/raid1/www/Hosts/bankrupt/TCR_Public/200607.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, June 7, 2020, Vol. 24, No. 158
Headlines
ACCESS POINT 2017-A: S&P Puts 'B-' Rating on D Notes on Watch Neg.
AGL CLO 5: S&P Assigns Prelim BB- (sf) Rating to Class E Notes
BANK 2018-BNK13: Fitch Affirms 'B-sf' Rating on 2 Tranches
CASTLELAKE AIRCRAFT 2019-1: Fitch Cuts Class C Notes to Bsf
CITIGROUP COMMERCIAL 2018-C5: Fitch Affirms B-sf Class G-RR Certs
CROWN POINT 9: S&P Assigns Prelim BB- (sf) Rating to Class E Notes
DBJPM MORTGAGE 2017-C6: Fitch Affirms Class F-RR Certs at B-sf
ECAF I LTD: S&P Cuts Class B-1 Notes Rating to BB (sf)
ELLINGTON MO2020-1: S&P Rates Class B-2 Certs 'B(sf)'
FIRST REPUBLIC 2020-1: Fitch Gives B+sf Rating on Class B-5 Certs
GLS AUTO 2020-2: S&P Assigns Prelim BB- (sf) Rating to Cl. D Notes
GS MORTGAGE 2010-C1: Moody's Cuts Rating on Class F Certs to 'C'
GS MORTGAGE 2011-GC5: Moody's Cuts Class F Certs to 'Caa3'
GS MORTGAGE-BACKED 2020-PJ3: Fitch Rates Class B-5 Certs 'Bsf'
HULL STREET CLO: S&P Lowers Class E Notes Rating to B- (sf)
JP MORGAN 2013-C14: Fitch Cuts Class G Certs to CCCsf
LB-UBS COMMERCIAL 2007-C1: Fitch Affirms D Rating on 6 Tranches
MAGNETITE XXVI: S&P Rates $12MM Class E Notes 'BB- (sf)'
NELNET EDUCATION 2004-1: Fitch Affirms Class A-2 Debt at Bsf
RR 10 LTD: S&P Rates $7MM Class D Notes 'BB- (sf)'
SANTANDER CONSUMER 2020-A: S&P Rates Class F Notes 'B(sf)'
SATURNS TRUST NO. 2003-7: S&P Cuts Class B Units Rating to 'B'
SOUND POINT XXVI: S&P Assigns Prelim BB-(sf) Rating to Cl. E Notes
UBS COMMERCIAL 2018-C11: Fitch Affirms Class F-RR Certs at B-sf
VERUS 2020-INV1: S&P Rates Class B-2 Certs 'B (sf)'
WELLS FARGO 2020-C56: Fitch Assigns B-sf Rating on 2 Tranches
[*] Fitch Takes Actions on 30 Tranches From 6 Trust Preferred CDOs
[*] Moody's Lowers $56MM of RMBS Issued 2003-2004
[*] S&P Puts 20 BSL CLO Ratings on CreditWatch Negative
[*] S&P Puts Ratings on 96 Classes From 30 CMBS Deals on Watch Neg.
[*] S&P Takes Various Actions on 61 Classes From 10 U.S. RMBS Deals
*********
ACCESS POINT 2017-A: S&P Puts 'B-' Rating on D Notes on Watch Neg.
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S&P Global Ratings placed its 'B- (sf)' rating on the class D notes
from Access Point Funding I 2017-A LLC, a small business
securitization, on CreditWatch with negative implications. The
transaction collateral consists of a pool of furniture, fixtures,
and equipment loans made primarily to hotel franchises.
The CreditWatch negative placement reflects the potential impact
the COVID-19 containment measures could have on the hotel and
lodging sector. In S&P's view, the credit quality of the
transaction may decline due to fears related to COVID-19. S&P
believes this may negatively affect the cash flows available to pay
the notes.
According to the most recent servicer report for the May 15
distribution date, the aggregate outstanding note balance is
$44,152,886.26, which represents approximately 20% of the initial
outstanding note balance. The aggregate performing pool balance is
$51,060,645.15, which represents approximately 21% of the initial
collateral balance. The aggregate pool balance, including the
principal balance of all defaulted loans, is $57,453,724.97. The
percentage of loans 31-90 days' delinquent increased to
approximately 19% of the outstanding pool balance as of the May 15
distribution date from approximately 11% of the pool balance as of
the April 15 distribution date. The amount on deposit in the
reserve account is approximately $2.3 million.
The transaction has paid down to an approximately 20% pool factor,
and the amount on deposit in the reserve account should be
sufficient to cover fees and interest on the notes for
approximately 10 months. However, according to S&P's analysis, the
class D available enhancement may not be sufficient to absorb the
default of the top two-largest obligors. The default of the top
two-largest obligors was calculated by aggregating loans with the
same sponsor and assumes no recovery credit.
S&P expects to resolve the CreditWatch negative placement as it
learns more about the severity and duration of COVID-19's impact on
transactions.
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus outbreak.
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, we will update our assumptions and estimates
accordingly," S&P said.
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety.
AGL CLO 5: S&P Assigns Prelim BB- (sf) Rating to Class E Notes
--------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to AGL CLO 5
Ltd.'s floating-rate notes.
The note issuance is a CLO transaction backed by primarily broadly
syndicated speculative-grade senior secured term loans that are
governed by collateral quality tests.
The preliminary ratings are based on information as of June 3,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The diversified collateral pool.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
PRELIMINARY RATINGS ASSIGNED
AGL CLO 5 Ltd.
Class Rating Amount (mil. $)
A-1 AAA (sf) 355.80
A-2 NR 22.20
B AA (sf) 66.00
C (deferrable) A (sf) 33.00
D (deferrable) BBB- (sf) 33.00
E (deferrable) BB- (sf) 24.90
Subordinated notes NR 65.10
NR--Not rated.
BANK 2018-BNK13: Fitch Affirms 'B-sf' Rating on 2 Tranches
----------------------------------------------------------
Fitch Ratings has affirmed 17 classes of BANK 2018-BNK13 commercial
mortgage pass-through certificates. Fitch has also revised the
Rating Outlooks on two classes to Negative from Stable.
BANK 2018-BNK13
- Class A-1 06539LAW0; LT AAAsf; Affirmed
- Class A-2 06539LAX8; LT AAAsf; Affirmed
- Class A-3 06539LAY6; LT AAAsf; Affirmed
- Class A-4 06539LBA7; LT AAAsf; Affirmed
- Class A-5 06539LBB5; LT AAAsf; Affirmed
- Class A-S 06539LBE9; LT AAAsf; Affirmed
- Class A-SB 06539LAZ3; LT AAAsf; Affirmed
- Class B 06539LBF6; LT AA-sf; Affirmed
- Class C 06539LBG4; LT A-sf; Affirmed
- Class D 06539LAJ9; LT BBB-sf; Affirmed
- Class E 06539LAL4; LT BB-sf; Affirmed
- Class F 06539LAN0; LT B-sf; Affirmed
- Class X-A 06539LBC3; LT AAAsf; Affirmed
- Class X-B 06539LBD1; LT AAAsf; Affirmed
- Class X-D 06539LAA8; LT BBB-sf; Affirmed
- Class X-E 06539LAC4; LT BB-sf; Affirmed
- Class X-F 06539LAE0; LT B-sf; Affirmed
KEY RATING DRIVERS
Increased Loss Expectations: Despite a majority of the pool
exhibiting relatively stable performance, loss expectations have
increased since issuance primarily due to an increase in Fitch
Loans of Concern and coronavirus-related performance concerns.
Fitch identified 15 loans (27.1%) as Fitch Loans of Concern,
including five (19.2%) in the top 15. There have been no specially
serviced loans since issuance.
Fitch Loans of Concern: The largest FLOC is the third largest loan
in the pool, Showcase II (5.4%), which is secured by an
approximately 41,000 sf retail center located in Las Vegas, NV. The
property is located on Las Vegas Boulevard and is within walking
distance of numerous hotel resorts, casinos and other demand
drivers. The largest tenants include American Eagle (27% NRA,
expires January 2028), Adidas (25% NRA, expires September 2027) and
TMobile (25% NRA, expires December 2027). As of YE 2019, the
property was 100% occupied and had an NOI debt service coverage
ratio of 1.70x.
Town Center Aventura (4.3%) is secured by a 186,000-sf anchored
retail center located in Aventura, FL, approximately 20 miles north
of Miami. Occupancy fell to 86.5% at YE 2019 from 100% at YE 2018
due to the loss of various tenants, the largest of which accounted
for 3.5% of NRA. As a result of lost rental income and increased
operating expenses, NOI DSCR fell to 1.37x from 1.54x over the same
period. As of the March 2020 rent roll, occupancy has rebounded to
90% after backfilling some of the vacancies. The property is
anchored by grocer tenant Publix (28% NRA, expires November 2023);
however, the tenant only contributes approximately 7% of total
rent.
Florida Hotel & Conference Center (4.3%) is secured by a 511 key
full-service hotel located in Orlando, FL. The hotel is centrally
located in Orlando with easy access to the airport, Universal
Studios, and Disney World, amongst others. Additionally, the hotel
is attached to the Florida Mall, a super-regional mall operated by
Simon Property Group. The hotel has been operating independently of
any brand or flag affiliation since 2004. As of the trailing
12-month period ending in February 2020, the property's penetration
rates for occupancy, ADR and RevPAR were 91.5%, 97% and 88.8%,
respectively.
Anderson Towne Center (2.6%) is secured by a 347,500-sf retail
center located in Cincinnati, OH. The largest tenants are Macys
(34% NRA, expires January 2029) and AMC Cincinanti 9 (14.5% NRA,
expires December 2031). The property is also shadow anchored by a
Kroger supermarket. Macy's has been at the property since 1967 and
executed a 10-year lease renewal in January 2018. At issuance it
was noted Macys sales figures have been declining; to $130 psf in
2015 to $106 psf in 2017. The Fitch analyst has requested updated
sales information, but has yet to receive it. As of YE 2019, the
property was 94% occupied and NOI DSCR was 1.39x.
Shoppes at Chino Hills (2.4%), the 14th largest loan, is secured by
a 378,500-sf lifestyle center located in Chino Hills, CA,
approximately 35 miles east of Los Angeles. The loan is 30 days
delinquent as of the May 2020 distribution date. As of the March
2020 rent roll, the property was 93% occupied, down from 96% at YE
2019. The servicer reported NOI DSCR was 1.62x as of YE 2019.
Approximately 27% of the NRA has leases scheduled to expire in
2021, including two of the four largest tenants; Jacuzzi Brands (9%
NRA) and Old Navy (4% NRA).
The remaining ten FLOCs are all outside of the top 15. A majority
of the loans were flagged due to coronavirus-related performance
concerns. Two of the loans Courtyard - Myrtle Beach SC (1.3%) and
Holiday Inn Express - Oregon, OH are both 30 days delinquent as of
the May 2020 distribution date. Additionally, Rancho Lone Mountain
Storage - NV (0.3%) and Keep Self Storage (0.2%) are secured by
self-storage properties located in Las Vegas, NV and Houston, TX,
respectively. Both were flagged for low DSCR. Despite increases in
occupancy, both properties have had significant increases in
operating expenses.
Minimal Improvements in Credit Enhancement: There have been limited
improvements in credit enhancement since issuance. The pool has
paid down 2.5%, down to $920.8 million from $944.2 million at
issuance. The pool is projected to pay down by 11.6% at maturity. A
significant driver of pool amortization is the fourth largest loan,
Pfizer Building, which has a 72-month loan term and a 75-month
amortization schedule; the loan is scheduled to amortize by 97% of
its original balance. There are 23 loans (65.7%) that are full-term
interest only and an additional seven loans (7.7%) that are
structured with partial interest only periods; one of which has
begun amortizing. The remaining 32 loans (26.6%) are amortizing
balloon. No loans have defeased and there have been no realized
losses to date.
Coronavirus Exposure: Significant economic impact to certain
hotels, retail and multifamily properties is expected from the
coronavirus pandemic due to the recent and sudden reductions in
travel and tourism, temporary property closures and lack of clarity
on the potential duration of the pandemic. The pandemic has already
prompted the closure of several hotel properties in gateway cities
as well as malls, entertainment venues and individual stores.
Fitch's base case analysis applied an additional NOI stress to five
hotel loans (8.5%) and seven retail loans (17.3%), which did not
meet certain performance thresholds.
Regional Mall Assets: There are two loans (5.2%) which are secured
by regional malls. Fair Oaks Mall is located in Fairfax, VA,
approximately 14 miles west of Washington, DC. The mall is anchored
by non-collateral tenants Macys Furniture Gallery, Lord & Taylor,
Sears and JCPenney and a collateral Macy. In-line sales in 2019
were $371 psf excluding Apple and $516 psf including Apple,
compared with 2018 sales of $391 psf and $524 psf, respectively.
CoolSprings Galleria is located in Franklin, TN and sponsored by
CBL and TIAA. The mall is anchored by non- collateral tenants
Macys, JCPenney, Dillards and a collateral Belk. In-line sales
excluding Apple at the property were $465 psf in 2015; however,
sales decreased to $438 psf in 2017.
While not a traditional regional mall, Plaza Frontenac (4.3%),
located in Frontenac, MO, is secured by a high-end mall. The mall
hosts a number of upscale retailers and tenants. There are two
other traditional regional malls located in the St. Louis area, but
neither offers the luxury shopping experience of Plaza Frontenac.
At issuance, in-line tenant sales were $725 psf at issuance, higher
than both its competitors.
Alternative Loss Considerations: Fitch performed an additional
sensitivity scenario, which applied a potential outsized loss of
15% to the maturity balance of the CoolSprings Galleria loan due to
weak sponsorship, significant competition with overlapping anchors
and declining sales since issuance. This scenario contributed to
the Negative Rating Outlook revision on classes D and X-D. The
Negative Outlook also reflects the increased loss expectations for
the pool, which are driven primarily by an increase in FLOCs and
coronavirus-related performance concerns.
Investment-Grade Credit Opinion Loans: Four loans, totaling 21.3%
of the pool balance, received investment-grade credit opinions at
issuance. 1745 Broadway received a 'BBB-sf' credit opinion; Pfizer
Building received 'A-sf'; Fair Oaks Mall received 'BBB-sf'; and 181
Fremont Street received 'BBB-sf'.
Co-Op Collateral: The deal contains a total of 20 loans (7.1%) that
are secured by multifamily cooperatives, all of which are located
within the greater New York City metro area. At issuance the
weighted average Fitch DSCR and LTV for the co-op loans were 4.16x
and 34.5%, respectively.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes D, E and F and interest
only classes X-D, X-E, and X-F are primarily due to increased loss
expectations as a result of various performance concerns and an
increase in Fitch Loans of Concern. Downgrades of one category or
more are possible should performance deteriorate further and/or as
multiple loans begin to transfer to special servicing.
Additionally, property-level cash flow concerns, particularly of
hotel and retail properties, as a result of the economic slowdown
stemming from the coronavirus pandemic have also been factored into
Fitch's analysis. The Stable Rating Outlooks on classes A-1 through
C reflect increasing credit enhancement, continued amortization and
stable performance for a majority of the loans in 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 paydown and/or defeasance.
Upgrades to classes B and C would likely occur with significant
improvement in credit enhancement and/or defeasance. However,
adverse selection, increased concentrations or the underperformance
of particular loan(s) may limit the potential for future upgrades.
An upgrade to class D is considered unlikely and would be limited
based on the sensitivity to concentrations or the potential for
future concentrations. Classes would not be upgraded above 'Asf' if
there is a likelihood for interest shortfalls. Upgrades to classes
E and F 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 senior A-1, A-2, A-3, A-SB, A-4, A-5, A-S
classes, along with class B are not expected given the position in
the capital structure, but may occur should interest shortfalls
occur. A downgrade to class C may occur should several loans
transfer to special servicing and/or as pool losses significantly
increase. A downgrade to classes D, E and F (all with Negative
Rating Outlooks) would occur as losses materialize or if property
performance of the FLOCs, fail to stabilize in a prolonged economic
slowdown.
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
No third-party due diligence was provided or reviewed in relation
to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
CASTLELAKE AIRCRAFT 2019-1: Fitch Cuts Class C Notes to Bsf
-----------------------------------------------------------
Fitch Ratings has affirmed the ratings on the outstanding class A
and B notes and downgraded the rating of the class C notes issued
by both Castlelake Aircraft Structured Trust 2018-1 and Castlelake
Aircraft Structured Trust 2019-1 asset-backed securities
transactions. Fitch removed Rating Watch Negative on the class B
and C notes for both transactions and placed them on Rating Outlook
Negative. The class A notes remain on RON.
Castlelake Aircraft Structured Trust 2019-1
- Class A 14855MAA6; LT Asf; Affirmed
- Class B 14855MAB4; LT BBBsf; Affirmed
- Class C 14855MAC2; LT Bsf; Downgrade
Castlelake Aircraft Structured Trust 2018-1
- Class A 14856CAA7; LT Asf; Affirmed
- Class B 14856CAB5; LT BBBsf; Affirmed
- Class C 14856CAC3 LT Bsf; Downgrade
TRANSACTION SUMMARY
The rating actions reflect ongoing deterioration of all airline
lessee credits backing the leases in each transaction pool,
downward pressure on certain aircraft values, Fitch's updated
assumptions and stresses, and resulting impairments to modeled cash
flows and coverage levels.
Fitch revised or maintained each tranche of both transactions on
RON, reflecting Fitch's base case expectation for the structure to
withstand immediate- and near-term stresses at the updated
assumptions and stressed scenarios commensurate with their
respective ratings.
On March 31, 2020, Fitch placed the class B and C notes of CLAS
2018-1 and 2019-1 on RWN, while both class A notes were placed on
RON as a part of its aviation ABS portfolio review due to the
ongoing impact of the coronavirus on the global macro and
travel/airline sectors. This unprecedented worldwide pandemic
continues to evolve rapidly and negatively affect airlines across
the globe.
To reflect its global recessionary environment and the impact on
airlines backing these pools, Fitch updated rating assumptions for
both rated and non-rated airlines with a vast majority of ratings
moving lower, which was a key driver of these rating actions along
with modeled cash flows.
Furthermore, recessionary timing was brought forward to start
immediately at this point in time. This scenario further stresses
airline credits, asset values and lease rates immediately while
incurring remarketing and repossession cost and downtime at each
relevant rating stress level. Previously, Fitch assumed that the
first recession commenced six months from either the transaction
closing date or date of subsequent reviews.
Castlelake, L.P. (Castlelake, not rated by Fitch) and certain
third-parties are the sellers of the initial assets, and it acts as
servicer for both transactions. Fitch deems the servicer to be
adequate to service these transactions based on its experience as a
lessor and overall servicing capabilities.
KEY RATING DRIVERS
Deteriorating Airline Lessee Credit
The credit profiles of the airline lessees in the pools have
further deteriorated due to the coronavirus-related impact on all
global airlines in 2020, resulting in lower lessee rating
assumptions utilized for this review. The proportion of airline
lessees in the CLAS 2018-1 pool assumed for this review with an
Issuer Default Rating of 'CCC' or below increased to 51.6% from
23.2% at closing and to 78.3% from 12.1% initially in the CLAS
2019-1 pool. Based on airlines currently in administration or that
have recently filed for bankruptcy, 16.4% were assumed to
immediately default in 2018-1 and 13.9% in 2019-1.
Newly assumed 'CCC' credit airlines in CLAS 2018-1 include
InterGlobe Aviation Ltd., PT Lion Mentari Airlines, and SAS AB. For
CLAS 2019-1, these include PT Lion Mentari Airlines, GOL Linhas
Aereas Inteligentes S.A., Air Namibia Limited, Air Transat A.T.
Inc., Philippine Airlines and AirAsia Berhad. Due to current
administration/bankruptcy, LATAM Airlines Group S.A., Virgin
Australia Airlines Pty Ltd and Alitalia - Società Aerea Italiana
were assumed to immediately default in Fitch's model for CLAS
2018-1, and Virgin Australia Airlines Pty Ltd and Thai Airways in
CLAS 2019-1. These assumptions reflect these airlines' ongoing
deteriorating credit profiles and fleet in the current operating
environment due to the coronavirus-related impact on the sector.
