DBRS Morningstar Confirms All Classes of A10 Term Asset Financing 2017-1, LLC

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following fixed-rate notes issued by A10 Term Asset Financing 2017-1, LLC:

-- Class A-2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying loans within the pool. Based on the reported Q2 2019 figures and the current loan balances, the remaining loans reported a weighted-average debt yield of 9.4%, which is considered healthy for a pool of stabilizing assets. Some of the remaining assets have taken longer than initially anticipated to stabilize, but the respective sponsors remain committed to the loans and properties and, in general, DBRS Morningstar believes the overall risk for the remaining loans in the pool remains relatively stable from issuance.

The transaction originally consisted of 30 loans secured by 52 transitional commercial real estate assets, including office, retail, industrial, and mixed-use properties. According to the November 2019 remittance, there has been a collateral reduction of 74.2% since issuance, as 19 loans have been repaid in full, contributing to a principal paydown of $204.8 million. There are three portfolio loans in the pool, representing 41.1% of the transaction balance. Across the three portfolio loans, there are a total of 20 properties, and each individual loan’s collateral set is cross-collateralized and cross-defaulted.

Most of the remaining loans are structured with two- to four-year terms and include built-in extensions and available future funding facilities as the properties work toward stabilization. Both the extensions and future funding amounts are at the lender’s sole discretion. Of the remaining loans in the pool, 89.9% of the pool have loan terms that extend past 2020. Two loans, 75th Street Center and 535 Broadway, were granted extensions past the respective initial loan maturity dates.

The reserve account established for future funding obligations has a current balance of $4.2 million, with remaining future funding obligations totaling $6.6 million. According to the most recent reporting, the collateral assets generally have stable debt yields; however, the majority of the properties continue to be in the process of stabilization and have generally missed initial target dates set forth in the respective business plans. Details on the stabilization status for pivotal loans within the pool are provided in the Loan Commentary on the DBRS Viewpoint platform, as discussed below.

The ratings assigned by DBRS Morningstar contemplate timely payments of distributable interest and, in the case of the offered notes other than Class A, ultimate recovery of deferred collateralized note interest amounts (inclusive of interest payable thereon at the applicable rate, to the extent permitted by law). The transaction has a standard sequential-pay waterfall.

DBRS Morningstar materially deviated from its principal methodology when determining the ratings assigned to Classes B, C, D, E, and F. DBRS Morningstar considers a material deviation from a methodology to exist when there may be a substantial likelihood that a reasonable investor or other user of the credit rating(s) would consider the material deviation to be a significant factor in evaluating the rating(s). The material deviation(s) is warranted given the structure features (loan or transaction) and/or provisions in other relevant methodologies outweigh the quantitative model output.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Menlo-Rite Aid Portfolio (26.9% of the pool)
-- Prospectus ID#2 – Vernon (9.8% of the pool)
-- Prospectus ID#3 – 535 Broadway (20.2% of the pool)
-- Prospectus ID#21 – Snow Road (5.6% of the pool)
-- Prospectus ID#19 – Cherokee South (3.5% of the pool)
-- Prospectus ID#28 – The Crossings (6.6% of the pool)
-- Prospectus ID#26 – Executive Tower (2.7% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding commercial mortgage-backed security transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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