Morningstar DBRS Takes Credit Rating Actions on 112 CMBS Transactions Affected by the Finalization of the North American CMBS Multi-Borrower Rating Methodology and Updates to the CMBS Insight Model

DBRS, Inc. (Morningstar) DBRS finalized an update to its North American CMBS Multi-Borrower Rating Methodology (the Methodology), and updates to the North American CMBS Insight Model (the Model) on April 9, 2025. This Methodology and Model present the criteria by which commercial mortgage-backed securities (CMBS) transactions, including multiborrower conduit (MB Conduit), agency, commercial real estate collateralized loan obligation (CRE CLO), small balance commercial (SBC), single-family rental (SFR), and other transactions secured by pools of commercial mortgage loans credit ratings are assigned and/or monitored. To identify those transactions whose credit ratings were potentially affected by these updates, Morningstar DBRS conducted an analysis that considered a model-to-model comparison across the impacted transaction types within the rated book, as well as an analysis to identify transactions with meaningful changes in the pool composition or risk profile since the last credit rating action. As part of the application of the Methodologies and Model, 1,378 classes of 112 public MB Conduit, CRE CLO, SBC, and SFR transactions were reviewed; this press release covers those transactions. The agency transactions were addressed in a separate press release. For further information on those credit rating actions, please see the press release titled “Morningstar DBRS Takes Credit Rating Actions on 68 Freddie Mac Transactions and Nine ReRemic Transactions” published on April 30, 2025.

The updates to the Methodology and Model follow a review of the historical data that is used to calibrate the probability of default (POD) and loss given default (LGD) regressions and include updated performance data following the coronavirus pandemic. The framework for the Model largely remains the same; however, Morningstar DBRS has also expanded some of the categories or bins within the variables and/or removed variables that were identified as no longer impactful. For more information on updates to the Methodology and Model, please refer to the press released titled “Morningstar DBRS Publishes Final North American CMBS Multi-Borrower Rating Methodology and CMBS Insight Model,” published on April 9, 2025. The Methodology and Model supersede the prior versions (the previous Methodology and/or the previous Model) published on December 13, 2024.

For the 115 reviewed MB Conduit, CRE CLO, SBC, and SFR transactions, 71.1% of credit ratings on those transactions’ classes were confirmed with Stable trends. Credit ratings were upgraded on 24.4% of the classes, most often reflecting a combination of increased credit support, whether through principal repayments or increased defeasance, and a lower pool-level expected loss with the updated Model result. A relatively small number of credit ratings were downgraded (6.0%), and on more than half of those classes downgraded, Morningstar DBRS had previously placed a Negative trend to signal the possibility of further deterioration in performance. The analysis and credit rating actions taken as part of this review reflected both the impact of the updated Model and the impact of transaction-specific risks and pool composition.

Morningstar DBRS placed or maintained Positive and Negative trends on certain classes within a small number of transactions as part of these rating actions. In general, Morningstar DBRS endeavors to resolve Positive or Negative trends within 12 months, but some cases may require a longer resolution period. Following this bulk credit rating action, Morningstar DBRS will continue to conduct periodic reviews of each transaction as the monthly remittance reports are released, which may prompt an expanded review to occur before 12 months of this action. Morningstar DBRS may also elect to conduct an expanded review at any time within the 12 months following this action.

As noted above, Morningstar DBRS considered a model-to-model comparison wherein the class-level results with the previous Model and the updated Model were compared. Those MB Conduit transactions that showed a material deviation from the credit ratings implied by the Model were considered to have a potential credit ratings impact and were reviewed. Morningstar DBRS also reviewed transactions identified as exhibiting a meaningful change in pool composition or credit characteristics since the last review. When the resulting analysis showed a material deviation from the credit ratings implied by the updated Model, those transactions were also considered to have a potential credit ratings impact. MB Conduit transactions indicating a nonmaterial deviation based on a model-to-model comparison, or considered to be in wind-down, where the predictive model is no longer a primary driver for credit view, were not considered to have potential credit ratings impact and will be reviewed separately as part of Morningstar DBRS’ periodic and expanded review processes as outlined in the “North American CMBS Surveillance Methodology,” (the Surveillance Methodology).

The process described above for the MB Conduit transactions was also followed for the CRE CLO transactions, except in the case of those transactions that did not show potential credit ratings impact based on the described approach. Given that most CRE CLO deals included one or more classes showing a potential credit ratings impact, Morningstar DBRS elected to review all CRE CLO transactions (except for six transactions that are in wind-down) as part of this credit rating action.

