DBRS Morningstar Confirms Ratings on BDS 2020-FL6 Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by BDS 2020-FL6 Ltd.:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of transaction, which has remained in line with DBRS Morningstar’s expectations since issuance in September 2020. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update rating report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. To access this report, please click on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

The initial collateral for this pool consisted of 19 mortgage assets (including one whole loan and 18 funded pari passu participations of whole loans) secured by 25 mostly transitional properties. At issuance, the mortgage loan cut-off date balance of $489.4 million consisted of the cut-off date balance of $440.9 million and the companion participation cut-off date balance of $48.4 million. The holder of the future funding companion participation has full responsibility to fund the future funding companion participations.

Most loans are in a period of transition with plans to stabilize performance and improve the asset value. The collateral pool for the transaction is static with no ramp-up or reinvestment period; however, the Issuer has the right to acquire fully funded future funding participations subject to stated criteria during the replenishment period, which ends on or about September 15, 2022 (subject to a 60-day extension for binding commitments entered during the replenishment period). As of the September 2021 reporting, the Replenishment Account had a balance of $4.4 million. The transaction has a sequential-pay structure. Interest can be deferred for Classes C, D, E, F, and G, and interest deferral will not result in an event of default.

All the loans in the pool have floating interest rates initial indexed to Libor and are interest-only through their initial terms. As such, DBRS Morningstar used the one-month Libor index, which was the lower of DBRS Morningstar’s stressed rates 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.

At issuance, when measuring the cut-off date balances against the DBRS Morningstar As-Is Net Cash Flow, 15 loans, representing 77.2% of the mortgage loan cut-off date balance, had a DBRS Morningstar As-Is Debt Service Coverage Ratio (DSCR) below 1.00 times (x), a threshold indicative of default risk. However, in the DBRS Morningstar Stabilized DSCR analysis, no loans were below 1.00x. The properties are often transitioning with potential upside in cash flow; however, DBRS Morningstar does not give full credit to the stabilization if there are no holdbacks or if the other loan structural features are insufficient to support such treatment. Furthermore, even if the structure is acceptable, DBRS Morningstar generally does not assume the assets will stabilize above market levels.

As of the September 2021 remittance report, 15 loans remain in the pool. Tompkins Cove (formerly 2.7% of the pool), Harmony Multifamily Portfolio (formerly 2.5% of the pool), Colter Park Apartments (formerly 9.5% of the pool), and Chapel View Apartments (formerly 4.4% of the pool) have been repaid in full. At present, the top 10 loans represent 78.6% of the pool. Six loans are currently on the servicer’s watchlist, representing 46.9% of the current trust balance. These loans are on the watchlist because of low occupancy, subpar performance, and/or extreme weather events. Although the watchlist concentration is high, DBRS Morningstar notes that it is typical for a transaction that includes loans secured by transitional assets such as the subject transaction. The two largest loans on the watchlist are The Everly (14.1% of the current pool) and The Emerson (8.9% of the current pool); for additional information on these loans, please see the Surveillance Performance Update report released in conjunction with this press release.

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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 methodology is the 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. + 416 593-5577