DBRS Morningstar Assigns Ratings to Shelter Growth CRE 2019-FL2 Issuer Ltd

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Priority Secured Floating Rate Notes Due 2036 issued by Shelter Growth CRE 2019-FL2 Issuer Ltd as follows:

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

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about April 3, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

The ratings were determined using DBRS Morningstar’s “North American CMBS Multi-borrower Rating Methodology,” “North American CMBS Surveillance Methodology,” and the North American CMBS Insight Model. As part of the integration of the analytical teams for DBRS, Inc. and MCR, DBRS Morningstar announced its determination that the aforementioned methodologies and model would be used to assign ratings to the outstanding multi-borrower transactions rated by MCR. For further information on that announcement, please see the press release dated September 12, 2019, on the DBRS Morningstar website at www.dbrs.com.

At issuance, the collateral consisted of 18 collateral interests comprising three first-lien whole mortgage loans and 15 pari passu participation interests in either a mortgage loan or a combined loan that consists of a mortgage loan and a related mezzanine loan secured by equity interests in the related mortgage borrower. Each mezzanine loan that is part of a combined loan is secured by a pledge of equity in the related mortgage borrower. The collateral interests are secured by 29 properties located in eleven states with all loans secured by currently cash-flowing assets, some of which are in a period of transition, with plans to stabilize and improve the asset value.

At issuance, the trust cut-off balance was $453.7 million and eight loans had future funding of $38.7 million, available to individual borrowers to aid in property stabilization. All or a portion of the future funding participations are eligible to be acquired by the trust after the closing date once such participations have been funded, subject to the satisfaction of certain criteria. As of the February 2020 remittance, 17 of the 18 original loans remained in the pool, the total future funding balance yet to be funded was $36.2 million, and there were no loans on the servicer’s watchlist or in special servicing.

DBRS Morningstar analyzed the commercial real estate collateralized loan obligations pool to determine the ratings, reflecting the long-term probability of default within the term and its liquidity at maturity. As part of this process, DBRS Morningstar reviewed the performance for the underlying loans. The floating-rate mortgages were analyzed to determine the probability of loan default over the term of the loan and its refinance risk at maturity based on a fully extended loan term. Because of the floating-rate nature of the loans, the index (one-month LIBOR) was applied at the lower of a DBRS Morningstar stressed rate that corresponded to the remaining fully extended term of the loans and the strike price of the interest rate cap, with the respective contractual loan spread added to determine a stressed interest rate over the loan term. The properties are frequently transitioning, with potential upside in the cash flow; however, DBRS Morningstar does not give full credit to the stabilization if there are no holdbacks or if other loan structural features in place are insufficient to support such treatment. Furthermore, even with structural features provided, DBRS Morningstar generally does not assume the assets will stabilize above market levels. The transaction is a sequential-pay structure.

DBRS Morningstar will provide detailed loan-level commentary for pivotal loans within the transaction on the DBRS Viewpoint platform within the near term.

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

For supporting data and more information on this transaction, please log into www.viewpoint.dbrs.com.

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

The principal methodologies are the North American CMBS Multi-borrower Rating Methodology and North American CMBS Surveillance Methodology, which can be found on 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 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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