DBRS Morningstar Assigns Ratings to CSMC 2019-ICE4

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2019-ICE4 issued by CSMC 2019-ICE4 as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class HRR at B (high) (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 July 16, 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upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings.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.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

The collateral for the CSMC 2019-ICE4 mortgage trust is a $2.35 billion first-lien mortgage loan on 64 industrial cold storage and distribution facilities (and certain equipment used at such facilities) in 22 states. There is more than 17.7 million square feet (sf) of storage space, of which 14.1 million sf and 527.1 million cubic feet (MMcf) is temperature-controlled space.

Forty-six of the properties were previously securitized in the COLD 2017-ICE3 transaction (April 2017). The CSMC 2019-ICE4 transaction included 18 additional properties encompassing 2.3 million sf of temperature-controlled space owned by the sponsor that were not part of the prior transaction. The sponsor will use the loan proceeds to retire the COLD 2017-ICE3 debt of $1.3 billion and the existing debt on 10 of the 18 additional assets totaling $157 million. On February 25, 2019, Lineage Logistics, LLC (Lineage) announced it had entered into an agreement to acquire Preferred Freezer Services, LLC, a temperature-controlled warehouse provider with 39 facilities in the U.S. Postmerger, Lineage became the largest cold storage warehouse operator in the U.S. with 1.3 billion cubic feet, followed by Americold Logistics, LLC with 924 MMcf.

Column Financial, Inc.; Bank of America, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar); and Morgan Stanley Bank, N.A. originated the five-year (two years plus three successive one-year extensions) loan that pays floating-rate interest of Libor plus 1.500% on an interest-only basis through the initial maturity of the loan. The guarantor also has certain corporate debt under a $747.25 million, first-lien term loan for which Credit Suisse AG (rated “A” with a Stable trend by DBRS Morningstar) is the administrative agent and a $300 million asset-backed revolving loan facility in place for which JPMorgan Chase Bank, N.A. (rated AA with a Stable trend by DBRS Morningstar) is the administrative agent. The term loan and revolver are not collateralized by any of the trust assets; rather, they are corporate obligations of the borrower.

The borrowers purchased interest rate cap protection for the trust mortgage at a strike price of 5.00%, which DBRS Morningstar used for the Libor component of the interest rate for its debt service calculations. The borrowers were also required to obtain an interest rate cap with a strike rate that would result in a debt service coverage ratio of at least 1.10 times during any extension period. The entire $2.35 billion mortgage loan was securitized in this transaction.

The DBRS Morningstar net cash flow (NCF) derived at issuance was re-analyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The resulting NCF figure was $226,623,937 million and a cap rate of 8.75% was applied, resulting in a DBRS Morningstar Value of $2.6 billion, a variance of -21.8% from the appraised value at issuance of $3.3 billion. The DBRS Morningstar Value implies an LTV of 90.7%, as compared with the LTV on the issuance appraised value of 70.9%. The NCF figure applied as part of the analysis represents a -7.6% variance from the Issuer’s NCF.

The cap rate applied is at the middle of the range of DBRS Morningstar Cap Rate Ranges for industrial properties, reflective of the subject’s cash flow volatility, property quality, and market fundamentals. In addition, the 8.75% cap rate applied is above the implied cap rate of 7.4% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 7.5% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also made other positive adjustments to account for the portfolio’s geographic diversity. DBRS Morningstar has a favorable long-term outlook for cold storage, especially given the increased demand for the property type from the Coronavirus Disease (COVID-19) pandemic and increased popularity of online grocery shopping.

Additionally, DBRS Morningstar made the following negative adjustments. DBRS Morningstar made negative adjustments to account for the loan’s partial pro rata release structure, with respect to voluntary principal prepayments, up to the free prepayment amount of $470.0 million. DBRS Morningstar reduced its LTV attachments at the AAA category by 1.98% and then tapered the decrease to 1.15% at A (high). DBRS Morningstar also made a negative adjustment to account for the impact of the loan’s property release structure (115% release premium for first 20% of the original loan amount), and deducted 25 basis points from its LTV attachments to account for this.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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 this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS 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 methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.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.dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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