For transactions identified as having a potential credit ratings impact, the credit rating actions taken as outlined in this press release generally reflect Morningstar DBRS’ expanded review process as outlined in the Surveillance Methodology. Based on the February and March 2025 remittance reports, the affected transactions were analyzed to identify changes including loan repayment and/or defeasance, realized losses, updated appraised values, and, for large loans, changes in performance since the most recent Morningstar DBRS rating action for each. For loans exhibiting increased risks, analytical adjustments were applied to increase the POD and/or LGD or, in some cases, a liquidation analysis was considered to forecast realized losses and recoveries for significantly impaired loans.

The analysis generally reflected that: (1) all defeased loans were excluded from the Model runs and were liquidated at 100% recovery and (2) specially serviced loans that were expected to be resolved with a loss to the respective trusts were also excluded from the Model runs and were liquidated based on recent information, such as updated appraised values. This analysis produced a liquidated credit enhancement for the bond stacks that was compared with the multiple ranges referred to in the Methodology. Morningstar DBRS adjustments, such as sponsor strength, property quality, or the Morningstar DBRS Haircut, were generally maintained from issuance. If the review of the February and March 2025 remittance reports showed a development in the full repayment of a rated class, the credit rating was discontinued.

MB CONDUIT
For transactions issued within the past 12 months, specifically BANK5 2024-5YR7, BANK5 2024-5YR10, BANK5 2024-5YR11, and Canadian Commercial Mortgage Origination Trust 6, Morningstar DBRS upgraded credit ratings, constrained to the model output, to reflect the favorable pool composition and loan-to-value ratios (LTVs). Where applicable, material deviations were maintained as Morningstar DBRS could not assess sustainability in loan performance trends given the limited seasoning to date.

Two transactions (BBCMS 2020-C6 and GSMS 2020-GC45) are structured with asset-specific certificates (rake bonds) for which credit ratings are determined by the “North American Single-Asset/Single-Borrower Ratings Methodology,” however, Morningstar DBRS did not perform updated LTV Sizings for these bonds as their performance remained generally in line with Morningstar DBRS’ expectations.

CRE CLO
Morningstar DBRS reviewed 49 CRE CLO transactions. Most of these transactions are considered to be static, either having seasoned beyond their stated reinvestment periods or having been originated without a ramp or reinvestment period. For the purposes of this review, Morningstar DBRS conducted a model-to-model comparison based on the previous Model result as part of the most recent expanded review and/or the most recent Rating Agency Confirmation analysis. Loan-level adjustments were introduced or maintained from previous analyses, based on the most recently reported information in the February and March 2025 remittance reports, as applicable.

The majority of the classes within the identified set of CRE CLO transactions were confirmed (67.0%) while Morningstar DBRS upgraded the credit ratings on 156 classes (32.2%) as part of the review. The credit rating upgrades were generally located in the middle to the upper part of the capital stacks and generally reflective of increased credit support as a result of loan repayments. However, Morningstar DBRS notes that the credit ratings across a number of classes, particularly at Class C and below, were affected by structural features stemming from the issuer’s ability to defer interest on those classes to the extent that interest proceeds are not sufficient on a given payment date. The credit ratings across the classes were capped at A (high) (sf) given Morningstar DBRS’ very limited interest shortfall tolerance at the AA and AAA rating categories. Additionally, Morningstar DBRS downgraded the credit ratings for four classes (0.8%); these downgrades were the result of a combination of factors including credit support erosion following loan liquidations and/or accumulated interest shortfalls.

SBC
The Model does not contemplate the ability to prepay loans, which is generally considered credit positive because prepaid loans cannot default. As a result, Morningstar DBRS applied the fully adjusted default assumptions and model-generated severity figures from the Model to the "RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model" (the RMBS Model), which considers sequential and pro rata structures, to all transactions with the exception of Angel Oak SB Commercial Mortgage Trust 2020-SBC1 (AOMT 2020-SBC1) and BAMLL 2024-LB1.Generally, these pools are well diversified, a factor that, when combined with the increased credit support to the rated classes from issuance (excluding SCMT 2021-SBC10, which has a pro rata structure), generally reduces the loan-level event risk of the transaction. There are noteworthy risks for the transactions, however, in that property quality is typically considered to be Average–/Below Average based on those properties' samples. In addition, the loan sponsors are generally less sophisticated operators of CRE with limited real estate portfolios and experience. These risks are partially mitigated by borrower or guarantor recourse, regardless of credit history. Morningstar DBRS notes that ongoing property financials are not provided as part of the surveillance review.