For airlines assumed to immediately default in Fitch's modeling,
narrowbody aircraft were assumed to remain on ground for three
additional months and widebody aircraft for six months, in addition
to lessor-specific remarketing downtime assumptions to account for
potential remarketing challenges in placing these aircraft with new
lessees in the current distressed environment.
Asset Quality and Appraised Pool Value
Both pools include WB aircraft concentrations totaling 23.2% in
CLAS 2018-1 and 29.0% in CLAS 2019-1. WB aircraft typically incur
higher repossession, transition, reconfiguration and maintenance
costs. Due to ongoing market value pressures for WBs and worsening
supply and demand value dynamics for these aircraft, Fitch utilized
recent 2020 appraiser MVs as opposed to base values for cash flow
modeling. The remaining aircraft in both pools consist of NB
aircraft. For these aircraft, Fitch utilized BVs given ongoing
market dynamics, consistent with prior review.
Aircraft Information Services, Inc. (AISI), Collateral
Verifications LLC and morten beyer & agnew Inc. (mba) are
appraisers for both CLAS 2018-1 and 2019-1. For this review, Fitch
utilized the average of the two lowest and most current appraisal
values (BV for NB and MV for WB) as of April 2020 for CLAS 2018-1
and February 2020 for CLAS 2019-1. The appraisals were provided for
each pool, but as stated, Fitch utilized the average of the lowest
two appraisals. Since these appraisals were recently provided in
2020 and the value declines are already reflected by each
appraiser's MVs, Fitch did not adjust values further downward.
This approach resulted in Fitch-modeled pool values of $753.3
million for CLAS 2018-1 and $814.2 million for CLAS 2019-1,
respectively. This is notably lower compared to $834.6 million and
$880.6 million as stated in the May 2020 servicer reports, by 9.7%
and 7.5% for each pool, respectively.
Transaction Performance to Date
Nearly all lessees across both transactions have requested some
form of payment relief/deferrals, consistent across peer aircraft
ABS pools due to disruptions related to the coronavirus pandemic.
For modeling purposes, Fitch assumed three months of lease
deferrals for all airlines, with contractual lease payments
resuming thereafter plus additional repayment of deferred amounts
over a six-month period.
Lease collections and transaction cash flows have trended downward
since the beginning of 2020. CLAS 2018-1 received $3.7 million of
rental payments in the May servicer report, down notably from $10.9
million in the February servicer report covering the January
collection period. CLAS 2019-1 received $5.0 million of rental
payments in the May servicer report, compared with $9.7 million in
the February report. Both transactions made full payments of class
A and B interest but only partial payments to class A scheduled
principal in the May report.
Excess proceeds in the form of end of lease payments are also
important to consider as they represent sizable portions of cash
flow. CLAS 2018-1 received approximately $13.4 million in the April
report, of which only $4.6 million was applied to class A notes due
to declining rental payments, transfers to the expense account and
deposits to the maintenance support account.
Fitch Assumptions, Stresses and Cash Flow Modeling
Nearly all servicer-driven assumptions for Castlelake applied in
this review are consistent with prior reviews for each transaction,
which include repossession and remarketing costs, new lease and
extension terms assumed. Refer to each transaction's published
presale reports for further information on these assumptions and
stresses.
Ten leases are expected to mature in 2020-2021 for CLAS 2018-1. For
near-term maturities and consistent with assumptions for airlines
in administration, Fitch assumed NB aircraft would remain on ground
for three additional months and WB aircraft for six additional
months on top of lessor-specific remarketing downtime assumptions
to account for potential remarketing challenges, as mentioned.
With the grounding of global fleets and significant reduction in
air travel, maintenance revenue and costs will be affected and are
expected to decline due to airline lessee credit issues and
grounded aircraft. Maintenance revenues were reduced by 50% over
the next immediate 12 months for these reviews, and such missed
payments were then assumed to be recouped in the following 12
months thereafter starting in June 2021. Maintenance costs over the
immediate six months were assumed to be incurred as reported. Costs
in the next 12 months were reduced to 50% of their original
schedules. Over the following 12 months, the 50% of deferred costs
in prior periods were assumed to be repaid every month in addition
to the scheduled maintenance costs.
RATING SENSITIVITIES
The RON on all classes of CLAS 2018-1 and CLAS 2019-1 reflect the
potential for further negative rating actions due to concerns over
the ultimate impact of the coronavirus pandemic, the resulting
concerns associated with airline performance and aircraft values,
and other assumptions across the aviation industry due to the
severe decline in travel and grounding of airlines.
At close, Fitch conducted multiple rating sensitivity analyses to
evaluate the impact of changes to a number of the variables in the
analysis. The performance of aircraft operating lease
securitizations is affected by various factors, which, in turn,
could have an impact on the assigned ratings. Due to the
correlation between global economic conditions and the airline
industry, the ratings can be affected by the strength of the
macro-environment over the remaining term of this transaction.
In the initial rating analysis, Fitch found the transactions to
exhibit sensitivity to the timing and severity of assumed
recessions. Fitch also found that greater default probability of
the leases has a material impact on the ratings. Furthermore, the
timing and degree of technological advancement in the commercial
aviation space and the resulting impact on aircraft values, lease
rates and utilization would have a moderate impact on the ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Up: Base Assumptions with Stronger Residual Value Realization:
The aircraft ABS sector has a rating cap of 'Asf'. All subordinate
tranches carry one category of ratings lower than the senior
tranche and below the ratings at close. However, if the assets in
this pool experience stronger residual value (RV) realization than
Fitch modeled or if it experiences a stronger lease collection
in-flow than Fitch's stressed scenarios, the transactions could
perform better than expected. At this point, future upgrades beyond
current ratings would not be considered due to a combination of the
sector rating cap, industry cyclicality, weaker lessee mix present
in ABS pools and uncertainty around future lessee mix, along with
the negative impact due to the coronavirus on the global
travel/airline sectors and, ultimately, ABS transactions.
In an "Up" scenario, RV recoveries at time of sale are assumed to
be 70% of their depreciated MVs, higher than the base case scenario
of 50% for certain aircraft. Net cash flow increases by
approximately $50-60 million for CLAS 2018-1 and $55-65 million for
CLAS 2019-1 across rating stress levels. Class C notes in both
transactions are able to pay in full under their respective 'BBsf'
stress levels.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Down: Base Assumptions with 10% Weaker Widebody Values
The pools contain fairly large concentrations of WB aircraft at
approximately 23% and 29% for CLAS 2018-1 and 2019-1 respectively.
Any further softening in aircraft values could lead to further
downward rating action. Due to continuing MV pressure on WB and
worsening supply and demand dynamics, Fitch explored the potential
cash flow decline if WB values were further reduced by 10% of
Fitch's modeled values.
Net cash flow declined by approximately $6 million-$8 million for
CLAS 2018-1 and $17 million-$23 million for CLAS 2019-1 across
rating stress scenarios. The direct cash flow impact of this stress
scenario is more pronounced in CLAS 2019-1, as the WB aircraft are
much younger and represent a higher proportion of its respective
pool compared to the older WB aircraft in CLAS 2018-1. In this
scenario, the 10% WB value decline alone does not suggest downward
rating migration but could result in negative rating action in
conjunction with other factors in a weaker environment.
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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
CITIGROUP COMMERCIAL 2018-C5: Fitch Affirms B-sf Class G-RR Certs
-----------------------------------------------------------------
Fitch Ratings affirmed 15 classes Citigroup Commercial Mortgage
Trust 2018-C5 commercial mortgage pass-through certificates, series
2018-C5. Fitch also revised the Rating Outlook from Stable to
Negative on classes F-RR and G-RR.
CGCMT 2018-C5
- Class A-1 17291DAA1; LT AAAsf; Affirmed
- Class A-2 17291DAB9; LT AAAsf; Affirmed
- Class A-3 17291DAC7; LT AAAsf; Affirmed
- Class A-4 17291DAD5; LT AAAsf; Affirmed
- Class A-AB 17291DAE3; LT AAAsf; Affirmed
- Class A-S 17291DAF0; LT AAAsf; Affirmed
- Class B 17291DAG8; LT AA-sf; Affirmed
- Class C 17291DAH6; LT A-sf; Affirmed
- Class D 17291DAJ2; LT BBB-sf; Affirmed
- Class E-RR 17291DAL7; LT BBB-sf; Affirmed
- Class F-RR 17291DAN3; LT BB-sf; Affirmed
- Class G-RR 17291DAQ6; LT B-sf; Affirmed
- Class X-A 17291DAU7; LT AAAsf; Affirmed
- Class X-B 17291DAV5; LT AA-sf; Affirmed
- Class X-D 17291DAW3; LT BBB-sf; Affirmed
KEY RATING DRIVERS
Increased Loss Expectations: While the majority of the pool has
exhibited stable performance since issuance, loss expectations have
increased primarily due to the Fitch Loans of Concern. Nine loans
(19.1%) , including one specially serviced loan (0.4%) are
considered FLOCs primarily due to declining performance or higher
stresses, which were applied to hotel and retail loans that failed
to meet certain net operating income debt-service coverage ratio
thresholds, given the expected declines in performance related to
the coronavirus pandemic. One loan transferred to special servicing
in April 2020 due to the borrower requesting payment relief due to
the coronavirus pandemic, which is currently under review. The loan
is secured by a 26,287-sf suburban office located in Plantation,
FL. As of the TTM period ended February 2020, servicer reported
occupancy and DSCR were 94% and 1.71x respectively.
The largest FLOC, Flats at East Bank (8.9% of the pool), is secured
by a mixed-use property with 241 multifamily units and 59,562 sq.
ft. of retail space located in Cleveland, Ohio. Prior to the
coronavirus pandemic, property performance declined. As of YE 2019,
occupancy was a reported 81%, down from 100% in March 2018, despite
concessions being offered. Additionally, the borrower has requested
payment relief due to the pandemic. Fitch has requested further
details on the financial statements given the large decline in
reported revenues.
The second largest FLOC, Santa Fe Springs Marketplace (2.8% of the
pool), is secured by a 100,258-sf retail property located in Santa
Fe Springs, CA. As of YE 2019, servicer reported occupancy and DSCR
were 82% and 1.65x, respectively down from 99% and 1.79x at
issuance. The second-largest tenant, Rite Aid (17.8%) vacated at
its May 31, 2019 lease expiration and the largest tenant, O'Reilly
Auto Parts (18%) expires in December 2020. An additional stress was
applied to this loan and the remaining six FLOCs (7.1%) to address
the declines in performance related to the coronavirus pandemic.
Fitch will continue to monitor the loans for further updates.
Limited Improvement in Credit Enhancement: There have been minimal
increases in credit enhancement since issuance. As of the May 2020
distribution date, the pool has paid down approximately 0.4%, to
$665.4 million from $668.2 million at issuance. There are no loans
in that have defeased. 16 loans (61.3%) are full-term interest
only. There were 12 loans (25.4%) structured with partial interest
only periods; three (5.9%) have exited their interest only period.
Based on the scheduled balance at maturity, the pool will pay down
by 5.3%. The transaction has not experienced any principal losses
to date.
Coronavirus Exposure: Significant economic impact to certain
hotels, retail, and multifamily properties is expected from the
coronavirus pandemic due to the recent and sudden reductions in
travel and tourism, temporary property closures and lack of clarity
on the potential duration of the pandemic. The pandemic has already
prompted the closure of several hotel properties in gateway cities
as well as malls, entertainment venues and individual stores.
Fitch's base case analysis applied an additional NOI stress to one
hotel loan (1.2%) and six retail loans (8.7%), which did not meet
certain performance threshold.
Investment-Grade Credit Opinion Loans: Two loans, representing
14.6% of the pool had investment-grade credit opinions at issuance.
65 Bay Street (9.0% of the pool) and DreamWorks Campus (5.6% of the
pool) had investment-grade credit opinions of 'BBBsf' and 'BBB-sf',
respectively.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes F-RR and G-RR are primarily
due to increased loss expectations with respect to Flats at East
Bank, which is expected to transfer to special servicing given the
request for payment relief and declines in performance. Downgrades
of one category or more are possible upon receipt of updated
valuations and/or with no progress on re-leasing the vacant space.
Performance concerns, particularly of hotel and retail properties,
as a result of the economic slowdown stemming from the coronavirus
pandemic have also been factored into Fitch's analysis. The Stable
Rating Outlooks on classes A-1 through E-RR reflect increasing
credit enhancement, continued amortization and stable performance
for a majority of the loans in 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 paydown and/or defeasance.
Upgrades to classes B and C would likely occur with significant
improvement in credit enhancement and/or defeasance. However,
adverse selection, increased concentrations or the underperformance
of particular loan(s) may limit the potential for future upgrades.
An upgrade to class D is considered unlikely and would be limited
based on the sensitivity to concentrations or the potential for
future concentrations. Classes would not be upgraded above 'Asf' if
there is a likelihood for interest shortfalls. Upgrades to classes
E-RR through G-RR 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 senior A-1, A-2, A-3, A-4, A-AB, A-S classes,
along with class B are not expected given the position in the
capital structure, but may occur should interest shortfalls occur.
A downgrade to classes C and D may occur should several loans
transfer to special servicing and/or as pool losses significantly
increase. A downgrade to classes E-RR through and G-RR (F-RR and
G-RR both with current Rating Outlook Negatives) would occur as
losses materialize or if property performance, specifically of the
FLOCs, fail to stabilize in a prolonged economic slowdown.
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.
PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was provided or reviewed in relation
to this rating action
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
CROWN POINT 9: S&P Assigns Prelim BB- (sf) Rating to Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Crown Point
CLO 9 Ltd.'s floating-rate notes.
The note issuance is a CLO transaction backed by primarily broadly
syndicated speculative-grade (rated 'BB+' and lower) senior secured
term loans that are governed by collateral quality tests.
The preliminary ratings are based on information as of June 4,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The diversified collateral pool.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
PRELIMINARY RATINGS ASSIGNED
Crown Point CLO 9 Ltd.
Class Rating Amount (mil. $)
A AAA (sf) 180.00
B AA (sf) 45.00
C (deferrable) A (sf) 18.00
D (deferrable) BBB- (sf) 13.50
E (deferrable) BB- (sf) 9.00
Subordinated notes NR 35.10
NR--Not rated.
DBJPM MORTGAGE 2017-C6: Fitch Affirms Class F-RR Certs at B-sf
--------------------------------------------------------------
Fitch Ratings has affirmed 15 classes of DBJPM Mortgage Trust
commercial mortgage pass-through certificates, series 2017-C6.
DBJPM 2017-C6
- Class A-1 23312JAA1; LT AAAsf; Affirmed
- Class A-2 23312JAB9; LT AAAsf; Affirmed
- Class A-3 23312JAC7; LT AAAsf; Affirmed
- Class A-4 23312JAE3; LT AAAsf; Affirmed
- Class A-5 23312JAF0; LT AAAsf; Affirmed
- Class A-M 23312JAH6; LT AAAsf; Affirmed
- Class A-SB 23312JAD5; LT AAAsf; Affirmed
- Class B 23312JAJ2; LT AA-sf; Affirmed
- Class C 23312JAK9; LT A-sf; Affirmed
- Class D 23312JAQ6; LT BBB-sf; Affirmed
- Class E-RR 23312JAS2; LT BB-sf; Affirmed
- Class F-RR 23312JAU7; LT B-sf; Affirmed
- Class X-A 23312JAG8; LT AAAsf; Affirmed
- Class X-B 23312JAL7; LT A-sf; Affirmed
- Class X-D 23312JAN3; LT BBB-sf; Affirmed
KEY RATING DRIVERS
Increased Loss Expectations/Fitch Loans of Concern: While the
majority of the pool maintains stable performance, loss
expectations on the pool have increased due to the five Fitch Loans
of Concern (FLOCs, 10.5% of the pool balance). The Negative Rating
Outlook on Class E and Class F reflects the performance declines of
the FLOCs, as well as the potential impact of the coronavirus
pandemic on the pool.
The largest FLOC, 211 Main Street (5.4% of the pool), is secured by
a 417,266-sf office property located in San Francisco, CA. The
property currently serves as the corporate headquarters of Charles
Schwab (A/F1). However, per recent news articles, as part of the
firm's merger with TD Ameritrade, Charles Schwab has indicated its
intention to move its corporate headquarters to the Dallas-Fort
Worth, TX area. Fitch has requested further updates from the master
servicer regarding the potential relocation.
The next largest FLOC is the Columbus Park Crossing South loan
(2.5%), which is secured by a 225,628 sf-anchored retail center
located in Columbus, GA. The loan transferred to special servicing
in May 2020 for imminent default. According to servicer updates,
the borrower has requested a loan modification due to the negative
impacts from the coronavirus pandemic. This request is currently
being reviewed. Fitch will continue to monitor the loan.
The third largest FLOC is the 2121 Ella Boulevard loan (1.1%),
which is secured by a 121-unit multifamily property built in 2015
and located in Houston, TX. The loan has been designated as a FLOC
due to a low debt service coverage ratio. As of YE 2019, the
servicer reported a NOI DSCR of 1.15x.
The remaining two FLOCs combine for approximately 1.5% of the pool
balance; they are secured by a neighborhood shopping center located
in Richmond, TX that is 60 days' delinquent and a hotel located in
Brooklyn, NY that reported a NOI DSCR of 1.12x as of YE 2019.
Minimal Change to Credit Enhancement: As of the May 2020
distribution date, the pool's aggregate balance has been reduced by
1% to $1.12 billion, from $1.13 billion at issuance. At issuance,
based on the scheduled balance at maturity, the pool was expected
to pay down 5.6%. Fourteen full-term interest-only loans comprise
59.4% of the pool, and three loans representing 4.7% of the pool
remain in partial interest-only period. There are also two
anticipated repayment date loans representing 8.4% of the pool.
Coronavirus Impacts: Significant economic impacts to certain hotels
and retail and multifamily properties are expected from the
coronavirus pandemic due to the recent and sudden reductions in
travel and tourism, temporary property closures and lack of clarity
at this time on the potential duration of the impacts. The pandemic
has already prompted the closure of several hotel properties in
gateway cities, as well as malls, entertainment venues and
individual stores. Loans secured by retail and hotel properties
represent 24% and 14% of the pool, respectively. Business
disruption due to the pandemic partially contributes to the
Negative Rating Outlook on the Class E and F.
RATING SENSITIVITIES
The Negative Rating Outlook on Class E and Class F reflects the
potential for a downgrade should the performance of the FLOCs
continue to deteriorate. The Stable Outlooks on classes A-1 through
D reflect sufficient credit enhancement relative to expected
losses.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable-to-improved asset performance, coupled with additional
paydown and/or defeasance. Upgrades to the 'A-sf' and 'AA-sf' rated
classes would likely occur with significant improvement in credit
enhancement and/or defeasance; however, adverse selection and
increased concentrations, or underperformance of the FLOCs, could
cause this trend to reverse.
-- Upgrades to the 'BBB-sf' and below-rated classes are
considered unlikely and would be limited based on sensitivity to
concentrations or the potential for future concentrations. Classes
would not be upgraded above 'Asf' if there is a likelihood of
interest shortfalls. Additionally, an upgrade to the 'BB-sf' and
'B-sf' rated classes is not likely until later years of the
transaction and only if the performance of the remaining pool is
stable and/or there is sufficient credit enhancement, which would
likely occur when the nonrated class is not eroded and the senior
classes pay off.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses due to underperforming or
specially serviced loans. Downgrades to the senior classes, rated
'AA-sf' through 'AAAsf', are not likely due to their position in
the capital structure and the high credit enhancement; however,
downgrades to these classes may occur should interest shortfalls
occur. Downgrades to the classes rated 'BBB-sf' and below would
occur if the performance of the FLOC continues to decline or fails
to stabilize.
