DBRS Morningstar Upgrades Ratings on Six Classes of Silver Hill Trust 2019-SBC1, Confirms Ratings on Remaining Eight Classes

DBRS Limited (DBRS Morningstar) upgraded its ratings on six classes of secured floating-rate notes issued by Silver Hill Trust 2019-SBC1 (the Issuer) as follows:

-- Class M2 to A (high) (sf) from A (sf)
-- Class M2-IO to A (high) (sf) from A (sf)
-- Class M3 to BBB (high) (sf) from BBB (sf)
-- Class M3-IO to BBB (high) (sf) from BBB (sf)
-- Class B2 to B (high) (sf) from B (sf)
-- Class B2-IO to B (high) (sf) from B (sf)

In addition, DBRS Morningstar confirmed its ratings on the following eight classes:

-- Class A1 at AAA (sf)
-- Class A1-IO at AAA (sf)
-- Class A2 at AAA (sf)
-- Class A2-IO at AAA (sf)
-- Class M1 at AA (sf)
-- Class M1-IO at AA (sf)
-- Class B1 at BB (sf)
-- Class B1-IO at BB (sf)

All trends are Stable.

The rating upgrades and confirmations reflect the overall improved credit support for the transaction, which comprises individual fixed- and floating-rate small-balance loans secured by commercial, multifamily, and single-family rental properties. According to the July 2021 reporting, 781 of the original 978 loans remain in the pool, with an aggregate trust balance of $345.7 million (average loan balance of approximately $442,646), representing a collateral reduction of 21.8% since issuance.

Most of the loans that have been repaid were paid in advance of their respective maturity dates, with most repayments including applicable prepayment penalties. As of the July 2021 reporting, 17 loans were prepaid, totaling $6.5 million in principal curtailments. This figure reflects a voluntary constant prepayment rate (CPR) of 19.2%, well above the life CPR of 13.5%.

Approximately 97.6% of the current pool is fully amortizing, compared with 97.5% of the pool at issuance. There are 25 loans, representing 2.6% of the current pool balance, with maturity dates through the remainder of 2021 and 103 loans, representing 13.8% of the current pool balance, with maturity dates in 2022.

As of the July 2021 reporting, there were 68 loans reported 30-plus days delinquent, representing 9.4% of the current pool balance. This represents a decline from the June 2021 reporting, which showed 81 loans, representing 11.1% of the pool balance, that were 30-plus days delinquent. There have been no realized losses to date. With this review, DBRS Morningstar elevated the probability of default (POD) levels for the delinquent loans to reflect the increased credit risk to the trust.

The pool is well diversified, a factor that combines with the increased credit support to the rated classes from issuance to generally reduce the loan-level event risk. By loan balance, the top 15 loans represent 8.3% of the pool, with the largest loan representing just 0.7% of the pool. The collateral properties are located across 35 states, with the largest concentrations in Florida (15.6% of the pool), California (13.3% of the pool), and New York (9.2% of the pool). By property type, the pool has concentrations of loans secured by commercial use properties (42.1% of the pool), multifamily properties (26.7% of the pool), and mixed-use properties (11.9% of the pool).

DBRS Morningstar received limited borrower and property-level information at issuance and considered the overall property quality to be Average-/Below Average based on those properties sampled; this sample comprised 8.4% of the issuance pool balance.

The transaction is configured with a sequential-pay pass-through structure.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Classes M2, M3, and B2, as the quantitative results suggested a higher rating. The material deviation is warranted given the sustainability of loan performance trends not demonstrated. While there has been a significant collateral reduction since issuance and a small reduction in the pool’s POD levels, the transaction has only two years of seasoning and no property level financials were made available as part of the surveillance of this transaction, thus limiting the quantitative results.

Classes A1-IO, A2-IO, M1-IO, M2-IO, M3-IO, B1-IO, and B2-IO are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche in the waterfall.

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on 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 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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