/raid1/www/Hosts/bankrupt/TCR_Public/200419.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
Sunday, April 19, 2020, Vol. 24, No. 109
Headlines
BEAR STEARNS 2005-PPWR9: Moody's Cuts Class G Certs to 'C'
BEAR STEARNS 2005-PWR7: Fitch Affirms D Ratings on 8 Tranches
CANTOR COMMERCIAL 2016-C4: Fitch Affirms B-sf Rating on 2 Tranches
COMM 2010-C1: Fitch Cuts Class G Certs to 'CCCsf'
FINANCIAL 15 SPLIT: DBRS Confirms Pfd-4(high) on Preferred Shares
GRAMERCY REAL 2005-1: Fitch Cuts Class J Debt Rating to 'Dsf'
JP MORGAN 2004-CIBC8: Moody's Affirms Caa1 Rating on Class K Certs
JPMCC COMMERCIAL 2017-JP6: Fitch Affirms Class G-RR Debt at B-sf
MADISON PARK XXXIV: Fitch Places BB- on Class E Notes on Watch Neg.
MORGAN STANLEY 2011-C2: Moody's Cuts Class F Certs to Caa2
NORTH AMERICAN FINC'L: DBRS Confirms Pfd-4(high) on Pref. Shares
READY CAPITAL 2019-FL3: DBRS Reviews B(low) Rating on Class F Notes
STRATUS CLO 2020-1: Fitch Gives 'BB-sf' Rating on Class E Notes
[*] DBRS Reviews 327 Classes From 26 Legacy U.S. RMBS Transactions
[*] Moody's Lowers $93MM of U.S. RMBS Issued 2003-2005
*********
BEAR STEARNS 2005-PPWR9: Moody's Cuts Class G Certs to 'C'
----------------------------------------------------------
Moody's Investors Service has affirmed the ratings on five classes
and downgraded the rating on one class in Bear Stearns Commercial
Mortgage Securities Trust 2005-PWR9, Commercial Mortgage
Pass-Through Certificates, Series 2005-PWR9 as follows:
Cl. C, Affirmed Aaa (sf); previously on Dec 20, 2018 Affirmed Aaa
(sf)
Cl. D, Affirmed Aaa (sf); previously on Dec 20, 2018 Upgraded to
Aaa (sf)
Cl. E, Affirmed Baa1 (sf); previously on Dec 20, 2018 Upgraded to
Baa1 (sf)
Cl. F, Affirmed Caa1 (sf); previously on Dec 20, 2018 Affirmed Caa1
(sf)
Cl. G, Downgraded to C (sf); previously on Dec 20, 2018 Affirmed Ca
(sf)
Cl. X-1*, Affirmed Ca (sf); previously on Feb 13, 2019 Upgraded to
Ca (sf)
* Reflects Interest-Only Class
RATINGS RATIONALE
The ratings on four P&I classes were affirmed because the
transaction's key metrics, including Moody's loan-to-value ratio,
Moody's stressed debt service coverage ratio and the transaction's
Herfindahl Index, are within acceptable range. Additionally,
defeasance constitutes 55.6% of the current pool balance, compared
to 39.6% at last review.
The ratings on P&I class, Cl. G, was downgraded due to realized
losses and anticipated losses from specially loans. The class has
already experienced 31% realized loss due to previously liquidated
loans.
The rating on the IO class was affirmed based on the credit quality
of the referenced classes.
Its analysis has considered the increased uncertainty relating to
the effect of the coronavirus outbreak on the USA economy as well
as the effects that the announced government measures put in place
to contain the virus, will have on the performance of commercial
real estate. Moody's regards the coronavirus outbreak as a social
risk under its ESG framework, given the substantial implications
for public health and safety. It is a global health shock, which
makes it extremely difficult to provide an economic assessment. The
degree of uncertainty around its forecasts is unusually high.
Moody's rating action reflects a base expected loss of 11.6% of the
current pooled balance, the same as at Moody's last review. Moody's
base expected loss plus realized losses is now 6.2% of the original
pooled balance, compared to 6.0% at the last review.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization or an
improvement in loan performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the loan, an increase in realized and
expected losses from specially serviced loan or interest
shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in rating all classes except interest-only
classes were "Approach to Rating US and Canadian Conduit/Fusion
CMBS" published in July 2017 and "Moody's Approach to Rating Large
Loan and Single Asset/Single Borrower CMBS" published in July 2017.
The methodologies used in rating interest-only classes were
"Approach to Rating US and Canadian Conduit/Fusion CMBS" published
in July 2017, "Moody's Approach to Rating Large Loan and Single
Asset/Single Borrower CMBS" published in July 2017, and "Moody's
Approach to Rating Structured Finance Interest-Only Securities"
published in February 2019.
DEAL PERFORMANCE
As of the March 11, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 95% to $100.5
million from $2.2 billion at securitization. The certificates are
collateralized by 15 mortgage loans ranging in size from less than
1% to 11.7% of the pool, with the top ten loans (excluding
defeasance) constituting 28.5% of the pool. Seven loans,
constituting 55.6% of the pool, have defeased and are secured by US
government securities.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of 6, compared to 8 at Moody's last review.
Two loans, constituting 11.7% of the pool, are on the master
servicer's watchlist. The watchlist includes loans that meet
certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of
Moody's ongoing monitoring of a transaction, the agency reviews the
watchlist to assess which loans have material issues that could
affect performance.
Thirty-four loans have been liquidated from the pool with losses,
resulting in an aggregate realized loss of $121.3 million (for an
average loss severity of 34%). Three loans, constituting 17.4% of
the pool, are currently in special servicing. The largest specially
serviced loan is the Purple Creek Plaza - Jackson Retail Portfolio
Loan ($6.5 million -- 6.5% of the pool), which was originally
secured by three cross-collateralized retail properties located in
Ridgeland and Jackson, Mississippi. The portfolio transferred to
special servicing in May 2015 due to imminent maturity default and
became REO in May 2016. North Regency Square and Centre Park were
previously sold and the proceeds have been applied to the loan
balance. The remaining property is the Purple Creek Plaza property,
which is an 81,600 square foot (SF) retail plaza located in
Jackson, MS. The property's largest tenant, Academy, Ltd. (76.9% of
the net rentable area (NRA); lease expiration February 2020), had
vacated before their lease expiration but paid their rent through
February 2020.
The second largest specially serviced loan is the Wright Executive
Center Loan ($5.5 million -- 5.5% of the pool), which was
originally secured by two Class B office buildings, located within
a 55 acre mixed-use building park in Fairborn, Ohio, just over 7
miles east of Dayton. The loan transferred to special servicing in
August 2015 due to maturity default and became REO in July 2017.
One property, 2875 Presidential Drive, was sold in May 2018 and the
proceeds have been applied to the loan balance. The remaining
property is 2940 Presidential Drive.
The third largest specially serviced loan is the Burlington Coat
Factory Loan ($5.4 million -- 5.4% of the pool), which is secured
by a 133,880 SF retail center located in Arlington, Texas. The loan
transferred to special servicing in March 2019 for imminent default
as a result of the largest tenant vacating.
Moody's estimates an aggregate $10.9 million loss for the specially
serviced loans (63% expected loss on average).
Moody's received full year 2018 operating results and full or
partial year 2019 operating results for 100% of the pool (excluding
specially serviced and defeased loans). Moody's weighted average
conduit LTV is 77%, compared to 75% at Moody's last review. Moody's
conduit component includes eight loans and excludes loans with
structured credit assessments, defeased and CTL loans, and
specially serviced and troubled loans. Moody's net cash flow (NCF)
reflects a weighted average haircut of 20% to the most recently
available net operating income (NOI). Moody's value reflects a
weighted average capitalization rate of 9.2%.
Moody's actual and stressed conduit DSCRs are 1.07X and 1.38X,
respectively, compared to 1.24X and 1.35X at the last review.
Moody's actual DSCR is based on Moody's NCF and the loan's actual
debt service. Moody's stressed DSCR is based on Moody's NCF and a
9.25% stress rate the agency applied to the loan balance.
The top three conduit loans represent 23.4% of the pool balance.
The largest loan is the Roosevelt Plaza Loan ($11.7 million --
11.7% of the pool), which is secured by a 125,000 SF shopping
center located in the Northern Philadelphia submarket. The property
consists of three single story buildings and a parking lot. The
property was 79% occupied as of September 2019, compared to 84% as
of September 2018. The loan benefits from amortization and has
amortized 28% since securitization. Moody's LTV and stressed DSCR
are 84% and 1.11X, respectively, compared to 83% and 1.11X at the
last review.
The second largest loan is the 200 Glen Cove Road Loan ($9.1
million -- 9.1% of the pool), which is secured by a community
shopping center located in Carle Place, Long Island, New York. The
property is comprised of two separate buildings totaling 151,450 SF
and is well located in close proximity to the Roosevelt Field Mall,
directly off of the Meadowbrook State Parkway. The major tenant at
the property is Planet Fitness (10.6% of NRA, lease expiration
February 2022). As of September 2019, occupancy was 91%, compared
to 93% as of December 2018. The loan is on the servicer's
watchlist. Performance has declined since last review due to lower
revenues and higher expenses. The loan benefits from amortization
and has amortized 29% since securitization. Moody's LTV and
stressed DSCR are 84% and 1.17X, respectively, compared to 77% and
1.27X at the last review.
The third largest loan is the Somerset Village Loan ($2.6 million
-- 2.6% of the pool), which is secured by a 61,130 SF retail
property located in Franklin, New Jersey. Occupancy was 82% as of
December 2019, compared to 84% as of December 2018. The loan
benefits from amortization and has amortized 60% since
securitization. Moody's LTV and stressed DSCR are 83% and 1.27X,
respectively, compared to 77% and 1.36X at the last review.
BEAR STEARNS 2005-PWR7: Fitch Affirms D Ratings on 8 Tranches
-------------------------------------------------------------
Fitch Ratings has affirmed 13 classes of Bear Stearns Commercial
Mortgage Securities Trust commercial mortgage pass-through
certificates, series 2005-PWR7.
