DBRS Morningstar Finalizes Provisional Ratings of BANK 2020-BNK30

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-BNK30 issued by BANK 2020-BNK30:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3-1 at AAA (sf)
-- Class A-3-2 at AAA (sf)
-- Class A-3-X1 at AAA (sf)
-- Class A-3-X2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-4-1 at AAA (sf)
-- Class A-4-2 at AAA (sf)
-- Class A-4-X1 at AAA (sf)
-- Class A-4-X2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-S-1 at AAA (sf)
-- Class A-S-2 at AAA (sf)
-- Class A-S-X1 at AAA (sf)
-- Class A-S-X2 at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-F at BBB (low) (sf)
-- Class X-G at BB (sf)
-- Class D at A (low) (sf)
-- Class X-D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class F at BB (high) (sf)
-- Class G at BB (low) (sf)

All trends are Stable. Classes X-D, X-F, X-G, D, E, F, and G have been privately placed.

Classes A-3-X1, A-3-X2, A-4-X1, A-4-X2, X-A, X-B, A-S-X1, A-S-X2, X-D, X-F, and X-G are interest-only (IO) certificates that reference 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.

The Class A-3-1, A-3-2, A-3-X1, A-3-X2, A-4-1, A-4-2, A-4-X1, A-4-X2, A-S-1, A-S-2, A-S-X1, and A-S-X2 certificates are also offered certificates. Such classes of certificates, together with the Class A-3, A-4, and A-S certificates, constitute the Exchangeable Certificates. The Class A-1, A-SB, A-2, B, C, D, E, F, G, and H certificates, together with the RR Interest and the Exchangeable Certificates with a certificate balance, are referred to as the principal balance certificates.

With regard to the Coronavirus Disease (COVID-19) pandemic, the magnitude and extent of performance stress posed to global structured finance transactions remain 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, feeling more immediate effects. DBRS Morningstar continues to monitor the ongoing coronavirus pandemic and its impact on both the commercial real estate (CRE) sector and the global fixed income markets. 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.

The transaction consists of 40 fixed-rates loans secured by 62 commercial and multifamily properties. The transaction is of a sequential-pay pass-through structure. Three loans, representing 25.7% of the pool, are shadow-rated investment grade by DBRS Morningstar. Additionally, 14 loans in the pool, representing 5.3% of the transaction, are backed by residential co-operative loans. The conduit pool was analyzed to determine the DBRS Morningstar 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 Net Cash Flow and their respective actual constants, the initial Weighted-average (WA) DBRS Morningstar Debt Service Coverage Ratio (DSCR) of the pool was 2.75 times (x). One loan, representing only 0.7% of the pool, has a DBRS Morningstar DSCR below 1.32x, a threshold indicative of a higher likelihood of midterm default. The pool additionally includes five loans, composing a combined 15.3% of the pool balance, with a DBRS Morningstar Loan-to-Value (LTV) ratio exceeding 67.1%, a threshold generally indicative of above-average default frequency. The WA DBRS Morningstar LTV of the pool at issuance was 52.4%, and the pool is scheduled to amortize down to a WA DBRS Morningstar LTV of 47.4% at maturity. These credit metrics are based on the A-note balances. Excluding the shadow-rated loans, representing 25.7% of the pool, the deal still exhibits a favorable DBRS Morningstar Issuance LTV of 56.4%.

The pool has a top 10 loan concentration of 70.6% and exhibits a Herfindahl score of 16.7, which is notably lower than previous transactions rated by DBRS Morningstar, including BANK 2020-BNK29, with a Herfindahl score of 18.4, and BANK 2020-BNK26, with a Herfindahl score of 32.7. Three of the loans—605 Third Avenue, McDonald’s Global HQ, and Grace Building—exhibit credit characteristics consistent with investment-grade shadow ratings. Combined, these loans represent 25.7% of the pool. Both 605 Third Avenue and McDonald’s Global HQ have credit characteristics consistent with an A (low) shadow rating, and Grace Building has credit characteristics consistent with an “A” shadow rating. Additionally, 14 loans in the pool, representing 5.3% of the transaction, are backed by residential co-operative loans. Residential co-operatives tend to have minimal risk, given their low leverage and and high risk to residents if the co-operative associations default on their mortgages. The WA LTV for these loans is 17.2%.

Twenty-seven loans, representing a combined 62.7% of the pool by allocated loan balance, exhibit issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. Even with the exclusion of the shadow-rated loans, representing 25.7% of the pool, and 14 loans, representing 5.3% of the pool, the deal exhibits a favorable DBRS Morningstar Issuance LTV of 59.4%. Additionally, term default risk is low, as indicated by a strong DBRS Morningstar DSCR of 2.75x. Even with the exclusion of the shadow-rated and National Cooperative Bank, N.A. (NCB) loans, the deal exhibits a very favorable DBRS Morningstar DSCR of 2.28x.

While the pool demonstrates favorable loan metrics with WA DBRS Morningstar Issuance and Balloon LTVs of 52.4% and 47.4%, respectively, it also exhibits heavy leverage barbelling. There are three loans, accounting for 25.7% of the pool, with investment-grade shadow ratings and a WA LTV of 40.8% and 14 loans, representing 5.3% of the transaction, secured by co-operatives with a WA DBRS Morningstar LTV of 17.2%. The pool also has 27 loans, representing a combined 62.7% of the pool by allocated loan balance, with an issuance LTV lower than 59.3%, a threshold historically indicative of relatively low-leverage financing. There are five loans, constituting a combined 15.3% of the pool balance, with an issuance LTV higher than 67.1%, a threshold historically indicative of relatively high-leverage financing and generally associated with above-average default frequency. The WA expected loss of the pool’s investment-grade and NCB co-operative component was approximately 0.6%, while the WA expected loss of the pool’s conduit component was substantially higher at approximately 2.0%, further illustrating the barbelled nature of the transaction. The WA DBRS Morningstar expected loss exhibited by the loans that have relatively high-leverage financing was 2.1%. This is higher than the conduit component’s WA expected loss of 1.9%, and the pool’s credit enhancement reflects the higher leverage of this five-loan component with an issuance LTV exceeding 67.1%.

