Morningstar DBRS Confirms Credit Ratings on All Classes of BXMT 2020-FL2, Ltd.

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the following classes of notes issued by BXMT 2020-FL2, Ltd.:

-- 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 (low) (sf)
-- Class E at BB (high) (sf)
-- Class F at B (sf)
-- Class G at CCC (sf)

Morningstar DBRS also changed the trends on Classes C, D, E, and F to Stable from Negative, while the trends on Classes A, A-S, and B remain Stable. Class G has a credit rating that does not typically carry a trend in commercial mortgage-backed securities ratings.

The credit rating confirmations and trend changes reflect the increased collateral reduction to the transaction, which as of January 2025 reporting totaled 43.0% since closing with an additional 18.4% in collateral reduction realized since the previous Morningstar DBRS credit rating action in March 2024. In its previous review, Morningstar DBRS noted its concern of increased credit risk to the transaction related to the concentration of loans secured by office and mixed-use properties with a significant office component as most individual borrowers had been unable to implement business plans to materially increase occupancy rates and property cash flow. While the majority of these borrowers remain behind in the respective business plans, the credit ratings reflect the outstanding credit risks and the increased subordination to the notes supports the trend changes.

In conjunction with this press release, Morningstar DBRS has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction as well as business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at info-DBRS@morningstar.com.

As of the January 2025 remittance, the trust reported an outstanding balance of $855.7 million with 12 loans remaining in the trust. Since the previous Morningstar DBRS credit rating action, three loans were paid in full, totaling $232.0 million, including the Park Central loan ($47.0 million), which was purchased out of the trust by the issuer as a credit risk asset. Morningstar DBRS previously analyzed the loan with a liquidated loss severity of approximately 40.0%. An additional two loans, which remain in the trust, Orange County Office Portfolio (Prospectus ID#27, 5.8% of the current trust balance) and Douglas Entrance (Prospectus ID#24, 3.3% of the current trust balance), received principal trust loan curtailments of $22.4 million and $19.9 million, respectively. The curtailment to the Orange County Office Portfolio loan was the result of a property release, while the curtailment to the Douglas Entrance loan was the result of a loan assumption and paydown. In both instances, the reduction in leverage is noted as credit positive, specifically in the case of the Douglas Entrance loan as Morningstar DBRS liquidated the loan its previous analysis with a loss severity of approximately 20.0%.

As noted above, the trust continues to be concentrated with loans secured by office and mixed-use collateral, which total nine loans and 86.8% of the current trust balance. The remaining three loans are secured by hotel properties. One of the office loans, 444 North Michigan (Prospectus ID#13, 5.3% of the current trust balance), is delinquent and transferred to special servicing in November 2024 for imminent maturity default. The loan matured in December 2024 and has a current senior note balance of $95.4 million, with a $45.2 million piece securitized in the trust. As of September 2024, the property was 58.0% occupied with a trailing 12-months ended net cash flow (NCF) of $4.0 million, significantly below the Morningstar DBRS projected stabilized NCF of $8.4 million and the issuer's stabilized NCF of $9.0 million. According to the collateral manager's Q3 2024 update, the property was reappraised in July 2024 at $53.7 million, a 63.0% decline from the original appraised value at loan closing of $145.0 million. In its analysis for this review, Morningstar DBRS applied a 10.0% haircut to the appraised value based on observed comparable sales transactions in the market within the past 18 months and assumed a resolution could take up to one year, which would result in increased delinquent payments. Morningstar DBRS liquidated the loan with a loss severity approaching 60.0%.

All remaining borrowers have received loan modifications or forbearance agreements, which have provided borrowers capital relief, loan extensions, and/or additional loan funding to complete business plans. As of January 2025 reporting, six loans, representing 56.0% of the current trust balance, are on the servicer's watchlist and have been flagged for low occupancy rates, low property cash flow and/or upcoming loan maturity. The loan of most immediate concern, Liberty View (Prospectus ID#12, 11.3% of the current trust balance), is secured by a 1.3 million square foot (sf) mixed-use property in Brooklyn, New York. The loan has a current senior note balance of $156.5 million, with a $97.0 million piece securitized in the trust. The final maturity date is approaching in February 2025, and to date, the borrower has been unable to execute its business plan. According to September 2024 reporting provided by the collateral manager, the property was only 49.5% occupied with a trailing 12-month NCF of $10.3 million and a debt service coverage ratio of 0.78 times. The property was reappraised in October 2022 at a value of $320.0 million, implying a currently funded loan-to- value (LTV) of 48.9%; however, Morningstar DBRS believes the market value is lower given the current performance of the property. Morningstar DBRS believes the lender and borrower will agree to a loan modification and maturity extension with the lender requiring a principal curtailment and potential additional loan structure to strengthen the borrower's commitment to the asset. In its analysis for this review, Morningstar DBRS applied increased LTV and probability of defaults adjustments to reflect the current credit risk of the loan. The adjusted Morningstar DBRS stabilized property value is $210.0 million as Morningstar DBRS applied a stressed 8.50% cap rate to the issuer's stabilized NCF figure of $17.8 million. The resulting loan expected loss is similar with the overall expected loss for the pool.

In addition to the Liberty View loan, five loans, totaling 24.8% of the current trust balance, have scheduled maturity dates through July 2025. Based on individual property performance metrics and updates from the collateral manager, Morningstar DBRS does not expect any of these loans to pay in full at maturity; rather, borrowers are expected to exercise existing extension options or request a loan modification and maturity extension. All extension requests are expected to be accompanied by additional sponsor equity contributions in the form of loan curtailments or deposits into reserve accounts as the lender has often required equity contributions for loan modifications executed to date.

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

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.

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 private rating letters 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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

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.

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 (December 13, 2024), https://dbrs.morningstar.com/research/444616/North American CMBS Insight Model Version 1.2.0.0, 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
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

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.

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