In addition to its baseline scenario, Fitch envisions a downside
scenario where the health crisis is prolonged beyond 2021; should
this scenario play out, Fitch expects that classes assigned a
Negative Rating Outlook will be downgraded in 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.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was provided or reviewed in relation
to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
ECAF I LTD: S&P Cuts Class B-1 Notes Rating to BB (sf)
------------------------------------------------------
S&P Global Ratings lowered its rating on ECAF I Ltd.'s (ECAF) class
A-1, A-2 (collectively, class A), and B-1 notes. The ratings remain
on CreditWatch, where S&P had placed them with negative
implications on March 19, 2020.
The rating actions primarily reflect the notes' insufficient credit
enhancement at their respective current rating levels based on
S&P's assumptions, the declining credit quality of the lessees, a
43% exposure to wide-body aircraft in the portfolio, which have
been the most adversely impacted given limited long-haul flights, a
high overall loan-to-value (LTV) ratio as a result of the aircraft
portfolio's higher-than-expected value decline, and the ongoing
uncertainties surrounding airline operations amidst the coronavirus
pandemic.
S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak.
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, we will update our assumptions and estimates
accordingly," S&P said.
HIGH LTV AND INCREMENTAL STRESS DUE TO ONGOING UNCERTAINTIES
At closing, the initial LTVs for the class A and B-1 notes were
approximately 70% and 81%, respectively. Although the notes'
outstanding balance has reduced significantly since S&P's May 2017
review, the LTV has remained quite high at 80% and 92% for the
class A and B-1 notes, respectively. The application of further
haircuts to the residual values under S&P's rating scenarios
results in additional increases in the LTVs leading to insufficient
credit enhancement at the current rating levels for both classes.
"Our analysis considers incremental sensitivity runs, which we
applied due to COVID-19 related uncertainties in the sector. These
include additional stress on aircraft values, time to re-lease,
re-leasing rates, retirement age, and a possible second wave of
deferral requests. We also acknowledge the uncertainties around
airlines' future fleet size planning and aircraft maintenance
projections, which are additional variables in our cash flow
model," S&P said.
"We placed the ratings on CreditWatch with negative implications on
March 19, 2020, when lockdowns and social distancing measures were
introduced to combat the spread of the virus, COVID-19. Although
these measures are easing up in some places, it will take time for
domestic air travel to fully resume. With several countries
shutting down their borders, international air travel will take a
considerably longer time to resume and for passenger confidence to
be regained," the rating agency said.
Since the CreditWatch placements, S&P has had periodic
conversations with lessors of rated aircraft ABS transactions. A
common theme among lessors is an increasing number of requests for
rent deferrals, which have taken different forms. The typical
deferral requests have been for 50% of rent (in most cases not
applicable to utilization rent) for three months and recovered with
interest over the remaining term of the lease. Many lessors have
indicated that it is too soon to assess the ultimate impact on
aircraft values, lease rates, and the time to re-lease, among other
factors.
According to mba Aviation, as of the week of May 11, 2020, average
daily flight schedules have dropped by 56%-89% from January 2020
levels in different regions of the world. The majority of the
planes are currently parked, and although there has been a slight
uptick in operations, it has not been very significant.
Many airlines are also reconsidering their fleet composition and
the general projection is that airlines will cut 20% of their fleet
amidst this pandemic. Wide-bodies have taken the biggest hit
because long-haul flights have come to a standstill and S&P
observes that many airlines have either already retired or are
contemplating retiring wide-bodies from their fleet (in some cases
irrespective of their age). Aircraft values and lease rates have
also come under stress. According to Ishka, market values of 2015
vintage A320s and B737s declined 9%-14% from the beginning of the
year, while lease rates have gone down by 5%-9% for the same
vintage of aircraft. At the same time, market values of 2010
vintage A320s and B737s declined 9%-19% with a 12%-29% lease rate
decline over the same time period.
ECAF I--TRANSACTION PROFILE
PORTFOLIO
The initial appraisers for the portfolio are Aviation Specialists
Group Inc., Ascend Flightglobal Consultancy, and AVITAS Inc.
Additionally, morten beyer & agnew Inc. (mba) and IBA Group Ltd.
(IBA) have also provided appraisal values for the current
portfolio.
"The values we use for our analysis and cash flow modelling
purposes is the lower of mean and median (LMM) of the aircraft
half-life base values provided as of June 2019. Appraisal value 1
means the LMM of the initial appraisers and appraisal value 2 means
the LMM of the initial appraisers plus mba and IBA. The LMM value
is further depreciated using our aircraft-specific depreciation
assumptions, from the appraisal date to the current month," S&P
said.
April 2020 April 2017 May 2015
No. of aircraft 28 42 49
Appraisal value 1,765.563(i) 1,153.423(ii) 491.279(iii)
(mil. $)
Appraisal value 2 786.030(i) 1,189.827(ii) N/A
(mil. $)
No. of lessees 21 30 38
Off-lease 2 0 0
Narrow-bodies/wide-bodies 56.6/43.4 62.7/37.3 65.52/34.48
(%)
Weighted avg. age (years) 9.63 8.01 6.70
Largest lessee (%) Singapore Singapore Singapore
Airlines Airlines Airlines
(19%) (16%) (15%)
No. of 2020 lease
expirations(iv) 6 N/A N/A
(i)Lower of mean and median of half-life base values as of June
2019.
(ii)Lower of mean and median of half-life base values as of June
2016.
(iii)Lower of mean and median of half-life base values and
half-life market values as of November 2014.
(iv)Includes the two off-lease aircraft.
N/A--Not applicable.
WIDE-BODY AIRCRAFT ARE VULNERABLE
The exposure to wide-bodies as a percentage of the portfolio has
now increased to 43% given the transaction has sold 21 aircraft
(all narrow-body) since closing.
"Although the wide-bodies in the portfolio are smaller, younger,
and on relatively longer lease terms, we default them in our stress
runs because based on our criteria, our default assumptions are
applied from highest to lowest aircraft value. We believe that the
current scenario has introduced additional risks for these aircraft
by placing increased pressure on the viability of wide-bodies as
airlines retire these planes, irrespective of age." In addition, a
slower projected recovery of long-haul flights may create a
challenging environment for re-lease and further stress values,"
S&P said.
LESSEES' CREDIT QUALITY DETERIORATED
As of the May 2020 payment date report, 16 lessees representing 20
aircraft in the portfolio had requested rent deferrals, of which,
deferral was granted to one lessee representing two aircraft. The
portfolio's overall credit quality has also deteriorated under the
current circumstances. The majority of the lessees are not publicly
rated by S&P Global Ratings, but the portfolio's credit quality
assessment was down by 2.15 notches on average since the beginning
of the year, which translated into higher default rate assumptions
under S&P's rating stresses. Currently the early amortization
trigger is still in compliance, but with a debt service coverage
ratio of 1.16x, it is very close to breaching the threshold of
1.15x. Only one aircraft was unutilized (i.e., not subject to a
lease, letter of intent to enter into a lease or sale contract, or
a binding part-out agreement, for the past 90 days).
LIABILITIES
The class A-1 notes amortize to zero over seven years and the class
A-2 notes do not amortize for the first seven years unless there is
an early amortization trigger or a disposition, in which case they
are paid pro-rata. After the seventh anniversary from closing, the
class A-1 and A-2 notes will always be paid pro-rata. On the May
2020 payment date, the class A-1 and B-1 notes received their
scheduled principal amount. The notes benefit from a liquidity
facility, which covers nine months' interest on the class A and B-1
notes. Currently, there has been no drawings under the facility.
A-1 A-2 B-1
Original balance 459.375 590.625 160.000
(mil. $)
Current balance-–May 2020 109.541 463.457 88.204
(mil. $)
Last review balance-–April 2017 322.783 550.669 133.957
(mil. $)
Paydowns since closing 349.834 127.168 71.796
Paydowns since last review 213.242 87.212 45.753
Current LTV--appraisal value 1 79.82 79.82 92.11
(%)(i)
Current LTV--appraisal value 2 77.75 77.75 89.72
(%)(i)
(i)Used June 2019 LMM as starting value and depreciated it further
based on S&P's assumptions through May 2020.
LTV--Loan-to-value.
LMM--Lower of mean and median.
ASSUMPTIONS USED FOR THE REVIEW
It is currently difficult to quantify the full impact of COVID-19
on U.S. aircraft ABS transactions because current servicer and
issuer reports may not reflect the long-term effect of the pandemic
and the degree and speed of demand for travel remains uncertain
despite reopening.
"Though it is too early to measure the long-term impact of COVID-19
on transaction cash flows, we have identified certain sensitivity
scenarios in the sector, which we believe, could result from the
pandemic. As we develop better clarity on the size and duration of
reductions in transactions' cash flows, we will evaluate whether
adjustments to our sensitivity assumptions and downside projections
are appropriate. Changes in these projections could have an impact
on our estimates, which, in turn, could affect ratings on the
notes," S&P said.
Two different scenarios were run for S&P's review-–rating runs
based on the criteria assumptions and sensitivity runs to account
for recent changes and challenges in the aviation sector. While the
rating runs were the guiding runs for the current rating actions,
S&P considered results from incremental sensitivity scenarios to
test the transaction under additional stress.
DEFAULT PATTERN
S&P applied defaults evenly over a four-year period during the
first recession under its rating runs but under its sensitivity
runs, the rating agency also tested more front-loaded default
patterns (e.g., 80%/20%) considering that it is already in a
recessionary scenario, which is severely impacting the airlines'
liquidity and credit quality.
RENT DEFERRALS
In S&P's sensitivity analysis, it also assumed a percentage of the
non-defaulted lessees to be delinquent on their rent payments for
the first few months of cash flow projections. This is intended to
stress liquidity in line with current events.
LEASE RATE DECLINE AND MAGNITUDE
S&P's sensitivity analysis further tested the transaction by
applying steeper lease rate decline haircuts from the first
recession to account for the fluctuations in the valuation and
lease rates under current circumstances. S&P also assumed that 100%
of the lease rate decline will be applied in the first year of the
first recession as against 50% under its rating stresses.
AIRCRAFT/ENGINE ON GROUND (AOG) TIMES
Under its rating runs, S&P does not differentiate the time to
re-lease between narrow-bodies and wide-bodies, which is typically
six-to-11 months depending upon the rating stress. However, given
the uncertainties of the re-leasing markets in the current
environment, in S&P's sensitivity analysis it assumed longer AOG
times and also differentiated the downtime between narrow-bodies
and wide-bodies (e.g., eight-18 months for narrow-bodies and 12-30
months for wide-bodies).
USEFUL LIFE
While there has been some news about airlines retiring aircraft
older than 20 years, there still seems to be some uncertainty
around how airlines will plan their future fleet. Therefore, under
the sensitivity runs, S&P assumed a 22-year useful life for
aircraft in the portfolio and it also assumed an early retirement
(earlier than 22 years in some cases) for some of the older
aircraft upon the end of their current lease.
These assumptions may vary or S&P may stress additional factors
depending upon transaction characteristics and availability of more
information on these key variables.
SUMMARY OF RATING ACTIONS
The portfolio remains diversified in terms of the number of
lessees, the notes continuing to receive scheduled principal
(noting that that class A-2 notes do not receive any principal
payment until June 2022), and the deal has access to a liquidity
facility with a commitment of nine months' interest on the notes.
However, S&P does see some deterioration in the credit quality of
the lessees, as well as the increased leverage creating
insufficient enhancements for the classes at the current rating
levels, thereby warranting a downgrade. In addition, the results of
the sensitivity runs and the uncertainties in the sector result in
an extended CreditWatch negative status for the classes.
S&P Global Ratings previously placed this transaction on
CreditWatch with negative implications on March 19, 2020, along
with 31 other transactions. While transactions on CreditWatch are
expected to be resolved within 90 days from the placement date, the
three classes from this transaction are resolved earlier than the
90-day period due to S&P's regular surveillance schedule.
S&P will continue to review whether the ratings assigned to the
notes remain consistent with the credit enhancement available to
support them and will take further rating actions as S&P deems
necessary.
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety
RATINGS LOWERED AND REMAINING ON CREDITWATCH NEGATIVE
ECAF I Ltd.
Rating
Class To From
A-1 BBB (sf)/Watch Neg A- (sf)/Watch Neg
A-2 BBB (sf)/Watch Neg A- (sf)/Watch Neg
B-1 BB (sf)/Watch Neg BBB- (sf)/Watch Neg
ELLINGTON MO2020-1: S&P Rates Class B-2 Certs 'B(sf)'
-----------------------------------------------------
S&P Global Ratings assigned its ratings to Ellington Financial
Mortgage Trust 2020-1's mortgage pass-through certificates.
The certificate issuance is an RMBS transaction backed by U.S.
residential
mortgage loans.
The ratings reflect:
-- The pool's collateral composition;
-- The credit enhancement provided for this transaction;
-- The transaction's associated structural mechanics;
-- The representation and warranty framework for this
transaction;
-- The mortgage aggregator, Ellington Financial Inc.; and
-- The impact that the economic stress brought on by the
coronavirus disease, COVID-19, is likely to have on the performance
of the mortgage borrowers in the pool and liquidity available in
the transaction.
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus outbreak. Some government
authorities estimate the pandemic will peak about midyear, and S&P
is using this assumption in assessing the economic and credit
implications. S&P believes the measures adopted to contain COVID-19
have pushed the global economy into recession (see the rating
agency's macroeconomic and credit updates here:
www.spglobal.com/ratings). As the situation evolves, S&P will
update its assumptions and estimates accordingly.
RATINGS ASSIGNED
Ellington Mortgage Finance Trust 2020-1
Class Rating(i) Amount ($)
A-1 AAA (sf) 191,603,000
A-2 AA (sf) 11,278,000
A-3 A+ (sf) 12,834,000
M-1 BBB (sf) 17,890,000
B-1 BB (sf) 10,112,000
B-2 B (sf) 8,815,000
B-3 NR 6,741,458
A-IO-S NR Notional(ii)
X NR Notional(ii)
P NR 100
R NR N/A
(i)The collateral and structural information in this report
reflects the private placement memorandum dated June 1, 2020. The
ratings address S&P's expectation for the ultimate payment of
interest and principal. (ii) The notional amount equals the loans'
stated principal balance.
NR--Not rated.
N/A--Not applicable.
FIRST REPUBLIC 2020-1: Fitch Gives B+sf Rating on Class B-5 Certs
-----------------------------------------------------------------
Fitch has assigned ratings to the first residential mortgage-backed
certificates issued by First Republic Mortgage Trust 2020-1.
FRMT 2020-1
- Class A-1; LT AAAsf New Rating
- Class A-1-A; LT AAAsf New Rating
- Class A-1-IO; LT AAAsf New Rating
- Class A-2; LT AAAsf New Rating
- Class A-2-A; LT AAAsf New Rating
- Class A-2-IO; LT AAAsf New Rating
- Class A-3; LT AAAsf New Rating
- Class A-3-A; LT AAAsf New Rating
- Class A-3-IO; LT AAAsf New Rating
- Class A-4; LT AAAsf New Rating
- Class A-4-A; LT AAAsf New Rating
- Class A-4-IO; LT AAAsf New Rating
- Class A-5; LT AAAsf New Rating
- Class A-5-A; LT AAAsf New Rating
- Class A-5-IO; LT AAAsf New Rating
- Class A-6; LT NRsf New Rating
- Class B-1; LT AAsf New Rating
- Class B-2; LT Asf New Rating
- Class B-3; LT BBB+sf New Rating
- Class B-4; LT BB+sf New Rating
- Class B-5; LT B+sf New Rating
- Class B-6; LT NRsf New Rating
TRANSACTION SUMMARY
The certificates are supported by 303 prime adjustable-rate
mortgage loans with a total balance of approximately $300 million
as of the cutoff date. All of the loans were originated by First
Republic Bank. This is the first post-2007-2008 global financial
crisis issuance from FRB. The transaction is similar to other prime
Fitch-rated transactions with a standard senior-subordinate,
shifting-interest deal structure.
KEY RATING DRIVERS
Revised GDP Due to Pandemic: The coronavirus pandemic and resulting
containment efforts have resulted in revisions to Fitch's GDP
estimates for 2020. The agency's baseline global economic outlook
for U.S. GDP growth is a 5.6% decline for 2020, down from 1.7%
growth in 2019. Fitch's downside scenario would see an even larger
decline in output in 2020 and a weaker recovery in 2021. To account
for declining macroeconomic conditions resulting from the pandemic,
an economic risk factor floor of 2.0 (the ERF is a default variable
in the U.S. RMBS loan-loss model) was applied to 'BBBsf' and
below.
Pandemic-Related Payment Deferrals (Negative): The outbreak of
coronavirus and widespread containment efforts in the U.S. will
increase unemployment and disrupt cash flow. To account for the
cash flow disruption, Fitch assumed deferred payments on a minimum
of 25% of the pool for the first six months of the transaction at
all rating categories, with a reversion to its standard delinquency
and liquidation timing curve by month 10. This assumption is based
on observations of legacy Alt-A delinquencies and past-due payments
following Hurricane Maria in Puerto Rico.
High-Quality Mortgage Pool (Positive): The collateral attributes
are among the strongest of any post-crisis RMBS rated by Fitch. The
pool consists of 10-year hybrid adjustable rate loans with a
30-year original term to maturity, which are predominately interest
only and made to high net worth borrowerswith strong credit
profiles, low leverage and large liquid reserves. The loans are
seasoned an average of seven months. The pool has a
Fitch-calculated weighted-average original FICO score of 771, which
is indicative of high credit-quality borrowers. Approximately 53.8%
of the loans have an original FICO score at or ab ove 780. In
addition, the original WA combined loan/value ratio of 57.1%
represents substantial borrower equity in the property. The pool's
attributes, together with FRB's sound origination practices,
support Fitch's low default risk expectations.
Low Operational Risk (Positive): Operational risk is controlled for
in this transaction. Fitch accesses FRB as an 'Above-Average'
originator. FRB has experienced senior management and staff that
cater to high net-worth individuals. It maintains strong risk
management and corporate governance controls and a robust due
diligence process. FRB is the primary servicer rated 'RPS2-' and
master servicing functions will be performed by Wells Fargo Bank,
N.A., rated 'RMS1-'. Fitch has affirmed all of its U.S. RMBS
servicer ratings and has revised the Outlooks to Negative where a
Negative Outlook was not already in place due to the evolving
economic stress and operating conditions caused by the pandemic.
Top Tier Representation and Warranty Framework (Positive): The
loan-level representation, warranty and enforcement framework is
consistent with Fitch's Tier 1, the highest possible. Fitch reduced
losses by 8bp at the 'AAAsf' rating category as a result of the
Tier 1 framework and the internal credit opinion supporting the
repurchase obligations of the ultimate representations and
warranties provider backstop.
Acceptable Due Diligence Results (Positive): Third-party due
diligence was performed on all the loans in the transaction by
Clayton Services LLC, assessed as 'Acceptable - Tier 1' by Fitch.
The review did not identify material exceptions. There were no
credit or valuation exceptions to the guidelines for this
transaction and compliance exceptions were either cured or
considered non-material. Fitch applied a credit for the high
percentage of loan-level due diligence, which reduced the 'AAAsf'
loss expectation by 5bp.
Geographic Diversification (Negative): The pool is 48% concentrated
in California; approximately 69% is located in the top-three
metropolitan statistical areas - San Francisco, New York and Boston
- with 30% of the pool located in the San Francisco metropolitan
statistical area. The pool's regional concentration added 0.25% to
Fitch's 'AAAsf' loss expectations.
Shifting Interest Structure (Mixed): The mortgage cash flow and
loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement levels
are not maintained.
Subordination Floor (Positive): A CE or senior subordination floor
of 1.25% has been considered to mitigate potential tail-end risk
and loss exposure for senior tranches as pool size declines and
performance volatility increases due to adverse loan selection and
small-loan count concentration. A junior subordination floor of
1.00% has been considered to mitigate potential tail-end risk and
loss exposure for subordinate tranches as pool size declines and
performance volatility increases due to adverse loan selection and
small-loan count concentration.