Nine loans, representing 29.1% of the pool, are in areas identified as DBRS Morningstar Market Ranks of 7 or 8, which are generally characterized as highly dense urbanized areas that benefit from increased liquidity driven by consistently strong investor demand, even during times of economic stress. Markets ranked seven and eight benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. Urban markets represented in the deal include New York and San Francisco. In addition, 22 loans, representing 42.0% of the pool balance, have collateral in Metropolitan Statistical Area (MSA) Group 3, which is the best-performing group in terms of historical commercial mortgage-backed securities (CMBS) default rates among the top 25 MSAs. MSA Group 3 has a historical default rate of 17.2%, which is nearly 10.8 percentage points lower than the overall CMBS historical default rate of 28.0%.

Ten loans, representing 57.0% of the pool balance, received a property quality of Average + or better including one loan, representing 8.6% of the pool, deemed to have Excellent quality and two loans, representing 16.6% of the pool, to be Above Average. Six loans, five of which are within the top 10 loans, representing 42.4% of the pool, have Strong sponsorship. Furthermore, DBRS Morningstar identified only three loans, which, combined, represent just 6.5% of the pool, that have sponsorship and/or loan collateral associated with a voluntary bankruptcy filing, a prior discounted payoff, a loan default, limited net worth and/or liquidity, a historical negative credit event, and/or inadequate commercial real estate experience.

The pool has a relatively high concentration of loans secured by office and retail properties with six loans, representing 42.3% of the pool balance, secured by office properties and 10 loans, representing 33.6% of the pool, secured by retail properties. The ongoing coronavirus pandemic continues to pose challenges globally, and the future demand for office and retail space is uncertain with many store closures, companies filing for bankruptcy or downsizing, and more companies extending their remote-working strategy. Three of the six office loans, representing 60.8% of the office balance, are shadow-rated investment grade by DBRS Morningstar: 605 Third Avenue, McDonald’s Global HQ, and Grace Building. Furthermore, 62.2% of the office loans are in areas with DBRS Morningstar Market Ranks of 7 or 8, and no loans are in a market ranked lower than five. Additionally, two retail loans, representing 38.3% of the retail concentration, are in areas with a DBRS Morningstar Market Rank of 6. The retail properties in more suburban areas have a WA expected loss that is more than 50% higher than the overall pool’s expected loss. Of the retail concentration, three loans, representing 24.4% of the retail loans, are secured by multiple properties (25 in total), which insulates the loans from issues at any one property. The office and retail properties exhibit favorable WA DBRS Morningstar DSCRs of 3.01x and 2.10x, respectively. Additionally, both property types exhibit favorable LTVs at 47.3% and 60.7%, respectively. Four of the loans secured by office properties, representing 74.1% of the concentration, have sponsors that DBRS Morningstar deemed to be Strong.

Sixteen loans, representing 67.0% of the pool balance, are structured with full-term IO periods. An additional three loans, representing 7.8% of the pool balance, are structured with partial-IO terms ranging from 36 months to 60 months. Of the 16 loans with full-term IO periods, seven loans, representing 39.0% of the pool by allocated loan balance, are in areas with a DBRS Morningstar Market Rank of 6, 7, or 8. These markets benefit from increased liquidity even during times of economic stress. Two of the 16 identified loans, representing 17.2% of the total pool balance, are shadow-rated investment grade by DBRS Morningstar: 605 Third Avenue and Grace Building.

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 - 605 Third Avenue (9.8% of the pool)
-- Prospectus ID#2 - Miami Design District (9.2% of the pool)
-- Prospectus ID#3 - McClellan Park (9.2% of the pool)
-- Prospectus ID#4 - McDonald's Global HQ (8.6% of the pool)
-- Prospectus ID#5 - Coleman Highline (7.5% of the pool)
-- Prospectus ID#6 - Grace Building (7.4% of the pool)
-- Prospectus ID#7 - 250 West 57th Street (6.8% of the pool)
-- Prospectus ID#8 - ExchangeRight Net Leased Portfolio #41 (4.9% of the pool)
-- Prospectus ID#9 - Fresh Pond Cambridge (3.7% of the pool)
-- Prospectus ID#10 - York Marketplace (3.6% of the pool)
-- Prospectus ID#11 - The Arboretum (3.1% of the pool)
-- Prospectus ID#12 - Hilton Garden Inn Salt Lake City Airport (2.8% of the pool)
-- Prospectus ID#13 - Walgreens Portfolio (2.6% of the pool)
-- Prospectus ID#14 - 1890 Ranch (2.5% of the pool)
-- Prospectus ID#15 - Town Center Jeffersonville (2.4% of the pool)
-- Prospectus ID#16 - 80 Grand - CA (2.4% of the pool)
-- Prospectus ID#17 - 711 Fifth Avenue (1.8% of the pool)
-- Prospectus ID#19 - Comfort Suites – Moab, UT (1.2% of the pool)
-- Prospectus ID#20 - Oakwood Village (0.9% of the pool)
-- Prospectus ID#25 - Cardiff Reef (0.6% of the pool)
-- Prospectus ID#29 - Extra Space Storage-San Jacinto (0.4% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 the 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 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

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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