DBRS Morningstar Finalizes Provisional Ratings on BANK 2022-BNK41 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2022-BNK41 issued by BANK 2022-BNK41 Mortgage Trust:

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

All trends are Stable.

Class X-D, X-F, X-G, X-H, D, E, F, G, V, and R have been privately placed. The RR Interest Certificates are not offered.

The collateral consists of 69 fixed-rate loans secured by 141 commercial and multifamily properties. DBRS Morningstar elected to model Storage Express I and Storage Express II as one loan (representing 1.8% of the pool) because the loans are cross-collateralized and cross-defaulted. Throughout the remainder of this report, the pool will be referred to as a 68-loan pool. Three loans—Constitution Center, 601 Lexington Avenue, and Journal Squared Tower II, representing 17.0% of the pool—are 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 date balances were measured against the DBRS Morningstar net cash flow (NCF) and their respective actual constants, the initial DBRS Morningstar weighted average debt service coverage ratio (WA DSCR) of the pool was 3.39 times (x). No loans exhibited a DBRS Morningstar DSCR below 1.25x, a threshold indicative of a higher likelihood of midterm default. The pool additionally includes six loans, totaling 15.2% of the cut-off date pool balance, that exhibit a DBRS Morningstar loan-to-value ratio (LTV) greater than 67.1%, a threshold generally indicative of elevated default frequency. The WA DBRS Morningstar LTV of the pool at issuance is 51.9%, and the pool is scheduled to amortize down to a DBRS Morningstar LTV of 50.7% at maturity. These credit metrics are based on the A note balances. Excluding the shadow-rated loans, the deal still exhibits a favorable DBRS Morningstar WA Issuance LTV of 60.1%.

The transaction is a sequential-pay pass-through structure.

There are 25 loans, representing 33.7% of the pool, 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 with these rankings benefit from lower default frequencies than less dense suburban, tertiary, and rural markets. Urban markets represented in the deal include New York; Washington, D.C.; and San Francisco. In addition, 39 loans, representing 60.0% of the pool balance, have collateral in metropolitan statistical area (MSA) Group 3, which represents the best-performing group in terms of historical CMBS default rates among the top 25 MSAs.

Constitution Center, 601 Lexington Avenue, and Journal Squared Tower II exhibit credit characteristics consistent with investment-grade shadow ratings. Combined, these loans represent 17.0% of the pool. Constitution Center has credit characteristics consistent with an AA (low) shadow rating, 601 Lexington Avenue has credit characteristics consistent with an “A” shadow rating, and Journal Squared Tower II has credit characteristics consistent with an A (low) shadow rating. Additional information on these loans is provided in this report. Twenty-six loans in the pool, representing 10.8% of the transaction, are backed by residential co-operative loans. Residential co-operatives tend to have minimal risk, given their low leverage and low risk to residents if the co-operative associations default on their mortgages. The DBRS Morningstar WA Issuance and Balloon LTVs for these loans are 11.5% and 10.4%, respectively.

Forty-seven loans, representing a combined 57.6% 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 17.0% of the pool and 26 co-operative loans representing 10.8% of the pool, the deal exhibits a favorable DBRS Morningstar Issuance LTV of 59.6%.

Term default risk is low, as indicated by a strong DBRS Morningstar DSCR of 3.39x. Even with the exclusion of the shadow-rated and co-operative loans, the deal exhibits a very favorable DBRS Morningstar DSCR of 2.27x.

Ten loans, representing 42.0% of the pool balance, received a property quality of Average + or better, including three loans, representing 16.0%, that were graded as Above Average.

Seven loans, six of which are within the top 15 loans, representing 35.6% of the pool, have Strong sponsorship. Furthermore, DBRS Morningstar identified only four loans, representing just 9.1% of the pool, that have a sponsorship and/or loan collateral that results in DBRS Morningstar classifying the sponsor strength as Weak.

The pool has a relatively high concentration of loans secured by office and retail properties with 21 loans, representing 59.8% of the pool balance. The ongoing Coronavirus Disease (COVID-19) 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 strategies, office and retail spaces are particularly at risk. Two of the nine office loans, Constitution Center and 601 Lexington Avenue, representing 15.0% of the total pool, are shadow-rated investment grade by DBRS Morningstar. Furthermore, six of the office loans, representing 32.1% of the pool balance, are in DBRS Morningstar MSA Group 3, which are typically defined as areas with increased liquidity even in times of economic stress. The office and retail properties exhibit a favorable DBRS Morningstar WA DSCR of 2.95x. Additionally, both property types have favorable DBRS Morningstar WA Issuance and Balloon LTVs of 55.0% and 54.2%, respectively. Six of the office and retail properties in the transaction, representing 33.6% of the pool balance, have a DBRS Morningstar sponsorship strength of Strong.

There are 38 loans, representing 80.4% of the pool balance, structured with full-term interest-only (IO) periods. An additional four loans, representing 8.6% of the pool balance, are structured with partial IO terms ranging from 24 to 60 months. Loans that are full-term IO or partial IO do not benefit from amortization. Of the 38 loans structured with full-term IO periods, 17 loans, representing 51.9% of the pool balance, are in areas with a DBRS Morningstar MSA Group 3. The markets designated with a DBRS Morningstar MSA Group 3 are noted as markets with increased liquidity. Three of the loans, representing 17.0% of the pool balance, are shadow-rated investment grade by DBRS Morningstar. The full-term IO loans still benefit from a low leverage point as evidenced by the low DBRS Morningstar WA Issuance LTV of 54.3%, or 57.3% when excluding the shadow-rated and co-operative loans.

Fifty loans, representing 51.0% of the total pool balance, are refinancing existing debt. DBRS Morningstar views loans that refinance existing debt as more credit negative compared with loans that finance an acquisition. The loans that are refinancing existing debt exhibit relatively low leverage. Specifically, the DBRS Morningstar WA Issuance and Balloon LTVs of the loans refinancing existing debt are 43.8% and 41.7%, respectively. The loans that are refinancing existing debt are generally in stronger DBRS Morningstar Market Ranks and MSA groups than the broader pool of assets in the transaction. The DBRS Morningstar WA Market Rank of the loans refinancing existing debt is 5.70, whereas the DBRS Morningstar WA Market Rank for the entire transaction is 5.36. Additionally, 32 of the 50 refinance loans are in DBRS Morningstar MSA Group 3, representing 31.3% of the pool balance. DBRS Morningstar increased the implied cap rate for four refinance loans, representing 3.5% of the pool balance, which resulted in higher LTVs for these loans.

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-D, X-F, and X-G 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.

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.

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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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