DBRS Morningstar Upgrades Ratings on Three Classes of Bayview Financing SBC Trust 2021-5F

DBRS Limited (DBRS Morningstar) upgraded its ratings on three Notes issued by Bayview Financing SBC Trust 2021-5F (BVRT 2021-5F or the Issuer) as follows:

-- Class A1 Notes to A (high) (sf) from A (low) (sf)
-- Class A2 Notes to BBB (high) (sf) from BBB (low) (sf)
-- Class A3 Notes to BBB (low) (sf) from BB (high) (sf)

The ratings on the Notes address the ultimate payment of interest and principal on or before the final maturity date in November 2049. DBRS Morningstar has assigned Stable trends to the ratings.

The rating upgrades reflect the overall improved credit support for the transaction. BVRT 2021-5F is a resecuritization of the previously issued securities of Silver Hill Trust 2019-SBC1 (SHT 2019-SBC1), composed of individual fixed- and floating-rate small balance loans secured by commercial, multifamily, and single-family rental properties. For more information on the SHT 2019-SBC1 transaction, please see the bottom of the press release.

The assets backing the BVRT 2021-5F transaction consist of interest-only (IO) notes, and principal and interest (P&I) notes, Class P notes, and Class X subordinated notes issued by SHT 2019-SBC1. Per the August 2022 reporting, the subject transaction had an overcollateralization of approximately $17.6 million as a result of payments from the underlying SHT 2019-SBC1 transaction, including principal and interest payments on P&I notes, interest payment on IO notes, and prepayment premiums.

This overcollateralization is subordinate to the rated Notes, factoring into the increased credit enhancement since issuance. The initial credit enhancement for the Class A-1, A-2, and A-3 Notes was 37.5%, 20.0%, and 0.0%, respectively. As of the August 2022 reporting, the Class A-1, A-2, and A-3 Notes’ credit-enhancement figures had risen to 53.8%, 33.5% and 14.8%, respectively, helping to support the rating upgrades.

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

SHT 2019-SBC1

DBRS Morningstar most recently reviewed this transaction on July 22, 2022, when it upgraded ratings on 10 classes of secured floating-rate notes. For more information on the action, please reference the press release.

The transaction is composed of individual fixed- and floating-rate small balance loans secured by commercial, multifamily, and single-family rental properties. According to the August 2022 reporting, 590 of the original 978 loans remain in the pool, with an aggregate trust balance of $259.1 million (average loan balance of approximately $439,205), representing a collateral reduction of 41.4% since issuance. One loan, that was formerly REO, incurred a realized loss of $0.5 million to the trust or a loss severity of 40.7%. This represents the first loss to the trust.

Most of the loans that have been repaid were paid in advance of their respective maturity dates, with most repayments including applicable prepayment penalties. During the last 12 months, the transactions’ voluntary constant prepayment rate (CPR) has been high at 22.8%, well above the life CPR of 17.1%. With the August 2022 reporting, however, only five loans were prepaid, totalling $1.4 million (including applicable prepayment premiums), or a CPR of 5.6%.

As of the August 2022 reporting, there were 14 loans reported as over 30 days delinquent, representing 3.2% of the current pool balance. This represents a significant decline from the August 2021 reporting, which showed 63 loans, representing 8.5% of the pool balance, that were over 30 days delinquent. There are also nine loans that are in foreclosure; however, these loans represent only 1.9% of the pool balance.

The pool is well diversified, a factor that combines with the increased credit support to the rated classes from issuance to generally reduce the loan-level event risk for the transaction. By loan balance, the top 15 loans represent 9.8% of the pool, with the largest loan representing just 0.9% of the pool. The collateral properties are located across 36 states, with the largest concentrations in Florida (15.8% of the pool), California (13.4% of the pool), and New York (8.9% of the pool). By property type, the pool has concentrations of loans secured by commercial-use properties (42.5% of the pool), multifamily properties (26.5% of the pool), and mixed-use properties (11.4% of the pool).

DBRS Morningstar received limited borrower and property-level information at issuance and considered the overall property quality to be Average −/Below Average based on those properties sampled; this sample comprised 8.4% of the issuance pool balance.

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

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology the North American CMBS Surveillance Methodology (March 4, 2022), 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.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

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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