DBRS Morningstar Confirms Ratings of Ready Capital Mortgage Financing 2020-FL4, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the notes issued by Ready Capital Mortgage Financing 2020-FL4, LLC as follows:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (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 the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at info@dbrsmorningstar.com.

At issuance, the pool consisted of 56 floating-rate mortgages secured by 63 mostly transitional properties with an aggregate principal balance of $405.3 million, excluding $147.5 million of future funding commitments. The transaction is structured with a 24-month acquisition period whereby the Issuer may acquire future funding participations with principal repayment proceeds into the trust, limited to a cumulative amount of $65.0 million. This period is scheduled to end with the July 2022 payment date and as of April 2022 reporting, the Permitted Funded Companion Participation Acquisition Account had a balance of $13.3 million.

As of April 2022 reporting, 29 of the original 56 loans remain in the pool with an aggregate principal balance of $328.3 million, resulting in a collateral reduction of 19.0%. In general, borrowers are progressing with the stated business plans at issuance; however, select borrowers have encountered delays in business plan execution with identified issues including slower-than-expected leasing momentum for commercial properties and delays with capital improvement projects as a result of the Coronavirus Disease (COVID-19) pandemic. According to the servicer, the collateral manager had advanced $51.7 million of loan future funding to 27 individual borrowers to aid in property stabilization efforts. An additional $71.7 million of outstanding future funding commitments allocated to 27 individual borrower has yet to be released.

The transaction is concentrated by property type as seven loans, representing 34.2% of the trust balance, are secured by office properties, six loans, representing 33.8% of the pool balance, are secured by industrial properties, and seven loans, representing 16.6% of the trust balance, are secured by mixed-use properties. In comparison with issuance, the most representative property types were multifamily (28.9% of the trust balance), industrial (28.7% of the trust balance), and office (25.6% of the trust balance). In terms of location, 14 properties, representing 51.3% of the trust balance, are located in suburban markets and 12 properties, representing 43.9% of the trust balance, are located in urban markets. This compares with 64.0% of the trust balance and 27.9% of the trust balance, respectively, at issuance.

The Sweet Home Apartments loan (Prospectus ID#39; 1.2% of pool) represents the pool’s only specially serviced loan. The loan, which is secured by a 44-unit garden-style multifamily property in Arlington, Texas, transferred to special servicing in December 2021 for maturity default. The special servicer is working on an eight-month maturity extension through August 2022 to allow the borrower additional time to sell the property. While the property was 95.5% occupied as of the September 2021 rent roll, property operations produced a debt service coverage ratio (DSCR) of only 0.19 times (x) during this period. According to the collateral manager, the property underwent a number of capital expenditures, which are 100% complete as of April 2022 and the loan’s $455,800 future funding component has been fully advanced to the borrower. At issuance, the loan had a cut-off loan-to-value ratio (LTV) of 84.2% with a projected stabilized LTV of 65.0% based on the projected property value of $5.8 million. DBRS Morningstar analyzed the loan with an elevated expected loss given the poor property performance despite the stable occupancy rate; however, mitigants to the loan’s credit risk include recent agency financings completed within a two-mile radius of the subject in recent years. Since 2021, seven agency loans have been originated with an average loan amount of $88,463/unit and an average property value of $125,947/unit. The subject loan has leverage of $85,005/unit and the projected stabilized value is $131,818/unit with both metrics comparing similarly to the data set noted above.

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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – 55 East Jackson (13.9% of the pool)
-- Prospectus ID#2 – Park 207 (10.4% of the pool)
-- Prospectus ID#6 – Sacramento Portfolio (6.8% of the pool)
-- Prospectus ID#5 – 19 LaSalle Street (6.2% of the pool)
-- Prospectus ID#7 – Parkwood Plaza (5.3% of the pool)

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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 4, 2022), 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.

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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