Bear Stearns Commercial Mortgage Securities Trust 2005-PWR7
- Class B 07383F4C9; LT BBsf; Affirmed
- Class C 07383F4D7; LT Bsf; Affirmed
- Class D 07383F4E5; LT CCCsf; Affirmed
- Class E 07383F4G0; LT CCsf; Affirmed
- Class F 07383F4H8; LT Csf; Affirmed
- Class G 07383F4J4; LT Dsf; Affirmed
- Class H 07383F4K1; LT Dsf; Affirmed
- Class J 07383F4L9; LT Dsf; Affirmed
- Class K 07383F4M7; LT Dsf; Affirmed
- Class L 07383F4N5; LT Dsf; Affirmed
- Class M 07383F4P0; LT Dsf; Affirmed
- Class N 07383F4Q8; LT Dsf; Affirmed
- Class P 07383F4R6; LT Dsf; Affirmed
KEY RATING DRIVERS
Pool Concentration: The pool is highly concentrated with only four
loans/assets of the original 124 loans remaining. Of the remaining
loans/assets, two are fully defeased (2.8%), and two have been
designated as a Fitch Loan of Concern (FLOC), including the largest
asset in the pool (85% of pool), an REO shopping center. As of the
March 2019 distribution date, the pool's aggregate principal
balance had been reduced by 95% to $56.1 million from $1.1 billion
at issuance, which includes $58.9 million in realized losses.
Stable Loss Expectations: The affirmations reflect the relatively
stable loss expectations since Fitch's last rating action. Fitch
modeled losses of 41% of the remaining pool; expected losses based
on the original pool balance are 7.3%, including $58.9 million
(5.24% of the original pool balance) in realized losses to date.
Although credit enhancement is high, ratings were capped below
investment grade as the pool is concentrated with the classes
reliant on recovery from the REO asset.
Shops at Boca Park: The largest asset in the pool (85% of pool
balance) is an REO 247,472-square foot (sf) anchored retail center
located in Las Vegas, NV. The loan had originally transferred to
special servicing in October 2009 for imminent default, and the
borrower subsequently filed for bankruptcy in June 2010. The loan
was modified in November 2012 to extend the maturity until January
2016. However, the loan did not pay off at the extended maturity
and was transferred back to special servicing in February 2016. The
loan became REO in September 2018. According to the February 2020
rent roll, the property was 82% occupied. The largest tenants
include REI, Total Wine & More and The Cheesecake Factory. Fitch
continues to monitor the status of any negotiations and/or
resolution.
Coronavirus: No remaining loans in the pool are secured by hotel
properties, and Fitch does not expect any immediate impact to the
ratings from the coronavirus pandemic. The largest remaining asset
is the REO, anchored retail center located in Las Vegas, NV. Cash
flow disruptions are expected as a result of property and consumer
restrictions due to the spread of the coronavirus.
RATING SENSITIVITIES
Upgrade Sensitivity
Upgrades to class B and C are unlikely due to adverse selection,
remaining collateral quality and pool concentrations. The Stable
Rating Outlooks reflect the high credit enhancement of each class.
Downgrade Sensitivity
Downgrades could occur if a loss on the REO asset exceeds Fitch's
expectations. Downgrades to the distressed classes D, E and F will
occur if losses are realized. Classes G and below are defaulted.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
CANTOR COMMERCIAL 2016-C4: Fitch Affirms B-sf Rating on 2 Tranches
------------------------------------------------------------------
Fitch Ratings has affirmed 17 classes of Cantor Commercial Real
Estate Mortgage Trust commercial mortgage pass-through certificates
series 2016-C4. The Rating Outlooks for Class F and Class X-F have
been revised to Negative from Stable.
CFCRE 2016-C4
- Class A-1 12531YAJ7; LT AAAsf; Affirmed
- Class A-2 12531YAK4; LT AAAsf; Affirmed
- Class A-3 12531YAM0; LT AAAsf; Affirmed
- Class A-4 12531YAN8; LT AAAsf; Affirmed
- Class A-HR 12531YAP3; LT AAAsf; Affirmed
- Class A-M 12531YAU2; LT AAAsf; Affirmed
- Class A-SB 12531YAL2; LT AAAsf; Affirmed
- Class B 12531YAV0; LT AA-sf; Affirmed
- Class C 12531YAW8; LT A-sf; Affirmed
- Class D 12531YAE8; LT BBB-sf; Affirmed
- Class E 12531YAF5; LT BB-sf; Affirmed
- Class F 12531YAG3; LT B-sf; Affirmed
- Class X-A 12531YAQ1; LT AAAsf; Affirmed
- Class X-B 12531YAS7; LT AA-sf; Affirmed
- Class X-E 12531YAB4; LT BB-sf; Affirmed
- Class X-F 12531YAC2; LT B-sf; Affirmed
- Class X-HR 12531YAR9; LT AAAsf; Affirmed
KEY RATING DRIVERS
Relatively Stable Performance: Overall pool performance has
remained relatively stable since issuance. Loss expectations have
increased slightly due to six loans (11.6% of pool) being
designated as Fitch Loans of Concern (FLOCs), including two loans
in the top 15 (7.4%) and one specially serviced loan (1.1%).
Increased Credit Enhancement (CE): CE has increased slightly since
issuance due to scheduled amortization and defeasance. As of the
March 2020 distribution date, the pool's aggregate principal
balance has been paid down by 3.5% to $810.9 million from $840
million at issuance. Four loans (2.7% of pool) are fully defeased.
Nine loans (31.2%) are full-term, interest-only; four loans (11.4%)
remain in their partial interest-only period and the remaining 27
loans (57.4%) are amortizing. Loan maturities include three loans
(2.6%) in 2021, one loan (6.3%) in 2024, 12 loans (21.2%) in 2025
and 34 loans (69.9%) in 2026.
Coronavirus Exposure: Six loans (16.1% of pool), which have a
weighted average NOI DSCR of 2.21x, are secured by hotel
properties. Ten loans (17.8%), which have a weighted average NOI
DSCR of 1.99x, are secured by retail properties. One loan (3.5%),
which has an in-place NOI DSCR of 1.48x as of YTD September 2019,
is secured by student housing. One mixed-use loan (3.6%) is secured
by collateral consisting of entertainment venues which derive a
significant portion of their revenues from food and beverage, and
entertainment-related tenants. Fitch's base case analysis applied
additional stresses to all six hotel loans, five retail loans and
one mixed-use loan due to their vulnerability to the coronavirus
pandemic; these additional stresses contributed to the Outlook
revision on class F and X-F to Negative from Stable.
The second largest loan, Hyatt Regency St. Louis at the Arch
(6.3%), which is secured by a 910-key hotel located in St. Louis,
MO with significant exposure to tourism, entertainment and food and
beverage revenue as demand drivers, is closed due to coronavirus.
The third largest loan, AG Life Time Fitness Portfolio (5.6%), is
secured by a portfolio of 10 single-tenant Life Time Fitness
Centers located in nine major markets throughout the U.S; all
locations are closed due to coronavirus.
Fitch Loans of Concern: The largest FLOC, One Commerce Plaza
(3.8%), which is secured by a 743,678-sf office property located in
Albany, NY, was flagged for lower occupancy since issuance and
near-term lease rollover concerns. Largely occupied by New York
State government tenants, occupancy as of September 2019 was 82.8%,
compared to 79.3% in September 2018, 95.4% in January 2018 and
95.8% in December 2016. The property had experienced a decline in
occupancy in 2018 when the former largest tenant, NYS Department of
Health, downsized its space to 3.1% of the NRA from 22.5%.
According to the September 2019 rent roll, 45.6% of the NRA is
currently on month-to-month leases. The property benefits from its
location adjacent to the New York State Capitol building. The
servicer-reported NOI DSCR as of YTD September 2019 was 1.39x,
compared to 1.45x at YE 2018, 1.44x at YE 2017 and 1.41x at YE
2016.
The next largest FLOC, AvidXchange (3.6%), which is secured by two
adjacent mixed-use buildings totaling 245,173-sf, was flagged for
near-term rollover risk and its entertainment use component.
Near-term lease rollover includes 3.6% of the NRA in 2020 and 13.8%
in 2021. The collateral includes an entertainment component
consisting of two concert venues, the 2,000-seat Fillmore and the
5,000-seat outdoor Uptown Amphitheater; both are operated by Live
Nation, which has announced it has either cancelled or postponed
its performances at the venue due to the coronavirus pandemic.
Significant cash flow disruption is anticipated. The property also
has a high percentage of its revenues derived from food and
beverage and other entertainment-related tenants. At issuance,
Fitch had stressed the income from Live Nation by 50%, stressed the
constant and cap rate on the revenue associated with the
Amphitheater given the uniqueness of the space in the overall
complex and increased the probability of loss on the loan to 75%
given the unique asset type. The servicer reported NOI DSCR was
1.63x at YE 2018, 1.51x at YE 2017 and 1.87x at YE 2016.
The specially serviced Wharfside Village loan (1.1%), which is
secured by a 23,793-sf mixed-use property located in St. John,
Virgin Islands (U.S.), was transferred to special servicing in
November 2017 due to significant damage caused by Hurricane Maria.
The borrower received insurance settlement proceeds and is in the
process of restoring the property. Per local news sources, the
property was rezoned in April 2018 to bring its existing jewelry
stores and other businesses into compliance with current zoning
laws. Occupancy improved to 39% in September 2019 from 22.2% in
February 2019. The loan remains current.
Three loans outside of the top 15 (combined, 3.1%) were flagged as
FLOCs for recent occupancy and/or cash flow declines.
RATING SENSITIVITIES
The Negative Outlook on class F reflects performance concerns with
hotel and retail properties due to decline in travel and commerce
as a result of the coronavirus pandemic. The Stable Outlooks on
classes A-1 through E reflect the increasing CE, continued
amortization and stable performance of the majority of the pool.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that lead to upgrades would include stable to
improved asset performance coupled with pay down and/or defeasance.
