/raid1/www/Hosts/bankrupt/TCR_Public/200628.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 28, 2020, Vol. 24, No. 179
Headlines
AMSR TRUST 2020-SFR2: DBRS Finalizes BB(low) Rating on Cl. G Certs
AMUR EQUIPMENT VIII: DBRS Finalizes B Rating on Class F Notes
ANGEL OAK 2020-3: Fitch Assigns B(EXP) Rating on Class B-2 Certs
ARROYO MORTGAGE 2020-1: S&P Assigns Prelim 'B' Rating to B-2 Notes
AVERY POINT VII: Moody's Cuts Rating on Class F Notes to Caa2
BBCMS MORTGAGE 2020-C6: Fitch Rates 2 Tranches 'B-sf'
BENCHMARK 2018-B5: Fitch Affirms Class G-RR Certs at B-sf
BENEFIT STREET XX: S&P Rates Class E Notes 'BB- (sf)'
BLUEMOUNTAIN CLO XXIX: S&P Rates Class E Notes 'BB- (sf)'
BRAVO RESIDENTIAL 2020-RPL1: DBRS Finalizes B Rating on B-2 Notes
BRAVO RESIDENTIAL 2020-RPL1: Fitch Assigns BB Rating to 3 Tranches
BUNKER HILL 2020-1: S&P Assigns Prelim B+ (sf) Rating on B-2 Notes
CARLYLE GLOBAL 2013-1: Moody's Cuts $27MM Class D-R Notes to B1
CD 2017-CD5: Fitch Affirms Class X-E Debt at BB-sf
CITIGROUP 2020-EXP1: S&P Assigns Prelim B (sf) Rating to B-2 Certs
CITIGROUP COMMERCIAL 2012-GC8: Moody's Cuts Class F Certs to C
CITIGROUP MORTGAGE 2030-EXP1: Fitch Rates Class B-2 Certs 'B(EXP)'
COLT 2020-3: Fitch Assigns Bsf Rating on Class B2 Certs
COMM 2010-C1: Moody's Lowers Class G Certs Rating to B3
COMM 2013-CCRE12: Fitch Cuts Rating on Class F Certs to Csf
CRESTLINE DENALI XIV: Moody's Cuts Rating on F-R Notes to Caa2
CRESTLINE DENALI XV: Moody's Cuts Rating on Class E-2 Notes to B3
CROWN CITY I: S&P Rates Class D Notes 'BB- (sf)'
CROWN POINT 9: S&P Rates Class E Notes 'BB- (sf)'
CSMC TRUST 2017-CHOP: S&P Lowers Class F Certs Rating to CCC (sf)
DBUBS MORTGAGE 2011-LC1: Fitch Affirms Class G Certs at Bsf
DEEPHAVEN RESIDENTIAL 2020-2: Fitch Rates Class B-2 Certs Bsf
DENALI CAPITAL XI: Moody's Cuts Rating on Class E-R Notes to Caa2
FREDDIE MAC 2020-DNA3: Fitch Gives 'B(EXP)' Rating on 16 Tranches
FREDDIE MAC 2020-DNA3: S&P Assigns Prelim 'B' Rating to B-1 Notes
GLOBAL SC FUNDING 2015-1: S&P Affirms BB+ (sf) Rating on B-1 Notes
GS MORTGAGE 2012-GCJ9: Moody's Cuts Class F Certs to Caa1
GS MORTGAGE 2017-GS7: Fitch Affirms B- Rating on Cl. H-RR Certs
HALCYON LOAN 2014-2: Moody's Cuts Class E Debt Rating to Ca
HALSEYPOINT CLO II: S&P Assigns Prelim BB- (sf) Rating to E Notes
HORIZON AIRCRAFT III: Fitch Affirms BBsf Rating on Class C Debt
IMSCI 2012-2: DBRS Keeps B(low) Rating on G Certs on Review
IMSCI 2013-3: DBRS Keeps B(low) Rating on G Certs on Review
JP MORGAN 2010-C1: Moody's Lowers Rating on 2 Tranches to C
JP MORGAN 2020-4: DBRS Assigns Prov. B Rating on 2 Tranches
JP MORGAN 2020-4: Moody's Assigns '(P)B3' Rating to on 2 Tranches
JPMDB 2020-COR7: Fitch Withdraws 'B-(EXP)' on Class H-RR Certs
JPMDB COMMERCIAL 2020-COR7: Fitch to Rate Class H-RR Certs 'B+sf'
KKR CLO 15: Moody's Cuts Rating on Class F-R Notes to Caa2
LOOMIS SAYLES II: Moody's Cuts Rating on $20MM Cl. D-R Notes to B1
MARLIN RECEIVABLES 2018-1: Fitch Affirms BB Rating on Class E Notes
MCAP CMBS 2014-1: DBRS Keeps B Rating on Cl. G Certs Under Review
MFA 2020-NQM1: S&P Withdraws Prelim B (sf) Rating on B-2 Certs
MORGAN STANLEY 2012-C6: Moody's Cuts Ratings on 2 Tranches to B3
MORGAN STANLEY 2013-C7: Moody's Lowers Class G Debt Rating to Caa3
NEUBERGER BERMAN 37: S&P Rates Class E Notes 'BB- (sf)'
NEW RESIDENTIAL 2020-NQM2: Fitch Rates Class B-2 Debt Bsf
NORTHWOODS CAPITAL XIV-B: Moody's Cuts Class F Notes to B3
