DBRS Morningstar Assigns Provisional Ratings to Wells Fargo Commercial Mortgage Trust 2021-C60

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-C60 to be issued by Wells Fargo Commercial Mortgage Trust 2021-C60:

-- 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-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class X-D at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E-RR at A (low) (sf)
-- Class F-RR at BBB (high) (sf)
-- Class G-RR at BBB (sf)
-- Class H-RR at BB (high) (sf)
-- Class J-RR at BB (high) (sf)
-- Class K-RR at BB (low) (sf)
-- Class L-RR at B (low) (sf)

All trends are Stable.

The collateral consists of 61 fixed-rate loans secured by 107 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. One loan, representing 6.7% of the pool, is shadow-rated investment grade by DBRS Morningstar. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off balances were measured against the DBRS Morningstar net cash flow and their respective actual constants, the initial DBRS Morningstar Weighted-Average (WA) Debt Service Coverage Ratio (DSCR) of the pool was 2.05 times (x). Sixteen loans, accounting for 17.8% of the pool balance, had a DBRS Morningstar DSCR below 1.32x, a threshold indicative of a higher likelihood of term default. The pool additionally includes 17 loans, representing 31.3% of the allocated pool balance, that exhibit a DBRS Morningstar loan-to-value (LTV) ratio in excess of 67.1%, a threshold generally indicative of above-average default frequency. The WA DBRS Morningstar LTV of the pool at issuance was 61.3% and the pool is scheduled to amortize to a DBRS Morningstar WA LTV of 57.4% at maturity. These credit metrics are based on the A-note balances.

Fourteen loans, representing 36.1% of the pool balance, are backed by collateral located in Metropolitan Statistical Area (MSA) Group 3, which represents 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 40.0% lower than the overall CMBS historical default rate of 28.0%. The pool features a relatively high concentration of loans secured by properties located in less favorable suburban, tertiary, and rural market areas. Forty-seven loans, representing 67.9% of the pool balance, are secured by properties predominately located in areas with a DBRS Morningstar Market Rank of 1 through 4.

One of the loans—The Grace Building—exhibits credit characteristics consistent with investment-grade shadow ratings. This loan represents 6.7% of the pool and has credit characteristics consistent with an “A” shadow rating.

Twenty-two loans, representing a combined 45.8% 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. Twenty-nine loans, representing 59.5% of the pool balance, are structured with full-term interest-only (IO) periods. An additional 16 loans, representing 21.9% of the pool balance, are structured with partial IO terms ranging from six months to 60 months. While expected amortization for the pool is only 6.1%, which is less than recent conduit securitizations, none of the partial IO loans will have a balloon LTV greater than 65.1%, which DBRS Morningstar views as favorable.

Six loans, representing 21.5% of the pool balance, received a property quality grade of Average + or better, including two loans, representing 9.4%, deemed to have Above Average quality. Four loans, representing 19.3% of the pool, have Strong sponsorship. Furthermore, DBRS Morningstar identified only two loans, representing just 4.6% of the pool, as having a sponsorship and/or loan collateral that results in DBRS Morningstar classifying the sponsor strength as Weak.

Four loans, representing 19.3% of the pool, have Strong sponsorship. Furthermore, DBRS Morningstar identified only two loans, representing just 4.6% of the pool, as having a sponsorship and/or loan collateral that results in DBRS Morningstar classifying the sponsor strength as Weak.

Term default risk is low, as indicated by a relatively healthy WA DBRS Morningstar DSCR of 2.05x. Even with the exclusion of the shadow-rated loan, representing 6.7% of the pool, the deal exhibits a favorable WA DBRS Morningstar DSCR of 1.94x.

The pool features a relatively high concentration of loans secured by properties located in less favorable suburban, tertiary, and rural market areas. Forty-seven loans, representing 67.9% of the pool balance, are secured by properties predominately located in areas with a DBRS Morningstar Market Rank of 1 through 4. Loans in markets with a DBRS Morningstar Market Rank of 1 through 4 historically have had higher probability of default, and on average, produce higher expected losses than similar loans.

The pool has a relatively high concentration of loans secured by retail properties with 19 loans, representing 29.5% of the pool balance. The ongoing Coronavirus Disease (COVID-19) pandemic continues to pose challenges globally and the future demand for retail space is uncertain, with many store closures and companies filing for bankruptcy or downsizing. Thirteen of the 19 retail properties, representing 74.3% of the overall retail concentration, are secured by anchored or shadow-anchored properties. One loan, The Westchester (2.7% of the total pool balance), is secured by a regional mall. The retail properties in the pool exhibit favorable WA DBRS Morningstar DSCRs of 1.90x. Three of the loans secured by retail properties, representing 42.9% of the retail concentration, have sponsors that were deemed to be Strong.

The pool includes five loans, representing 13.6% of the overall pool balance, that are secured by office properties. As a result of the coronavirus pandemic, future demand for office space is uncertain, with corporate downsizings and more companies extending their remote-working strategy. One of the five office loans, The Grace Building, representing 49.1% of the office concentration, is shadow-rated investment grade by DBRS Morningstar. Furthermore, 90.4% of the office loans are located in MSA Group 3, which represents the lowest historical CMBS default rates. The office properties in the pool exhibit a favorable DBRS Morningstar WA DSCR of 2.99x and a DBRS Morningstar WA LTV of 51.7%, which mitigate some of DBRS Morningstar’s concerns about this property type.

Twenty-nine loans, representing 59.5% of the pool balance, are structured with full-term IO periods. An additional 16 loans, representing 21.9% of the pool balance, are structured with partial IO terms ranging from six months to 60 months. While expected amortization for the pool is only 6.1%, which is less than recent conduit securitizations, none of the partial IO loans will have a balloon LTV greater than 65.1%, which DBRS Morningstar views as favorable.

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.

Classes X-A, X-B, and X-D are 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.

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.

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 (March 26, 2021), 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.

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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