Morningstar DBRS Takes Credit Rating Actions on Eight Multi-Borrower Single-Family Rental Transactions

DBRS Limited (Morningstar DBRS) conducted a surveillance review of eight multiborrower single-family rental (MB SFR) transactions. Most of the credit rating actions were credit rating confirmations with a few credit ratings being upgraded. One transaction has three classes for which the trends were maintained as Negative. All other trends are Stable. The full list of affected transactions, classes, and credit ratings can be found at the end of this press release. A summary of the performance metrics for each rated MB SFR transaction can be found by clicking the following link.
https://dbrs.morningstar.com/research/445041.

The rating confirmations reflect the overall stable performance of the transactions with the reported cash flows and other performance metrics of most loans generally in line with Morningstar DBRS' expectations. The credit rating upgrades generally reflect the significantly increased credit support, whether through principal repayments or increased loan payoffs, coupled with a lack of a significant concentration of loans showing performance declines since issuance. Performance data for each transaction were analyzed, including loan repayments, cash flow and/or occupancy changes for the collateral properties, special servicing transfers, and watchlist additions. In the case of larger loans in special servicing that were exhibiting performance declines from issuance and/or were reporting payment or maturity defaults, Morningstar DBRS considered liquidation scenarios based on a value stress determined by the severity of the performance decline. For some loans exhibiting increased risks that were not liquidated in the analysis, a higher probability of default was analyzed to increase the expected loss.

The November 2024 remittance reports showed the servicer's watchlist concentrations ranged between 17.4% and 55.1%, with concentrations of delinquent loans between 0.0% and 11.4% across the eight transactions. Realized losses to date have been generally minimal. Historically, liquidations across these pools have shown somewhat binary outcomes, with many loans reporting no or very small losses at disposition, while other loans report high loss severities sometimes exceeding 100%. Weighted-average loss severities ranged between 0.0% and 41.0%. The CAF 2019-1 transaction had the highest watchlist concentration, with the majority of loans being monitored for deferred maintenance and/or failure to report updated financials, while the CAF 2018-1 transaction had the highest delinquency concentration, with two loans listed as 30 to 59 days delinquent.

The CAFL 2019-3 transaction has the most barbelled structure of the eight transactions, with the largest amount of principal repayment during the last 12 months totaling more than $93.0 million (or a collateral reduction of 24.7%) and the second-highest delinquency rate at 10.2%, increased from 8.1% in January 2024 and 7.6% in January 2023. Given the significant increase in credit support toward the top of the capital stack, Morningstar DBRS upgraded three senior certificates, while maintaining Negative trends on the three most junior certificates as a result of the increased delinquency and specially serviced loans, which represent 10.2% and 21.5% of the pool, respectively. While two (9.6% of the pool) of the three largest specially serviced loans were brought current in October 2024, both loans are made to the same borrower, have been in special servicing since October 2021, and are now considered matured non-performing. The special servicer has noted there are cash flow and possible liquidity issues that could impair the ability to refinance or cure the outstanding defaults. Another loan (1.8% of the pool) in special servicing made its last debt service payment in November 2021 and is listed with discounted payoff as the workout strategy. Based on the increased risks for these loans, in its analysis Morningstar DBRS liquidated them from the trust with an implied loss of $4.7 million.

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

Morningstar DBRS also applied its criteria for rating CMBS interest-only (IO) certificates, as referenced in the Rating North American CMBS Interest-Only Certificates methodology. As such, rating changes on the applicable reference obligations may have triggered an action on the CMBS IO certificate as well.

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 the following classes materially deviate from the credit ratings implied by the predictive model: Classes F and G in B2R 2015-1; Class E in CAF 2018-1; Classes E, F, and G in CAF 2019-1; and Class G in CAF 2020-1. 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 stresses implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for these material deviations is uncertain loan-level event risk associated with a variety of factors including watchlist, delinquency, and specially serviced concentrations; near-term maturities for underperforming loans; and increased concentration risks.

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.

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.

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.

-- 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 (December 3, 2024), https://dbrs.morningstar.com/research/444064
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

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.

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