OAKTREE CLO 2020-1: S&P Rates Class E Notes 'BB (sf)'
OCEAN TRAILS VI: Moody's Cuts $16.5MMM Class E-R Notes to B1(sf)
OCP CLO 2020-19: S&P Rates $16MM Class E Notes 'BB- (sf)'
PALMER SQUARE 2020-3: Fitch Assigns BB-sf Rating on Class D Debt
PSMC TRUST 2020-2: Fitch to Rate Class B-5 Debt 'B(EXP)sf'
READY CAPITAL 2020-FL4: DBRS Gives Prov. B(low) Rating on G Notes
REALT 2014-1: Fitch Affirms B Rating on Class G Certs
RESIDENTIAL MORTGAGE 2020-2: S&P Rates Class B-2 Notes 'B (sf)'
RMF BUYOUT 2020-2: DBRS Assigns Prov. BB Rating on Class M4 Notes
ROSSLYN PORTFOLIO 2017-ROSS: S&P Affirms B (sf) Rating on F Certs
SLM STUDENT 2003-2: Fitch Affirms Bsf Rating on 5 Tranches
SUTHERLAND COMMERCIAL 2019-SBC8: DBRS Puts B Rating on G Certs
SYMPHONY CLO XX: Moody's Cuts Rating on Class E Notes to B1
UBS-CITIGROUP 2011-C1: DBRS Lowers Class G Certs Rating to C
UNITED AUTO 2020-1: DBRS Assigns Prov. B Rating on Class F Notes
VISTA POINT 2020-1: DBRS Gives Prov. B(low) Rating on Cl. B-2 Certs
VISTA POINT 2020-1: S&P Assigns Prelim B (sf) Rating on B-2 Certs
VNDO 2013-PENN: S&P Affirms BB- (sf) Rating on Class E Certs
VOYA CLO 2020-1: S&P Rates Class E Notes 'BB- (sf)'
WELLS FARGO 2017-C39: Fitch Affirms Class G-RR Certs at B-sf
WESTLAKE AUTOMOBILE 2020-2: S&P Rates Class E Notes 'BB+ (sf)'
WFRBS COMMERCIAL 2014-C23: Fitch Lowers Class X-D Certs to CCC
[*] S&P Takes Various Actions on 89 Classes From 61 U.S. RMBS Deals
*********
AMSR TRUST 2020-SFR2: DBRS Finalizes BB(low) Rating on Cl. G Certs
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DBRS, Inc. finalized its provisional ratings on the following
Single-Family Rental Pass-Through Certificates (the Certificates)
issued by AMSR 2020-SFR2 Trust (the Issuer):
-- $159.0 million Class A at AAA (sf)
-- $43.5 million Class B at AAA (sf)
-- $31.3 million Class C at AA (high) (sf)
-- $32.6 million Class D at AA (low) (sf)
-- $27.2 million Class E1 at A (low) (sf)
-- $59.8 million Class E2 at BBB (low) (sf)
-- $27.2 million Class F at BB (high) (sf)
-- $25.8 million Class G at BB (low) (sf)
The AAA (sf) ratings on the Class A and Class B Certificates
reflect 69.2% and 60.8% of credit enhancement, respectively,
provided by subordinated notes in the pool. The AA (high) (sf), AA
(low) (sf), A (low) (sf), BBB (low) (sf), BB (high) (sf), and BB
(low) (sf) ratings reflect 54.7%, 43.2%, 31.6%, 31.6%, 26.3%, and
21.3% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The Certificates are supported by the income streams and values
from 2,759 rental properties. The properties are distributed across
15 states and 38 metropolitan statistical areas (MSAs) in the
United States. DBRS Morningstar maps an MSA based on the ZIP code
provided in the data tape, which may result in different MSA
stratifications than those provided in offering documents. As
measured by broker price opinion (BPO) value, 63.2% of the
portfolio is concentrated in three states: Florida (21.4%), Georgia
(21.1%), and Texas (20.8%). The average post renovation price per
property that the securitization asset company paid to acquire the
properties is $186,166, and the average value is $197,059. The
average age of the properties is roughly 30 years. The majority of
the properties have three or more bedrooms. The Certificates
represent a beneficial ownership in an approximately five-year
fixed-rate interest-only loan with an initial aggregate principal
balance of approximately $406.4 million.