The credit ratings assigned to 16 classes (noted below) show a material deviation (to the positive) from the credit ratings implied by the updated Model or RMBS Model. When evaluating the potential for credit rating upgrades, Morningstar DBRS generally maintains a conservative approach, given the factors outlined above with additional consideration given to the complexity and structure of the pools. For more information on these transactions and the analytical approach, please refer to the press release detailing the previous credit rating actions on the SBC transactions titled “Morningstar DBRS Takes Credit Rating Actions on Nine Small-Balance Commercial Real Estate Transactions,” published March 3, 2025.

SFR
The pools of single-family rental properties reviewed with this credit rating action were generally granular in nature. Material deviations (to the positive) were maintained for 17 classes across five transactions resulting from asset-specific challenges, including less sophisticated sponsors with smaller real estate portfolios, lower liquidity, and an overall lack of experience. In addition, deferred maintenance and life-safety concerns were common, generally a result of lower average property quality. Morningstar DBRS notes that ongoing property financials and/or other means of reporting are not routinely provided as part of the surveillance review, a consideration for the more conservative treatment and positive material deviations, as outlined below.

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.

A summary of the rating actions, along with the rating action for each class, can be found in the appendix, “Summary of Credit Rating Actions.”

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Excluding SCMT 2021-SBC10, BAMLL 2024-LB1 and KREF 2022-FL2, there were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

SCMT 2021-SBC10
An Environmental factor was applicable to the credit analysis for SCMT 2021-SBC10. At issuance, limited to no property-level information was available for review, including property condition reports and Phase I/II environmental site assessment reports. As a result, Morningstar DBRS applied an LGD penalty that resulted in a significant effect on the credit analysis and the approach was maintained with this review.

BAMLL 2024-LB1
The following Emissions, Effluents, and Waste factor had a significant effect on the credit analysis: Partner Engineering performed a comprehensive desktop/database review of all loans in the pool. Morningstar DBRS made LGD adjustments to eight loans, 1.0% of the pool, to mitigate potential environmental concerns with known on-site or adjacent-site contamination.

KREF 2022-FL3 Ltd.
An Environmental factor was relevant to the credit analysis for KREF 2022-FL3 Ltd. At issuance, it was noted that The Kendrick had an open environmental issue, first identified after the loan's origination, involving levels of trichloroethylene, a potentially carcinogenic substance, in indoor air and soil gas exceeding regulatory limits. The matter is subject to a mandated in-process (early-stage) regulatory order by the Massachusetts Department of Environmental Protection to investigate and remediate the identified contamination until fully resolved, potentially over an estimated five-year timeline. Eighteen of the units identified as affected are considered down units and were concluded as vacant by Morningstar DBRS at issuance.

According to the collateral manager, as of Q2 2024, the sponsor of The Kendrick loan was granted a 12-month maturity extension through April 2025 to complete the remediation work associated with an environmental issue at the property. The remediation work was completed at the end of 2024; however, the PD adjustment previously applied because of these factors was maintained for conservatism. As the loan continues to season, Morningstar DBRS will continue to evaluate the analytical approach as part of the expanded review process.

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.

Classes that are interest-only (IO) certificates reference a single rated tranche or multiple rated tranches. The IO credit 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 the North American CMBS Surveillance Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448963.

Given the complexity, granularity, and modified pro rata pay pass-through structure of certain SBC transactions, Morningstar DBRS also included elements of the RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (Version 1.3.29.0, January 2, 2025), https://dbrs.morningstar.com/research/445477 as a related methodology.

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

The credit ratings assigned to several classes (noted below) 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.