Upgrades of the 'Asf' and 'AAsf' categories would likely occur with
significant improvement in CE and/or defeasance; however, adverse
selection and increased concentrations, further underperformance of
the FLOCs or higher than expected losses on the specially serviced
loan could cause this trend to reverse. An upgrade of the 'BBBsf'
category is considered unlikely and would be limited based on
sensitivity to concentrations or the potential for future
concentration. Classes would not be upgraded above 'Asf' if there
is likelihood for interest shortfalls. An upgrade of the 'Bsf' and
'BBsf' categories are not likely until the later years of the
transaction and only if the performance of the remaining pool is
stable and/or properties vulnerable to the coronavirus return to
pre-pandemic levels, and there is sufficient credit enhancement to
the class.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool level losses from underperforming or specially serviced loans.
Downgrades to the 'Asf', 'AAsf' and 'AAAsf' categories are not
likely due to the position in the capital structure, but may occur
at the 'AAsf' and 'AAAsf' categories should interest shortfalls
occur. Downgrades to the 'BBsf' and 'BBBsf' categories would occur
should overall pool losses increase and/or one or more large FLOCs
have an outsized loss. A downgrade to class F (rated 'Bsf' with a
Negative Outlook) would occur should loss expectations increase due
to an increase in specially serviced loans and/or properties
vulnerable to the coronavirus fail to return to pre-pandemic
levels. The Rating Outlook on class F may be revised back to Stable
if performance of the FLOCs improves and/or properties vulnerable
to the coronavirus stabilize once the pandemic is over.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, Fitch expects that a greater
percentage of classes may be assigned a Negative Rating Outlook or
those with Negative Rating Outlooks will be downgraded one or more
categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
COMM 2010-C1: Fitch Cuts Class G Certs to 'CCCsf'
-------------------------------------------------
Fitch Ratings downgrades five classes and affirms five classes of
Deustche Bank Securities COMM 2010-C1 commercial mortgage
pass-through certificates.
COMM 2010-C1
- Class A-3 12622DAC8; LT AAAsf; Affirmed
- Class B 12622DAH7; LT AAAsf; Affirmed
- Class C 12622DAJ3; LT Asf; Downgrade
- Class D 12622DAK0; LT BBBsf; Downgrade
- Class E 12622DAL8; LT Bsf; Downgrade
- Class F 12622DAM6; LT CCCsf; Downgrade
- Class G 12622DAN4; LT CCCsf; Downgrade
- Class XP-A 12622DAD6; LT AAAsf; Affirmed
- Class XS-A 12622DAE4; LT AAAsf; Affirmed
- Class XW-A 12622DAF1; LT AAAsf; Affirmed
Classes A-1, A-1D and A-2 have paid in full. Fitch does not rate
the interest-only class XW-B or the $17.1 million class H.
KEY RATING DRIVERS
High Retail Concentration; Potential for Outsized Losses: Loans
secured by retail properties comprise 94% of the current pool
balance. One loan (22%) is currently on the master servicer's
watchlist. Fitch designated four loans (94%) as Fitch Loans of
Concern, including the largest loan, The Fashion Outlets of Niagara
Falls (65%), the third largest loan, Auburn Mall (22%), and a dark
Walgreens in Lilburn, GA (2%). The Fashion Outlets of Niagara Falls
is an outlet center located in Niagara, NY near the U.S. and Canada
border, and has reported significantly lower sales since issuance,
experienced fluctuating occupancy, and has upcoming lease rollover
concerns. Performance at this outlet property is heavily reliant on
tourism. The Auburn Mall, a regional mall in Auburn, MA anchored by
Sears and a non-collateral Macy's, has experienced declining sales
since issuance. The Sears store closed in February 2020. The mall
had also lost an anchor tenant, Macy's Home, in 2015; however, the
dark space was converted to a two-story medical center fully leased
by Reliant Medical Group thru May 2033. The tenant began paying
rent in March 2018 but took physical occupancy in February 2019.
High Credit Enhancement Insulates Senior Classes: Six loans
totaling $131.9 million paid off since the last Fitch rating action
which helps to insulate the top two classes from expected losses.
However, the lower classes have risk of credit enhancement erosion
given Fitch's concerns with the declining performance of the two
largest Fitch FLOCs and the expectation those loans will be unable
to pay off at their respective maturities in October and September
of 2020. As of the April 2020 distribution date, the pool's
aggregate principal balance has paid down by 81.1% to $161.9
million from $857 million at issuance. Four loans (98% of pool) are
currently amortizing. One loan (2%) is full-term interest-only.
Coronavirus Exposure: The social and market disruption caused by
the effects of the coronavirus pandemic and related containment
measures factored into the downgrades and Negative Outlooks. Of
particular concern is the underlying pool's exposure to retail
properties, which represents 94.3% of the pool. All but
non-essential retailers have closed due to the spread of
coronavirus. Retail properties are expected to face cash flow
disruption as tenants may not be able to pay rent or as leases with
upcoming expiration dates are not renewed. The pool's retail
component includes Fashion Outlets of Niagara Falls (65% of the
pool) and Auburn Mall (22% of the pool) which are considered FLOCs.
The weighted-average debt service coverage ratio (DSCR) for all
non-defeased retail loans is 2.05x. On average, these retail loans
could average a 49.3% decline in NOI before the actual DSCR would
fall below 1.0x coverage. The additional stresses applied to these
loans contributed to the downgrades of classes C thru G.
Pool Concentrations: Highly concentrated pool with only five loans
remaining of which four (94.3% of the pool) are secured by retail
properties and one mixed-use property (5.7%). There is refinance
risk with all of the remaining loans maturing in 2020.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Classes C thru E have Negative Rating Outlook given the
concern with further performance declines, which will be
exacerbated by the coronavirus impact and the potential for the
larger FLOCs to default should they be unable to pay off at their
respective 2020 maturities given the lack of liquidity in the
market for malls. Factors that lead to additional downgrades
include a decline in occupancy, cash flow and/or sales. Downgrades
of one category or more to all classes, 'AAAsf' through 'Bsf', are
possible. Classes F and G could be downgraded to 'CCsf', 'Csf' or
'Dsf' if losses are considered probable, imminent or are realized.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades are currently not expected given the outlook for
retail mall performance, the expectation of the negative impact of
the coronavirus and expectation larger FLOCs do not payoff at 2020
maturities. Factors that lead to upgrades of classes C, D, and E
would include payoff of these loans and/or modifications or loan
workouts that are expected to result in scenarios better than
currently expected. Classes F and G would only be upgraded if
losses were no longer considered possible. Classes would not be
upgraded above 'Asf' if there is likelihood for interest shortfalls
which could occur with a significant reduction in servicing
advancing if appraisal values decline.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
FINANCIAL 15 SPLIT: DBRS Confirms Pfd-4(high) on Preferred Shares
-----------------------------------------------------------------
DBRS Limited confirmed the rating of the Preferred Shares issued by
Financial 15 Split Corp. (the Company) at Pfd-4 (high). The Company
invests in a portfolio (the Portfolio) consisting primarily of
common shares of 15 high-quality North American financial services
companies: Bank of America Corporation; Bank of Montreal; The Bank
of Nova Scotia; Canadian Imperial Bank of Commerce; CI Financial
Corp.; Citigroup Inc.; The Goldman Sachs Group, Inc.; Great-West
Lifeco Inc.; JPMorgan Chase & Co.; Manulife Financial Corporation;
National Bank of Canada; Royal Bank of Canada; Sun Life Financial
Inc.; The Toronto-Dominion Bank; and Wells Fargo & Company. In
addition, up to 15% of the net asset value (NAV) of the Company may
be invested in securities of issuers other than those mentioned
above. These issuers include Fifth Third Bancorp and AGF Management
as of November 30, 2019. No more than 10% of the NAV of the Company
may be invested in any single issuer. The Portfolio is actively
managed by Quadravest Capital Management Inc.
A portion of the Company's Portfolio is exposed to currency risk,
as it includes securities and options denominated in U.S. dollars
(USD), while the NAV of the Company is expressed in Canadian
dollars. The Company has not entered into currency hedging
contracts for the USD portion of the Portfolio, although the
Company may use derivatives for hedging purposes. As of November
30, 2019, approximately 46.4% of the Portfolio was invested in
USD-denominated assets.
Holders of the Preferred Shares are entitled to a fixed cumulative
monthly dividend of $0.04583 per share, yielding 5.50% annually on
their issue price of $10 per share. Holders of the Class A Shares
(the Class A Shares) may receive regular monthly cash distributions
in an amount to be determined by the Board of Directors. No regular
monthly distributions will be paid to the Class A Shares if the NAV
per unit is below the $15 threshold or if any dividends on the
Preferred Shares are in arrears. Cash distributions on the Class A
shares are suspended as of March 2020.
Following the stock market sell-off in response to the worldwide
spread of Coronavirus Disease (COVID-19) and various geopolitical
news, Preferred Shares experienced a decline in downside
protection. Downside protection available to holders of the
Preferred Shares was approximately 13.3% as of March 31, 2020. The
dividend coverage ratio was 0.79 times.
On March 2, 2020, the Company announced a term extension for an
additional five years. The new redemption date for both classes of
shares is December 1, 2025. The minimum rate of cumulative monthly
dividend paid on the Preferred Shares may be amended for the new
term. The announcement will be made no later than September 30,
2020. At maturity, the holders of the Preferred Shares will be
entitled to the value of the Company, up to the face amount of the
Preferred Shares, in priority to the holders of the Class A Shares.
Holders of the Class A Shares will receive the remaining value of
the Company.
The confirmation of the rating on the Preferred Shares at Pfd-4
(high) is based on the amount of downside protection, its
performance, and dividend coverage.
The main challenges are:
(1) Market fluctuations resulting from the response to the
worldwide spread of coronavirus that could further affect the NAV
of the Company.
(2) The reliance on the Portfolio manager to generate additional
income through methods such as option writing.
(3) The monthly cash distributions to holders of the Class A
Shares, although currently suspended as the NAV per unit is below
the $15 threshold.
(4) The unhedged portion of the USD-denominated Portfolio that
exposes the Portfolio to foreign currency risk.
Notes: All figures are in Canadian dollars unless otherwise noted.