As in typical single-borrower, single-family rental transactions,
the waterfall has straight sequential payments with
reverse-sequential losses.
DBRS Morningstar's assumed base-case net cash flow (NCF) is
approximately $15.4 million, which is 41.7% lower than the
Issuer-underwritten NCF of about $26.4 million. Stressing the NCF
during the term of the loan and at the maturity date reflects
worsening economic conditions that are consistent with DBRS
Morningstar's rating stresses.
Vacancy data in the single-family rental space is relatively
limited. In general, based on performance data in existing
securitizations as well as information gathered in annual
property-manager reviews, vacancy is considered low in the
single-family rental market. DBRS Morningstar applied a base
vacancy rate of 11.0%, an additional base vacancy adjustment
related to the impact of the Coronavirus Disease (COVID-19)
pandemic, and a qualitative adjustment to account for structural
and documentation weakness in the transaction. The loan agreement
lacks credit measures, such as the income-to-rent ratio, in the
eligible tenant provision. DBRS Morningstar accounted for this
potential impact by reducing the DBRS Morningstar gross rent by
1.0%. DBRS Morningstar also accounted for the current delinquency
levels and vacancy levels by further stressing the vacancy
assumption, bringing the DBRS Morningstar vacancy rate to 17.3%,
which is more conservative than the underwritten economic vacancy
rate of 7.9% of the Issuer’s gross income.
Additionally, DBRS Morningstar applied a stress to the BPOs
because, in general, a valuation based on a BPO may be less
comprehensive than a valuation based on a full appraisal. In
addition to the BPO stress, DBRS Morningstar recently adjusted that
stress upward due to the impact of the coronavirus pandemic.
The transaction allows for discretionary substitutions of up to
5.0% of the number of properties as of the closing date, as long as
certain restrictions are met.
The Sponsor intends to satisfy its risk retention obligations under
the U.S. Risk Retention Rules by holding at least 5.0% of the
initial certificate balance of each class of Certificates, either
directly or through a majority-owned affiliate.
Notes: All figures are in U.S. dollars unless otherwise noted.
AMUR EQUIPMENT VIII: DBRS Finalizes B Rating on Class F Notes
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DBRS, Inc. finalized its provisional ratings on the following
classes of equipment-contract backed notes issued by Amur Equipment
Finance Receivables VIII LLC (the Issuer):
-- $56,300,000 Series 2020-1, Class A-1 Notes at R-1 (high) (sf)
-- $104,932,000 Series 2020-1, Class A-2 Notes at AAA (sf)
-- $15,279,000 Series 2020-1, Class B Notes at AA (sf)
-- $13,291,000 Series 2020-1, Class C Notes at A (sf)
-- $17,266,000 Series 2020-1, Class D Notes at BBB (sf)
-- $11,925,000 Series 2020-1, Class E Notes at BB (sf)
-- $7,329,000 Series 2020-1, Class F Notes at B (sf)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
-- The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
Coronavirus Disease (COVID-19), available in its commentary "Global
Macroeconomic Scenarios: June Update," published on June 1, 2020.
The June 1, 2020, commentary updates DBRS Morningstar's
macroeconomic scenarios initially published on April 16, 2020.
