in San Francisco that transferred to special servicing, and 650 Madison Avenue (Prospectus ID#2; 6.7% of the pool), an office tower in New York City that experienced a decline in occupancy and cash flow after the property's two largest tenants downsized. The Negative trends also reflect the overall risks for the pool related to office exposure and the likelihood of further credit and/or value deterioration in the near to moderate term. Office collateral currently comprises 17.4% of the pool balance, increasing to 35.1% when including mixed-use collateral with an office component. Morningstar DBRS applied loan-to-value ratio (LTV) and probability of default (POD) adjustments to six office loans that exhibited increased risks to the pool, including low debt service coverage ratios (DSCRs), increased tenant rollover risk, or low occupancy. The resulting weighted average (WA) expected loss (EL) of these loans exceeded the pool average by approximately 40.0%.

The credit rating confirmations reflect an overall healthy loan pool, as evidenced by its WA DSCR of 2.35 times (x) and the investment-grade shadow ratings on three of the top 15 loans, which Morningstar DBRS confirmed with this review. In its analysis for the Parkmerced and 650 Madison Avenue loans, Morningstar DBRS applied conservative a POD adjustment, which was a contributing factor to the negative pressure observed toward the bottom of the capital stack. While both loans have exhibited increased credit risk since issuance, their A-note LTVs remain low, the underlying assets are well located, and, in the case of 650 Madison Avenue, there is ample time until loan maturity, supporting the credit rating confirmations and trend changes made as part of this review.

As of the October 2024 remittance, all 45 of the original loans remain in the pool, with an aggregate principal balance of $1.0 billion, representing a collateral reduction of 1.4% since issuance. Nine loans, representing 20.4% of the pool balance, are currently on the servicer's watchlist being monitored primarily for low occupancy rates and DSCRs, near-term tenant rollover, and cash management triggers. The pool benefits from three fully defeased loans, representing 5.7% of the current pool balance. Excluding defeasance, the pool is primarily concentrated by retail and office properties, representing 20.3% and 17.2% of the pool balance, respectively. In addition, two loans, representing 10.0% of the pool balance, are in special servicing.

The largest specially serviced asset, Parkmerced (Prospectus ID#14; 2.9% of the pool), is secured by a 3,165-unit apartment complex in San Francisco. The $1.5 billion mortgage loan consists of a $547.0 million senior loan and subordinate debt composed of a $708 million B note and a $245.0 million C note. There is also $275.0 million in mezzanine debt in place, which, according to an April 2024 online article from The Real Deal, was sold to a third-party buyer for $167.5 million. The trust debt represents a pari passu portion of the senior loan. At Morningstar DBRS' last credit rating action, the loan was on the servicer's watchlist for a low DSCR and was being cash managed. Although the low DSCR was a concern, Morningstar DBRS noted an improvement in occupancy as of the March 2023 rent roll and the subject collateral's strong historical performance as mitigating factors that supported maintaining the investment-grade shadow rating assigned at issuance. However, despite slow and steady improvements over the next six months, the loan eventually transferred to special servicing as of the March 2024 reporting period and was reported as current and with the special servicer as of the October 2024 remittance. The property received an updated appraisal in July 2024, valuing the complex at $1.4 billion, reflecting a 34.1% decline from the issuance value of $2.1 billion. Although the value decline and deteriorated performance are indicative of increased credit risk from issuance, the implied LTV for the senior debt with the updated value remains healthy at 39.3%, suggesting that the likelihood of loss to the trust at resolution remains low. In light of the default and generally increased risks from issuance, Morningstar DBRS removed the shadow rating and increased the POD, resulting in a loan EL that was approximately double the pool average.

The second loan in special servicing is Trinity Multifamily Portfolio (Prospectus ID#19; 2.7% of the pool), secured by a seven-property portfolio totaling 354 units across Illinois, Georgia, and Arizona. The loan transferred to special servicing for payment default in September 2024 and remains due for the July 2024 loan payment as of the October remittance. In early 2022, a fire at the South Clyde property in Chicago caused approximately $950,000 in damage and rendered all 53 units uninhabitable. According to the servicer commentary, the servicer advanced forced-place insurance coverage totaling approximately $100,000 for three of the seven properties. Although no updated appraisal was provided, Morningstar DBRS suspects the overall portfolio value has declined as a result of the fire and subsequent decreases in occupancy and cash flow, and applied a conservative POD adjustment in its analysis. The resulting EL was approximately 150.0% higher than the pool average.