GRAMERCY REAL 2005-1: Fitch Cuts Class J Debt Rating to 'Dsf'
-------------------------------------------------------------
Fitch Ratings has downgraded one and affirmed one class of Gramercy
Real Estate CDO 2005-1, Ltd./LLC.
Gramercy Real Estate CDO 2005-1, Ltd./LLC
- Class J 385000AK0; LT Dsf; Downgrade
- Class K 385000AL8; LT Csf; Affirmed
KEY RATING DRIVERS
Class J has been downgraded to 'Dsf' from 'Csf' as an Event of
Default was declared on July 31, 2019 after the class missed its
interest payment. Class J is now the senior class and therefore
requires timely payment of interest; available interest and
principal proceeds from the underlying collateral were not
sufficient to cover the class' July 2019 interest obligation. Class
K has been affirmed at 'Csf' as default is considered inevitable.
All remaining classes have negative credit enhancement. The most
senior class J has an outstanding balance of $69.6 million, while
the remaining collateral par balance is only $13.8 million. The
collateralized debt obligation is undercollateralized by more than
$223 million. The balances of class' J and K have increased over
the past year due to capitalized interest.
The transaction is highly concentrated with only two CMBS bonds
remaining, both of which are considered distressed with de minimis
recoveries expected.
Gramercy 2005-1 is a commercial real estate CDO managed by
CWCapital Investments LLC, which became the successor collateral
manager in March 2013.
RATING SENSITIVITIES
A downgrade of class K to 'Dsf' will occur at or prior to legal
final maturity as default is inevitable due to the class' under
collateralization. No further rating change on class J is expected
as the class has already defaulted. Factors that could,
individually or collectively, lead to positive rating
action/upgrade: --Upgrades are not possible for the classes as they
are significantly undercollateralized. Factors that could,
individually or collectively, lead to negative rating
action/downgrade: --A downgrade of the 'Csf' rated class will occur
at/or prior to legal final maturity as default is inevitable due to
the class' under collateralization.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
JP MORGAN 2004-CIBC8: Moody's Affirms Caa1 Rating on Class K Certs
------------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on five classes
in J.P. Morgan Chase Commercial Mortgage Securities Corp. Series
2004-CIBC8, Commercial Pass-Through Certificates, Series
2004-CIBC8:
Cl. J, Affirmed Ba1 (sf); previously on May 8, 2019 Upgraded to Ba1
(sf)
Cl. K, Affirmed Caa1 (sf); previously on May 8, 2019 Upgraded to
Caa1 (sf)
Cl. L, Affirmed C (sf); previously on May 8, 2019 Affirmed C (sf)
Cl. M, Affirmed C (sf); previously on May 8, 2019 Affirmed C (sf)
Cl. X-1*, Affirmed C (sf); previously on May 8, 2019 Affirmed C
(sf)
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on four P&I classes were affirmed because the ratings
are consistent with the expected recovery of principal and interest
as well as Moody's expected loss plus realized losses. While Class
J is now 61.5% covered by defeasance, it has experienced recent
interest shortfalls and the deal has significant exposure to
specially servicing with one specially serviced loan now
representing 27.8% of the deal.
The rating on the IO class was affirmed based on the credit quality
of the referenced classes.
Moody's rating action reflects a base expected loss of 26.2% of the
current pooled balance, compared to 21.7% at Moody's last review.
Moody's base expected loss plus realized losses is now 2.6% of the
original pooled balance, compared to 2.5% at last review.
Its analysis has considered the increased uncertainty relating to
the effect of the coronavirus outbreak on the US economy as well as
the effects that the announced government measures put in place to
contain the virus, will have on the performance of commercial real
estate. Moody's regards the coronavirus outbreak as a social risk
under its ESG framework, given the substantial implications for
public health and safety. It is a global health shock, which makes
it extremely difficult to provide an economic assessment. The
degree of uncertainty around its forecasts is unusually high.
Stress on commercial real estate properties will be most directly
stemming from declines in hotel occupancies (particularly related
to conference or other group attendance) and declines in foot
traffic and sales for non-essential items at retail properties.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, an increase in realized and
expected losses from specially serviced and troubled loans or
interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating Large Loan
and Single Asset/Single Borrower CMBS" published in July 2017. The
methodologies used in rating interest-only classes were "Moody's
Approach to Rating Large Loan and Single Asset/Single Borrower
CMBS" published in July 2017 and "Moody's Approach to Rating
Structured Finance Interest-Only (IO) Securities" published in
February 2019.
DEAL PERFORMANCE
As of the March 12, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by over 98% to $19.7
million from $1.3 billion at securitization. The certificates are
collateralized by 8 mortgage loans. Two loans, constituting 18% of
the pool, have defeased and are secured by US government
securities.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of 4, the same as at Moody's last review.
Two loans, constituting 32.7% of the pool, is on the master
servicer's watchlist. The watchlist includes loans that meet
certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of
Moody's ongoing monitoring of a transaction, the agency reviews the
watchlist to assess which loans have material issues that could
affect performance.
Fourteen loans have been liquidated from the pool, resulting in an
aggregate realized loss of $27 million (for an average loss
severity of 22%). One loan, constituting 27.8% of the pool, is
currently in special servicing. The specially serviced loan is the
Holualoa Centre East Loan ($5.5 million - 27.8% of the pool), which
is secured by a 95,000 square foot (SF) office property located in
Tucson, Arizona. The loan transferred to special servicing in
February 2014 ahead of the March 2014 loan maturity date and became
REO in October 2015. The property was only 28.5% occupied as of
September 2019, down from 31% in June 2018. Moody's anticipates a
significant loss for this loan.
Moody's received full year 2018 operating results for 79% of the
pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 23%, compared to 26% at Moody's
last review. Moody's conduit component includes the five
non-defeased and performing loans. Moody's net cash flow reflects a
weighted average haircut of 21% to the most recently available net
operating income. Moody's value reflects a weighted average
capitalization rate of 9.7%.
Moody's actual and stressed conduit DSCRs are 1.48X and greater
than 4.00X, respectively. Moody's actual DSCR is based on Moody's
NCF and the loan's actual debt service. Moody's stressed DSCR is
based on Moody's NCF and a 9.25% stress rate the agency applied to
the loan balance.
The top three non-defeased performing loans represent 43% of the
pool balance and are all fully amortizing. The largest performing
loan is the Precise Technology, Inc. Loan ($5.2 million -- 26.5% of
the pool), which is secured by a 616,000 SF portfolio of five
crossed loans, secured by industrial properties located in five
U.S. states. The portfolio is 100% leased to a single tenant with a
lease expiration coterminous with the loan maturity date in October
2023. Moody's value incorporates a lit/dark analysis to account for
the tenant concentration risk. The loan has amortized 70% since
securitization and Moody's LTV and stressed DSCR are 17% and
greater than 4.00X, respectively.
The second largest non-defeased performing loan is the Franciscan
Metro Center Loan ($1.9 million -- 9.7% of the pool), which is
secured by a retail center in Los Angeles, California. The property
was 91% leased as of September 2019. The loan has amortized 68%
since securitization and Moody's LTV and stressed DSCR are 26% and
3.08X, respectively.
The third largest loan is the 11798 East Oswego Street Loan ($1.3
million -- 6.4% of the pool), which is secured by a 47,000 SF
retail property located in Englewood, Colorado. The property is
100% occupied by 24 Hour Fitness with a lease that is coterminous
with the loan maturity date in April 2022. The loan has amortized
80% since securitization and Moody's LTV and stressed DSCR are 12%
and greater than 4.00X, respectively.
JPMCC COMMERCIAL 2017-JP6: Fitch Affirms Class G-RR Debt at B-sf
----------------------------------------------------------------
Fitch Ratings has affirmed 14 classes of JPMCC Commercial Mortgage
Securities Trust 2017-JP6 as follows:
JPMCC 2017-JP6
- Class A-2 48128KAR2; LT AAAsf; Affirmed
- Class A-3 48128KAS0; LT AAAsf; Affirmed
- Class A-4 48128KAT8; LT AAAsf; Affirmed
- Class A-5 48128KAU5; LT AAAsf; Affirmed
- Class A-S 48128KAX9; LT AAAsf; Affirmed
- Class A-SB 48128KBA8; LT AAAsf; Affirmed
- Class B 48128KAY7; LT AA-sf; Affirmed
- Class C 48128KAZ4; LT A-sf; Affirmed
- Class D 48128KAA9; LT BBB+sf; Affirmed
- Class E-RR 48128KAC5; LT BBB-sf; Affirmed
- Class F-RR 48128KAE1; LT BB-sf; Affirmed
- Class G-RR 48128KAG6; LT B-sf; Affirmed
- Class X-A 48128KAV3; LT AAAsf; Affirmed
- Class X-B 48128KAW1; LT A-sf; Affirmed
KEY RATING DRIVERS
Increased Loss Expectations: Overall loss expectations for the pool
have increased since Fitch's prior rating action mainly due to the
transfer of two loans (5.0%) to special servicing. Three loans
(6.8% of pool) have been designated as Fitch Loans of Concern
(FLOCs), including two specially serviced loans (5.0%).
Fitch Loans of Concern: Marriott Colorado Springs (3.6%) is a
309-key, full-service hotel located in Colorado Springs, CO. The
loan transferred to special servicing in January 2020 due to a
non-permitted transfer. The special servicer is working with the
borrower to negotiate a resolution. During Fitch's prior rating
action, this was a FLOC due to declining occupancy and RevPAR,
which resulted in low DSCR. However, YE 2019 RevPAR improved to
$103 compared to $84 at YE 2018 and $90 at YE 2017. As a result,
third-quarter 2019 DSCR improved to 2.29x compared to 1.59x at YE
2018.
Smaller FLOCs include Courtyard Marriott Clemson (1.8%), a hotel
with declining performance, and 106th South Office Building (1.4%),
an office building in the Salt Lake City metro, which transferred
to special servicing in March 2020 after one of the largest tenants
indicated they plan to vacate at their May 2020 lease expiration.