Below is the list of transactions and their respective classes that reported material deviations from the CMBS Model. The rationale for the material deviations is uncertain loan-level event risk.
-- AOMT 2020-SBC1: Class B2
-- LoanCore 2022-CRE7: Classes F, G
-- GPMT 2021-FL4: Classes B, C
-- BSPRT 2022-FL9: Class G
-- BSPRT 2021-FL6: Class E, H
-- BSPDF 2021-FL1: Class H
-- BRSP 2021-FL1: Class F
-- Arbor Realty Commercial Real Estate Notes 2021-FL3: Classes E, F, G
-- Arbor Realty Commercial Real Estate Notes 2021-FL4: Class F
-- ACREC 2021-FL1: Class F
-- A10 Permanent Asset Financing 2017-II, LLC: Classes B and C
-- BANK 2019-BNK16: Class B
-- BANK 2019-BNK21: Classes C and D
-- BANK 2019-BNK22: Classes D, E, F and G
-- BANK 2020-BNK30: Classes C, D and E
-- BANK 2021-BNK32: Classes D, E and F
-- BANK 2022-BNK39: Classes C, C-1, C-2, D, E and G
-- BANK 2022-BNK41: Classes C, C-1, C-2 and E
-- BBCMS Mortgage Trust 2020-C7: Class C
-- Canadian Commercial Mortgage Origination Trust 5: Classes C, D and E
-- CGCMT 2020-GC46: Classes B and C
-- CSAIL 2015-C4 Commercial Mortgage Trust: Classes C, E, F and G
-- CSAIL 2016-C5 Commercial Mortgage Trust: Classes C and D
-- Institutional Mortgage Securities Canada Inc., Series 2016-7: Classes E, F and G
-- Key Commercial Mortgage Trust 2018-S1: Classes C and D
-- LSTAR Commercial Mortgage Trust 2016-4: Class C
-- Morgan Stanley Capital I Trust 2018-H3: Class G-RR
-- Ready Capital Mortgage Trust 2019-6: Classes E, F and G
-- Real Estate Asset Liquidity Trust, Series 2017: Classes D-2, E, F and G
-- SBALR Commercial Mortgage 2020-RR1 Trust: Class B
-- Wells Fargo Commercial Mortgage Trust 2015-C30: Classes E and F
-- Wells Fargo Commercial Mortgage Trust 2016-C33: Class D
-- Wells Fargo Commercial Mortgage Trust 2016-NSX6: Class D
-- Wells Fargo Commercial Mortgage Trust 2017-RB1: Class A-S
-- Wells Fargo Commercial Mortgage Trust 2017-RC1: Class D

SFR:
-- CAF 2018-1: Classes E, F, G
-- CAF 2018-2: Classes D, E, F, G
-- CAF 2019-1: Classes F. G
-- CAF 2020-1: Classes D, E, F, G
-- CAF 2020-3: Classes D, E, F, G

Below is the list of transactions and their respective classes that reported material deviations from the CMBS Model. The rationale for the material deviations is sustainability of loan performance trends not demonstrated.
-- Ready Capital Mortgage Financing 2022-FL9: Classes D, E
-- MF1 2021-FL5: Classes D, E, F, G
-- HGI CRE CLO 2021-FL2: Classes D, E,
-- HGI CRE CLO 2021-FL1: Classes D, E, F, G
-- BANK5 2024-5YR7: Classes C, D, C-1 and C-2
-- BANK5 2024-5YR11: Classes F and G
-- BANK5 2024-5YR10: Classes C, D, E and F
-- Arbor Multifamily Mortgage Securities Trust 2020-MF1: Classes D and E

Below is the list of transactions and their respective classes that reported material deviations from the CMBS Model. The rationale for the material deviations are the structural features (loan or transaction) and/or provisions in other relevant methodologies that outweigh the quantitative model output.
-- Ready Capital Mortgage Financing 2022-FL9: Classes F, G
-- LoanCore 2022-CRE7: Class C
-- HGI CRE CLO 2021-FL2: Class C
-- HGI CRE CLO 2021-FL1: Class C
-- FS Rialto 2022-FL4: Class C
-- BSPRT 2022-FL8: Classes C, E
-- BSPRT 2021-FL7: Classes C, E
-- BSPRT 2021-FL6: Classes C, D
-- BSPDF 2021-FL1: Class C
-- BDS 2022-FL12: Classes C, C-E
-- BDS 2021-FL10: Class C
-- AREIT 2022-CRE6: Class C
-- ACREC 2021-FL1: Class G
-- A10 RAF I: Class B

Below is the list of transactions and their respective classes that reported material deviations from the CMBS Model. The rationale for the material deviations is qualitative loan-level factors that are not precisely captured in the quantitative model.
-- Arbor Multifamily Mortgage Securities Trust 2022-MF4: Classes D and E

Below is the list of transactions and their respective classes that reported material deviations from the RMBS Model. The rationale for the material deviations is that certain risks are not fully reflected in the RMBS Model output.
-- OMLT 2020-SBC1: Classes M4A, M4B, M4C, B2, B3
-- SCMT 2019-SBC8: Classes D, E, F, G
-- SHT2019-SBC1: Class B1
-- BVRT 2021-5F: Class A3
-- OMLT 2022-SBC1: Classes M2B, M2C, M3A, M3B

The credit ratings were initiated at the request of the rated entities.

The rated entities or their 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 entities or their related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS’ policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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.

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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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/ North American CMBS Insight Model v 1.3.0.0 (April 9, 2025), https://dbrs.morningstar.com/research/451739
-- North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448962

-- 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 (March 27, 2025): https://dbrs.morningstar.com/research/450750
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064
-- Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024), https://dbrs.morningstar.com/research/437761

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