-- The assumptions consider the moderate macroeconomic scenario
outlined in the commentary (the moderate scenario serving as the
primary anchor for current ratings). The moderate scenario assumes
some success in containment of the coronavirus within Q2 2020 and a
gradual relaxation of restrictions, enabling most economies to
begin a gradual economic recovery in Q3 2020.
-- DBRS Morningstar estimated the expected cumulative net loss
(CNL) of 7.05% in its cash flow scenarios using the originator's
actual performance data and accounting for the expected equipment
mix in the collateral pool. DBRS Morningstar's CNL assumption also
considers the effect of the 2019 recessionary downturn in the
trucking industry on the performance of more recent static pool
vintages.
-- Transaction capital structure, ratings, and sufficiency of
available credit enhancement, which includes overcollateralization
(OC), subordination, and amounts held in the Reserve Account to
support the CNL assumption projected by DBRS Morningstar under
various stressed cash flow scenarios.
-- The rating on the Class A-1 Notes reflects 78.5% of initial
hard credit enhancement (as a percentage of the collateral balance)
provided by the subordinated notes (68.4%), the Reserve Account
(1.18%), and OC (8.90%). The rating on the Class A-2 Notes reflects
36.3% of initial hard credit enhancement provided by the
subordinated notes (26.2%), the Reserve Account, and OC. The
ratings on the Class B, Class C, Class D, Class E, and Class F
Notes reflect 30.1%, 24.8%, 17.8%, 13.0%, and 10.1% of initial hard
credit enhancement, respectively.
-- Contracts with deferrals related to the coronavirus and
past-due contracts are not eligible for inclusion in the collateral
pool as Initial Contracts or Additional Contracts.
-- The concentration limits mitigate the risk of material
migration in the collateral pool's composition during the
approximately four-month prefunding period.
-- The capabilities of Amur Equipment Finance, Inc. (Amur EF), a
commercial finance company providing equipment financing solutions
to a broad range of small to medium-size businesses across all 50
U.S. states with regard to originations, underwriting, and
servicing. DBRS Morningstar performed an operational review of Amur
EF and continues to deem the company an acceptable originator and
servicer of equipment lease and loan financing contracts. In
addition, Wells Fargo Bank, N.A. (rated AA with a Negative trend by
DBRS Morningstar), an experienced servicer of
equipment-lease-backed securitizations, is the backup servicer for
the transaction.
-- The legal structure and presence of legal opinions that address
the true sale of the assets to the Issuer, the nonconsolidation of
the special-purpose vehicle with Amur EF, that the trustee has a
valid first-priority security interest in the assets, and
consistency with DBRS Morningstar's "Legal Criteria for U.S.
Structured Finance."
Notes: All figures are in U.S. dollars unless otherwise noted.
ANGEL OAK 2020-3: Fitch Assigns B(EXP) Rating on Class B-2 Certs
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Fitch Ratings has assigned expected ratings to the residential
mortgage-backed certificates issued by Angel Oak Mortgage Trust
2020-3 (AOMT 2020-3).
RATING ACTIONS
AOMT 2020-3
Class A-1; LT AAA(EXP)sf; Expected Rating
Class A-2; LT AA(EXP)sf; Expected Rating
Class A-3; LT A(EXP)sf; Expected Rating
Class A-IO-S; LT NR(EXP)sf; Expected Rating
Class B-1; LT BB(EXP)sf; Expected Rating
Class B-2; LT B(EXP)sf; Expected Rating
Class B-3; LT NR(EXP)sf; Expected Rating
Class M-1; LT BBB-(EXP)sf; Expected Rating
Class XS; LT NR(EXP)sf; Expected Rating
TRANSACTION SUMMARY
Fitch Ratings expects to rate the residential mortgage-backed
certificates to be issued by Angel Oak Mortgage Trust 2020-3,
Mortgage-Backed Certificates, Series 2020-3 (AOMT 2020-3) as
indicated. The certificates are supported by 1356 loans with a
balance of $530.34 million as of the cutoff date. This will be the
ninth Fitch-rated transaction consisting of loans majority
originated by several Angel Oak-affiliated entities (collectively,
Angel Oak).
