DBRS Morningstar Upgrades Six Classes of BDS 2020-FL6 Ltd.

DBRS, Inc. (DBRS Morningstar) upgraded its ratings on six classes of notes issued by BDS 2020-FL6 Ltd. as follows:

-- Class B to AAA (sf) from AA (low) (sf)
-- Class C to A (high) (sf) from A (low) (sf)
-- Class D to A (high) (sf) from BBB (high) (sf)
-- Class E to A (low) (sf) from BBB (low) (sf)
-- Class F to BBB (low) (sf) from BB (low) (sf)
-- Class G to BB (low) (sf) from B (low) (sf)

Additionally, DBRS Morningstar discontinued the rating of Class A as the class was fully repaid with the September 2022 remittance.

All trends are Stable.

The rating upgrades are a result of increased credit support to the bonds as a result of successful loan repayment. Since issuance, 12 of the original 19 loans have been repaid, resulting in collateral reduction of 58.1%. DBRS Morningstar did not publish a Surveillance Performance Update rating report with its review of the transaction but expects to with any subsequent rating actions.

The current trust consists of seven loans totaling $184.8 million. The loans are secured by transitional assets with plans to stabilize performance and improve the asset value. The collateral pool is static; however, the Issuer has the right to acquire funded loan participations subject to stated criteria during the Replenishment Period. The Replenishment Period ended with the September 2022 Payment Date (subject to a 60-day extension for binding commitments entered during the replenishment period). As of the September 2022 reporting, the Replenishment Account had no balance. The transaction has a sequential-pay structure. Interest can be deferred for Classes C, D, E, F, and G, and interest deferral will not result in an event of default.

The transaction is currently concentrated by multifamily properties as six loans, representing 94.3% of the current pool balance, are secured by multifamily asset. The remaining loan is secured by a manufactured housing property. Through August 2022, the collateral manager had advanced loan future funding of $17.8 million to the borrowers on the remaining seven loans to aid in asset stabilization. There remains an additional $3.1 million of available loan future funding allocated to four individual borrowers.

As of September 2022, one loan, Mission Hills Apartments (Prospectus ID#6; 16.8% of the pool balance) is on the servicer’s watchlist. The loan was flagged for deferred maintenance cited in the October 2021 servicer site inspection, which noted there were down units because of burst pipes. According to the Q2 2022 update from the collateral manager, remediation was ongoing as the borrower continues to implement its business plan to renovate units. Through Q2 2022, 66 of the 288 units had been renovated with realized rental premiums of $342 per unit realized on the rented and renovated units. Unrenovated units have realized monthly rental premiums of $168 per unit. The borrower is currently installing upgrades to covered parking, which is expected to be completed in Q3 2022. The loan was structured with $2.0 million of future funding for planned renovations, which has been fully advanced to the borrower as the loan has a current balance of $31.0 million. The property appears to be approaching stabilization ahead of the February 2023 loan maturity date as the June 2022 occupancy rate of 92.0% and the annualized Q1 2022 net cash flow was $1.8 million (debt service coverage ratio (DSCR) of 1.57 times (x)), which is above the YE2021 figure of $1.7 million (DSCR of 1.37x).

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).

DBRS Morningstar materially deviated from its CMBS Insight Model when determining the rating to Class C by upgrading the rating to a level below the one suggested by the quantitative model output. The material deviation is warranted given the structural features of the transaction, which allows the issuer to defer interest to Class C, outweighing the higher rating suggested by the quantitative model output.

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

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology, 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/402907/baseline-macroeconomic-scenarios-for-rated-sovereigns-september-2022-update.

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.

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