Morningstar DBRS Confirms Credit Ratings on the Remaining Two Classes of Institutional Mortgage Securities Canada Inc., Series 2013-3

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates Series 2013-3 issued by Institutional Mortgage Securities Canada Inc., Series 2013-3 as follows:

-- Class E at BB (sf)
-- Class F at C (sf)

The trend on Class E is Stable. There is no trend on Class F, which has a credit rating that does not generally carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating confirmations reflect the ongoing concerns with the remaining three loans in the pool: Lunar and Whimbrel Apartments (Prospectus ID#10, 37.3% of the pool), Snowbird and Skyview Apartments (Prospectus ID#11, 34.7% of the pool), and Parkland and Gannet Apartments (Prospectus ID#17, 28.0% of the pool). The loans are secured by three underperforming multifamily properties located in Fort McMurray, Alberta, affected by the downturn of the oil and gas industry in 2014. All three of the loans are currently on the servicer's watchlist for low debt service coverage ratio (DSCR), failure to submit financial statements, and an overall increased level of default risk. As of February 2024, the servicer reported occupancy figures ranging from 75% to 97% across all the properties, remaining slightly depressed from the April 2023 figures. All three loans are currently in a forbearance period to December 2024 and, as confirmed by the servicer, the borrower continues to remain in compliance with the terms. Previously, the sponsor worked with the servicer to formalize several loan modifications, allowing various forms of payment relief and maturity extensions, including $600,000 in required principal curtailment payments with each extension. The sponsor, Lanesborough Real Estate Investment Trust, is reportedly in weak financial standing according to its Q1 2024 earnings report. The sponsor planned to sell several assets, including the subject properties, and wind-up operations earlier this year; however, the move was ultimately voted down by unitholders in June 2024. Although the sponsor continues to have financial problems, the loans received a principal paydown of approximately $1.0 million since the November 2023 remittance and continue to remain current on debt service payments. Morningstar DBRS analyzed the loans with a liquidation scenario utilizing the most recent full-year financials and stressed capitalization rate. The results of the liquidation scenario suggest an implied loss in excess of $2.4 million, which would be primarily contained to the unrated Class G and would begin to creep into Class F, which is already at a credit rating that implies very highly speculative credit quality, thereby supporting the credit rating confirmations.

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

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 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 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 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only three loans remaining. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability analysis.

DBRS Limited
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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.

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428797
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024), https://dbrs.morningstar.com/research/437761
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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 (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.