The 650 Madison Avenue pari passu loan is collateralized by a Class A office and retail tower that consists of approximately 544,000 square feet (sf) of office space, with additional ground-floor retail and storage space. The loan has been on the servicer's watchlist since April 2023 as a result of a low debt service coverage ratio (DSCR), driven by the departure of several tenants. According to the June 2024 rent roll, the property's occupancy was 81.9%, down from 97.0% at issuance. Morningstar DBRS expects the occupancy rate to fall further following the servicer-confirmed downsizing of both the largest tenant, Ralph Lauren (currently 40.7% of the net rentable area (NRA); lease expiration in December 2024), and the second-largest tenant, BC Partners Inc. (previously 11.7% of the NRA; lease expiration in April 2024). According to the servicer, Ralph Lauren will continue to occupy 141,871 sf (23.6% of the NRA; new lease expiration in April 2036), while BC Partners Inc. has agreed to renew a portion of its space representing 7.4% of the NRA (lease expiration in August 2037), both at reduced rates compared with those previously paid. In addition, both tenants were given one year of free rent as part of their respective long-term renewals. As of the most recent financials for the trailing 12 months ended March 31, 2024, the net cash flow (NCF) was $38.5 million (reflecting a DSCR of 1.71x on the senior debt and 1.36x on the whole loan), well below the Morningstar DBRS NCF of $50.8 million derived at issuance (DSCR of 2.45x on the senior debt). Although the high availability rate and cash flow declines are indicative of significantly increased risks for this loan, Morningstar DBRS notes mitigating factors in the strong sponsorship, building quality, and desirable location. To stress the loan in the analysis, given the increased risks, Morningstar DBRS considered an elevated LTV and POD, resulting in an EL that was double the pool average.
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Morningstar DBRS also has concerns about the 2000 Park Lane loan, secured by a 234,859 sf suburban office property in Pittsburgh. The loan was added to the servicer's watchlist in April 2024 as the largest tenant, New York Life (40.5% of NRA), had not renewing multiple leases 12 months prior to the lease expirations in December 2024 and April 2025. As a result, a cash trap was activated with excess cash swept into a reserve with a current balance of $1.4 million as of the October reporting. In addition to the largest tenant rolling in the near term, Coterra Energy Inc. (24.0% of NRA) has a lease expiration in August 2025. Neither tenant has provided notice of renewal or departure as of this press release. As a result of the potential increase in vacancy in the near term in a submarket that, according to Reis, reported a vacancy rate of 19.3% as of Q2 2024, Morningstar DBRS believes the subject property has likely suffered a significant decline in value from issuance. To account for the increased risks, Morningstar DBRS analyzed the loan with a liquidation scenario, applying a conservative haircut to the issuance appraised value of $41.4 million, resulting in a loss severity of approximately 60.0%.

At issuance, Morningstar DBRS assigned an investment-grade shadow rating to three loans: Kings Plaza (Prospectus ID#3; 67.2% of the current pool); F5 Tower (Prospectus ID#5; 6.1% of the current pool); and Bellagio Hotel and Casino (Prospectus ID#7; 5.3% of the current pool). With this review, Morningstar DBRS confirmed that the respective performances of each of these loans remain consistent with the characteristics of investment-grade loans.

The Class F5T-A, F5T-B, F5T-C, and F5T-D loan-specific certificates are backed by the $112.6 million subordinate companion loan of the $297.6 million F5 Tower whole loan, which is secured by 515,518 sf of Class A office space and a 259-space underground parking garage in Seattle. The office space is 100% occupied by F5 Networks, Inc., which uses the space as its headquarters, on a lease through September 2033. The loan-specific certificates are not pooled with the remainder of the trust loans. In April 2024, Morningstar DBRS downgraded all four loan-specific certificates as part of a bulk credit rating action taken on its portfolio of Single-Asset/Single-Borrower transactions secured by office properties. As part of that review, Morningstar DBRS increased the loan's capitalization rate 50 basis points to 7%, bringing it in line with assets of similar quality and location that were analyzed as part of the bulk review. With this review, Morningstar DBRS confirmed that the performance of the underlying loan remains in line with expectations since the April 2024 review, supporting the rating confirmations for those classes.

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

Classes X-A, X-B, and X-D are interest-only (IO) certificates that 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 Classes B, F-RR, G-RR, and H-RR 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 ratings 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. Morningstar DBRS analyzed loans of concern with conservative POD penalties and/or stressed LTVs, as outlined above, increasing the pool's baseline EL for the most challenged of those loans. Morningstar DBRS also notes the time to maturity remaining for all loans in the pool, with most loan maturities concentrated in 2029, 2031, and 2033--the only exception being the Parkmerced loan, as noted above. The Negative trends assigned to the junior bonds most exposed to loss signal Morningstar DBRS' overall concerns and suggest additional credit rating downgrades could occur as part of future review cycles.

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 info-DBRS@morningstar.com.

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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.

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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/North American CMBS Insight Model v 1.2.0.0 (March 1, 2024), https://dbrs.morningstar.com/research/428797

--North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024; https://dbrs.morningstar.com/research/439699/north-american-single-assetsingle-borrower-ratings-methodology

-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- 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

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.