Increased Credit Enhancement: Credit enhancement has improved since
Fitch's prior rating action due to four loans (including three
loans in the top 15, one of which was specially serviced) paying in
full prior to their maturity dates. As of the March 2020
distribution date, the pool's aggregate principal balance has been
reduced by 13.7% to $679.2 million from $786.6 million at issuance.
Eight loans (39.6% of the current pool balance) are full-term
interest only and 18 loans (39.7%) are partial-term interest only,
twelve of which (29.2%) have begun amortizing. There are no
defeased loans and interest shortfalls are currently impacting
class NR-RR.
Exposure to Coronavirus: Fitch's base case analysis applied an
additional NOI stress to four hotel and two retail loans, which had
an impact on revising the Rating Outlook on class F-RR to Negative.
Six non-defeased loans collateralized by hotel properties account
for 11.1% of the pool, including two loans (3.6%) in the top 15.
Two loans collateralized by multifamily properties account for 2.1%
of the pool. Further, retail properties and mixed-use properties
with a retail component comprise 26.0% of the pool, including three
loans (12.4%) in the top 15. Several of the state's most
significantly impacted by the coronavirus pandemic have the largest
concentration of loans in the transaction, with California at 23.8%
followed by New York at 20.3%.
Pool Concentration: The largest 10 loans in the pool account for
56.8% of the pool, with the largest loan accounting for 14.4% of
the pool. Loans backed by office properties represent 53.6% of the
pool, including eight (46.9%) in the top 15.
RATING SENSITIVITIES
The Negative Outlooks on classes F-RR and G-RR reflects the
potential for a near term rating change should the performance of
specially serviced or FLOCs deteriorate. The Stable Outlooks on
classes A-2 through E-RR reflect the overall stable performance of
the pool and expected continued amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that lead to upgrades would include stable to improved
asset performance coupled with paydown and/or defeasance. Upgrades
of classes A-2 through C may occur with significant improvement in
credit enhancement or defeasance but would be limited should the
deal be susceptible to a concentration whereby the underperformance
of FLOCs could cause this trend to reverse. An upgrade to classes D
and E-RR would also consider these factors, but would be limited
based on sensitivity to concentrations or the potential for future
concentration. Classes would not be upgraded above 'Asf' if there
is a likelihood for interest shortfalls. An upgrade to classes F-RR
and G-RR is not likely until the later years in a transaction, and
only if the performance of the remaining pool is stable and if
there is sufficient credit enhancement, which would likely occur
when the non-rated class is not eroded and the senior classes
payoff.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Factors that lead to downgrades include an increase in pool level
losses from underperforming or specially serviced loans. Downgrades
to the senior classes, A-2 through C, are not likely due to the
position in the capital structure and the high credit enhancement,
but may occur at 'AAAsf' or 'AAsf' should interest shortfalls
occur. Downgrades to classes D and E-RR would occur should overall
pool losses increase or one or more large loans have an outsized
loss, which would erode credit enhancement. Downgrades to classes
F-RR and G-RR with a Negative Outlook would occur should loss
expectations increase due to an increase in specially serviced
loans or a decline in the FLOCs' performance.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
MADISON PARK XXXIV: Fitch Places BB- on Class E Notes on Watch Neg.
-------------------------------------------------------------------
Fitch Ratings has placed the class E notes (rated BB-sf) issued by
Madison Park Funding XXXIV, Ltd. on Rating Watch Negative after
applying a baseline stress addressing the impact of
coronavirus-related risks. Fitch will resolve the Rating Watch
status over the coming months as and when Fitch observes rating
actions on the underlying loans.
Fitch has affirmed the remaining 36 tranches from 22 collateralized
loan obligations at 'AAAsf'.
AMMC CLO XIV, Ltd
- Class A1L-R 00175LAG7; LT AAAsf; Affirmed
Apex Credit CLO 2017-II Ltd.
- Class A 03753LAC0; LT AAAsf; Affirmed
CBAM 2017-1, Ltd.
- Class A-1 12480VAC9; LT AAAsf; Affirmed
CBAM 2019-10, Ltd.
- Class A-1A 12482NAA9; LT AAAsf; Affirmed
- Class A-1B 12482NAC5; LT AAAsf; Affirmed
- Class A-2 12482NAE1; LT AAAsf; Affirmed
Diamond CLO 2019-1 Ltd.
- Class A-1 25257AAA2; LT AAAsf; Affirmed
Dryden 55 CLO, Ltd.
- Class A-1 26245MAC5; LT AAAsf; Affirmed
- Class A-2 26245MAE1; LT AAAsf; Affirmed
Golub Capital Partners CLO 42(M), Ltd.
- Class A-1 38176KAA1; LT AAAsf; Affirmed
Hempstead II CLO Ltd.
- Class A-1 42468PAC5; LT AAAsf; Affirmed
JFIN CLO 2014-II Ltd.
- Class A-1A-R 46617NAQ0LT AAAsf; Affirmed
- Class A-1B-R 46617NAS6LT AAAsf; Affirmed
Madison Park Funding XXXIV, Ltd.
- Class A-1 55819GAA7; LT AAAsf; Affirmed
- Class A-2 55819GAC3; LT AAAsf; Affirmed
- Class E 55820HAA2; LT BB-sf; Rating Watch On
Newark BSL CLO 2, Ltd. (f/k/a TCI-Cent CLO 2017-1, Ltd.)
- Class A-1 87806LAC0LT AAAsf; Affirmed
- Class X 87806LAA4; LT AAAsf; Affirmed
Octagon Investment Partners 41, Ltd.
- Class A-1 67592FAA7; LT AAAsf; Affirmed
- Class A-2 67592FAC3; LT AAAsf; Affirmed
Palmer Square CLO 2018-2, Ltd.
- Class A-1a 69688MAA3; LT AAAsf; Affirmed
- Class A-1b 69688MAC9; LT AAAsf; Affirmed
Pikes Peak CLO 3
- Class A 72132UAA1; LT AAAsf; Affirmed
Telos CLO 2013-3, Ltd.
- Class A-R 87969DAL1; LT AAAsf; Affirmed
THL Credit Lake Shore MM CLO I Ltd.
- Class A 87250LAA5; LT AAAsf; Affirmed
Venture 36 CLO Limited
- Class A-1a 92332LAB5; LT AAAsf; Affirmed
- Class A-1b 92332LAG4; LT AAAsf; Affirmed
- Class A-2 92332LAC3; LT AAAsf; Affirmed
Verde CLO, LTD.
- Class A 92338BAC9; LT AAAsf; Affirmed
Voya CLO 2014-4, Ltd.
- Class A-1-RA 92914RAY8; LT AAAsf; Affirmed
- Class A-1-RB 92914RBG6; LT AAAsf; Affirmed
- Class X-R 92914RBJ0; LT AAAsf; Affirmed
Voya CLO 2015-2
- Class A-R 92914XAL3; LT AAAsf; Affirmed
Voya CLO 2017-3, Ltd.
- Class A-1A 92915QAC7; LT AAAsf; Affirmed
- Class A-1B 92915QAE3; LT AAAsf; Affirmed
Voya CLO 2018-2, Ltd.
- Class A-1 92917JAA5; LT AAAsf; Affirmed
- Class A-2 92917JAC1; LT AAAsf; Affirmed
KEY RATING DRIVERS
Coronavirus Impact Analysis
The social and market disruption caused by the coronavirus and the
related containment measures did not negatively affect the ratings
and Rating Outlooks on the 36 affirmed tranches because there are
sufficient levels of credit enhancement to withstand higher losses
from the baseline stress, described in the publication "Fitch
Ratings Updates CLO Sensitivity Stress for Coronavirus
Vulnerabilities," published on April 7, 2020.
Fitch has identified the following sectors that are most exposed to
negative performance as a result of business disruptions from the
coronavirus: aerospace and defense; automobiles; energy, oil and
gas; gaming and leisure and entertainment; lodging and restaurants;
metals and mining; retail; and transportation and distribution. For
its common baseline stress scenario, Fitch applied a one-notch
downgrade for all assets in the identified sectors, as well as for
all assets with a Negative Rating Outlook outside of the eight
sectors (floor at CCC-). Additionally, the scenario includes a
haircut to recovery assumptions, by applying a multiplier of 0.85
to recoveries at all rating scenarios to issuers in these eight
industries.
The model-implied ratings for the class E notes issued by Madison
Park Funding XXXIV in the baseline stress scenario are one notch
below their current ratings. As a result, Fitch placed the class E
notes on RWN. Madison Park Funding XXXIV is an arbitrage cash flow
CLO managed by Credit Suisse Asset Management, LLC and remains in
its reinvestment period until April 2024. Approximately 18.9% of
the portfolio is composed of industries identified to have high
exposure to coronavirus-related risks, and a total of 31.8% of the
portfolio had its ratings notched down under the baseline stress.
Fitch affirmed JFIN CLO 2014-II Ltd. and Telos CLO 2013-3, Ltd.,
which exited their reinvestment periods in July 2018 and July 2019,
respectively. Both transactions have experienced a decline in
credit quality in their portfolios since the last review, as
measured by Fitch's weighted average rating factor (WARF) and
significant increase in exposure to assets with Fitch Issuer
Default Rating equivalency ratings of 'CCC+' and below. However,
approximately 51% of the class A-1A-R and A-1B-R notes in JFIN CLO
2014-II Ltd. and 26% of the class A-R notes in Telos CLO 2013-3,
Ltd. have amortized as of their March 2020 trustee reports. As a
result, CE levels of these notes have increased and exceed the
'AAAsf' RLR of their respective portfolios under the baseline
stress scenario. Therefore, no updated cash flow analysis was
conducted for these CLOs.
Asset credit quality, asset security and portfolio composition are
captured in the rating default rate and rating loss rate produced
by Fitch's Portfolio Credit Model. The PCM output, based on the
current portfolio composition under the common baseline stress
scenario, was compared to the PCM output corresponding to the Fitch
stressed portfolio at the initial rating assignment, as well as to
the rated notes' current CE levels. For the remaining 19 CLOs still
in their reinvestment periods, sufficient cushions still remain, as
the RLR, plus losses to date, for each CLO is lower than the RLR
modeled for its respective FSP. Given the available cushions, no
updated cash flow modeling was conducted for these transactions.