Full Servicer Advancing (Mixed): First Republic Bank
(A-/Stable/F1/RPS2-/Negative) will provide full advancing for the
life of the transaction. The master servicer (Wells Fargo Bank,
N.A., (AA-/Negative/F1+/RMS1-/Negative) will advance if needed.
Although full principal and interest advancing will provide
liquidity to the certificates, it will also increase loan-level
loss severity, since the servicer looks to recoup principal and
interest advances from liquidation proceeds, which results in fewer
recoveries.
Extraordinary Expense Treatment (Neutral): The trust provides for
expenses, including indemnification amounts, reviewer fees and
costs of arbitration, to be paid by the net WA coupon of the loans,
which does not affect the contractual interest due on the
certificates. Furthermore, the expenses to be paid from the trust
are capped at $550,000 a year, with the exception of the cost to
engage an independent reviewer (if needed) and to negotiate a
breach review agreement with an independent reviewer, which can be
carried over each year, subject to the cap until paid in full.
RATING SENSITIVITIES
Fitch's analysis incorporates sensitivity analysis to demonstrate
how the ratings would react to steeper market value declines than
assumed at the metropolitan statistical area level. The implied
rating sensitivities are only an indication of some of the
potential outcomes and do not consider other risk factors that the
transaction may become exposed to or be considered in the
surveillance of the transaction.
Two sets of sensitivity analyses were conducted at the state and
national level to assess the effect of higher MVDs for the subject
pool.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
This defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the
model-projected 0.6% at 'AAA'. The analysis indicates that there is
some potential rating migration with higher MVDs for all rated
classes, compared with the model projection.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to negative MVDs at the national level, or
in other words, positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth of
10.0%. Excluding the senior classes, which are already 'AAAsf', the
analysis indicates there is potential positive rating migration for
all of the rated classes. This section provides insight into the
model-implied sensitivities the transaction faces when one
assumption is modified, while holding others equal. The modelling
process uses the modification of these variables to reflect asset
performance in up and down environments. The results should only be
considered as one potential outcome, as the transaction is exposed
to multiple dynamic risk factors. It should not be used as an
indicator of possible future performance.
Fitch has also added a coronavirus sensitivity analysis that
contemplates a more severe and prolonged economic stress caused by
a re-emergence of infections in major economies, before a slow
recovery begins in 2Q21. Under this severe scenario, Fitch expects
the ratings to be affected by changes in its sustainable home price
model due to updates to the model's underlying economic data
inputs. Any long-term impact arising from coronavirus disruption on
these economic inputs will likely affect both investment- and
speculative-grade ratings.
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 reviewed and used as a part of the
rating for this transaction, as prepared by Clayton.
Third-party due diligence was performed on all the loans in the
transaction by Clayton and is assessed as 'Acceptable - Tier 1'
TPR. The review scope includes review of credit, compliance and
property valuation for each loan and is consistent with Fitch
criteria. The results indicate high-quality loan origination
practices that are consistent with non-agency prime RMBS. Fitch did
not apply any loss adjustments.
Approximately 7.7% of the loan pool (by loan count) was assigned a
final grade 'B', which is lower than prior prime jumbo RMBS, mainly
due to the updated SFA TRID 3.0 review by the TPR in-line with
Fitch. There were no credit or valuation exceptions to guidelines
for this transaction and the compliance exceptions were either
cured or considered non-material.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." Clayton was
engaged to perform the review. Loans reviewed under this engagement
were given compliance, credit and valuation grades and assigned
initial grades for each subcategory. Minimal exceptions and waivers
were noted in the due diligence reports. Refer to the Third-Party
Due Diligence section for more detail. Fitch also utilized data
files that were made available by the issuer on its SEC Rule 17g-5
designated website.
Fitch received loan-level information based on the American
Securitization Forum's data layout format, and the data are
considered to be comprehensive. The ASF data tape layout was
established with input from various industry participants,
including rating agencies, issuers, originators, investors and
others to produce an industry standard for the pool-level data in
support of the U.S. RMBS securitization market. The data contained
in the ASF layout data tape were reviewed by the due diligence
companies, and no material discrepancies were noted.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
FRMT 2020-1 has an ESG Relevance Score of +4 for Transaction
Parties & Operational Risk. Operational risk is well controlled at
FRMT 2020-1 and includes strong RW&E and transaction due diligence
as well as a strong originator and service. This reduces expected
losses.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of 3. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity(ies), either due to their nature or to the way in which
they are being managed by the entity(ies).
GLS AUTO 2020-2: S&P Assigns Prelim BB- (sf) Rating to Cl. D Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to GLS Auto
Receivables Issuer Trust 2020-2's automobile receivables-backed
notes 2020-2.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The preliminary ratings are based on information as of June 1,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The availability of approximately 50.1%, 40.8%, 34.2%, and
28.0% of credit support for the class A, B, C, and D notes,
respectively, based on stressed cash flow scenarios (including
excess spread). These credit support levels provide coverage of
approximately 2.25x, 1.80x, 1.47x, and 1.22x S&P's 21.50%-22.50%
expected cumulative net loss (CNL) for the class A, B, C, and D
notes, respectively.
-- The expectations that under a moderate ('BBB') stress scenario
(1.55x S&P's expected loss level), all else being equal, S&P's
preliminary 'AA (sf)', 'A (sf)', 'BBB- (sf)', and 'BB- (sf)'
ratings on the class A, B, C, and D notes, respectively, are
consistent with the tolerance outlined in the rating agency's
credit stability criteria "Methodology: Credit Stability Criteria"
published May 3, 2010. S&P's analysis of over six years of
origination static pool data and securitization performance data on
Global Lending Services LLC's nine Rule 144A securitizations.
-- The collateral characteristics of the subprime automobile loans
securitized in this transaction, including the representation in
the transaction documents that all contracts in the pool have made
a least one payment.
-- The notes' underlying credit enhancement in the form of
subordination, overcollateralization, a reserve account, and excess
spread for the class A, B, C, and D notes.
-- The timely interest and principal payments made to the notes
under S&P's stressed cash flow modeling scenarios, which it
believes are appropriate for the assigned preliminary ratings.
PRELIMINARY RATINGS ASSIGNED
GLS Auto Receivables Issuer Trust 2020-2
Class Rating(i) Amount (mil. $)
A AA (sf) 163.23
B A (sf) 41.45
C BBB- (sf) 24.15
D BB- (sf) 25.30
(i)The interest rates and actual sizes of these tranches will be
determined on the pricing date.
GS MORTGAGE 2010-C1: Moody's Cuts Rating on Class F Certs to 'C'
----------------------------------------------------------------
Moody's Investors Service has downgraded two classes, one class
remains on review for downgrade, places one class under review for
downgrade, and downgrades two classes that remains under review for
downgrade in GS Mortgage Securities Corporation II Commercial
Mortgages Pass-Through Certificates Series 2010-C1 as follows:
Cl. B, Aaa (sf) Placed Under Review for Possible Downgrade;
previously on Mar 2, 2020 Affirmed Aaa (sf)
Cl. C, Downgraded to Baa3 (sf) and Remains On Review for Possible
Downgrade; previously on Mar 2, 2020 Downgraded to A1 (sf) and
Placed Under Review for Possible Downgrade
Cl. D, Downgraded to Caa1 (sf) and Remains On Review for Possible
Downgrade; previously on Mar 2, 2020 Downgraded to Ba2 (sf) and
Placed Under Review for Possible Downgrade
Cl. E, Downgraded to C (sf); previously on Mar 2, 2020 Downgraded
to B2 (sf) and Placed Under Review for Possible Downgrade
Cl. F, Downgraded to C (sf); previously on Mar 2, 2020 Downgraded
to Caa2 (sf) and Placed Under Review for Possible Downgrade
Cl. X*, B3 (sf) and Remains on Review for Possible Downgrade;
previously on Mar 2, 2020 Downgraded to B3 (sf) and Placed Under
Review for Possible Downgrade
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on four P&I classes were downgraded due to the exposure
to loans in special servicing, upcoming loan maturities and the
continued decline in performance of three regional malls
representing 56% of the pool. The mall loans include the Burnsville
Center loan (24% of the pool); Mall at Johnson City loan (18% of
the pool); and the Grand Central Mall loan (14% of the pool). All
three loans are currently in special servicing.
The ratings on one P&I class was placed on review for possible
downgrade, and the ratings on two P&I classes remain on review for
possible downgrade due to the uncertainty regarding the upcoming
maturities for three loans, representing 67% of the pool which
mature by July 2020. The three largest loans with near term
maturities are all secured by retail properties or regional malls
including 660 Madison Avenue (29% of pool), Burnsville Center (24%
of the pool), and Grand Central Mall (14% of the pool).
The rating on the IO class, Cl. X, remains on review for possible
downgrade due to the referenced P&I classes that are placed on
review for possible downgrade.
Its analysis has considered 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. 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.
The contraction in economic activity in the second quarter will be
severe and the overall recovery in the second half of the year will
be gradual. However, there are significant downside risks to its
forecasts in the event that the pandemic is not contained and
lockdowns have to be reinstated. As a result, the degree of
uncertainty around its forecasts is unusually high. Moody's regards
the coronavirus outbreak as a social risk under its ESG framework,
given the substantial implications for public health and safety.
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 May 2020.
DEAL PERFORMANCE
As of the May 12, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 66% to $266 million
from $788 million at securitization. The certificates are
collateralized by seven mortgage loans ranging in size from 2% to
29% of the pool, which are secured primarily by retail properties
(85% of the remaining pool, by balance).
Three loans, constituting 44% 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.
Three loans, constituting 56% of the pool, are currently in special
servicing. The largest specially serviced loan is the Burnsville
Center Loan ($63.8 million -- 24.0% of the pool), which is secured
by a portion of a regional mall located in Burnsville, Minnesota, a
suburb located south of Minneapolis and St. Paul. The
non-collateral anchors include Macy's and JC Penney, and collateral
anchor stores include Dick's Sporting Goods and Gordman's. The
property has one currently vacant non-collateral anchor, a former
Sears that closed in 2017. Furthermore, Stage Stores (Gordman's
parent company) filed for bankruptcy in May 2020 and may eventually
liquidate all stores if they cannot find a buyer. The mall's
performance peaked in 2015 and has since declined annually in both
occupancy and tenant sales per square foot, with a significant drop
during 2018 and 2019. According to CBL's 10k filings, the
property's occupancy for tenants under 20,000 square feet was 82%
leased in December 2019, down from 94% in December 2017 and 96% in
December 2016 and mall store sales for tenants under 20,000 SF were
$276 PSF in 2019, down from $292 PSF in 2018, $320 PSF in 2017 and
$339 PSF in 2016. While Burnsville Center is the only regional mall
within the market south of the Minnesota River, it also competes
with Twin Cities Premium Outlets. As a result of declining revenue,
the 2019 reported net operating income was 37% lower than in 2010.
The departure of any additional anchor stores could trigger
co-tenancy provisions and further accelerate the decline of the
property's cash flow. The loan transferred to special servicing on
January 8, 2020 due to imminent maturity default ahead of its July
2020 remittance date. Special servicer commentary indicates that
the borrower has requested a three-month forbearance for loan
relief regarding COVID-19 as well as an extension.
The second largest specially serviced loan is the Mall at Johnson
City Loan ($47.7 million -- 17.9% of the pool), which is secured by
a 571,319 square foot (SF) portion of a regional mall located in
Johnson City, Tennessee. The mall is anchored by JC Penney, Belk,
Dick's Sporting Goods, Forever 21 and formerly a Sears. The Sears
store closed in January 2020. As of December 2018, in-line
(
GS MORTGAGE 2011-GC5: Moody's Cuts Class F Certs to 'Caa3'
----------------------------------------------------------
Moody's Investors Service has affirmed the ratings on five classes
and downgraded the ratings on five classes in GS Mortgage
Securities Trust 2011-GC5, Commercial Mortgage Pass-Through
Certificates, Series 2011-GC5, as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Mar 29, 2019 Affirmed Aaa
(sf)
Cl. A-4, Affirmed Aaa (sf); previously on Mar 29, 2019 Affirmed Aaa
(sf)
Cl. A-S, Affirmed Aaa (sf); previously on Mar 29, 2019 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa2 (sf); previously on Mar 29, 2019 Affirmed Aa2
(sf)
Cl. C, Downgraded to Baa1 (sf); previously on Mar 29, 2019 Affirmed
A2 (sf)
Cl. D, Downgraded to B1 (sf); previously on Mar 29, 2019 Affirmed
Baa3 (sf)
Cl. E, Downgraded to Caa1 (sf); previously on Apr 17, 2020 Ba3 (sf)
Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Caa3 (sf); previously on Apr 17, 2020 B2 (sf)
Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Mar 29, 2019 Affirmed
Aaa (sf)
Cl. X-B*, Downgraded to Caa1 (sf); previously on Apr 17, 2020 B2
(sf) Placed Under Review for Possible Downgrade
* Reflects Interest-Only Classes
RATINGS RATIONALE
The ratings on four of the 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 four of the P&I classes were downgraded due to a
decline in pool performance and higher anticipated losses as a
result of the declining performance and increased refinance risk of
four loans secured by regional malls representing 28% of the pool.
The net operating income of three malls, 25% of the pool, have
declined in recent years and all four loans have maturity dates in
the next 15 months.
The rating on one of the IO classes, class X-A, was affirmed based
on the credit quality of the referenced classes.
The rating on one IO Class, Class X-B, was downgraded due to a
decline in the credit quality of its referenced classes. The IO
Class references all P&I classes including Class G, which is not
rated by Moody's.
The actions conclude the review for downgrade initiated on April
17, 2020
Its analysis has considered 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. 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.
The contraction in economic activity in the second quarter will be
severe and the overall recovery in the second half of the year will
be gradual. However, there are significant downside risks to its
forecasts in the event that the pandemic is not contained and
lockdowns have to be reinstated. As a result, the degree of
uncertainty around its forecasts is unusually high. Moody's regards
the coronavirus outbreak as a social risk under its ESG framework,
given the substantial implications for public health and safety.
Moody's rating action reflects a base expected loss of 6.1% of the
current pooled balance, compared to 2.5% at Moody's last review.
Moody's base expected loss plus realized losses is now 4.3% of the
original pooled balance, compared to 2.0% 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, 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 May 2020.
DEAL PERFORMANCE
As of the May 12, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 37% to $1.1 billion
from $1.7 billion at securitization. The certificates are
collateralized by forty-nine mortgage loans ranging in size from
less than 1% to 16% of the pool, with the top ten loans (excluding
defeasance) constituting 58% of the pool. Eighteen loans,
constituting 26% 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 9, compared to a herf of 10 at last review.
As of the May 2020 remittance report, loans representing 81% were
current or within their grace period on their debt service payments
and 19% were beyond their grace period but less than one-month
delinquent.
Five loans, constituting 10.3% 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 has been liquidated from the pool, resulting in an
aggregate realized loss of $6.5 million (for a loss severity of
57%). No loans in the pool are currently in special servicing.
Moody's has assumed a high default probability for three poorly
performing loans. The largest troubled loan is the Parkdale Mall
and Crossing Loan and is discussed further in detail below. The
second largest troubled loan is the Champlain Centre Loan ($29.7
million -- 2.7% of the pool) which is secured by a 484,000 SF
retail center located in Plattsburgh, New York. Sears previously
vacated the property in April 2016 and the loan has been on the
master servicer's watchlist since July 2016 due to occupancy and
tenant issues. Hobby Lobby (11% of NRA) opened in part of the
vacated Sears space although occupancy at the property has
continued to struggle. The loan is sponsored by Pyramid and is now
30+ days delinquent on its debt service and last paid through March
2020.
Moody's received full year 2018 operating results for 100% of the
pool, 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 96%, 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 23% 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 1.52X and 1.15X,
respectively, compared to 1.68X and 1.30X 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 38% of the pool balance. The
largest loan is the 1551 Broadway Loan ($180.0 million -- 16.3% of
the pool), which is secured by is secured by a 26,000 SF single
tenant retail property and a 15,000 SF LED sign located in the "Bow
Tie" area of Manhattan's Times Square district. The property and
LED sign are leased to AE Outfitters, Inc. a fully owned subsidiary
of American Eagle Outfitters, Inc. through February 2024. A
significant portion of the property's revenue is related to the LED
signage. The loan is interest only for its entire term and Moody's
LTV and stressed DSCR are 88% and 0.95X, respectively.
The second largest loan is the Park Place Mall Loan ($169.8 million
-- 15.3% of the pool), which is secured by 478,000 SF portion of a
1.06 million SF dominant super-regional mall in Tucson, Arizona. At
securitization the non-collateral anchors were Sears, Dillard's and
Macy's. Sears (221,000 SF) closed its store at this location in
July 2018, however, Round 1 (44,000 SF), an entertainment venue,
opened in 2019 and occupies a portion of the former Sears space.
Furthermore, Macy's (160,000 SF) recently announced that they will
be vacating their space at this location. The largest collateral
tenant is a Century Theaters, an 18-screen movie theatre. As per
the December 2019 rent roll, the total mall (including Macy's) and
in-line occupancy was 82% and 97%, respectively, compared to 77%
and 98% as of December 2018. For the trailing twelve-month period
ending September 2019, reported in-line comparable sales (tenants
10,000 SF) declined slightly to $421 PSF, compared to $423 PSF from
year end 2018. The property's performance had been improving
through 2017, however, the property's net operating income has
declined significantly over the past two years. Declines in rental
revenue drove the 2019 reported NOI to be 17% lower than in 2018
and 9% lower than securitization levels. The loan matures in May
2021 and Moody's analysis factored in concerns of future declines
in performance and the risk of co-tenancy being triggered by the
departure of Macy's. The loan benefits from amortization and has
amortized 15% since securitization. Moody's LTV and stressed DSCR
are 130% and 0.87X, respectively, compared to 92% and 1.12X at the
last review.
The third largest loan is the Parkdale Mall & Crossing Loan
($74.6 million -- 6.7% of the pool), which is secured by a 655,000
SF portion of a 1.31 million SF super-regional mall, Parkdale Mall,
and an adjacent 88,100 SF strip center, Parkdale Crossing. The
properties are located in Beaumont, Texas. At securitization
non-collateral anchors included Sears, Dillard's, J.C. Penney and
Macy's. The Sears store closed at the property in February 2020 and
currently remains vacant. The Macy's closed its store in 2017,
however, the former Macy's location had been reconfigured and
Dick's Sporting Goods, HomeGoods and Five Below took occupancy in
2019. As per the December 2019 rent roll, the mall's total
occupancy fell to 85%, compared to 92% as of year-end 2018. The
sponsor, CBL, reported year-end 2019 mall store sales at the
Parkdale Mall of $353 PSF compared to $360 PSF in 2018. The
property's performance had been improving through 2017, however,
the property's net operating income has declined significant over
the past two years. As a result of lower rental revenue, the
property's 2019 NOI was approximately 10% lower than in 2018. While
the property performance remains in line with securitization levels
and the loan has amortized 21% since securitization, the loan may
face increased refinance risk at its upcoming March 2021 maturity
date. The loan remained current as of its May 2020 payment date,
however, due to the upcoming refinance risk and recent declines in
performance, Moody's has identified this as a troubled loan.
One other notable regional mall loan is the Ashland Town Center
Loan ($35.6 million; 3.2% of the pool). The mall's anchors include
JC Penney, Belk Women's and Kid, and Belk Men's and Home Store. As
of November 2019, the malls in-line occupancy was 92%. The loan has
amortized 15% since securitization, is paid through its May 2020
payment date and the property's NOI has increased over 25% from
underwritten levels. However, the loan matures in July 2021 and
refinancing risks for Class B regional malls remain elevated in the
current environment.
GS MORTGAGE-BACKED 2020-PJ3: Fitch Rates Class B-5 Certs 'Bsf'
--------------------------------------------------------------
Fitch Ratings assigns ratings to the residential mortgage-backed
certificates issued by GS Mortgage-Backed Securities Trust
2020-PJ3. The transaction is expected to close on May 29, 2020. The
certificates are supported by 433 conforming and non-conforming
loans with a total balance of approximately $355.04 million as of
the cut-off date.
