DBRS Morningstar Finalizes Provisional Ratings on Canadian Commercial Mortgage Origination Trust 5

DBRS Limited (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-5 issued by Canadian Commercial Mortgage Origination Trust 5 (CCMOT5):

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

All trends are Stable.

Classes A-J, X, B, C, D, E, F, and G will be privately placed.

The collateral consists of 35 fixed-rate loans, including five pari passu pooled interests, secured by 52 commercial properties. The transaction is a sequential-pay pass-through structure. DBRS Morningstar modelled five pari passu hotel pooled interest loans, namely Vancouver Hotel Pooled Interest, Ottawa Hotel Pooled Interest, Edmonton DoubleTree Hotel Pooled Interest, Bessborough Hotel Pooled Interest, and Edmonton Home2Suites Hotel Pooled Interest (collectively Silverbirch Hotel Portfolio Pooled Interests) as one loan (representing 11.1% of the pool) and Synergy—Trail South, and Synergy—Parkdale Trail as one loan (representing 2.8% of the pool) because these two groups of loans are each cross-collateralized and cross-defaulted. Throughout the related presale report, the pool will be referred to as a 30-loan pool. The conduit pool was analyzed to determine the final ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Morningstar Stabilized net cash flow (NCF) and their respective actual constants, the initial DBRS Morningstar weighted-average (WA) debt service coverage ratio (DSCR) for the pool was 1.48 times (x). The WA DBRS Morningstar loan-to-value ratio (LTV) of the pool at issuance was 58.3%, and the pool is scheduled to amortize down to a DBRS Morningstar WA LTV of 54.4% at maturity. Five DBRS Morningstar modelled loans or nine issuer counted loans, representing 29.1% of the allocated pool balance, that exhibit a DBRS Morningstar Issuance LTV ratio in excess of 67.1%, a threshold generally indicative of above-average default frequency. These credit metrics are based on the A-note balances.

Twenty two DBRS Morningstar modelled loans or 26 issuer counted loans, representing 85.3% of the pool, have been given full or partial recourse credit in the DBRS Morningstar CMBS Insight model because of some form of recourse to individuals and real estate investment trusts or established corporations. Recourse generally results in lower probability of default (POD) over the term of the loan. While it is generally difficult to quantify the impact of recourse, all else being equal, there is a small shift lowering the loan’s POD for warm-body or corporate sponsors that give recourse. Recourse can also serve as a mitigating factor to other risks, such as single-tenant risk, by providing an extra incentive for the loan sponsor to make debt service payments if the sole tenant vacates. Additionally, five DBRS Morningstar modelled loans, representing 16.2% of the pool, were considered by DBRS Morningstar to have Strong sponsor strength.

The DBRS Morningstar sample included 16 of the 30 DBRS Morningstar modelled loans or 21 of 35 issuer counted loans in the pool. Site inspections were performed on 34 of the 52 properties in the portfolio (67.3% of the pool by allocated loan balance). The DBRS Morningstar sample had an average NCF variance of -4.4% and ranged from -23.0% (100 Dundas, London) to +14.8% (Olymbec Industrial Portfolio).

DBRS Morningstar notes that Royal Bank of Canada who serves as Fiscal Agent and provides backup P&I advancing, is only being held to a gross negligence standard with regard its obligations under the Pooling and Servicing Agreement.

ENVIRONMENTAL, SOCIAL, GOVERNANCE
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

Class X is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior 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 Canadian dollars unless otherwise noted.

The principal methodology is North American CMBS Multi-Borrower Rating Methodology (November 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 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.

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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