RATING SENSITIVITIES
Fitch conducted rating sensitivity analysis on the closing date of
each CLO, incorporating increased levels of defaults and reduced
levels of recovery rates among other sensitivities, as defined in
its "CLOs and Corporate CDOs Rating Criteria."
Factors that could, individually or collectively, lead to positive
rating actions/upgrade:
An upgrade scenario would not be applicable to the notes already
rated at the highest rating level. In Madison Park XXXIV, increases
in recovery rates and decreases in default rates could result in an
upgrade for the class E notes. Specifically, the sensitivity
scenario that included a 25% default multiplier (applied as
described in the "CLOs and Corporate CDOs Rating Criteria") and a
25% increase of the recovery rate for the portfolio stressed under
the baseline stress scenario would lead to a model implied rating
for the class E notes three notches higher than its current
rating.
Factors that could, individually or collectively, lead to negative
rating actions/downgrade:
Downgrades may occur if realized and projected losses in the
respective portfolios are higher than those assumed at closing in
the Fitch Stressed Portfolio and that are not offset by the
increase in CLO notes' CE levels. In Madison Park XXXIV, a 125%
default multiplier (applied as described in the "CLOs and Corporate
CDOs Rating Criteria") combined with a 25% decrease of the recovery
rate at all rating levels for the portfolio stressed under the
baseline stress scenario, would lead to a model implied rating one
notch lower for class A-1 notes, three notches lower for class A-2
notes and more than three notches lower for class E notes.
As the disruptions to supply and demand due to the coronavirus for
underlying sectors other than the eight identified in the baseline
stress become apparent, loan ratings in these additional sectors
would also come under pressure.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
SOURCES OF INFORMATION
The information used to assess these ratings was sourced from
periodic servicer reports, note valuation reports, and the public
domain.
When conducting cash flow analysis, Fitch's cash flow model first
projects the portfolio scheduled amortization proceeds and any
voluntary prepayments for each reporting period of the transaction
life assuming no defaults (and no voluntary terminations, when
applicable). In each rating stress scenario, such scheduled
amortization proceeds and prepayments are then reduced by a scale
factor equivalent to the overall percentage of loans that are not
assumed to default (or to be voluntarily terminated, when
applicable). This adjustment avoids running out of performing
collateral due to amortization and voluntary prepayments and
ensures all of the defaults projected to occur in each rating
stress are realized in a manner consistent with Fitch's published
default timing curve.
MORGAN STANLEY 2011-C2: Moody's Cuts Class F Certs to Caa2
----------------------------------------------------------
Moody's Investors Service has affirmed the ratings on five classes
and downgraded the ratings on three classes in Morgan Stanley
Capital I Trust 2011-C2, Commercial Mortgage Pass-Through
Certificates, Series 2011-C2 as follows:
Cl. A-4, Affirmed Aaa (sf); previously on Jun 12, 2019 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa2 (sf); previously on Jun 12, 2019 Affirmed Aa2
(sf)
Cl. C, Affirmed A2 (sf); previously on Jun 12, 2019 Affirmed A2
(sf)
Cl. D, Downgraded to Baa3 (sf); previously on Jun 12, 2019 Affirmed
Baa2 (sf)
Cl. E, Downgraded to B1 (sf); previously on Jun 12, 2019 Downgraded
to Ba1 (sf)
Cl. F, Downgraded to Caa2 (sf); previously on Jun 12, 2019
Downgraded to B2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Jun 12, 2019 Affirmed
Aaa (sf)
Cl. X-B*, Affirmed Caa1 (sf); previously on Jun 12, 2019 Downgraded
to Caa1 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on three P&I classes were affirmed because the
transaction's key metrics, including Moody's loan-to-value ratio,
Moody's stressed debt service coverage ratio and the transaction's
Herfindahl Index, are within acceptable ranges.
The ratings on three P&I classes, Cl. D, Cl. E and Cl. F were
downgraded primarily due the decline in credit support from prior
realized losses as well as the continued decline in performance and
anticipated losses from the Three Riverway Office loan (7% of the
pool), which is secured by an office property in Houston, Texas.
Furthermore, the two largest loans, Deerbrook Mall (20.3% of the
pool) and Ingram Park Mall (19.3% of the pool), are secured by
regional malls with upcoming refinance risk within the next 15
months.
The ratings on the IO classes were affirmed based on the credit
quality of the referenced classes. Cl. X-B references Cl. B through
Cl. J, including Cl. G, Cl. H and Cl. J which are not rated by
Moody's.
Moody's rating action reflects a base expected loss of 5.1% of the
current pooled balance, compared to 8.2% at Moody's last review.
Moody's base expected loss plus realized losses is now 5.3% of the
original pooled balance, compared to 4.9% at the last review.
Its analysis has considered the increased uncertainty relating to
the effect of the coronavirus outbreak on the US economy as well as
the effects that the announced government measures put in place to
contain the virus, will have on the performance of consumer
assets/corporate assets/small businesses/commercial real estate.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety. It is a global health shock, which makes it extremely
difficult to provide an economic assessment. The degree of
uncertainty around its forecasts is unusually high. Stress on
commercial real estate properties will be most directly stemming
from declines in hotel occupancies (particularly related to
conference or other group attendance) and declines in foot traffic
and sales for non-essential items at retail properties.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, loan concentration, an
increase in realized and expected losses from specially serviced
and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in rating all classes except interest-only
classes were "Approach to Rating US and Canadian Conduit/Fusion
CMBS" published in July 2017 and "Moody's Approach to Rating Large
Loan and Single Asset/Single Borrower CMBS" published in July 2017.
The methodologies used in rating interest-only classes were
"Approach to Rating US and Canadian Conduit/Fusion CMBS" published
in July 2017, "Moody's Approach to Rating Large Loan and Single
Asset/Single Borrower CMBS" published in July 2017 and "Moody's
Approach to Rating Structured Finance Interest-Only (IO)
Securities" published in February 2019.
DEAL PERFORMANCE
As of the March 17, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 47% to $645.9
million from $1.21 billion at securitization. The certificates are
collateralized by 40 mortgage loans ranging in size from less than
1% to 20.3% of the pool, with the top ten loans (excluding
defeasance) constituting 67.8% of the pool. Fourteen loans,
constituting 17.9% of the pool, have defeased and are secured by US
government securities.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of 7, compared to 10 at Moody's last review.
Four loans, constituting 11.9% of the pool, are on the master
servicer's watchlist. The watchlist includes loans that meet
certain portfolio review guidelines established as part of the CRE
Finance Council monthly reporting package. As part of Moody's
ongoing monitoring of a transaction, the agency reviews the
watchlist to assess which loans have material issues that could
affect performance.
One loan, the Town West Square loan, has been liquidated from the
pool, resulting in an aggregate realized loss of $32 million (for a
loss severity of 71%). One loan, constituting less than 1% of the
pool, is currently in special servicing. The specially serviced
loan is the 192nd Avenue Plaza loan ($5.6 million), which is
secured by a 35,000 square foot mixed-use property located in
Camas, Washington, approximately 13 miles northeast of Portland,
Oregon. The loan was transferred to special servicing in June 2017
due to a non-monetary default. The borrower entered into a lease
with global co-working space company Regus without the lender's
consent that allowed for a profit-sharing rent structure with
minimal guaranteed rental payment. The borrower has been unwilling
to terminate the Regus lease. As of February 2020, the property was
96% leased, up from 83% leased as of December 2017 and only 51% as
of December 2016.
Moody's has also assumed a high default probability for one poorly
performing loan, the Three Riverway Plaza loan, constituting 7.1%
of the pool and further described below.
Moody's received full year 2018 operating results for 98% of the
pool, and full or partial year 2019 operating results for 81% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 84%, compared to 80% at Moody's
last review. Moody's conduit component excludes loans with
structured credit assessments, defeased and CTL loans, and
specially serviced and troubled loans. Moody's net cash flow
reflects a weighted average haircut of 20.7% to the most recently
available net operating income. Moody's value reflects a weighted
average capitalization rate of 9.9%.
Moody's actual and stressed conduit DSCRs are 1.55X and 1.32X,
respectively, compared to 1.61X and 1.36X at the last review.
Moody's actual DSCR is based on Moody's NCF and the loan's actual
debt service. Moody's stressed DSCR is based on Moody's NCF and a
9.25% stress rate the agency applied to the loan balance.
The top three performing loans represent 46.6% of the pool balance.
The largest loan is the Deerbrook Mall Loan ($131.2 million --
20.3% of the pool), which is secured by a 554,500 SF portion of a
1.2 million SF regional mall located in Humble, Texas. The property
is anchored by Dillard's, Macy's, Sears, JC Penney and AMC
Theatres. AMC Theatres is the only anchor space included in the
loan collateral. Sears had previously announced their store will be
closing in April 2020. Additional major collateral tenants include
Forever 21 (84,325 SF) and Dick's Sporting Goods (82,081 SF). As of
September 2019, the total property was 92% leased. While the
property's revenue has declined year over year in 2018, the
property's 2018 net operating income was 32% higher than
underwritten levels and the 2018 actual NOI DSCR was above 2.00X.
The loan is amortizing on a 30-year schedule, has amortized 14.6%
since securitization, and matures in April 2021. The loan is
sponsored by Brookfield Properties. Moody's LTV and stressed DSCR
are 83% and 1.27X, respectively, compared to 78% and 1.24X at the
last review. The property is currently temporarily closed as a
result of the coronavirus outbreak.
The second largest loan is the Ingram Park Mall Loan ($124.5
million -- 19.3% of the pool), which is secured by a 375,000 SF
portion of a 1.1 million SF regional mall located in San Antonio,
Texas. The property is anchored by Dillard's, Macy's, and J.C.
