DBRS Assigns Provisional Ratings to NorthStar 2015-1 Commercial Mortgage-Backed Securitization

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of secured floating-rate notes (the Notes) to be issued by NorthStar 2015-1 Commercial Mortgage-Backed Securitization. All trends are Stable.

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

All classes will be privately placed.

Classes F and G represent non-offered classes.

With respect to the deferrable notes (Class C, Class D, Class E, Class F and Class G), to the extent that interest proceeds are not sufficient on a given payment date to pay accrued interest, interest will not be due and payable on the payment date and will instead be deferred and capitalized. The ratings assigned by DBRS contemplate the timely payments of distributable interest and, in the case of deferred interest notes, the ultimate recovery of deferred interest (inclusive of interest payable thereon at the applicable rate, to the extent permitted by law).

The collateral for the transaction consists of 20 recently originated floating-rate mortgages secured by 81 transitional commercial real estate properties totaling $613.0 million. The loans are mostly secured by currently cash flowing assets, some of which are in a period of transition, with plans to stabilize and improve the asset value. Per DBRS’s analysis, nine loans, representing 40.1% of the pool, are currently stabilized. Additionally, four loans representing 24.2% of the pool represent loans with potential future cash flow downside as a result of insufficient structuring. Six loans, representing 33.8% of the pool, have a future funding component. As of the cut-off date, the aggregate remaining future funding participations totaled $44.6 million and ranged from $2.0 million to $21.0 million. The vast majority of these future funding participations will be utilized by the borrowers to fund property renovations and cover leasing costs.

The floating-rate mortgages were analyzed to determine the probability of loan default over the term of the loan and its refinance risk at maturity, based on a fully extended loan term. Because of the floating-rate nature of the loans, the index (one-month LIBOR) was modeled at the lower of a DBRS stressed rate that corresponded to the remaining fully extended term of the loans and the strike price of the interest rate cap, with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the cut-off balances were measured against the DBRS In-Place net cash flow (NCF) and their respective stressed constants, there were 16 loans, representing 82.1% of the pool, with term debt service coverage ratios (DSCRs) below 1.15 times (x), a threshold indicative of a higher likelihood of term default. Additionally, to assess refinance risk, DBRS applied its refinance constants to the balloon amounts, resulting in 17 loans, or 89.1% of the loans, having refinance DSCRs below 1.00x relative to the DBRS stabilized NCF. The properties are often transitioning, with potential upside in the cash flow; however, DBRS does not give full credit to the stabilization if no holdbacks or other loan structural features in place were insufficient to support such treatment. Furthermore, even with structure provided, DBRS generally does not assume the assets to stabilize above market levels.

The DBRS rating addresses the likelihood of timely receipt of interest with contemplation of deferral as allowed for in the transaction documents and the ultimate payment of principal and interest (including any previously deferred) by the DBRS Rated Final Payment Date, defined as May 2031. The ratings assigned to the Notes by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. The Notes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

The applicable methodology is North American CMBS Rating, which can be found on our website under Methodologies.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E).

This rating is endorsed by DBRS Ratings Limited for use in the European Union.