DBRS Morningstar Confirms Ratings on the Series 2012-4 Notes Issued by LStreet II, LLC

DBRS, Inc. (DBRS Morningstar) confirmed its ratings of AA (sf) on each of the Series 2012-4 Class A-1 Notes, Series 2012-4 Class A-2 Notes, Series 2012-4 Class A-3 Notes, Series 2012-4 Class A-4 Notes, and Series 2012-4 Class A-5 Notes, Series 2012-4 Class A-6 Notes, and Series 2012-4 Class A-7 Notes (collectively, the Series 2012-4 Class A Notes), issued by LStreet II, LLC (the Issuer) pursuant to the Sixth Amended and Restated Series 2012-4 Supplement dated as of May 21, 2020, which was entered into between LStreet II, LLC as Issuer and Deutsche Bank Trust Company Americas as Trustee.

The Series 2012-4 Class A Notes are collateralized by the Class A-1 Notes of Jupiter High-Grade CDO II, Ltd., which is itself collateralized by a pool of sub-prime and Alt-A residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities.

The ratings address (1) the likelihood of the Class A Noteholders receiving all principal distributions to which such noteholders are entitled and (2) the likelihood of the Class A Noteholders receiving the amount of Series 2012-4 Class A Interest to which such noteholders are entitled in each case, to the extent payable to the Class A Notes in accordance with the priorities of payment outlined in the Amended and Restated Series 2012-4 Supplement to the Base Indenture on or before the Final Maturity Date in May 2041.

For the avoidance of doubt, the above DBRS Morningstar ratings address the ultimate payment of the Series 2012-4 Class A-1 Principal, Series 2012-4 Class A-2 Principal, Series 2012-4 Class A-3 Principal, Series 2012-4 Class A-4 Principal, Series 2012-4 Class A-5 Principal, Series 2012-4 Class A-6 Principal, and Series 2012-4 Class A-7 Principal (initial par of $335,000,000 as of November 7, 2012; $178,000,000 as of November 1, 2013; $125,000,000 as of November 3, 2014; $80,000,000 as of November 23, 2015; $131,000,000 as of April 10, 2017; $25,000,000 as of November 30, 2017; and $57,000,000 as of May 21, 2020, respectively) and the timely payment of the Series 2012-4 Class A-1 Interest, Series 2012-4 Class A-2 Interest, Series 2012-4 Class A-3 Interest, Series 2012-4 Class A-4 Interest, Series 2012-4 Class A-5 Interest, Series 2012-4 Class A-6 Interest, and Series 2012-4 Class A-7 Interest (three-month Libor plus 0.27% per annum for all the Series 2012-4 Class A Notes).

The DBRS Morningstar ratings do not address any other amounts that may be paid to the Class A Noteholders, including, but not limited to, the Series 2012-4 Class A-1 Additional Amount, the Series 2012-4 Class A-2 Additional Amount, the Series 2012-4 Class A-3 Additional Amount, the Series 2012-4 Class A-4 Additional Amount, the Series 2012-4 Class A-5 Additional Amount, the Series 2012-4 Class A-6 Additional Amount, or the Series 2012-4 Class A-7 Additional Amount.

The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS asset classes, some meaningfully.

As a result of the coronavirus, DBRS Morningstar expects increased delinquencies and loans on forbearance plans, slower voluntary prepayment rates, and a potential near-term decline in the values of the mortgaged properties. Such deteriorations may adversely affect borrowers’ ability to make monthly payments, refinance their loans, or sell properties in an amount sufficient to repay the outstanding balance of their loans.

In connection with the economic stress assumed under its moderate scenario (see “Global Macroeconomic Scenarios: Implications for Credit Ratings,” published on April 16, 2020), for legacy RMBS, DBRS Morningstar assumes higher unemployment rates than what DBRS Morningstar previously used. Such assumptions translate to higher expected losses on the collateral pool and correspondingly higher credit enhancement.

For legacy RMBS, while the full effect of the coronavirus may not occur until a few performance cycles later, DBRS Morningstar generally believes that loans that were previously delinquent, recently modified, or have higher updated loan-to-value (LTV) ratios may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Borrowers with previous delinquencies or recent modifications have exhibited difficulty in fulfilling payment obligations in the past and may revert back to spotty payment patterns in the near term. Higher LTV borrowers with lower equity in their properties generally have fewer refinance opportunities and, therefore, slower prepayments.

For more information regarding DBRS Morningstar’s simplified set of macroeconomic scenarios for select economies related to the coronavirus, please see please see its April 16, 2020, commentary, “Global Macroeconomic Scenarios: Implications for Credit Ratings,” at https://www.dbrsmorningstar.com/research/359679; its April 22, 2020, commentary, “Global Macroeconomic Scenarios: Application to Credit Ratings,” at https://www.dbrsmorningstar.com/research/359903; and its March 17, 2021, updated commentary, “Global Macroeconomic Scenarios: March 2021 Update,” at https://www.dbrsmorningstar.com/research/375376.

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.

DBRS Morningstar notes that this press release was amended on February 2, 2022, to include the Cash Flow Assumptions for Corporate Credit Securitizations methodology.

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

The principal methodologies are Rating Structured Finance CDO Restructurings (November 12, 2020) and Cash Flow Assumptions for Corporate Credit Securitizations (February 8, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

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.

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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