Penney, all of which own their own improvements. Two anchors, Sears
and Dillard's Home Center, have closed and remain dark. The inline
occupancy was 91% as of September 2019, compared to 88% in
September 2018. In 2017 the sponsor, Simon Property Group,
completed a $9 million renovation which included an expanded food
court, lounge areas with charging stations and upgrades to flooring
and lighting. The property's revenues have been declining annually
over the past three years, however, the property's 2018 NOI was 14%
above underwritten levels. The loan is amortizing on a 30-year
schedule, has amortized 14% since securitization, and matures in
June 2021. The property is not the dominant mall in the market and
competes with five other malls in the trade area. Moody's LTV and
stressed DSCR are 101% and 1.15X, respectively, compared to 94% and
1.18X at the last review. The property is currently temporarily
closed as a result of the coronavirus outbreak.
The third largest loan is the Three Riverway Office Loan ($45.6
million -- 7.1% of the pool), which is secured by a 20-story, Class
A office building totaling approximately 398,000 SF. The property
is Houston, Texas and is part of a five-building office park
situated in the northern portion of the Galleria/Uptown Houston
submarket. The property is located within a larger 27-acre master
planned development featuring office, retail, and apartment
properties, as well as a 378-room full-service hotel. As of
December 2019, the property was only 57% leased, compared to 61% at
Moody's prior review and 87% at securitization. Furthermore, leases
representing 22% of the NRA are scheduled to roll within one year,
including the largest tenant (6.8% of the NRA) which has already
informed the borrower it intends to vacate. As a result of the
increased vacancy, the property's year-end 2019 NOI has declined
nearly 32% from underwritten levels and the loan's actual NOI DSCR
was below 1.00X for the past three years. The loan is amortizing on
a 30-year schedule and matures in May 2021. Due to the declining
performance, Moody's considers this loan troubled and at a
heightened risk of default.
NORTH AMERICAN FINC'L: DBRS Confirms Pfd-4(high) on Pref. Shares
----------------------------------------------------------------
DBRS Limited confirmed the rating on the Preferred Shares issued by
North American Financial 15 Split Corp. (the Company) at Pfd-4
(high). The Company holds a portfolio (the Portfolio) that consists
of common shares of approximately 15 North American financial
services companies: Bank of America Corporation; Bank of Montreal;
The Bank of Nova Scotia; Canadian Imperial Bank of Commerce; CI
Financial Corp.; Citigroup Inc.; The Goldman Sachs Group, Inc.;
Great-West Lifeco Inc.; JPMorgan Chase & Co.; Manulife Financial
Corporation; National Bank of Canada; Royal Bank of Canada; Sun
Life Financial, Inc.; The Toronto-Dominion Bank; and Wells Fargo &
Company. Up to 15% of the Company's net asset value (NAV) may be
invested in securities of issuers other than those mentioned above
and no more than 10% of the Company's NAV may be invested in any
single issuer. Approximately 54.9% of the Portfolio was invested in
U.S. dollars (USD) as of November 30, 2019. The Company may use
derivatives for hedging purposes.
On September 19, 2019, in relation to the previously announced term
extension, the Company announced that the minimum rate of coupon
paid on the Preferred Shares was left unchanged. The new
termination date is December 1, 2024.
Following the stock market sell-off in response to the worldwide
spread of Coronavirus Disease (COVID-19) and various geopolitical
news, Preferred Shares experienced a decline in downside
protection. The Portfolio provides approximately 16.2% of downside
protection as of March 31, 2020. The Preferred Shares currently pay
a fixed cumulative monthly dividend of $0.04583 per Preferred
Share, yielding 5.5% annually on their issue price of $10.00 per
share. As a part of the Class A Share consolidation on December 13,
2019, monthly distributions to holders of the Class A Shares was
increased to $0.11335 to maintain the same pre-consolidation rate
of 8% per annum on their $15.00 issue price per share. No
distributions will be paid to Class A Shares if the NAV per unit
falls below $15.00 and no special year-end dividends will be paid
if, after such payment, the Portfolio's NAV is less than $25.00.
Cash distributions on the Class A shares are suspended as of March
2020. The Preferred Share dividend coverage ratio was approximately
0.71 times. The average grind on the Portfolio is expected to be
1.7% annually in the next four years. To supplement dividend income
received on the Portfolio, the Company may engage in option
writing.
Based on the current amount of the downside protection and
above-mentioned Portfolio metrics, the Preferred Shares rating was
confirmed at Pfd-4 (high).
The main challenges are:
(1) Market fluctuations resulting from the response to the
worldwide spread of coronavirus that could further affect the NAV
of the Company.
(2) The reliance on the Portfolio manager to generate additional
income through methods such as option writing.
(3) The monthly cash distributions to holders of the Class A
Shares, although currently suspended as the NAV per unit is below
the $15.00 threshold.
(4) The unhedged portion of the USD-denominated Portfolio that
exposes the Portfolio to foreign currency risk.
Notes: All figures are in Canadian dollars unless otherwise noted.
READY CAPITAL 2019-FL3: DBRS Reviews B(low) Rating on Class F Notes
-------------------------------------------------------------------
DBRS Limited placed the following classes of Commercial
Mortgage-Backed Notes, Series 2019-FL3 issued by Ready Capital
Mortgage Financing 2019-FL3 Under Review with Developing
Implications:
-- Class A at AAA (sf), Under Review with Developing Implications
-- Class A-S at AAA (sf), Under Review with Developing
Implications
-- Class B at AA (low) (sf), Under Review with Developing
Implications
-- Class C at A (low) (sf), Under Review with Developing
Implications
-- Class D at BBB (low) (sf), Under Review with Developing
Implications
-- Class E at BB (low) (sf), Under Review with Developing
Implications
-- Class F at B (low) (sf), Under Review with Developing
Implications
There are no trends for this rating action.
DBRS Morningstar has taken these latest rating actions because it
has not received supporting information regarding updates to the
collateral and the associated business plans. Because of the
transitional nature of the underlying collateral, DBRS Morningstar
requires more information to support near-term rating actions and
is continuing to work with the servicer to obtain updated
loan-level information.
At issuance, the collateral consisted of 43 floating-rate mortgages
secured by 44 transitional properties totaling approximately $320.8
million, excluding approximately $101.3 million of future funding
commitments. As of the March 2020 remittance, 37 loans remain in
the pool with approximately $50.7 million of future funding
committed to the trust to date.
As of the March 2020 remittance, there are 11 loans, representing
23.3% of the current pool, that are on the servicer's watchlist and
one loan, representing 1.3% of the pool, in special servicing. That
loan, Arbor Grove (Prospectus ID#25), is secured by a multifamily
property in Canton, Ohio, and transferred to special servicing in
February 2020 after the loan failed to secure refinancing. The
borrower's business plan called for increases to occupancy after
which the loan would be refinanced into a Freddie Mac loan for
permanent financing. The sponsor has experience with this type of
financing, having successfully refinanced six previous Ready
Capital loans through Freddie Mac.
DBRS Morningstar remains concerned with loans secured by hotel
properties given the Coronavirus Disease (COVID-19) outbreak and
its impact on tourism and travel. The Tapestry by Hilton Daytona
Beach loan (Prospectus ID#22, 1.7% of the pool) is the only loan in
the pool secured by a lodging property.
Notes: All figures are in U.S dollars unless otherwise noted.
STRATUS CLO 2020-1: Fitch Gives 'BB-sf' Rating on Class E Notes
---------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to Stratus
CLO 2020-1, Ltd.
Stratus CLO 2020-1, Ltd.
- Class A; LT AAAsf; New Rating
- Class B; LT AAsf; New Rating
- Class C; LT Asf; New Rating
- Class D; LT BBB-sf; New Rating
- Class E; LT BB-sf; New Rating
- Subordinated; LT NRsf; New Rating
TRANSACTION SUMMARY
Stratus CLO 2020-1, Ltd. is an arbitrage cash flow collateralized
loan obligation that will be managed by GSO/Blackstone Debt Funds
Management LLC. Net proceeds from the issuance of the secured and
subordinated notes will provide financing on a portfolio of
approximately $500.0 million of primarily first lien senior secured
leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality: The average credit quality of the portfolio
is 'B', which is in line with that of recent CLOs. Issuers rated in
the 'B' rating category denote a highly speculative credit quality;
however, the notes benefit from appropriate credit enhancement and
standard U.S. CLO structural features.
Asset Security: The portfolio consists of 98.8% first lien senior
secured loans and has a weighted average recovery assumption of
80.72%.
Portfolio Composition: The largest three industries compose 45.8%
of the portfolio balance in aggregate, while the top five obligors
represent 5.5% of the portfolio balance in aggregate. The level of
diversity required by industry, obligor and geographic
concentrations is in line with that of other recent U.S. CLOs.
Portfolio Management: The transaction does not have a reinvestment
period and discretionary sales are not permitted. Fitch's analysis
was based on the purchased portfolio, with the base case scenario
stress described under Coronavirus Causing Economic Shock, with
consideration given for a stressed scenario incorporating potential
maturity amendments on the underlying loans.
Cash Flow Analysis: Fitch used a customized proprietary cash flow
model to replicate the principal and interest waterfalls and assess
the effectiveness of various structural features of the
transaction. Each class of notes was able to withstand default
rates in excess of its respective rating hurdle.
Coronavirus Causing Economic Shock: Fitch has made assumptions
about the spread of the coronavirus and the economic impact of
related containment measures. As a base case scenario, Fitch
assumes a global recession in 1H20 driven by sharp economic
contractions in major economies with a rapid spike in unemployment,
followed by a recovery that begins in 3Q20 as the health crisis
subsides. As a downside (sensitivity) scenario provided in the
Rating Sensitivities section, Fitch considers a more severe and
prolonged period of stress with a halting recovery beginning in
2Q21.
Fitch has identified the following sectors that are most exposed to
negative performance as a result of business disruptions from the
coronavirus: aerospace and defense; automobiles; energy, oil and
gas; gaming and leisure and entertainment; lodging and restaurants;
metals and mining; retail; and transportation and distribution. The
total portfolio exposure to these sectors is 6.3%. Fitch applied a
base case scenario stress to the purchased portfolio that envisages
negative rating migration by one notch (with a CCC- floor), along
with a 0.85 multiplier to recovery rates for all assets in these
sectors. Outside these sectors, Fitch also applied a one-notch
downgrade for all assets with a Negative Rating Outlook (with a
CCC- floor).