The certificates are secured mainly by nonqualified mortgages
(Non-QM) as defined by the Ability to Repay (ATR) rule. Of the
loans, 87.9% were originated by several Angel Oak entities, which
include Angel Oak Mortgage Solutions LLC (AOMS) (79.4%), Angel Oak
Home Loans LLC (AOHL) (8.4%) and Angel Oak Prime Bridge LLC (AOPB)
(0.04%). The remaining 12.1% of the loans were originated
third-party originators. Of the pool, 80.7% comprises loans
designated as Non-QM, 1.7% as Safe-Harbor QM (SHQM), 0.8% as a
higher priced QM (HPQM) and the remaining 16.8% is not subject to
ATR.
KEY RATING DRIVERS
Revised GDP Due to the Coronavirus: The coronavirus 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.
Liquidity Stress for Payment Forbearance (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 deferred
payments on a minimum of 40% 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. The
cash flows on the certificates will not be disrupted for the first
six months due to principal and interest (P&I) advancing on
delinquent loans by the servicer; however, after month six, the
lowest ranked classes may be vulnerable to temporary interest
shortfalls to the extent there is not enough funds available once
the more senior bonds are paid.
Stop Advance Structure (Mixed): The transaction has a stop advance
feature where the servicer will advance delinquent P&I up to 180
days. While the limited advancing of delinquent P&I benefits the
pool's projected loss severity (LS), it reduces liquidity. To
account for the reduced liquidity of a limited advancing structure,
principal collections are available to pay timely interest to the
'AAAsf', 'AAsf' and 'Asf' rated bonds. Fitch expects 'AAAsf' and
'AAsf' rated bonds to receive timely payments of interest and all
other bonds to receive ultimate interest. Additionally, as of the
closing date, the deal benefits from approximately 292bps of excess
spread, which will be available to cover shortfalls prior to any
writedowns.
The servicer Select Portfolio Servicing (SPS) will provide P&I
advancing on delinquent loans (even the loans on a coronavirus
forbearance plan). If SPS is not able to advance, the master
servicer (Wells Fargo Bank) will advance P&I on the certificates.
Payment Forbearance (Mixed): Of the borrowers in the pool, 20.8%
(239 loans) are on a coronavirus relief plan. Specifically, 18.2%
are on a coronavirus forbearance plan and the remaining 2.6% are
solely having their payment deferred. Approximately 7% of the
borrowers on a coronavirus forbearance relief plan have been making
their payments and are contractually current while the remaining
borrowers (approximately 11%) have not been making their payments
and are delinquent. Fitch considered the borrowers who are on
coronavirus relief plan that are cash flowing as current while the
borrowers who are not cash flowing were treated as delinquent.
Angel Oak is offering borrowers a three-month payment forbearance
plan. Beginning in month four, the borrower can opt to reinstate
(i.e. repay the three missed mortgage payments in a lump sum) or
repay the missed amounts with a repayment plan. If reinstatement or
a repayment plan is not affordable, the missed payments will be
added to the end of the loan term due at payoff or maturity as a
deferred principal. If the borrower does not become current under a
repayment plan or is not able to make payments after a deferral
plan was granted, other loss mitigation options will be pursued.
The servicer will continue to advance during the forbearance
period. Recoveries of advances will be repaid either from
reinstated or repaid amounts from loans where borrowers are on a
repayment plan. For loans with deferrals of missed payments, the
servicer can recover advances from the principal portion of
collections, which may result in a mismatch between the loan
balance and certificate balance. While this may increase realized
losses, the 292bps of excess spread as of the closing date should
be available to absorb these amounts and reduce the potential for
writedowns.
Expanded Prime Credit Quality (Mixed): The collateral consists of
15-year, 20-year, 25-year, 30-year and 40-year mainly fixed-rate
loans (2.0% of the loans are adjustable rate); 9.3% of the loans
are interest-only (IO) loans and the remaining 90.7% are fully
amortizing loans. The pool is seasoned approximately seven months
in aggregate (as determined by Fitch). The borrowers in this pool
have strong credit profiles with a 721 weighted-average (WA) FICO
and moderate leverage (80.3% sLTV). In addition, the pool contains
83 loans over $1 million and the largest is $3.0 million.
Self-employed borrowers make up 67.8% of the pool, 22.7% of the
pool are salaried employees, and 9.6% of the pool comprises
investor cash flow loans.
Fitch considered 8.2% of borrowers as having a prior credit event
in the past seven years, and 0.5% of the pool was underwritten to
nonpermanent residents. The pool characteristics resemble recent
non-prime collateral, and therefore, the pool was analyzed using
Fitch's non-prime model.