GSMBS 2020-PJ3
- Class A-1; LT AAAsf New Rating
- Class A-10; LT AAAsf New Rating
- Class A-11; LT AAAsf New Rating
- Class A-11-X; LT AAAsf New Rating
- Class A-12; LT AAAsf New Rating
- Class A-12-X; LT AAAsf New Rating
- Class A-13; LT AAAsf New Rating
- Class A-14; LT AAAsf New Rating
- Class A-15; LT AAAsf New Rating
- Class A-16; LT AAAsf New Rating
- Class A-17; LT AAAsf New Rating
- Class A-2; LT AAAsf New Rating
- Class A-3; LT AAAsf New Rating
- Class A-4; LT AAAsf New Rating
- Class A-5; LT AAAsf New Rating
- Class A-6; LT AAAsf New Rating
- Class A-7; LT AAAsf New Rating
- Class A-8; LT AAAsf New Rating
- Class A-9; LT AAAsf New Rating
- Class A-9-X; LT AAAsf New Rating
- Class A-IO-S; LT NRsf New Rating
- Class A-R; LT NRsf New Rating
- Class A-X-1; LT AAAsf New Rating
- Class A-X-2; LT AAAsf New Rating
- Class A-X-3; LT AAAsf New Rating
- Class A-X-4; LT AAAsf New Rating
- Class A-X-5; LT AAAsf New Rating
- Class A-X-6; LT AAAsf New Rating
- Class A-X-7; LT AAAsf New Rating
- Class B-1; LT AAsf New Rating
- Class B-1-A; LT AAsf New Rating
- Class B-1-X; LT AAsf New Rating
- Class B-2; LT Asf New Rating
- Class B-2-A; LT Asf New Rating
- Class B-2-X; LT Asf New Rating
- Class B-3; LT BBBsf New Rating
- Class B-3-A; LT BBBsf New Rating
- Class B-3-X; LT BBBsf New Rating
- Class B-3-Y; LT BBBsf New Rating
- Class B-3-Z; LT BBBsf New Rating
- Class B-4; LT BBsf New Rating
- Class B-5; LT Bsf New Rating
- Class B-6; LT NRsf New Rating
- Class B-6-Y; LT NRsf New Rating
- Class B-6-Z; LT NRsf New Rating
- Class B-X; LT NRsf New Rating
KEY RATING DRIVERS
Revised GDP due to Coronavirus (Negative): The coronavirus pandemic
and the resulting containment efforts have resulted in revisions to
Fitch's GDP estimates for 2020. Fitch's baseline global economic
outlook for U.S. GDP growth is currently a 5.6% decline for 2020,
down from 1.7% for 2019. Fitch's downside scenario would see an
even larger decline in output in 2020 and a weaker recovery in
2021. To account for declining macroeconomic conditions resulting
from the coronavirus, an Economic Risk Factor (ERF) floor of 2.0
(the ERF is a default variable in the U.S. RMBS loan loss model)
was applied to 'BBBsf' and below.
Compared to prior GSMBS-PJ transactions the new model had a 20
bps-25 bps impact at the non-investment-grade stresses.
Payment Holidays Related to Coronavirus (Negative): The outbreak of
the coronavirus and widespread containment efforts in the U.S. will
result in increased unemployment and cash flow disruptions. To
account for the cash flow disruptions, Fitch assumed delinquent
payments on a minimum of 25% of the pool for the first six months
of the transaction at all rating categories with a reversion to its
standard delinquency and liquidation timing curve by month 10. This
assumption is based on observations of past-due payments following
Hurricane Maria in Puerto Rico.
Due to the servicer advancing P&I payments, this stress does not
significantly impact the structure. Alternatively, the 'AAA' and
'AA' classes can withstand 7.75% of the borrowers offered a payment
deferral where their payment due date is moved to a future date and
not considered delinquent by the servicer for advancing.
As of the cut-off date, the issuer confirmed that no loans were
delinquent; no loans had entered a forbearance program, and the
servicer is not expected to defer scheduled payment dates.
P&I Advancement Recoupment (Mixed): To the extent that borrowers
enter into a coronavirus related payment forbearance plan, the
servicer will be required to make advances of principal and
interest to the bonds. While the advances will allow for timely
interest payments to the bonds, reimbursement of advances to the
servicer from funds other than those recovered by the borrower may
result in write-downs later in the life of the transaction, when
the loan is deemed modified due to a deferral of the missed
payments or advances are deemed to be nonrecoverable. To the extent
the missed interest payments during the forbearance period are not
capitalized, there could be a mismatch between what is paid on the
loans compared to what is due on the bonds. While the servicer will
continue to advance as long as such payment is not deemed to be a
nonrecoverable advance, the servicer will be able to fully repay
itself from collections on the date prior to the loan's final
maturity date resulting in potential write-downs to the most
subordinate bonds.
High-Quality Mortgage Pool (Positive): The collateral consists
primarily of 30-year FRM fully amortizing loans, seasoned
approximately two months in aggregate. Generally, the loans were
originated through the sellers' retail channels. The borrowers in
this pool have strong credit profiles (764 model FICO) and
relatively low leverage (71.7% sLTV). The collateral is a mix of
conforming agency eligible loans (21%) and nonconforming
prime-jumbo loans (79%). The 111 conforming loans have an average
balance of $627,475 compared with a balance of $824,960 for the
nonconforming loans. The conforming loans have a lower FICO (755
versus 767) and a higher LTV (69.8% versus 68.2%).
Shifting-Interest Deal Structure (Negative): The mortgage cash flow
and loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. While there is
only minimal leakage to the subordinate bonds early in the life of
the transaction, the structure is more vulnerable to defaults
occurring at a later stage compared to a sequential or modified
sequential structure. To help mitigate tail risk, which arises as
the pool seasons and fewer loans are outstanding, a subordination
floor of 1.50% of the original balance will be maintained for the
senior certificates and a subordination floor of 1.05% of the
original balance will be maintained for the subordinate
certificates.
Representation Framework (Negative): The loan-level representation,
warranty and enforcement framework is consistent with Tier 2
quality. Fitch increased its loss expectations by 39 bps at the
'AAAsf' rating category as a result of the Tier 2 framework and the
underlying sellers supporting the repurchase obligations of the
RW&E providers. The Tier 2 framework was driven by the inclusion of
knowledge qualifiers without a clawback provision and the narrow
testing construct, which limits the breach reviewers' ability to
identify or respond to issues not fully anticipated at closing.
Low Operational Risk (Neutral): Operational risk is well controlled
for in this transaction. Goldman Sachs is assessed as an 'Above
Average' aggregator by Fitch due to its robust sourcing strategy
and seller oversight, experienced senior management and staff,
strong risk management and corporate governance controls. Primary
and master servicing responsibilities are performed by Shellpoint
Mortgage Servicing and Wells Fargo, which are rated 'RPS2-' and
'RMS1-', respectively.
Due Diligence Review Results (Positive): Third-party due diligence
was performed on 100% of loans in the transaction. Due diligence
was performed by AMC, Consolidated Analytics, Digital Risk and Opus
which are assessed by Fitch as 'Acceptable - Tier 1', 'Acceptable -
Tier 3', 'Acceptable - Tier 2' and 'Acceptable - Tier 2',
respectively. The review scope is consistent with Fitch criteria,
and the results are generally similar to prior prime RMBS
transactions. Credit exceptions were supported by strong mitigating
factors and compliance exceptions were primarily cured with
subsequent documentation. Fitch applied a credit for the high
percentage of loan level due diligence, which reduced the 'AAAsf'
loss expectation by 25 bps.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper MVDs than assumed at the MSA level.
The implied rating sensitivities are only an indication of some of
the potential outcomes and do not consider other risk factors that
the transaction may become exposed to or that may be considered in
the surveillance of the transaction. Sensitivity analyses was
conducted at the state and national levels to assess the effect of
higher MVDs for the subject pool as well as lower MVDs, illustrated
by a gain in home prices.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
This defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the
model-projected 4.6% at 'AAA'. The analysis indicates that there is
some potential rating migration with higher MVDs for all rated
classes, compared with the model projection.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to negative MVDs at the national level or,
in other words, positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth of
10.0%. Excluding the senior classes which are already 'AAAsf', the
analysis indicates there is potential positive rating migration for
all of the rated classes.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Fitch has also added a Coronavirus Sensitivity Analysis that
contemplates a more severe and prolonged economic stress caused by
a re-emergence of infections in the major economies, before a slow
recovery begins in 2Q21. Under this severe scenario, Fitch expects
the ratings to be impacted by changes in its sustainable home price
model due to updates to the model's underlying economic data
inputs. Any long-term impact arising from coronavirus disruptions
on these economic inputs will likely affect both investment and
speculative grade ratings.
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
A due diligence review was completed on 100% of the loans in this
transaction. Each loan received a full due diligence scope of
credit, compliance and property valuation, which is consistent with
Fitch's criteria.
Form "ABS Due Diligence 15E" was reviewed and used as a part of the
rating for this transaction.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
generally consistent with Fitch's "U.S. RMBS Rating Criteria."
Opus, SitusAMC Consolidated Analytics, and Digital Risk were
engaged to perform the review. Loans reviewed under this engagement
were given compliance, credit and valuation grades, and assigned
initial grades for each subcategory. Minimal exceptions and waivers
were noted in the due diligence reports.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. Fitch received
loan-level information based on the American Securitization Forum's
(ASF) data layout format, and the data are considered to be
comprehensive. The ASF data tape layout was established with input
from various industry participants, including rating agencies,
issuers, originators, investors and others to produce an industry
standard for the pool-level data in support of the U.S. RMBS
securitization market. The data contained in the ASF layout data
tape were reviewed by the due diligence companies, and no material
discrepancies were noted.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
HULL STREET CLO: S&P Lowers Class E Notes Rating to B- (sf)
-----------------------------------------------------------
S&P Global Ratings lowered its ratings on the class D, E, and F
notes from Hull Street CLO Ltd., a U.S. CLO transaction managed by
NewStar Capital LLC. The class D notes were placed on CreditWatch
with negative implications. The class F notes were removed from
CreditWatch negative, while the class E notes remain on CreditWatch
with negative implications. At the same time, S&P affirmed its
ratings on the class A-R, B-R, and C-R notes from the same
transaction.
The lowered ratings reflect deteriorated credit quality of the
underlying portfolio and the decrease in credit support available
to the class D, E, and F notes.
The class E and F notes were placed on CreditWatch negative prior
to the coronavirus outbreak.
The affirmed ratings reflect adequate credit support at the current
rating levels, though any further deterioration in the credit
support available to the notes could results in further ratings
changes.
The rating actions follow its review of the transaction's
performance using data from from both the April and May 2020
trustee reports.
As of the May 2020 monthly trustee report (and compared with the
March 2017 monthly report used for the transaction's April 2017
refinancing):
-- The class A/B O/C ratio increased to 142.65% from 130.62%;
-- The class C O/C ratio declined to 113.19% from 118.63%;
-- The class D O/C ratio declined to 99.53% from 111.81%; and
-- The class E O/C ratio declined to 90.41% from 106.77%.
The deterioration of the class C, D, and E trustee reported O/C
ratios can be attributed to par losses that this transaction has
experienced since S&P's last rating action, as well as to increases
in excess 'CCC' haircuts.
The class D and E O/C ratios are below their trigger levels of
107.80% and 104.20%, respectively, according to the May 2020
trustee report. This resulted in the class E and F continuing to
defer their interest.
In addition, the transaction has heightened exposure to 'CCC' rated
and defaulted collateral, as well as significant exposure to
obligations that are currently on CreditWatch negative, have a
negative rating outlook, and are trading at distressed prices. The
transaction also has considerable exposure to loans in stressed
sectors such as hotels, restaurants and leisure, and specialty
retail. As a result, S&P placed its rating on the class D notes on
CreditWatch negative and kept its lowered ratings on the class E
notes on CreditWatch negative. S&P will continue to review any
changes in the available credit support to the rated notes due to
the portfolio's exposure to distressed collateral.
S&P's analysis also considered maintaining a cushion that can help
offset future potential volatility in the underlying portfolio.
In light of the rapidly shifting credit dynamics within CLO
portfolios due to continuing rating actions (downgrades,
CreditWatch placements, and outlook changes) on speculative-grade
(rated 'BB+' and lower) corporate loan issuers, S&P may make
qualitative adjustments to its analysis when rating CLO tranches to
reflect the likelihood that changes to the underlying assets'
credit profile may affect a portfolio's credit quality in the near
term. This is consistent with paragraph 15 of S&P's criteria for
analyzing CLOs. To do this, S&P reviews the likelihood of near-term
changes to the portfolio's credit profile by evaluating the
transaction's specific risk factors. For this transaction, S&P took
into account 'CCC' and 'B-' rated assets, assets on CreditWatch
negative, assets with a negative rating outlook, and assets that
operate in what S&P views as a higher-risk corporate sector.
S&P's review of this transaction included a cash flow analysis,
based on the portfolio and transaction, as reflected in the
aforementioned trustee report, to estimate future performance. In
line with its criteria, S&P's cash flow scenarios applied
forward-looking assumptions on the expected timing and pattern of
defaults, and recoveries upon default, under various interest rate
and macroeconomic scenarios. In addition, S&P's analysis considered
the transaction's ability to pay timely interest and/or ultimate
principal to each of the rated tranches. In S&P's view, the results
of the cash flow analysis, and other qualitative factors as
applicable, demonstrated that all of the rated outstanding classes
have adequate credit enhancement available at the rating levels
associated with these rating actions."
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus outbreak. Some government
authorities estimate the pandemic will peak about midyear, and S&P
is using this assumption in assessing the economic and credit
implications. S&P believes the measures adopted to contain COVID-19
have pushed the global economy into recession. As the situation
evolves, S&P will update its assumptions and estimates
accordingly.
S&P will continue to review whether, in its view, the ratings
assigned to the notes remain consistent with the credit enhancement
available to support them, and it will take rating actions as it
deems necessary.
RATINGS LOWERED AND PLACED ON CREDITWATCH NEGATIVE
Hull Street CLO Ltd.
Rating
Class To From
D BBB- (sf)/Watch Neg BBB (sf)
RATINGS LOWERED AND REMAINING ON CREDITWATCH NEGATIVE
Hull Street CLO Ltd.
Rating
Class To From
E B- (sf)/Watch Neg BB- (sf)/Watch Neg
RATINGS LOWERED AND REMOVED FROM CREDITWATCH NEGATIVE
Hull Street CLO Ltd.
Rating
Class To From
F CCC- (sf) CCC+ (sf)/Watch Neg
RATINGS AFFIRMED
Hull Street CLO Ltd.
Class Rating
A-R AAA (sf)
B-R AAA (sf)
C-R A+ (sf)
JP MORGAN 2013-C14: Fitch Cuts Class G Certs to CCCsf
-----------------------------------------------------
Fitch Ratings has downgraded two classes and affirmed nine classes
of J.P. Morgan Chase Commercial Mortgage Securities Trust
commercial mortgage pass-through certificates series 2013-C14.
JPMBB 2013-C14
- Class A-3 46640LAC6; LT AAAsf; Affirmed
- Class A-4 46640LAD4; LT AAAsf; Affirmed
- Class A-S 46640LAH5; LT AAAsf; Affirmed
- Class A-SB 46640LAE2; LT AAAsf; Affirmed
- Class B 46640LAJ1; LT AAsf; Affirmed
- Class C 46640LAK8; LT Asf; Affirmed
- Class D 46640LAN2; LT BBBsf; Affirmed
- Class E 46640LAQ5; LT BBB-sf; Affirmed
- Class F 46640LAS1; LT Bsf; Downgrade
- Class G 46640LAU6; LT CCCsf; Downgrade
- Class X-A 46640LAF9; LT AAAsf; Affirmed
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades reflect increased loss
expectations since Fitch's prior rating action, driven by the
regional mall Fitch Loans of Concern as well as recently
transferred specially serviced and/or delinquent loans. In
addition, loss expectations have increased recently due to the
slowdown in economic activity related to the coronavirus pandemic.
Ten loans (36.4% of the pool balance) have been identified as
FLOCs, including five loans in special servicing (5.0%).
Regional Mall Loans of Concern: The pool contains three regional
malls in the pool (25% of the pool), all of which are considered
FLOCs. The malls have had performance declines since issuance,
including vacating anchors, declining sales, and/or tertiary market
location. Fitch expects the mall's recent closures due to the
coronavirus pandemics will have a significant short-term impact on
property performance, causing weakening to property metrics.
The largest FLOC, Meadow's Mall (12.5%), is secured by 308,190
square feet (sf) of in line space of a 945,043-sf regional mall
located in Las Vegas, NV, approximately four miles west of downtown
and south of Interstate 95. The four anchors, Dillard's, Macy's,
JCPenney and Sears, own their improvements. The loan is sponsored
by Brookfield Property Partners, which acquired the property and
subject loan in August 2018. The loan has been identified as a FLOC
due to major tenant vacancy, as Sears permanently closed at the
subject location in February 2020. In addition, the property faces
near-term rollover risks with leases for 39% of the net rentable
area scheduled to mature prior to the loans July 1, 2023 maturity.
Performance has declined since issuance, with the annualized 3Q2019
net operating income 10% below year end 2018, and 18% below
issuance. Debt service coverage ratio for 3Q2019 fell to 1.27x,
compared to 1.42x for YE 2018, 1.37x at YE 2017 and 1.55x at
issuance. Per the March 2020 rent roll, collateral occupancy has
declined to 84% compared to 91% in March 2019. In-line tenant sales
reported at $380 for the trailing 12-month period ending March 31,
2020, compared to $378psf for YE 2018, $364psf for YE 2017, and
$416psf at issuance in 2013. The mall reopened on May 29 after
being temporarily closed due to the coronavirus pandemic.
The South Ridge Mall (9.4%) has been identified as a FLOC due to
performance declines since issuance, including vacant anchors and
declining sales. The loan is secured by a 1.2 million-sf regional
mall located in Greendale, WI, the state's largest mall. The loan
is sponsored by Simon Property Group. The property is currently
anchored by Macy's (collateral) and JCPenney (non-collateral).
Major non-collateral tenants also include Dick's Sporting Goods and
Round 1, both of which occupy a Seritage-owned former Sears anchor
(vacated in September 2017). The property also has vacant anchor
spaces, including a 219,400-sf (non-collateral) anchor space
previously leased to Boston Store, which vacated in 2018, and
85,000-sf (collateral; 15% of NRA) previously leased to Kohls,
which vacated and moved to a new center in late 2018 and whose
lease obligation ended in January 2020. The collateral is now 70%
leased (excludes Kohl's), compared to 95% at issuance. The YE 2019
NOI reported 8% below issuance, with NOI DSCR at 1.50x for YE 2019,
1.64x for YE 2018, and 1.63x at issuance. Both in-line and anchor
sales have declined since issuance, with in-line tenant sales
reporting at $373psf for 2018, compared with $375psf for 2017,
$406psf in 2016 and $411psf in 2015. Collateral anchor Macy's gross
sales dropped to $8.0 million (or $53psf) for 2018, down from $8.4
million for 2017, $9.7 million in 2016, and $10.9 million in 2015.
Fitch requested but did not receive from the servicer updated 2019
or 2020 sales. The mall reopened on May 20 after being temporarily
closed due to the coronavirus pandemic.
The Country Club Mall loan (3.1%) has also been identified as a
FLOC due to performance declines, including vacating anchors and
declining sales, as well as its secondary market location and poor
property quality. The loan is secured by a 596,896-sf regional mall
located near Cumberland, MD. The property also has a 203,007-sf
Walmart Supercenter, which is not part of the collateral. The loan
is sponsored by Andrew and Lawrence Gumberg, whose family has owned
the property since 1983. Occupancy has declined to 75% occupied as
of YE 2019, compared to 77% at YE 2018, and 94% at YE 2017. The
decline to date was primarily due to Bon-Ton Stores (previously
18.8% NRA / 7.5% of base rents), which vacated in summer 2018. In
addition, media outlets have reported Sears (23% NRA) is expected
to vacate in 2020. The remaining anchor is JCPenney (17.5% NRA),
whose current lease expires in March 2021 and had reported steadily
declining sales (last reported in 2016). The property quality was
considered below average at issuance. The location is considered
tertiary, but faces limited competition. The mall is currently
closed due to the coronavirus pandemic.
