DBRS Morningstar Assigns Provisional Ratings to BX Commercial Mortgage Trust 2021-VIV5

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-VIV5 (the Certificates) to be issued by BX Commercial Mortgage Trust 2021-VIV5 (BX 2021-VIV5 or the Issuer):

-- Class A at AAA (sf)
-- Class X at AAA (sf)

All trends are Stable. Class X is an interest-only (IO) class whose balance is notional.

The BX 2021-VIV5 transaction represents the securitization of approximately $113.3 million in pari passu senior A notes held by Societe Generale Financial Corporation.

The collateral for this transaction are certain components of a $3.0 billion first-priority mortgage loan encumbering both the MGM Grand and Mandalay Bay (MGM/Mandalay) properties in Las Vegas. The sponsors, Blackstone Real Estate Income Trust (BREIT) and MGP, together with certain other parties, formed a joint venture (JV) to acquire the MGM/Mandalay properties for an aggregate purchase price of $4.6 billion ($471,892 per room). The borrowers, Mandalay PropCo, LLC and MGM Grand PropCo, LLC (which are subsidiaries of the JV), subsequently executed a 30-year triple-net master lease with two 10-year renewal options with the MGM/Mandalay Tenant, a wholly owned subsidiary of MGM Resorts.

As a result of market volatility caused by the ongoing Coronavirus Disease (COVID-19) pandemic, the Issuer initially elected to securitize only certain subordinate components of the MGM/Mandalay whole loan via the BX Commercial Mortgage Trust 2020-VIVA (BX 2020-VIVA) transaction. The Issuer subsequently elected to securitize additional components of the whole loan via the BX 2020-VIV2, BX 2020-VIV3, BX 2020-VIV4, and BX 2021-VIV5 securitizations. The BX 2021-VIV5 trust, like the BX 2020-VIV2, BX 2020-VIV3, and BX 2020-VIV4 trusts, will not have its own master or special servicer; the master and special servicers under the BX 2020-VIVA trust perform those duties.

The $3.000 billion whole loan previously comprised $1.634 billion of A notes, $804.4 million of B notes, and $561.4 million of C notes. The Issuer subsequently elected to further subdivide the B notes into $430.1 million of senior B notes and $374.3 million of junior B notes. The mortgage loan components initially securitized via the BX 2020-VIVA transaction were $561.4 million of C notes plus a combined $1.0 million of A and B notes for a total of $562.4 million. The mortgage loan components securitized via the BX 2020-VIV2 transaction were $374.147 million of junior B notes plus a combined $1.003 million of A notes and senior B notes for a total of $375.150 million. The mortgage loan components securitized via the BX 2020-VIV3 transaction were $429.715 million of senior B notes plus $1.000 million of A notes for a total of $430.715 million. The mortgage loan components securitized via the BX 2020-VIV4 transaction were $550.000 million of senior A notes. The mortgage loan components now being securitized via the BX 2021-VIV5 transaction are $113.347 million of senior A notes.

DBRS Morningstar reviewed certain updated historical performance information provided by the Issuer for the MGM/Mandalay Bay properties. Predictably, the operating cash flows continue to be significantly depressed from their 2019 levels based on the trailing 12 months (T-12) ended June 2021 figures. However, consistent with other recently analyzed Las Vegas hotel casino properties, MGM/Mandalay continues to exhibit a month-over-month recovery trend. For example, the property’s EBITDAR-to-Master Rent coverage ratio improved to 0.59 times (x) in the T-12 ended June 2021 from 0.19x in the T-12 ended March 2021.

Despite the continued short- and medium-term uncertainty, DBRS Morningstar believes the mortgage loan that serves as collateral for the Certificates benefits from unique structural features that provide additional protection for bondholders. Principally, the master lease structure insulates the mortgage loan from direct exposure to the volatility of the properties’ operating cash flows. Secondarily, the transaction benefits from a guaranty provided by MGM Resorts, which covers payment and performance of the MGM/Mandalay Tenant’s monetary obligations and certain other obligations under the master lease agreement. In addition to the payment and performance guaranty, MGM Resorts executed a shortfall guaranty for the benefit of the lender for the mortgage loan.

Under the terms of the master lease, the MGM/Mandalay Tenant must make an initial master lease payment of $292 million per year, with $159 million allocated to the MGM Grand and $133 million allocated to Mandalay Bay. The master lease payment escalates by 2.0% per year in years two through 15 of the initial lease term and then the greater of 2.0% and CPI (with CPI capped at 3.0%) for the remainder of the initial lease term. There have been no discussions to date regarding a restructuring of the master lease agreement.

The DBRS Morningstar loan-to-value ratio of 65.97%, based on a 9.69% capitalization rate and a concluded valuation of $4.54 billion, represents a conservative leverage point with the ability to withstand a substantial realized decline in market value prior to mortgage impairment. Furthermore, the borrower sponsors for the transaction, BREIT (49.9%) and MGP (50.1%), are well-capitalized institutional sponsors that contributed a combined $1.6 billion in cash equity to acquire the properties. Given this equity position, DBRS Morningstar believes that both BREIT and MGP remain strongly incentivized to continue keeping their obligations current under the mortgage loan.

The mortgage loan is interest-only through the initial 10 years of its 12-year term and does not benefit from deleveraging through amortization for the first 10 years of the term.

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.

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.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 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.

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.

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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