Bank Statement Loans Included (Negative): Approximately 56% (618
loans) were made to self-employed borrowers underwritten to a bank
statement program (25% to a 24-month bank statement program and 31%
to a 12-month bank statement program) for verifying income in
accordance with either AOHL's or AOMS's guidelines, which is not
consistent with Appendix Q standards or Fitch's view of a full
documentation program. To reflect the additional risk, Fitch
increases the probability of default (PD) by 1.5x on the bank
statement loans.
High Investor Property Concentration (Negative): Of the pool, 16.8%
comprises investment properties, and 7.2% of loans were
underwritten using the borrower's credit profile, while the
remaining 9.6% were originated through the originators' investor
cash flow program that targets real estate investors qualified on a
debt service coverage ratio (DSCR) basis. The borrowers of the
non-DSCR investor properties in the pool have strong credit
profiles, with a WA FICO of 719 (as calculated by Fitch) and an
original CLTV of 75.4% and DSCR loans have a WA FICO of 743 (as
calculated by Fitch) and an original CLTV of 64.5%. Fitch increased
the PD by approximately 2.0x for the cash flow ratio loans
(relative to a traditional income documentation investor loan) to
account for the increased risk.
Geographic Concentration (Negative): Approximately 36% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in the Los Angeles
MSA (19.0%) followed by the Miami MSA (9.7%) and the Atlanta MSA
(4.2%). The top three MSAs account for 32.9% of the pool. As a
result, there was a 1-bp increase to the 'AAA' expected loss to
account for geographic concentration.
Modified Sequential Payment Structure (Neutral): The structure
distributes collected principal pro rata among the class A
certificates while shutting out the subordinate bonds from
principal until all three classes have been reduced to zero. To the
extent that either the cumulative loss trigger event or the
delinquency trigger event occurs in a given period, principal will
be distributed sequentially to the class A-1, A-2 and A-3 bonds
until they are reduced to zero.
Low Operational Risk (Positive): Operational risk is well
controlled for in this transaction. Angel Oak employs robust
sourcing and underwriting processes and is assessed by Fitch as an
'Average' originator. Primary and master servicing functions will
be performed by SPS and Wells Fargo Bank, N.A. (Wells Fargo), rated
'RPS1-'/Negative and 'RMS1-'/Negative, respectively. Fitch's
Long-Term Issuer Default Rating (IDR) for SPS's parent, Credit
Suisse (USA) Inc., is 'A'/Stable (as of May 29, 2020). The
sponsor's retention of at least 5% of the bonds helps ensure an
alignment of interest between the issuer and investors.
R&W Framework (Negative): AOHL will be providing loan-level
representations and warranties (R&W) to the loans in the trust. If
the entity is no longer an ongoing business concern, it will assign
to the trust its rights under the mortgage loan purchase agreements
with the originators, which include repurchase remedies for R&W
breaches. While the loan-level reps for this transaction are
substantially consistent with a Tier I framework, the lack of an
automatic review for loans other than those with ATR realized loss
and the nature of the prescriptive breach tests, which limit the
breach reviewers' ability to identify or respond to issues not
fully anticipated at closing, resulted in a Tier 2 framework. Fitch
increased its loss expectations (94bps at the 'AAAsf' rating
category) to mitigate the limitations of the framework and the
non-investment-grade counterparty risk of the provider.
The number of unnecessary R&W breach reviews due to a loan going
delinquent due to coronavirus forbearance should be limited since
the R&W review trigger is based on the loan having a realized loss
and an ATR violation.
Due Diligence Review Results (Positive): Third-party due diligence
was performed on 100% of loans in the transaction. The loans were
reviewed by SitusAMC and Clayton, both of which are assessed by
Fitch as an 'Acceptable - Tier 1' third-party review (TPR) firm, as
well as Digital Risk, assessed as 'Acceptable - Tier 2'. The
results of the review confirm strong origination practices with
only a few material exceptions. Exceptions on loans with 'B' or 'C'
grades either had strong mitigating factors or were mostly
accounted for in Fitch's loan loss model. Fitch applied a credit
for the high percentage of loan level due diligence, which reduced
the 'AAAsf' loss expectation by 42bps.
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.
ARROYO MORTGAGE 2020-1: S&P Assigns Prelim 'B' Rating to B-2 Notes
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S&P Global Ratings assigned its preliminary ratings to Arroyo
Mortgage Trust 2020-1's mortgage-backed notes.