Specially Serviced Loans: Per the May 2020 remittance report, five
loans are listed in special servicing and/or in payment default
(5.0% of the pool). This includes three loans (3.0%) secured by
hotel properties that have recently transferred due to payment
default and have requested payment relief due to the coronavirus.
The largest delinquent loan is the Hilton Garden Inn - Ft. Worth
loan (1.5%), which is paid through the March 2020 payment date. The
hotel reported 69% occupancy and 1.12x net cash flow DSCR as of YE
2019, compared to 72% occupancy and 1.31x NCF DSCR at YE 2018. Per
servicer updates, the borrower is working with the lender toward a
possible solution.
The Four Points Sheraton - San Diego loan (1.2% of pool), which is
secured by a 225-key, full-service hotel property located in San
Diego, CA, transferred to special servicing in February 2016 due to
payment default. The property experienced cash flow issues due to a
significant increase in operating expenses since issuance, driven
mainly by franchise fees and general and administrative costs. In
addition, the property's condition significantly declined,
resulting in the borrower's default with the franchiser on a
property improvement plan. A receiver was appointed by the servicer
in April 2016, followed shortly by the borrower filing for Chapter
11 bankruptcy in May 2016. A court-ordered bankruptcy
reorganization plan was approved in May 2017, which included a
completion of the PIP (which is still in process) and the repayment
of outstanding servicer advances and debt service payments. The
loan is current, with servicer advances and outstanding debt
service payments have been repaid. According to the servicer, the
borrower is complying with cash management provisions and loan is
in cash sweep. The borrower has been working to receive an
extension of the PIP deadline. Guest score waves have been
completed, but it is unclear if the minimum standards set forth
have been achieved. A new property manager has been place by the
borrower, and the servicer has noted it is working with the
borrower to complete all conditional approval items. The loan will
continue to be monitored in special servicing until the borrower is
in compliance with the franchise agreement.
Improved Credit Enhancement and Increased Defeasance: Since
issuance, 32 of the original 46 loans remain in the pool. As of the
May 2020 distribution date, the pool's aggregate balance has been
paid down by 37% to $722 million from $1,148 million at issuance.
The aggregate pool balance has paid down approximately 13% over the
past 12 months, with two loans totaling $90.3 million paid in full
at maturity or prepay with yield maintenance. All loans in the pool
are now amortizing. Five loans ($139 million, 19% of the current
pool) are covered by fully defeased collateral. Defeased collateral
fully covers the class A-3 certificate and partially covers (35%)
the A-4 certificate. All of the remaining loans are scheduled to
mature in 2023.
Alternative Loss Considerations: The Negative Outlooks on classes
D, E, and F primarily reflect concerns surrounding the refinance
risk of the regional mall FLOCs. To reflect the potential for
outsized losses, Fitch performed an additional sensitivity scenario
which applied a 25% loss severity to the balloon balance of Meadows
Mall (12.5% of pool; located in Las Vegas, NV), and a 50% loss
severity to the balloon balance for Southridge Mall (8.4%;
Greendale, WI) and Country Club Mall (2.8%; Lavale, MD). The
sensitivity scenario also factored in the expected paydown of the
transaction from defeased loans.
Coronavirus Impact: Fitch expects significant economic impact to
certain hotels, retail, and multifamily properties the coronavirus
pandemic, due to the recent and sudden reductions in travel and
tourism, temporary property closures, and lack of clarity at this
time on the potential duration of the impact. The pandemic has
already prompted the closure of several hotel properties in gateway
cities as well as malls, entertainment venues and individual
stores.
Loans secured by hotels do not constitute a significant portion of
the transaction collateral at only 8.9% of the pool, while loans
secured by retail properties represent 35.7% of the pool, including
three regional malls (25%). Loans secured by multifamily properties
compose 1.3% of the pool. Fitch applied additional stresses to
hotel, retail and multifamily loans to account for potential cash
flow disruptions due to the coronavirus pandemic. Business
disruption due to the pandemic partially contributed to the
downgrade of class F.
RATING SENSITIVITIES
The Negative Outlooks on classes D, E and F reflect the potential
for further downgrade due to concerns surrounding regional mall
FLOCs, in addition to the ultimate impact of the coronavirus
pandemic on the pool. Rating Outlooks for the senior classes remain
Stable due to the significant credit enhancement, defeasance, and
stable performance of the majority of the remaining pool and
continued expected amortization.
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.
Rating upgrades may be limited due to increasing pool concentration
and adverse selection. Upgrades to the 'Asf' and 'AAsf' categories
would likely occur with significant improvement in credit
enhancement and/or defeasance; however, adverse selection and
increased concentrations, or the underperformance of particular
loan(s) could cause this trend to reverse. Upgrades to 'BBBsf' and
below categories are 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 to the 'Bsf'
category is only likely 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, which would likely not happen until later years in the
transactions as loans approach maturity and are stable.
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 classes rated 'AAAsf' are not considered likely
due to the position in the capital structure, but may occur at
'AAAsf' or 'AAsf' should interest shortfalls occur. Downgrades to
classes with Negative Outlooks are expected if hotel and retail
performance fails to improve once the coronavirus pandemic is over.
Should the recovery be prolonged and last well beyond 2021
multi-category downgrades are possible.
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
No third-party due diligence was provided or reviewed in relation
to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The transaction has an ESG Relevance Score of 4 for Exposure to
Social Impacts due to two regional malls that are underperforming
as a result of changing consumer preferences to shopping. This has
a negative impact on the credit profile and is highly relevant to
the ratings, resulting in the downgrades and/or Negative Outlooks
on classes D and below. Except for the matters discussed above, the
highest level of ESG credit relevance, if present, is a score of 3.
This means ESG issues are credit-neutral or have only a minimal
credit impact on the entity(ies), either due to their nature or to
the way in which they are being managed by the entity(ies).
LB-UBS COMMERCIAL 2007-C1: Fitch Affirms D Rating on 6 Tranches
---------------------------------------------------------------
Fitch Ratings has affirmed eight classes of LB-UBS Commercial
Mortgage Trust commercial mortgage pass-through certificates series
2007-C1.
LB-UBS Commercial Mortgage Trust 2007-C1
- Class F 50179AAN7; LT CCsf; Affirmed
- Class G 50179AAS6; LT Csf; Affirmed
- Class H 50179AAT4; LT Dsf; Affirmed
- Class J 50179AAU1; LT Dsf; Affirmed
- Class K 50179AAV9; LT Dsf; Affirmed
- Class L 50179AAW7; LT Dsf; Affirmed
- Class M 50179AAX5; LT Dsf; Affirmed
- Class N 50179AAY3 LT Dsf; Affirmed
KEY RATING DRIVERS
High Expected Losses/Specially Serviced Assets: The remaining
assets in the pool are REO and based on the total exposure of the
assets and the most recent appraisal values, most of which reflect
loan-to-values above 100%. Significant losses are expected to
impact the remaining distressed classes. The largest asset, GTECH
Office Campus (49.2% of the pool), is 100% occupied by GTECH with a
lease expiration in 2027. Per the special servicer, all of the
remaining assets are scheduled for auction in June 2020.
Increasing Credit Enhancement: Since Fitch's last rating action,
the previous REO asset, Sawgrass Executive Building (previously
3.4% of the pool), was disposed and resulted in better than
expected recoveries. The disposition reduced the class F
certificates by $2.1 million and losses were isolated to class H
currently rated 'Dsf'. As of the May 2020 remittance, the pool has
paid down by 98.3% to $62.8 milion from $3.7 billion at issuance.
Interest shortfalls totaling $45.9 million are impacting all
remaining classes. Despite the high CE significant losses are
expected upon liquidation of the REO assets.
Highly Concentrated Pool: The pool is extremely concentrated with
only five assets remaining, of which, four are secured by retail
properties located in secondary and tertiary markets. The largest
retail property, the Oaks Mall Plaza (21.0% of the pool), is
secured by a 105,252 sf retail property located in Gainesville, FL.
The property has suffered declining performance and per the April
2020 rent roll is only 27% occupied. The property is located
adjacent to the Oaks Mall, which has also suffered declining
occupancy after multiple anchor tenants vacated. The two single
tenant retail portfolios located in Illinois and Michigan are
secured by bank tenants whose leases roll in 2021. The remaining
asset is Sentinel Square which is secured by a 49,900 sf retail
property located in LaGrange, OH. The collateral is anchored by an
IGA Supermarket and has maintained occupancy at 87.2%.
Due to the extremely concentrated nature of the pool, Fitch
performed a look-through analysis that grouped the remaining assets
based on the likelihood of repayment, in addition to the potential
losses from the liquidation of the specially serviced assets. Based
on this analysis, the remaining classes are expected to incur
losses.
Coronavirus Exposure: Four assets (50.8%) are secured by retail
properties which are currently specially serviced and REO. The
assets are scheduled to be part of an upcoming auction in June
2020. Due to the current economic environment and the most recent
appraisal values, significant losses are expected. The rating
affirmations are based on the expectation that the remaining
classes are likely to incur losses.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade: The remaining classes all have
distressed ratings, and significant losses are expected. The
remaining distressed ratings reflect the expectation of losses
associated with the specially serviced assets. Classes will be
downgraded to 'Dsf' as principal losses are incurred. Given the
total exposure of the assets and the most recent appraisal values,
upgrades are considered unlikely but may occur should the special
servicer dispose of the remaining REO assets at better than
expected recoveries. As interest shortfalls are impacting all
remaining assets, upgrades beyond 'Asf' are not likely. Factors
that could, individually or collectively, lead to a negative rating
action/downgrade: The remaining distressed ratings reflect the
expectation of losses; classes will be downgraded to 'Dsf' as
principal losses are incurred.
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
No third-party due diligence was provided or reviewed in relation
to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
MAGNETITE XXVI: S&P Rates $12MM Class E Notes 'BB- (sf)'
--------------------------------------------------------
S&P Global Ratings assigned its ratings to Magnetite XXVI Ltd.'s
floating-rate notes.
The note issuance is a CLO transaction backed by primarily broadly
syndicated speculative-grade (rated 'BB+' and lower) senior secured
term loans that are governed by collateral quality tests.
The ratings reflect:
-- The diversification of the collateral pool.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak.
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, we will update our assumptions and estimates
accordingly," S&P said.
RATINGS ASSIGNED
Magnetite XXVI Ltd.
Class Rating Amount (mil. $)
A AAA (sf) 256.00
B AA (sf) 44.00
C (deferrable) A (sf) 24.00
D (deferrable) BBB-(sf) 24.00
E (deferrable) BB- (sf) 12.00
Subordinated notes NR 37.70
NR--Not rated.
NELNET EDUCATION 2004-1: Fitch Affirms Class A-2 Debt at Bsf
------------------------------------------------------------
Fitch Ratings has affirmed Nelnet Education Loan Funding Trust
2004-1 Education Loan Funding Trust 2004-1 and maintained the
Stable Rating Outlook.
NELF, Inc. - January 2004 Indenture of Trust (NE) 2004-1
- Class A-2 64031RAS8; LT Bsf; Affirmed
TRANSACTION SUMMARY
The Class A-2 notes are affirmed at 'Bsf' despite not passing
Fitch's base cash flow stress, because the legal final maturity is
over 10 years away and a change in the future economic environment
may be supportive of trust performance. Nelnet also has the ability
to call the notes upon reaching 10% pool factor, which Fitch
believes there is a limited margin of safety that supports a 'Bsf'
rating, despite the notes failing the base cases.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral comprises Federal Family
Education Loan Program loans, with guaranties provided by eligible
guarantors and reinsurance provided by the U.S. Department of
Education for at least 97% of principal and accrued interest. The
U.S. sovereign rating is currently 'AAA'/Outlook Stable.
Collateral Performance: Based on transaction-specific performance
to date, Fitch is maintaining a sustainable constant default rate
of 2.2%. Fitch is also maintaining a sustainable constant
prepayment rate voluntary and involuntary) of 9.0%. Fitch applies
the standard default timing curve in its credit stress cash flow
analysis. The claim reject rate is assumed to be 0.25% in the base
case and 2% in the 'AAA' case.
As of April 2020, the TTM levels of deferment, forbearance and
income-based repayment (prior to adjustment) are approximately
4.0%, 4.9% and 13.8%, respectively. Forbearance increased
substantially from the prior reporting period level of 2.7%.
Subsequent declines or increases are modelled as per criteria. The
borrower benefit is approximately 0.22%, based on information
provided by the sponsor. Fitch's SLABS cash flow model indicates
the A-2 notes do not pay off before their maturity date in Fitch's
modelling scenarios, including the base cases.
Basis and Interest Rate Risk: Basis risk for these transactions
arises from any rate and reset frequency mismatch between interest
rate indices for SAP and the securities. As of April 2020, 100% of
the trust student loans are indexed to one-month LIBOR. The class-A
notes are indexed to three-month LIBOR. Fitch applies its standard
basis and interest rate stresses to this transaction as per
criteria.
Payment Structure: Credit enhancement is provided by excess spread,
overcollateralization, and, for the class A notes, subordination.
As of April 2020, the reported senior parity ratio is 104.02%.
Liquidity support is provided by a reserve account sized at its
floor of $1,515,000. NELF 2004-1 may release cash as long as the
101% total parity ratio is maintained. Due to the auction rate
structure, the sponsor had the option to redeem class B notes prior
to class A-2.
Operational Capabilities: Day-to-day servicing is provided by
Nelnet, Inc. Fitch believes Nelnet to be an acceptable servicer,
due to its extensive track record as one of the largest servicers
of FFELP loan. Fitch also confirmed with the servicer the
availability of a business continuity plan to minimize disruptions
in the collection process during the coronavirus pandemic.
Coronavirus Impact: Fitch has made assumptions about the spread of
the coronavirus pandemic and the economic impact of the related
containment measures. Under the coronavirus baseline 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. Fitch's assumptions reflect the nature of the baseline
scenario and include a healthy cushion from current performance.
Fitch's downside coronavirus sensitivity scenario was not run for
the transaction, since the rating is at 'Bsf'.
RATING SENSITIVITIES
Fitch conducts credit and maturity stress sensitivity analysis by
increasing or decreasing key assumptions by 25% and 50% over the
base case. The credit stress sensitivity is viewed by stressing
both the base case default rate and the basis spread. The maturity
stress sensitivity is viewed by stressing remaining term, IBR usage
and prepayments. In general, the ratings for FFELP student loan
transactions are sensitive to defaults, basis risk and loan
extension risk.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
The current ratings are most sensitive to Fitch's maturity risk
scenario. Key factors that may lead to positive rating action are
sustained increases in payment rate and a material reduction in
weighted average remaining loan term. A material increases of
credit enhancement from lower defaults and positive excess spread,
given favorable basis spread conditions, is a secondary factor that
may lead positive rating action.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
As described, the current rating of 'Bsf' reflects qualitative
factors such as the long time to maturity of the notes. If
transaction performance does not improve materially, specifically
factors affecting maturity risk such as prepayments, remaining loan
term and IBR usage; the transaction may be downgraded closer to
note maturity.
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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
RR 10 LTD: S&P Rates $7MM Class D Notes 'BB- (sf)'
--------------------------------------------------
S&P Global Ratings assigned its ratings to RR 10 Ltd.'s fixed- and
floating-rate notes.
The note issuance is a CLO securitization backed primarily by
broadly syndicated speculative-grade (rated 'BB+' and lower) senior
secured term loans that are governed by collateral quality tests.
The ratings reflect S&P's view of:
-- The diversification of the collateral pool;
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral management team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak.
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, we will update our assumptions and estimates
accordingly," S&P said.
RATINGS ASSIGNED
RR 10 Ltd.
Class Rating Amount
(mil. $)
A-1FL AAA (sf) 220.00
A-1FX AAA (sf) 20.00
A-2a AA+ (sf) 34.00
A-2b (deferrable) AA- (sf) 28.00
B (deferrable) A- (sf) 20.00
C (deferrable) BBB- (sf) 21.00
D (deferrable) BB- (sf) 7.00
Subordinated notes NR 26.00
NR--Not rated.
SANTANDER CONSUMER 2020-A: S&P Rates Class F Notes 'B(sf)'
----------------------------------------------------------
S&P Global Ratings assigned its ratings to Santander Consumer Auto
Receivables Trust 2020-A's automobile receivables-backed notes
series 2020-A.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The ratings reflect:
-- The availability of approximately 32.1%, 25.8%, 19.1%, 15.9%,
13.3%, and 9.1% credit support for the class A, B, C, D, E, and F
notes, respectively, based on stressed cash flow scenarios
(including 100% credit to excess spread), which provide coverage of
approximately 3.55x, 3.00x, 2.35x, 1.95x, 1.47x, and 1.10x,
respectively, for S&P's 7.50%-8.50% expected cumulative net loss.
-- The timely interest and principal payments made under stressed
cash flow modeling scenarios are appropriate for the assigned
ratings.
-- The expectation that under a moderate ('BBB') stress scenario
(1.95x S&P's expected loss level), all else being equal, its
ratings will be within the limits specified by S&P's credit
stability criteria.
-- The originator/servicer's history in the subprime/specialty
auto finance business is limited because this deal is originated on
Chrysler paper.
-- S&P's analysis of approximately 11 years of static pool data on
Santander Consumer USA Inc.'s lending programs.
-- The transaction's payment, credit enhancement, and legal
structures.
RATINGS ASSIGNED
Santander Consumer Auto Receivables Trust 2020-A
Class Rating Amount (mil. $)
A AAA (sf) 358.09
B AA (sf) 31.76
C A (sf) 36.12
D BBB (sf) 16.14
E BB- (sf) 9.48
F B (sf) 29.20
SATURNS TRUST NO. 2003-7: S&P Cuts Class B Units Rating to 'B'
--------------------------------------------------------------
S&P Global Ratings lowered its ratings on Structured Asset Trust
Unit Repackagings (SATURNS) Trust No. 2003-7's $25 million callable
class B units due Jan. 15, 2032, to 'B' from 'B+'.
S&P's rating on the class B units is dependent on its rating on the
underlying security, Macy's Retail Holdings Inc.'s 6.90% debentures
due Jan. 15, 2032 ('B').
The rating action reflects the May 26, 2020, lowering of S&P's
rating on the underlying security to 'B' from 'B+'.
S&P may take subsequent rating actions on this transaction due to
changes in its rating assigned to the underlying security.
SOUND POINT XXVI: S&P Assigns Prelim BB-(sf) Rating to Cl. E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Sound Point
CLO XXVI Ltd./Sound Point CLO XXVI LLC's floating-rate notes.
The note issuance is a CLO transaction backed primarily by senior
secured loans.
The preliminary ratings are based on information as of June 2,
2020.Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade (rated 'BB+' and lower) senior
secured term loans that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows,excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
PRELIMINARY RATINGS ASSIGNED
Sound Point CLO XXVI Ltd./Sound Point CLO XXVI LLC
Class Rating Amount (mil. $)
A-1 AAA (sf) 238.00
A-2 NR 10.00
B AA (sf) 52.00
C (deferrable) A (sf) 24.00
D (deferrable) BBB- (sf) 22.00
E (deferrable) BB- (sf) 12.00
Subordinated notes NR 50.75
UBS COMMERCIAL 2018-C11: Fitch Affirms Class F-RR Certs at B-sf
---------------------------------------------------------------
Fitch Ratings has affirmed 15 classes of UBS Commercial Mortgage
Trust, commercial mortgage pass-through certificates, series
2018-C11. Fitch has also maintained two Negative Rating Outlooks.
