Morningstar DBRS Upgrades Credit Ratings on Two Classes of Ready Capital Mortgage Financing 2021-FL6, LLC; Downgrades Credit Rating on One Class

DBRS, Inc. (Morningstar DBRS) upgraded its credit ratings on two classes of notes issued by Ready Capital Mortgage Financing 2021-FL6, LLC (the Issuer) as follows:

-- Class B to AA (high) (sf) from AA (low) (sf)
-- Class C to A (high) (sf) from A (low) (sf)

Morningstar DBRS also downgraded its credit ratings on one class of notes issued by the Issuer as follows:

-- Class G to CCC (sf) from B (low) (sf)

Morningstar DBRS also confirmed its credit ratings on the remaining classes of notes:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)

All trends are Stable with the exception of Class F and Class G. The trend on Class F was changed to Negative from Stable and Class G carries a credit rating that does not typically carry a trend in commercial mortgage-backed security (CMBS) credit ratings.

The credit rating upgrades reflect the increased credit support to the bonds as a result of successful loan repayment. Since issuance, there has been collateral reduction of 51.6%, an increase of 13.5% from the previous Morningstar DBRS credit rating action in May 2024. While the specially serviced concentration as of January 2025 includes six loans, representing 48.2% of the current trust balance, the risk is slightly mitigated as the loans are secured by multifamily properties, which have historically been able to better retain property value when compared other commercial property types. Additionally, three of these loans, representing 20.5% of the current trust balance, are current on debt service payments.

The credit rating downgrade to Class G is the result of ongoing accumulated interest shortfalls, which have persisted since June 2024 and have surpassed the maximum Morningstar DBRS tolerance for the BB or B credit rating category of six months. As of January 2025 reporting, cumulative interest shortfalls on Class G total $1.0 million. The increase in interest shortfalls is the result of increased loan defaults. According to January 2025 servicer reporting, three loans, representing 27.7% of the current trust balance, are delinquent. The servicer did note that one of these loans, Ivilla Garden Apartments (Prospectus ID#9; 8.2% of the current trust balance) is expected to be modified with potential terms that would include a forbearance, which would defer delinquent debt service payments and bring the loan current. Morningstar DBRS changed the trend on Class F to Negative from Stable as accumulated interest shortfalls have persisted on the class for four months (since October 2024 reporting) and totaled $0.4 million as of January 2025 reporting. While the shortfalls are being repaid as of the January 2025 remittance, Morningstar DBRS notes the interest shortfalls may remain outstanding past the maximum acceptable length of six reporting periods, justifying the Negative trend.

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.

The initial collateral pool consisted of 52 floating-rate mortgage assets with an aggregate cut-off date balance of $652.5 million secured by 55 mortgaged properties. As of the January 2025 remittance, the trust comprises 14 loans secured by multifamily properties with a cumulative balance of $321.8 million. The transaction benefits from overcollateralization as the outstanding cumulative bond balance is $315.6 million. Since the previous Morningstar DBRS credit rating action, five loans, with a former cumulative trust balance of $45.9 million, have been paid in full.

Leverage across the pool has increased slightly from issuance levels as the current weighted-average (WA) as-is appraised loan-to-value ratio (LTV) is 74.4%, with a current WA stabilized LTV of 69.4%. In comparison, these figures were 73.2% and 65.5%, respectively, at issuance. Morningstar DBRS recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 and may not reflect the current rising interest rate or widening capitalization rate environments. In the analysis for this review, Morningstar DBRS applied upward LTV adjustments for 11 loans, representing 93.9% of the current trust balance, generally reflective of higher cap rate assumptions compared with the implied cap rates based on the appraisals.