The note issuance is an RMBS securitization backed by first-lien,
fixed- and adjustable-rate, fully amortizing residential mortgage
loans to both prime and nonprime borrowers (some with interest-only
periods) secured by single-family residential properties,
planned-unit developments, condominiums, and two- to four-family
residential properties. The majority of the loans are non-qualified
mortgage loans.
The preliminary ratings are based on information as of June 23,
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 pool's collateral composition;
-- The transaction's credit enhancement;
-- The transaction's associated structural mechanics;
-- The transaction's representation and warranty framework;
-- The geographic concentration;
-- The mortgage aggregator, Western Asset Management Co. LLC as
investment manager for Western Asset Mortgage Capital Corp; and
-- The impact that the economic stress brought on by the COVID-19
virus 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 evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021. S&P is using this assumption in assessing the economic and
credit implications associated with the pandemic. As the situation
evolves, S&P will update its assumptions and estimates
accordingly.
PRELIMINARY RATINGS ASSIGNED
Arroyo Mortgage Trust 2020-1
Class Rating(i) Amount ($)
A-1 AAA (sf) 298,448,000
A-2 AA (sf) 13,518,000
A-3 A (sf) 17,963,000
M-1 BBB (sf) 11,739,000
B-1 BB (sf) 5,870,000
B-2 B (sf) 4,090,000
B-3 NR 4,091,648
A-IO-S NR Notional(ii)
XS NR Notional(ii)
Owner trust certificate NR N/A
AVERY POINT VII: Moody's Cuts Rating on Class F Notes to Caa2
-------------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Avery Point VII CLO, Limited:
US$21,200,000 Class E Senior Secured Deferrable Floating Rate Notes
Due 2028 (the "Class E Notes"), Downgraded to B1 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
US$7,200,000 Class F Senior Secured Deferrable Floating Rate Notes
Due 2028 (the "Class F Notes"), Downgraded to Caa2 (sf); previously
on April 17, 2020 B3 (sf) Placed Under Review for Possible
Downgrade
Moody's has also confirmed the ratings on the following notes:
US$26,650,000 Class D-R Senior Secured Deferrable Floating Rate
Notes Due 2028 (the "Class D-R Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
These rating actions conclude the review for downgrade initiated on
April 17, 2020 on the Class D-R, Class E and Class F Notes issued
by the CLO. The CLO, issued in December 2015 and partially
refinanced in June 2019, is a managed cashflow CLO. The notes are
collateralized primarily by a portfolio of broadly syndicated
senior secured corporate loans. The transaction's reinvestment
period will end in January 2021.
RATINGS RATIONALE
The downgrade on the Class E and Class F Notes reflects the risks
posed by credit deterioration and loss of collateral coverage
observed in the underlying CLO portfolio, which have been primarily
prompted by economic shocks stemming from the coronavirus pandemic.
Since the outbreak widened in March, the decline in corporate
credit has resulted in a significant number of downgrades, other
negative rating actions, or defaults on the assets collateralizing
the CLO. Consequently, the default risk of the CLO portfolio has
increased substantially, the credit enhancement available to the
CLO notes has eroded, exposure to Caa-rated assets has increased
significantly, and expected losses on certain notes have increased
materially.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the risk posed to, and
the ELs on the Class D-R Notes continue to be consistent with their
current rating after taking into account the CLO's latest
portfolio, relevant structural features, and actual OC levels.
Consequently, Moody's has confirmed the rating on the Classes D-R
Notes.
Based on Moody's calculation, the weighted average rating factor
was 3423 as of May 2020, or 18% worse compared to a WARF of 2905
reported by the trustee in March 2020[1]. Moody's calculation also
showed the WARF was failing the test level of 3023 reported in the
May 2020 trustee report [2] by 400 points. Moody's noted that
approximately 24% of the CLO's portfolio par was from obligors
assigned a negative outlook and 8% from obligors whose ratings are
on review for possible downgrade. Additionally, based on Moody's
calculation, the proportion of obligors in the portfolio with
Moody's corporate family or other equivalent ratings of Caa1 or
lower (adjusted for negative outlook or watchlist for downgrade)
was approximately 20% of the CLO par as of May 2020. Furthermore,
Moody's calculated the total collateral par balance, including
recoveries from defaulted securities, at $389.9 million, or
approximately $9.7 million less than the deal's total par balance
at the time of the refinancing, and Moody's calculated the
over-collateralization ratios (excluding haircuts) for the Class
D-R, Class E and Class F Notes as of May 2020 at 112.66%, 106.16%,
and 104.12%, respectively.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $388.3 million, defaulted par of $7.2
million, a weighted average default probability of 26.79% (implying
a WARF of 3423), a weighted average recovery rate upon default of
47.67%, a diversity score of 82 and a weighted average spread of
3.49%. Moody's also considered in its analysis the CLO manager's
recent investment decisions and trading strategies.