UBS 2018-C11
- Class A1 90276XAQ8; LT AAAsf; Affirmed
- Class A2 90276XAR6; LT AAAsf; Affirmed
- Class A3 90276XAT2; LT AAAsf; Affirmed
- Class A4 90276XAU9; LT AAAsf; Affirmed
- Class A5 90276XAV7; LT AAAsf; Affirmed
- Class AS 90276XAY1; LT AAAsf; Affirmed
- Class ASB 90276XAS4; LT AAAsf; Affirmed
- Class B 90276XAZ8; LT AA-sf; Affirmed
- Class C 90276XBA2; LT A-sf; Affirmed
- Class D 90276XAC9; LT BBB-sf; Affirmed
- Class E-RR 90276XAE5; LT BB-sf; Affirmed
- Class F-RR 90276XAG0; LT B-sf; Affirmed
- Class XA 90276XAW5; LT AAAsf; Affirmed
- Class XB 90276XAX3; LT AA-sf; Affirmed
- Class XD 90276XAA3; LT BBB-sf; Affirmed
KEY RATING DRIVERS
Stable Overall Performance; Increased Loss Expectations Due to
Coronavirus Pandemic Concerns: While overall pool performance
remains stable, loss expectations have increased since Fitch's
prior rating action primarily due to additional stresses applied to
loans expected to be affected in the near term from the coronavirus
pandemic. Nineteen loans (35.2% of pool), including two loans
(1.9%) in special servicing, were designated Fitch Loans of
Concern. Thirteen of these FLOCs (25.8%) were designated FLOCs
primarily due to exposure to the coronavirus pandemic in the near
term.
Fitch Loans of Concern: The largest non-coronavirus specific FLOC,
Cedar Ridge (2.9%), secured by a 129,333-sf suburban office
property in Southlake, TX, was designated a FLOC due to the largest
tenant going dark in the fourth quarter of 2019. American Specialty
Health, which leases 51.6% NRA through June 2027, went dark in the
fourth quarter of 2019. A cash trap is in place. Per servicer
updates, American Specialty Health is expected to continue making
rent payments through its lease term. At YE 2019, occupancy and
servicer-reported NOI debt service coverage ratio (DSCR) were 90%
and 1.37x, respectively.
Specially Serviced Loans: The largest non-coronavirus specific
specially serviced loan, Sugarman's Plaza (0.8%), secured 432,141
sf mixed-use property in Archbald Borough, PA transferred to
special servicing in October 2019 for imminent default. Counsel has
been retained to dual track the foreclosure process while
discussing workout alternatives with the borrower. A foreclosure
complaint was filed in March 2020.
Minimal Change to Credit Enhancement: There has been minimal change
to credit enhancement since issuance. As of the May 2020
distribution date, the pool's aggregate balance has been paid down
by 1.1% to $795.2 million from $803.8 million at issuance. All
original 48 loans remain in the pool. Based on the loans' scheduled
maturity balances, the pool is expected to amortize 7.9% during the
term. Twenty loans (54.3% of pool) are full-term, interest-only and
seven loans (12.6%) have a partial-term, interest-only component.
Pool Concentration: The top 10 loans comprise 44.3% of the pool.
Loan maturities are concentrated in 2028 (80.3%). Four loans (9.4%)
mature in 2023, three loans (7.5%) in 2025 and one loan (2.8%) in
2027. Based on property type, the largest concentrations are office
at 36.3%, retail at 27.2% and hotel at 14.6%.
Exposure to Coronavirus Pandemic: Seven loans (14.6%) are secured
by hotel properties. The weighted average NOI DSCR for all the
hotel loans is 2.04x. These hotel loans could sustain a weighted
average decline in NOI of 51% before DSCR falls below 1.00x.
Sixteen loans (27.2%) are secured by retail properties. The
weighted average NOI DSCR for all performing retail loans is 2.10%.
These retail loans could sustain a weighted average decline in NOI
of 53% before DSCR fall below 1.00x. Additional
coronavirus-specific base case stresses were applied to all seven
hotel loans (14.6%), including Orlando Airport Marriott Lakeside
(4.3%), five retail loans (8.3%), including Throggs Neck Shopping
Center (3%) and Soho House Chicago (2.9%) due to the property being
a lifestyle and entertainment venue. These additional stresses
contributed to the Negative Outlooks on classes E-RR and F-RR.
RATING SENSITIVITIES
The Stable Outlooks on classes A-1 through D reflect the overall
stable performance of the pool and expected continued amortization.
The Negative Outlooks on classes E-RR and F-RR reflect concerns
with the FLOCs, primarily loans expected to be impacted by exposure
to the coronavirus pandemic in the near term.
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 B and C would likely occur with significant improvement
in CE and/or defeasance; however, increased concentrations, further
underperformance of FLOCs and decline in performance of loans
expected to be affected by the coronavirus pandemic could cause
this trend to reverse. An upgrade of class D 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 a likelihood for interest shortfalls.
Upgrades of classes E-RR and F-RR are not likely due to performance
concerns with loans expected to be impacted by the coronavirus
pandemic in the near term, but could occur if performance of the
FLOCs improves and/or if there is sufficient CE, which would likely
occur if the non-rated class is not eroded and the senior classes
pay-off.
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
of classes A-1 through C are not likely due to the position in the
capital structure. Downgrades of classes D through F-RR could occur
if additional loans become FLOCs, with further underperformance of
the FLOCs and decline in performance and lack of recovery of loans
expected to be affected by the coronavirus pandemic in the near
term.
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 Outlook or those
with Negative 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.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was provided or reviewed in relation
to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
VERUS 2020-INV1: S&P Rates Class B-2 Certs 'B (sf)'
---------------------------------------------------
S&P Global Ratings assigned its ratings to Verus Securitization
Trust 2020-INV1's mortgage pass-through certificates.
The certificate issuance is an RMBS transaction backed by U.S.
residential mortgage loans. The pool has 992 loans, which are
primarily nonqualified mortgage loans.
The ratings reflect:
-- The pool's collateral composition;
-- The credit enhancement provided for this transaction;
-- The transaction's associated structural mechanics;
-- The representation and warranty framework for this
transaction;
-- The mortgage aggregator, Invictus Capital Partners; and
-- The impact that the economic stress brought on by COVID-19 is
likely to have on the performance of the mortgage borrowers in the
pool and liquidity available in the transaction.
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus outbreak. Some government
authorities estimate the pandemic will peak about midyear, and S&P
is using this assumption in assessing the economic and credit
implications. S&P believes the measures adopted to contain COVID-19
have pushed the global economy into recession. As the situation
evolves, S&P will update its assumptions and estimates
accordingly.
RATINGS ASSIGNED
Verus Securitization Trust 2020-INV1
Class Rating(i) Amount ($)
A-1 AAA (sf) 181,453,000
A-2 AA (sf) 24,213,000
A-3 A (sf) 33,663,000
M-1 BBB- (sf) 16,093,000
B-1 BB (sf) 10,335,000
B-2 B (sf) 11,516,000
B-3 NR 18,013,308
A-IO-S NR Notional(ii)
XS NR Notional(ii)
P NR 100
R NR N/A
(i)The collateral and structural information in this report reflect
the private placement memorandum dated June 4, 2020; the ratings
assigned to the classes address the ultimate payment of interest
and principal. (ii) The notional amount equals the loans' stated
principal balance.
NR--Not rated.
N/A--Not applicable.
WELLS FARGO 2020-C56: Fitch Assigns B-sf Rating on 2 Tranches
-------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Wells Fargo Commercial Mortgage Trust 2020-C56, commercial mortgage
pass-through certificates, series 2020-C56.
WFCM 2020-C56
-- Class A-1; LT AAAsf New Rating
-- Class A-2; LT AAAsf New Rating
-- Class A-3; LT AAAsf New Rating
-- Class A-4; LT AAAsf New Rating
-- Class A-4-1; LT AAAsf New Rating
-- Class A-4-2; LT AAAsf New Rating
-- Class A-4-X1; LT AAAsf New Rating
-- Class A-4-X2; LT AAAsf New Rating
-- Class A-5; LT AAAsf New Rating
-- Class A-5-1; LT AAAsf New Rating
-- Class A-5-2; LT AAAsf New Rating
-- Class A-5-X1; LT AAAsf New Rating
-- Class A-5-X2; LT AAAsf New Rating
-- Class A-S; LT AAAsf New Rating
-- Class A-S-1; LT AAAsf New Rating
-- Class A-S-2; LT AAAsf New Rating
-- Class A-S-X1; LT AAAsf New Rating
-- Class A-S-X2; LT AAAsf New Rating
-- Class A-SB; LT AAAsf New Rating
-- Class B; LT AA-sf New Rating
-- Class C; LT A-sf New Rating
-- Class D-RR; LT BBB+sf New Rating
-- Class E-RR; LT BBBsf New Rating
-- Class F-RR; LT BBB-sf New Rating
-- Class G-RR; LT BB+sf New Rating
-- Class H-RR; LT BB-sf New Rating
-- Class J-RR; LT B-sf New Rating
-- Class K-RR; LT NRsf New Rating
-- Class X-A; LT AAAsf New Rating
-- Class X-B; LT AAAsf New Rating
-- $18,464,000 class A-1 'AAAsf'; Outlook Stable
-- $54,939,000 class A-2 'AAAsf'; Outlook Stable
-- $2,605,000 class A-3 'AAAsf'; Outlook Stable
-- $29,226,000 class A-SB 'AAAsf'; Outlook Stable
-- $185,000,000d class A-4 'AAAsf'; Outlook Stable
-- $0d class A-4-1 'AAAsf'; Outlook Stable
-- $0d class A-4-2 'AAAsf'; Outlook Stable
-- $0d class A-4-X1 'AAAsf'; Outlook Stable
-- $0d class A-4-X2 'AAAsf'; Outlook Stable
-- $221,562,000d class A-5 'AAAsf'; Outlook Stable
-- $0d class A-5-1 'AAAsf'; Outlook Stable
-- $0d class A-5-2 'AAAsf'; Outlook Stable
-- $0d class A-5-X1 'AAAsf'; Outlook Stable
-- $0d class A-5-X2 'AAAsf'; Outlook Stable
-- $511,796,000a class X-A 'AAAsf'; Outlook Stable
-- $127,035,000a class X-B 'AAAsf'; Outlook Stable
-- $62,147,000d class A-S 'AAAsf'; Outlook Stable
-- $0d class A-S-1 'AAAsf'; Outlook Stable
-- $0d class A-S-2 'AAAsf'; Outlook Stable
-- $0d class A-S-X1 'AAAsf'; Outlook Stable
-- $0d class A-S-X2 'AAAsf'; Outlook Stable
-- $35,643,000 class B 'AA-sf'; Outlook Stable
-- $29,245,000 class C 'A-sf'; Outlook Stable
-- $10,967,000bc class D-RR 'BBB+sf'; Outlook Stable
-- $10,968,000,00bc class E-RR 'BBBsf'; Outlook Stable
-- $16,450,000bc class F-RR 'BBB-sf'; Outlook Stable
-- $7,312,000,000bc class G-RR 'BB+sf'; Outlook Stable.
-- $7,311,000bc class H-RR 'BB-sf'; Outlook Stable
-- $7,311,000bc class J-RR 'B-sf'; Outlook Stable.
The following class is not rated by Fitch:
-- $31,988,094bc class K-RR;
(a) Notional amount and interest-only.
(b) Privately placed and pursuant to Rule 144A.
(c) Non-offered horizontal credit-risk retention interest.
(d) Exchangeable Certificates. The class A-4, class A-5, class A-S
certificates are exchangeable certificates. Each class of
exchangeable certificates may be exchanged for the corresponding
classes of exchangeable certificates, and vice versa. The dollar
denomination of each of the received classes of certificates must
be equal to the dollar denomination of each of the surrendered
classes of certificates. The class A-4 may be surrendered (or
received) for the received (or surrendered) classes A-4-1, A-4-2,
A-4-1X, and A-4-2X. The class A-5 may be surrendered (or received)
for the received (or surrendered) class A-5-1, A-5-2, A-5-1X, and
A-5-2X. The class A-S may be surrendered (or received) for the
received (or surrendered) class A-S-1, A-S-2, A-S-1X, and A-S-2X.
The ratings of the exchangeable classes would reference the ratings
on the associated referenced or original classes.
The final ratings are based on information provided by the issuer
as of June 4, 2020.
Since Fitch published its expected ratings on May 21, 2020, the
following changes occurred: The balances for class A-4 and class
A-5 were finalized. At the time that the expected ratings were
assigned, the exact initial certificate balances of class A-4 and
class A-5 were unknown and expected to be within the range of
$50,000,000 - $406,562,000 and $206,562,000 - $356,562,000,
respectively. The final class balances for class A-4 and class A-5
are $185,000,000 and $221,562,000, respectively. Additionally,
based on final pricing of the certificates, class B and class C are
WAC classes that provide no excess cash flow that would affect the
payable interest on the class X-B certificates. Fitch's rating on
class X-B has been updated to 'AAAsf' from 'A-sf' to reflect the
rating of the lowest referenced tranche whose payable interest has
an impact on the interest-only payments. The classes above reflect
the final ratings and deal structure.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 46 loans secured by 66
commercial properties having an aggregate principal balance of
$731,138,094 as of the cut-off date. The loans were contributed to
the trust by Wells Fargo Bank, National Association, Column
Financial, Inc., LMF Commercial, LLC (f/k/a Rialto Mortgage
Finance, LLC), UBS AG, Barclays Capital Real Estate Inc., Ladder
Capital Finance LLC, and Argentic Capital Finance LLC.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 65.7% of the properties
by balance, cash flow analysis of 94.3% and asset summary reviews
on 100.0% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus (which causes the COVID-19 disease) pandemic may have
an adverse impact on near-term revenue (i.e. bad debt expense, rent
relief) and operating expenses (i.e. sanitation costs) for some
properties in the pool. Delinquencies may occur in the coming
months as forbearance programs are put in place, although the
ultimate impact on credit losses will depend heavily on the
severity and duration of the negative economic impact of the
coronavirus pandemic and to what degree fiscal interventions by the
U.S. federal government can mitigate the impact on consumers. Per
the offering documents, all of the loans are current and not
subject to any forbearance or modification requests.
KEY RATING DRIVERS
Fitch Leverage Exceeds that of Recent Transactions: The pool has
higher leverage than other recent Fitch-rated multiborrower
transactions. The pool's Fitch LTV of 108.0% is higher than the YTD
2020 average of 97.9% and the 2019 average of 103.0%. The pool's
Fitch DSCR of 1.20x is lower than the YTD 2020 average of 1.33x and
the 2019 average of 1.26x.
Favorable Property Type Concentrations: The pool includes eight
loans (9.7% of pool) secured by retail properties and no loans
secured by hotel properties. Multifamily properties represent the
largest concentration at 45.2%, which is higher than the YTD 2020
and 2019 average multifamily concentrations of 20.4% and 16.9%,
respectively. In Fitch's multiborrower model, multifamily
properties have a below-average likelihood of default, all else
equal. Office properties, which represent the second largest
concentration at 26.5% of the pool, have an average likelihood of
default in Fitch's multiborrower model, all else equal.
Above-Average Volatility: The pool's weighted average volatility
score is 3.60, which is above the YTD 2020 and 2019 averages of
3.11 and 3.20, respectively. Twenty-three loans (39.5% of pool) in
the pool have been assigned a '3' volatility score, and 23 loans
(60.5%) have been assigned a '4'. Asset volatility scores and
probability of default are directly related; a lower asset
volatility score results in a lower probability of default. Asset
volatility scores range from 1-5, with 1 the least volatile and 5
the most volatile.
Pool Concentration: The top 10 loans represent 51.4% of the pool,
which is consistent with the YTD 2020 average of 51.3% and the 2019
average of 51.0%. However, the losses estimated by Fitch's
deterministic test at 'AAAsf' for this transaction exceeded the
base model loss estimate. The results of the deterministic test
increased Fitch's concluded loss estimate at 'AAAsf' by
approximately 50 bps.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- Declining cash flow decreases property value and capacity to
meet its debt service obligations. The table below indicates the
model implied rating sensitivity to changes in one variable, Fitch
NCF:
Original Rating: AAAsf / AA-sf / A-sf / BBB+sf / BBBsf / BBB-sf /
BB+sf
10% NCF Decline: A+sf / BBB+sf / BBB-sf / BB+sf / BB+sf / B+sf /
CCCsf
20% NCF Decline: BBBsf / BBB-sf / BB-sf / Bsf / CCCsf / CCCsf /
CCCsf
30% NCF Decline: BBB-sf / BB-sf / CCCsf / CCCsf / CCCsf / CCCsf /
CCCsf
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- Similarly, improvement in cash flow increases property value
and capacity to meet its debt service obligations. The table below
indicates the model implied rating sensitivity to changes to the
same one variable, Fitch NCF:
Original Rating: AAAsf / AA-sf / A-sf / BBB+sf / BBBsf / BBB-sf /
BB+sf
20% NCF Increase: AAAsf / AAAsf / AA+sf / AA+sf / AA-sf / A-sf /
BBB+sf
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
Fitch was provided with Form ABS Due Diligence-15E as prepared by
Deloitte & Touche LLP. The third-party due diligence described in
Form 15E focused on a comparison and re-computation of certain
characteristics with respect to each of the mortgage loans. Fitch
considered this information in its analysis and the findings did
not have an impact on its analysis or conclusions.
DATA ADEQUACY
The principal sources of information used in the analysis are
described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
[*] Fitch Takes Actions on 30 Tranches From 6 Trust Preferred CDOs
------------------------------------------------------------------
Fitch Ratings has upgraded two and affirmed 28 classes from six
collateralized debt obligations backed primarily by trust preferred
securities issued by banks and insurance companies. Performance
metrics for each CDO are reported in the accompanying report.
Fitch expects the CDOs' underlying portfolio quality to
deteriorate, driven by the likely future rise in noncurrent loans
and low interest rates. In addition to the standard analytical
framework described in the "U.S. Trust Preferred CDOs Surveillance
Rating Criteria", this review applied a coronavirus stress
scenario. Under this scenario, all issuers in the pool were
downgraded either by 0.5 points for private bank scores or one
notch for publicly rated banks and insurance issuers with a mapped
rating. Due to the application of performing credit enhancement
caps under the TruPS CDO Criteria, no class of notes from the CDOs
in this review was impacted by this scenario.
ALESCO Preferred Funding I, Ltd./Inc.
- Class A-2 01447YAB0; LT AAsf; Affirmed
- Class B-1 01447YAC8; LT Csf; Affirmed
- Class B-2 01447YAD6; LT Csf; Affirmed
Preferred Term Securities X, Ltd./Inc.
- Class A-2 74040YAB8; LT AAsf; Affirmed
- Class A-3 74040YAC6; LT AAsf; Affirmed
- Class B-1 74040YAD4; LT Csf; Affirmed
- Class B-2 74040YAE2; LT Csf; Affirmed
- Class B-3 74040YAF9; LT Csf; Affirmed
Tropic CDO IV Ltd./Corp.
- Class A-1L Floating 89707YAA2; LT AAsf; Affirmed
- Class A-2L Floating 89707YAB0; LT Asf; Affirmed
- Class A-3L Floating 89707YAC8; LT BBBsf; Upgrade
- Class A-4 Fixed/Floating 89707YAE4; LT Csf; Affirmed
- Class A-4L Floating 89707YAD6; LT Csf; Affirmed
- Class B-1L Floating 89707YAF1; LT Csf; Affirmed
MMCapS Funding XVII, Ltd./Corp
- Class A-1 Floating Rates Notes 55312HAA7; LT AAsf; Affirmed
- Class A-2 Floating Rate Notes 55312HAB5; LT AAsf; Affirmed
- Class B Floating Rate Notes 55312HAC3; LT Asf; Affirmed
- Class C-1 Floating Rate Deferable 55312HAD1; LT CCsf; Affirmed
- Class C-2 Fixed Rate Defferable 55312HAE9; LT CCsf; Affirmed
Tropic CDO III Ltd./Corp.