RATING SENSITIVITIES
Upgrade Sensitivity:
Upgrade scenarios are not applicable to the class A notes, as these
notes are in the highest rating category of 'AAAsf'. Variability in
key model assumptions, such as increases in recovery rates and
decreases in default rates, could result in an upgrade. Fitch
evaluated the notes' sensitivity to potential changes in such
metrics; results under these sensitivity scenarios are 'AAAsf' for
class B notes, between 'AAsf' and 'A+sf' for class C notes, 'A+sf'
for class D notes and 'BBB+sf' for class E notes.
Downgrade Sensitivity:
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metric; results under these sensitivity scenarios ranged between
'AAAsf' and 'BBB-sf' for class A notes, between 'AA+sf' and 'B+sf'
for class B notes, between 'BBB+sf' and below 'CCCsf' for class C
notes, between 'BB+sf' and below 'CCCsf' for class D notes, and
between 'B+sf' and below 'CCCsf' for class E notes.
Coronavirus Downside Scenario Sensitivity:
Fitch has added a sensitivity analysis that contemplates a more
severe and prolonged economic stress caused by a re-emergence of
infections in the major economies, before a halting recovery begins
in 2Q21. Results under this sensitivity scenario are 'AA+sf' for
class A notes, between 'A-sf' and 'BBB+sf' for class B notes,
'BB+sf' for class C notes, 'B+sf' for class D notes and between
'CCCsf' and below 'CCCsf' for class E notes.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
[*] DBRS Reviews 327 Classes From 26 Legacy U.S. RMBS Transactions
------------------------------------------------------------------
DBRS, Inc., on April 8, 2020, reviewed 327 classes from 26 legacy
U.S. residential mortgage-backed security (RMBS) transactions
issued prior to the Great Recession. Of the 327 classes reviewed,
DBRS Morningstar confirmed all classes.
Due to the potential economic hardship caused by Coronavirus
Disease (COVID-19), DBRS Morningstar anticipates that delinquencies
may arise in the coming months for many RMBS asset classes, some
meaningfully. In the legacy sector, borrowers who recently
defaulted and/or modified, or those who are currently "underwater,"
may be most at risk for future defaults. However, these same
borrowers have also weathered the last downturn and have generally
accumulated some equity in their homes. In addition, compared with
those in the prime jumbo sector, these borrowers are more likely to
benefit from the direct-to-consumer economic support offered by the
various government relief initiatives.
DBRS Morningstar will continue to monitor transactions across U.S.
RMBS asset classes with respect to their exposure to coronavirus
and will take necessary rating actions if performance deteriorates
beyond expectation.
The rating actions are a result of DBRS Morningstar's application
of the U.S. RMBS Surveillance Methodology published in February
2020.
The pools backing these RMBS transactions consist of Alt-A,
second-lien, and subprime collateral.
The ratings assigned to the securities below differ from the
ratings implied by the quantitative model. DBRS Morningstar
considers this difference to be a material deviation, but in this
case, the ratings of the subject securities reflect either
additional seasoning being warranted to substantiate a further
upgrade or actual deal or tranche performance not being fully
reflected in the projected cash flows/model output.
-- Aegis Asset Backed Securities Trust 2005-2, Mortgage-Backed
Notes, Series 2005-2, Class M3
-- Accredited Mortgage Loan Trust 2006-1, Asset-Backed Notes,
Series 2006-1, Class A-4
-- Accredited Mortgage Loan Trust 2006-1, Asset-Backed Notes,
Series 2006-1, Class M-1
-- ACE Securities Corp. Home Equity Loan Trust, Series 2004-HE4,
Asset-Backed Pass-Through Certificates, Series 2004-HE4, Class M-1
-- ACE Securities Corp. Home Equity Loan Trust, Series 2005-RM1,
Asset-Backed Pass-Through Certificates, Series 2005-RM1, Class M-3
-- ACE Securities Corp. Home Equity Loan Trust, Series 2005-RM1,
Asset-Backed Pass-Through Certificates, Series 2005-RM1, Class M-4
-- Citigroup Mortgage Loan Trust Inc., Series 2005-WF2,
Asset-Backed Pass-Through Certificates, Series 2005-WF2, Class
MV-3
-- Citigroup Mortgage Loan Trust Inc., Series 2005-WF2,
Asset-Backed Pass-Through Certificates, Series 2005-WF2, Class
MV-4
-- Citigroup Mortgage Loan Trust Inc., Series 2005-WF2,
Asset-Backed Pass-Through Certificates, Series 2005-WF2, Class
MV-5
-- Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series
2006-FM1, Asset-Backed Certificates, Series 2006-FM1, Class I-A
-- Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series
2006-FM1, Asset-Backed Certificates, Series 2006-FM1, Class II-A-3
-- Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series
2006-FM1, Asset-Backed Certificates, Series 2006-FM1, Class II-A-4
-- Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series
2006-HE2, Home Equity Loan Trust Asset-Backed Certificates, Series
2006-HE2, Class A-4
-- Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series
2006-HE2, Home Equity Loan Trust Asset-Backed Certificates, Series
2006-HE2, Class M-1
-- Structured Asset Securities Corporation Mortgage Loan Trust
2005-OPT1, Mortgage Pass-Through Certificates, Series 2005-OPT1,
Class A2
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC1, Mortgage Pass-Through Certificates, Series 2007-BC1,
Class A1
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC1, Mortgage Pass-Through Certificates, Series 2007-BC1,
Class A4
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC1, Mortgage Pass-Through Certificates, Series 2007-BC1,
Class A5
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC1, Mortgage Pass-Through Certificates, Series 2007-BC1,
Class A6
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC4, Mortgage Pass-Through Certificates, Series 2007-BC4,
Class A1
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC4, Mortgage Pass-Through Certificates, Series 2007-BC4,
Class A2
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC4, Mortgage Pass-Through Certificates, Series 2007-BC4,
Class A4
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-BC4, Mortgage Pass-Through Certificates, Series 2007-BC4,
Class M1
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-WF2, Mortgage Pass-Through Certificates, Series 2007-WF2,
Class A1
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-WF2, Mortgage Pass-Through Certificates, Series 2007-WF2,
Class A3
-- Structured Asset Securities Corporation Mortgage Loan Trust
2007-WF2, Mortgage Pass-Through Certificates, Series 2007-WF2,
Class A4
-- SG Mortgage Securities Trust 2006-OPT2, Asset-Backed
Certificates, Series 2006-OPT2, Class A-1
-- SG Mortgage Securities Trust 2006-OPT2, Asset-Backed
Certificates, Series 2006-OPT2, Class A-3B
-- Sequoia Mortgage Trust 2005-3, Mortgage Pass-Through
Certificates, Series 2005-3, Class X-A
-- Sequoia Mortgage Trust 2005-3, Mortgage Pass-Through
Certificates, Series 2005-3, Class X-B
The Affected Ratings are Available at https://bit.ly/3a5dDGb
[*] Moody's Lowers $93MM of U.S. RMBS Issued 2003-2005
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Moody's Investors Service has downgraded the ratings of eight
tranches, from three RMBS transactions, backed by Subprime and
Alt-A loans, issued by multiple issuers.
Rating actions:
Issuer: MASTR Asset Backed Securities Trust 2003-WMC1
Cl. M-1, Downgraded to B1 (sf); previously on Jul 23, 2018 Upgraded
to Baa3 (sf)
Issuer: Morgan Stanley Mortgage Loan Trust 2005-6AR
Cl. 1-B-1, Downgraded to B1 (sf); previously on Nov 12, 2017
Upgraded to Ba3 (sf)
Cl. 1-M-3, Downgraded to B1 (sf); previously on Dec 5, 2016
Upgraded to Ba1 (sf)
Cl. 1-M-4, Downgraded to B1 (sf); previously on Nov 12, 2017
Upgraded to Ba1 (sf)
Cl. 1-M-5, Downgraded to B1 (sf); previously on Nov 12, 2017
Upgraded to Ba1 (sf)
Cl. 1-M-6, Downgraded to B1 (sf); previously on Nov 12, 2017
Upgraded to Ba2 (sf)
Issuer: Park Place Securities, Inc., Asset-Backed Pass-Through
Certificates, Series 2004-MHQ1
Cl. M-3, Downgraded to B1 (sf); previously on Jun 24, 2014 Upgraded
to Ba3 (sf)
Cl. M-4, Downgraded to B1 (sf); previously on Feb 24, 2017 Upgraded
to Ba3 (sf)
RATINGS RATIONALE
The rating downgrades are due to outstanding and projected interest
shortfalls on the bonds which are not expected to be recouped due
to weak structural reimbursement mechanisms on the impacted
tranches. In these transactions, interest shortfalls are reimbursed
from excess interest only after the overcollateralization has built
to a pre-specified target amount. Due to the transactions'
performance and its level of overcollateralization, the shortfalls
are unlikely to be reimbursed and could be permanent. The actions
also reflect the recent performance as well as Moody's updated loss
expectations on the underlying pools.
Its analysis has considered the increased uncertainty relating to
the effect of the coronavirus outbreak on the US economy as well as
the effects that the announced government measures put in place to
contain the virus, will have on the performance of residential
mortgages. Moody's regards the coronavirus outbreak as a social
risk under its ESG framework, given the substantial implications
for public health and safety. It is a global health shock, which
makes it extremely difficult to provide an economic assessment. The
degree of uncertainty around its forecasts is unusually high.
The principal methodology used in these ratings was "US RMBS
Surveillance Methodology" published in February 2019.
Factors that would lead to an upgrade or downgrade of the ratings:
Ratings in the US RMBS sector remain exposed to the high level of
macroeconomic uncertainty, particularly the unemployment rate.
Moody's expects the unemployment rate to rise to about 9% in the
second quarter, and decline thereafter with a slow pace of
rehiring, resulting in an unemployment rate of around 6.5% by the
end of 2020. However, there is significant uncertainty around this
forecast and risks are firmly to the downside. House prices are
another key driver of US RMBS performance. Lower increases than
Moody's expects or decreases could lead to negative rating actions.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions.
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