The largest loan in special servicing, Desert Gardens (Prospectus ID#3, 12.4% of the current trust balance), is secured by a 307-unit multifamily property in Glendale, Arizona. The loan transferred to special servicing in May 2024 for maturity default and remains due for the June 2024 payment. At loan closing, the borrower's business plan was to implement a $5.3 million capital expenditure (capex) plan, which included the renovation of all unit interiors as well as upgrades to property amenities and exteriors. Morningstar DBRS previously noted the borrower was behind in its plan, as only $1.4 million had been advanced to the borrower through March 2024. According to an update from the servicer, an additional $0.5 million had been advanced through December 2024. The sponsor has relinquished day-to-day control of the property to a limited partner, which has resulted in operational improvements, according to the servicer. Through August 2024, 117 units had been renovated and according to the October 2024 rent roll, the property was 93.5% occupied with an average rental rate of $1,034 per unit. The rental rate surpasses the Morningstar DBRS stabilized figure of $1,000 per unit but trails the Issuer stabilized figure of $1,143 per unit. In terms of net cash flow (NCF), Morningstar DBRS did not receive a trailing 12-month 2024 figure; however, the YE2023 figure was $2.4 million, which equals the Morningstar DBRS stabilized figure, but trails the Issuer figure of $3.0 million. According to the servicer, the likely resolution of the loan will be a modification and forbearance; however, the potential timing and future involvement of the original sponsor is unclear. Morningstar DBRS expects that all past due debt service payments and accrued interest may be deferred until loan maturity. In its current analysis Morningstar DBRS applied upward as-is and as-stabilized LTV adjustments of approximately 100.0% and 85.0%, respectively, as well as an increased Probability of Default penalty to reflect the increased credit risk of the loan. The loan expected loss is approximately two times greater than the expected loss for the pool.

As of the January 2025 remittance, there are four loans are on the servicer's watchlist, representing 29.1% of the current trust balance. The loans have been flagged for below breakeven debt service coverage ratio (DSCRs), which are result of increased debt service payments on the floating-rate loans and lower than projected NCF. The transaction also faces upcoming maturity risk as seven loans, representing 32.6% of the current trust balance, have scheduled maturity dates throughout 2025. The risk is slightly mitigated as all borrowers have remaining loan extension options. While not all borrowers will qualify based on required property performance tests, Morningstar DBRS notes these loans may be modified by the Issuer to waive these tests, allowing borrowers to exercise loan extensions. In return, borrowers will likely be required to contribute fresh equity in the form of a principal curtailment, deposit into reserve accounts and/or the purchase of a new interest rate cap agreement.

Through December 2024, the lender had advanced cumulative loan future funding of $21.8 million to 13 of the remaining individual borrowers to aid in property stabilization efforts, excluding any funds advanced at loan closing as working capital. The largest advance ($7.2 million) has been made to the borrower of the 79 Metcalf Apartments loan, which is secured by a 280-unit multifamily property in the Kansas City suburb of Overland Park, Kansas. Funds were advanced to the borrower to complete capex projects across the property. At closing, the borrower planned to renovate all existing units, convert previous storage space to 20 additional units, and upgrade common areas and property exteriors. The loan is currently on the servicer's watchlist for a low DSCR, which the servicer reported as 0.48 times at of Q3 2024. According to the servicer, the borrower has completed 86% of its capex plan, including the renovation of 176 units. According to the September 2024 rent roll, the property was 92.5% occupied with an average rental rate of $1,170 per unit. It appears the borrower may have chosen to not convert the former storage space to additional multifamily units as only 280 units were listed on the rent roll. The property is achieving an average rental rate above the Morningstar DBRS concluded stabilized figure of $1,106 per unit and the Issuer concluded stabilized figure of $1,159 per unit with a trailing 12-month's ended NCF of $1.6 million. The NCF figure trails the Morningstar DBRS projection of $2.1 million and given the loan matures in May 2025, it may be difficult for the borrower to achieve the stabilized projection prior to maturity. There remains one additional 12-month extension option available to the borrower; however, as well as $0.6 million of additional loan funding, which may provide additional time to complete the capex plan and increase cash flow.

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.

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.

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 assigned to Classes C, D, E, and F 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 stresses 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 as there are six loans, representing 48.2% of the current trust balance, currently in special serving with ongoing resolution strategies and timing.

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, 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)/North American CMBS Insight Model v 1.2.0.0: https://dbrs.morningstar.com/research/444616/north-american-cmbs-multi-borrower-rating-methodology
-- 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

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