DBRS Morningstar Finalizes Provisional Ratings of BDS 2020-FL6 Ltd.

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by BDS 2020-FL6 Ltd. (the Issuer):

-- 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.

DBRS Morningstar analyzed the pool to determine the ratings, reflecting the long-term risk that the Issuer will default and fail to satisfy its financial obligations in accordance with the terms of the transaction. The mortgage loan cut-off date balance of $489.4 million consists 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. The collateral pool for the transaction is static with no ramp-up period 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).

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. The collateral consists of 19 mortgage assets (including one whole loan and 18 funded pari passu participations of whole loans) secured by 25 properties. Of the 25 properties, 24 are multifamily assets (97.6% of the mortgage asset cut-off date balance) and one property is a manufactured housing community (2.4% of the mortgage asset cut-off date balance). Two loans (totaling 13.4% of the mortgage asset cut-off balance) are secured by a portfolio of multiple properties that are cross-collateralized and cross-defaulted. The loans are mostly secured by cash flowing assets, most of which are in a period of transition with plans to stabilize and improve the asset value.

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.

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. Additionally, in the DBRS Morningstar Stabilized DSCR analysis, no loans were below 1.00x, which indicates elevated refinance risk. 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.

In some cases, loans included in the pool are several years seasoned, and the original business plans have not materialized as expected, significantly increasing the loans’ risk profile. Given the nature of the assets, DBRS Morningstar sampled a large portion of the pool at 82.6% of the cut-off date balance. This sample size is higher than the typical sample for traditional conduit commercial mortgage-backed securities (CMBS) transactions. DBRS Morningstar also performed physical site inspections, including management meetings, for 16 of the 25 properties in the pool (72.6% of the pool by allocated loan balance). The weighted average remaining fully extended term is 57 months.

In some instances, DBRS Morningstar estimated stabilized cash flows that are above the in-place cash flow. It is possible that the sponsors will not successfully execute their business plans and that the higher stabilized cash flow will not materialize during the loan term, particularly with the ongoing Coronavirus Disease (COVID-19) pandemic and its impact on the overall economy. A sponsor’s failure to execute the business plan could result in a term default or the inability to refinance the fully funded loan balance. DBRS Morningstar made relatively conservative stabilization assumptions and, in each instance, considered the business plan to be achievable and the future funding amounts to be sufficient to execute such plans.

With regard to the coronavirus, the magnitude and extent of performance stress posed to global structured finance transactions remains highly uncertain. This considers the fiscal and monetary policy measures and statutory law changes that have already been implemented or will be implemented to soften the impact of the crisis on global economies. Some regions, jurisdictions, and asset classes are, however, affected more immediately. Accordingly, DBRS Morningstar may apply additional short-term stresses to its rating analysis, for example by front-loading default expectations and/or assessing the liquidity position of a structured finance transaction with more stressful operational risk and/or cash flow timing considerations.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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.

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

-- Prospectus ID #1 - The Everly (11.1% of the pool)
-- Prospectus ID #2 - King Portfolio (10.9% of the pool)
-- Prospectus ID #3 - Colter Park Apartments (9.5% of the pool)
-- Prospectus ID #4 - Four50 Residences (7.7% of the pool)
-- Prospectus ID #5 - The Emerson (7.0% of the pool)
-- Prospectus ID #6 - Mission Hills Apartments (6.6% of the pool)
-- Prospectus ID #7 - Villas of Arlington (5.8% of the pool)
-- Prospectus ID #8 - The Life at Clearwood (5.0% of the pool)
-- Prospectus ID #9 - Jaxon Apartment Homes (4.8% of the pool)
-- Prospectus ID #10 - Chapel View Apartments (4.4% of the pool)
-- Prospectus ID #12 - The Fleetwood Apartments (3.7% of the pool)
-- Prospectus ID #14 - Arch + Vine Athens (3.5% of the pool)
-- Prospectus ID #16 - Harmony Multifamily Portfolio (2.5% of the pool)

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.

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 North American CMBS Multi-Borrower Rating Methodology (August 7, 2020), 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.

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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