- Class A-2L 89707WAB4; LT AAsf; Affirmed
- Class A-3L 89707WAC2; LT Asf; Upgrade
- Class A-4A 89707WAE8; LT Csf; Affirmed
- Class A-4B 89707WAF5; LT Csf; Affirmed
- Class A-4L 89707WAD0; LT Csf; Affirmed
ALESCO Preferred Funding IV, Ltd./Inc.
- Class A-1 01448QAA8; LT AAsf; Affirmed
- Class A-2 01448QAB6; LT BBBsf; Affirmed
- Class A-3 01448QAC4; LT BBBsf; Affirmed
- Class B-1 01448QAD2; LT Csf; Affirmed
- Class B-2 01448QAE0; LT Csf; Affirmed
- Class B-3 01448QAF7; LT Csf; Affirmed
KEY RATING DRIVERS
The main driver behind the upgrades is deleveraging from collateral
redemptions and excess spread, which results in paydowns to the
senior-most notes, ranging between 5% and 42% of their balances as
of the last review. The magnitude of the deleveraging for each CDO
is reported in the accompanying rating action report.
In all but one transaction, the credit quality of the collateral
portfolios, as measured by a combination of Fitch's bank scores and
public ratings, either remained stable or improved. There were two
new cures across two CDOs. No new deferrals or defaults have been
reported.
The ratings on 13 classes of notes in the six transactions have
been capped based on application of the performing CE cap as
described in Fitch's TruPS CDO Criteria.
The rating on class A-1 in MMCapS Funding XVII, Ltd./Corp is one
category lower than the model-implied rating. In this instance, the
transaction documents do not conform to Fitch's "Structured Finance
and Covered Bonds Counterparty Rating Criteria" regarding rating
requirements and remedial actions expected for the issuer account
bank. The transaction is allowed to hold cash, and the account bank
does not collateralize cash. Therefore, this class of notes is
capped at the same rating category as that of its issuer account
bank.
Tropic CDO IV Ltd./Corp. continues to be under pending litigation,
as described in "Fitch Removes Tropic CDO IV Ltd./Corp. A-1L and
A-2L Notes from Negative Watch; Affirms All Classes," dated Oct.
25, 2018. An escrow account was set up in January of 2018 for a
potential termination payment due to the swap counterparty, funded
with CDO collections available after interest payments were made to
the timely classes, A-1L and A-2L. Beginning from the January 2019
payment date, the CDO resumed making distributions in accordance
with the priority of payments stated in the indenture and stopped
adding funds to the escrow account. Given the size of the escrow
balance and nondeferability of classes A-1L and A-2L, Fitch
believes these notes will not be negatively affected even in a
scenario whereby the litigation resolves unfavorably for the CDO.
Fitch will continue to monitor the pending litigation and may take
rating actions as needed.
RATING SENSITIVITIES
The ratings of the notes issued by these CDOs remain sensitive to
significant levels of defaults, deferrals, cures and collateral
redemptions. To address potential risks of adverse selection and
increased portfolio concentration, Fitch has applied a sensitivity
scenario, as described in the criteria, to applicable
transactions.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Future upgrades to the rated notes may occur if a transaction
experiences CE improvement through deleveraging from collateral
redemptions and/or interest proceeds being used for principal
repayment.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades to the rated notes may occur if a significant share
of the portfolio issuers defers or defaults on their TruPS
instruments, which would cause a decline in performing CE levels.
If the coronavirus pandemic-inflicted disruptions become more
prolonged, Fitch will formulate a sensitivity scenario that
represents a more severe impact on the banking and insurance
sectors than the scenario specified above.
[*] Moody's Lowers $56MM of RMBS Issued 2003-2004
-------------------------------------------------
Moody's Investors Service has downgraded the ratings of five bonds
from three US residential mortgage backed transactions, backed by
subprime and scratch and dent mortgages issued by multiple issuers.
Four of the five bonds were amongst those placed on review on April
15th due to heightened risk of interest loss.
The complete rating actions are as follows:
Issuer: Asset Backed Securities Corporation Home Equity Loan Trust
2004-HE7
Cl. M1, Downgraded to B1 (sf); previously on Apr 15, 2020 Ba2 (sf)
Placed Under Review for Possible Downgrade
Issuer: GSRPM Mortgage Loan Trust 2003-1
Cl. B-1, Downgraded to B1 (sf); previously on Apr 15, 2020 Baa3
(sf) Placed Under Review for Possible Downgrade
Issuer: C-BASS Mortgage Loan Asset-Backed Certificates, Series
2004-CB8
Cl. M-1, Downgraded to B1 (sf); previously on Apr 15, 2020 Ba2 (sf)
Placed Under Review for Possible Downgrade
Cl. M-2, Downgraded to B1 (sf); previously on Jan 30, 2018 Upgraded
to Ba2 (sf)
Cl. M-3, Downgraded to B1 (sf); previously on Apr 15, 2020 Ba2 (sf)
Placed Under Review for Possible Downgrade
RATINGS RATIONALE
Its rating actions reflect the recent performance of the
transactions as well as Moody's updated loss expectations on the
underlying pools. The rating downgrades are primarily due to the
assessment of outstanding and potential interest shortfalls, and
also reflect the subordination of recoupment of unpaid interest on
the affected tranches.
The rating action resolves the review action for four bonds that
were placed on review on April 15, 2020 due to the heightened risk
of interest loss. These bonds have weak interest recoupment
mechanisms, where missed interest payments will likely result in a
permanent interest loss. In light of the slowdown in US economic
activity in 2020, and increased unemployment due to the coronavirus
outbreak, the risk of incurring such interest loss is now
significantly elevated.
Its downgrades on Class M-1 and Class M-2 from C-BASS Mortgage Loan
Asset-Backed Certificates, Series 2004-CB8 also reflect its
liquidity analysis of the resiliency of the ratings to interest
losses arising from two months of missed interest payments, as well
as missed interest payments actually experienced to date on these
tranches. The action on Class M-1 also resolves the review action
for that tranche. The rating downgrades on Class B-1 from GSRPM
Mortgage Loan Trust 2003-1, Class M-3 from C-BASS Mortgage Loan
Asset-Backed Certificates, Series 2004-CB8, and Class M1 from Asset
Backed Securities Corporation Home Equity Loan Trust 2004-HE7 also
reflect the correction of an error. In prior rating actions, the
interest shortfalls for these three tranches were incorrectly not
taken into consideration. Its rating actions properly reflect the
current outstanding interest shortfalls of $62,135, $25,830 and
$472,157 for Classes B-1, M-3 and M1, respectively, and resolve the
review actions for these tranches.
Unpaid interest owed to bonds with weak interest recoupment
mechanisms is reimbursed sequentially based on bond priority, from
excess interest, if available, and often only after the
overcollateralization has built to a pre-specified target amount.
In transactions where overcollateralization has already been
reduced or depleted due to poor performance, any such missed
interest payments to these bonds is unlikely to be repaid.
Because of the advancing mechanism included in most RMBS
transactions, interest shortfalls on bonds are generally related to
recoupment of advances by the servicer. Common triggers for
recoupment of advances are the servicer deeming the advances to be
non-recoverable, modification, liquidation of a delinquent loan, or
transfer of servicing that could lead to a change in advancing
practice. The severe disruption in borrower incomes due to the
coronavirus outbreak has led servicers to offer borrower relief
largely in the form of forbearance of mortgage payments, which the
servicers advance to the trusts. Depending on the strength and
timing of the economic recovery, the loans of many borrowers on
such forbearance plans may eventually need to be modified, with
servicers recouping their advances at the time of modification. The
servicer is entitled to reimbursement from cash collected on the
associated RMBS pool, and the right to reimburse itself is senior
to the claim of the bonds. Recoupment of advances for a large
number of borrowers within a few months could result in a reduction
in interest funds available to the bondholders, causing interest
shortfalls that, in many cases, will be permanent once incurred.
The magnitude of funds advanced, and subsequently recouped, could
be in the range of three to 12 months of monthly payments for each
delinquent borrower and will depend on servicer practices.
Its analysis has considered 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. Specifically, for US RMBS,
loan performance will weaken due to the unprecedented spike in the
unemployment rate, which may limit borrowers' income and their
ability to service debt. The softening of the housing market will
reduce recoveries on defaulted loans, also a credit negative.
Furthermore, borrower assistance programs such as forbearance, may
adversely impact scheduled cash flows to bondholders.
The contraction in economic activity in the second quarter will be
severe and the overall recovery in the second half of the year will
be gradual. However, there are significant downside risks to its
forecasts in the event that the pandemic is not contained and
lockdowns have to be reinstated. As a result, the degree of
uncertainty around its forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
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:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the bonds up. Losses could decline from Moody's
original expectations as a result of a lower number of obligor
defaults or appreciation in the value of the mortgaged property
securing an obligor's promise of payment. Transaction performance
also depends greatly on the US macro economy and housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
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.
[*] S&P Puts 20 BSL CLO Ratings on CreditWatch Negative
--------------------------------------------------------
S&P Global Ratings placed its ratings on 20 classes from 16 U.S.
broadly syndicated loan collateralized loan obligation (BSL CLO)
transactions on CreditWatch with negative implications.
This continues S&P's ongoing CreditWatch negative placements that
commenced on March 20, 2020. The aggregate number of CLO ratings
currently on CreditWatch with negative implications, including the
rating actions, is now at 438, which is about 10.4% of its
outstanding CLO ratings.
The CreditWatch negative placements are from the BSL sector, and
include a mix of amortizing and reinvesting deals. All but one CLO
already have one or more of their junior tranches on CreditWatch
negative, and the current placements are mostly in the 'A' and
'BBB' rating categories.
Per the recent trustee reports, most of these CLOs are failing
their overcollateralization (O/C) tests, either at these tranches
and/or at a senior tranche. As a result, some of these tranches
have already started to defer their interest. This will continue
and other tranches are likely to defer some or all of their
interest on their next payment date if their senior coverage tests
continue to fail and the transaction does not have adequate
proceeds to cure those failures and pay that interest shortfall.
S&P's review considered the decline in the O/C ratios, which is
primarily due to the increase in haircuts in the 'CCC' category.
Additionally, S&P examined any increase in defaults, the level of
'CCC' rated assets, and preliminary indicative cash flow results.
S&P's ratings (by rating category; as of this publication date) on
individual tranches in U.S. cash flow CLO transactions, as well as
the percentage of those currently on CreditWatch negative after the
rating actions, are shown in the following table.
U.S. CLO Tranche Ratings On CreditWatch Negative
Rating No. of On CreditWatch negative
category tranches(i) No. of tranche % of tranche ratings
'AAA' 1,084 0 0.0
'AA' 861 0 0.0
'A' 746 14 1.9
'BBB' 719 19 2.6
'BB' 607 222 36.6
'B' 184 173 94.0
'CCC' 10 10 100.0
Total 4,211 438 10.4
(i)As of May 15, 2020. Updated for any new ratings, redemptions, or
rating actions since its last publication.
S&P Global Ratings acknowledges a high degree of uncertainty about
the rate of spread and peak of the coronavirus outbreak.
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession and could
cause a surge of defaults among nonfinancial corporate borrowers.
As the situation evolves, we will update our assumptions and
estimates accordingly," S&P said.
In light of these macroeconomic events, S&P will continue to review
the ratings on its remaining transactions.
"We typically resolve CreditWatch placements within 90 days after
we complete cash flow analysis and committee review for each of the
affected transactions. As we work to resolve these CreditWatch
placements, we will attempt to contact the managers of these
transactions to ensure we have the most current data--including any
credit risk sales or other trades that may have occurred but are
yet to be reflected in trustee reports--and aim to understand their
strategies for their portfolios moving forward," S&P said.
"We will continue to monitor the transactions we rate and take
rating actions, including CreditWatch placements, as we deem
appropriate," the rating agency said.
Ratings Placed On CreditWatch Negative
CUSIP Class Rating
Atlas Senior Loan Fund V Ltd.
04941MAR6 D-R2 BBB- (sf)/Watch Neg
Atlas Senior Loan Fund X Ltd.
04942JAJ0 D BBB- (sf)/Watch Neg
Crown Point CLO 6 Ltd.
22847DAJ1 D BBB- (sf)/Watch Neg
Crown Point CLO 6 Ltd.
22846AAA7 E BB- (sf)/Watch Neg
JFIN CLO 2014 Ltd.
46617EAG2 D A- (sf)/Watch Neg
Longfellow Place CLO Ltd.
54303PAU9 C-RR A (sf)/Watch Neg
Marathon CLO IX Ltd.
56577PAG4 B A (sf)/Watch Neg
Marathon CLO VII Ltd.
56577AAN2 B-R A (sf)/Watch Neg
Marathon CLO X Ltd
56578JAG7 B A (sf)/Watch Neg
Oaktree CLO 2014-1 Ltd.
674000AS3 BR A (sf)/Watch Neg
Ocean Trails CLO V
67515EAX4 D-RR BBB (sf)/Watch Neg
THL Credit Wind River 2014-3 CLO Ltd.
88432DBL7 D-R2 BBB- (sf)/Watch Neg
Telos CLO 2013-4 Ltd.
87974HAY7 D-R BBB- (sf)/Watch Neg
Telos CLO 2014-5 Ltd.
87974KBA1 D-R BBB- (sf)/Watch Neg
Z Capital Credit Partners CLO 2015-1 Ltd.
98877EAK9 C-R A (sf)/Watch Neg
Z Capital Credit Partners CLO 2015-1 Ltd.
98877EAL7 D-R BBB (sf)/Watch Neg
ZAIS CLO 8 Ltd.
98885GAE8 C A (sf)/Watch Neg
ZAIS CLO 8 Ltd.
98885GAG3 D BBB- (sf)/Watch Neg
Zais CLO 1 Ltd.
98886MAS3 B-R A (sf)/Watch Neg
Zais CLO 1 Ltd.
98886MAU8 C-R BBB- (sf)/Watch Neg
[*] S&P Puts Ratings on 96 Classes From 30 CMBS Deals on Watch Neg.
-------------------------------------------------------------------
S&P Global Ratings placed its ratings on 96 classes of commercial
mortgage pass-through certificates from 30 U.S. CMBS conduit
transactions on CreditWatch with negative implications.
Analytical Considerations
In S&P's view, the subject bonds, which are primarily
speculative-grade classes (i.e., rated 'BB+ (sf)' or lower) from
the CMBS 2.0 cohort (80 of the 96 affected bonds; 27 of the 30
affected deals), are at an increased risk of experiencing monthly
payment disruption or reduced liquidity. This is mainly due to
their higher exposure to loans secured by lodging or retail
properties. As discussed in S&P's recent publication, "Ratings On
123 Classes From 22 U.S. CMBS SASB And Large Loan Transactions
Placed On CreditWatch Negative," published May 6, 2020, the lodging
and retail sectors have been negatively affected by location
closures and a rapid decline in demand due to COVID-19. Should the
affected deals see an increase in interest shortfalls over the
coming months due to, for instance, special servicing transfers
(with attendant fees) and the implementation of appraisal reduction
amounts (ARAs), the affected bonds could experience monthly payment
disruption or reduced liquidity.
The CreditWatch placements also include 12 investment-grade bonds
(rated 'BBB- (sf)' or higher) from four of the affected CMBS 2.0
deals. Based on S&P's examination of the individual transactions,
these four deals exhibit a higher degree of event risk, due to
their exposure to specific outsized loans of concern secured by
lodging or retail properties, which is not offset by transaction
deleveraging. In addition, these transactions generally exhibit
more pronounced payment and liquidity risk due to the volume of
large, concerning assets already with the special servicer.
S&P also placed the four remaining rated bonds (three
investment-grade and one speculative-grade) from three CMBS 1.0
transactions on CreditWatch. The investment-grade bonds in these
legacy deals are exposed to asset considerations that could be
affected by COVID-19 on the horizon.
Over the next few months, S&P will continue to monitor the
performance of the loans securing S&P's rated conduit book. S&P
will resolve or update its CreditWatch negative placements after
further discussions with the master and special servicers, and as
more information regarding the performance of the loans becomes
available. We'll specifically reach out to the servicers regarding
the status of any missed loan payments, the status of any debt
relief requests, special servicing transfer activity,
payoff/refinance indications (for 2020 loan maturities), and the
servicers' advancing intent and asset resolution strategies (for
specially serviced assets).
S&P also notes that, depending on the duration of the economic
demand disruption, there could be an impact on longer-term property
valuations, which could further affect liquidity and/or credit
quality. As such, S&P may also place additional classes from the
subject deals or other transactions on CreditWatch, or take direct
rating actions, as more information becomes available.
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus outbreak. Some government
authorities estimate the pandemic will peak about midyear, and S&P
is using this assumption in assessing the economic and credit
implications. S&P believes the measures adopted to contain COVID-19
have pushed the global economy into recession. As the situation
evolves, S&P will update its assumptions and estimates
accordingly.
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety.
A list of Affected Ratings can be viewed at:
https://bit.ly/2Ms9aEb
[*] S&P Takes Various Actions on 61 Classes From 10 U.S. RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 61 classes from 10 U.S.
RMBS transactions issued between 2003 and 2005. The transactions
are backed by Alternative-A and prime jumbo collateral. The review
yielded five downgrades, 42 affirmations, and 14 withdrawals. S&P
subsequently discontinued two of the lowered ratings.
ANALYTICAL CONSIDERATIONS
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus outbreak. Some government
authorities estimate the pandemic will peak about midyear, and S&P
is using this assumption in assessing the economic and credit
implications. S&P believes the measures adopted to contain COVID-19
have pushed the global economy into recession. As the situation
evolves, S&P will update its assumptions and estimates accordingly.
Its views also consider that the loans supporting the RMBS in the
rating actions are significantly seasoned and are to borrowers that
have weathered the Great Recession, a period of significant
economic stress. As the situation evolves, S&P will update its
assumptions and estimates accordingly.
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by its projected cash flows. These considerations
are based on transaction-specific performance or structural
characteristics (or both) and their potential effects on certain
classes.
Some of these considerations may include:
-- Factors related to COVID-19,
-- Collateral performance or delinquency trends,
-- Available subordination and/or overcollateralization,
-- Payment priority,
-- Loan modifications,
-- Historical interest shortfalls or missed interest payments,
and
-- Small loan count.
RATING ACTIONS
The rating changes reflect S&P's view regarding the associated
transaction-specific collateral performance, structural
characteristics, and/or reflect the application of specific
criteria applicable to these classes.
The ratings affirmations reflect S&P's view that its projected
credit support and collateral performance on these classes have
remained relatively consistent with its prior projections.
In reviewing the classes with observed interest shortfalls, S&P
applied its interest shortfall criteria as stated in "Structured
Finance Temporary Interest Shortfall Methodology," published Dec.
15, 2015, which impose a maximum rating threshold on classes that
have incurred interest shortfalls resulting from credit or
liquidity erosion. This resulted in S&P's lowering of class M from
Nomura Asset Acceptance Corp. Alternative Loan Trust Series
2003-A1. S&P subsequently discontinued the rating as an upgrade to
a rating higher than 'D (sf)' is unlikely in the future under the
relevant criteria.
S&P withdrew its ratings on 14 classes from four transactions due
to the small number of loans remaining in the related group or
underlying group. Once a pool has declined to a de minimis amount,
their future performance becomes more difficult to project. As
such, S&P believes there is a high degree of credit instability
that is incompatible with any rating level. Additionally, S&P
applied its principal-only criteria, "Methodology For Surveilling
U.S. RMBS Principal-Only Strip Securities For Pre-2009
Originations," published Oct. 11, 2016, and its interest-only
criteria, "Global Methodology For Rating Interest-Only Securities,"
published April 15, 2010, on classes APO and AIO from Nomura Asset
Acceptance Corp. Alternative Loan Trust Series 2003-A1, which
resulted in rating withdrawals.
S&P also lowered its rating on class B-2 from Wells Fargo Mortgage
Backed Securities 2003-L Trust to reflect its assessment of the
principal write-downs' impact on the affected class during recent
remittance periods. S&P subsequently discontinued the rating
because all loans within the transaction were repurchased as a
result of an optional termination."
A list of Affected Ratings can be viewed at:
https://bit.ly/3eGcKXw
*********
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