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 corporate assets.
The contraction in economic activity in the second quarter has been
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
BBCMS MORTGAGE 2020-C6: Fitch Rates 2 Tranches 'B-sf'
-----------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
BBCMS Mortgage Trust 2020-C7, commercial mortgage pass-through
certificates, series 2020-C7, as follows:
BBCMS 2020-C7
-- 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-5; LT AAAsf New Rating
-- Class A-S; 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; LT BBB-sf New Rating
-- Class E; LT BB-sf New Rating
-- Class F; LT B-sf New Rating
-- Class G; LT NRsf New Rating
-- Class RR; LT NRsf New Rating
-- RR Interest; LT NRsf New Rating
-- Class X-A; LT AAAsf New Rating
-- Class X-B; LT AA-sf New Rating
-- Class X-E; LT BB-sf New Rating
-- Class X-F; LT B-sf New Rating
-- Class X-G; LT NRsf New Rating
-- $13,198,000 class A-1 'AAAsf'; Outlook Stable;
-- $115,000,000 class A-2 'AAAsf'; Outlook Stable;
-- $38,000,000 class A-3 'AAAsf'; Outlook Stable;
-- $75,000,000 class A-4 'AAAsf'; Outlook Stable;
-- $270,000,000 class A-5 'AAAsf'; Outlook Stable;
-- $26,000,000 class A-SB 'AAAsf'; Outlook Stable;
-- $537,198,000a class X-A 'AAAsf'; Outlook Stable;
-- $117,992,000a class X-B 'AA-sf'; Outlook Stable;
-- $89,214,000 class A-S 'AAAsf'; Outlook Stable;
-- $28,778,000 class B 'AA-sf'; Outlook Stable;
-- $28,779,000 class C 'A-sf'; Outlook Stable;
-- $15,349,000ab class X-E 'BB-sf'; Outlook Stable;
-- $7,674,000ab class X-F 'B-sf'; Outlook Stable;
-- $33,574,000b class D 'BBB-sf'; Outlook Stable;
-- $15,349,000b class E 'BB-sf'; Outlook Stable;
-- $7,674,000b class F 'B-sf'; Outlook Stable.
The following classes are not rated by Fitch:
-- $26,860,708ab class X-G;
-- $26,860,708b class G;
-- $32,308,893bc Class RR;
-- $8,081,988bc RR Interest.
(a) Notional amount and interest only.
(b) Privately-placed and pursuant to Rule 144a.
(c) The RR certificates and RR interest collectively are the
"eligible vertical interest" representing 5.0% of the pool.
The ratings are based on information provided by the issuer as of
June 25, 2020.
Since Fitch published its presale on June 9, 2020, the class
balances for class A-4 and A-5 have been finalized. At the time
that the expected ratings were published, the initial certificate
balances of classes A-4 and A-5 were unknown and expected to be
approximately $345,000,000 in the aggregate, subject to a 5%
variance. The final class balances for classes A-4 and A-5 are
$75,000,000 and $270,000,000, respectively.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 49 loans secured by 153
commercial properties having an aggregate principal balance of
$807,817,588 as of the cut-off date. The loans were contributed to
the trust by Barclays Capital Real Estate, Inc., KeyBank National
Association, Societe Generale Financial Corporation, Natixis Real
Estate Capital LLC and Rialto Real Estate Fund IV - Debt, LP.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 57.2% of the properties
by balance, cash flow analyses of 89.5% of the pool, and asset
summary reviews on 100% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus 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 are not subject to any forbearance
requests; however, a loan modification request for the 1st & Pine
loan (1.7% of the pool) is currently being negotiated between the
lender and the borrower. The loan modification may include the
waiver of the monthly capex and rollover reserves for 12 months,
suspending the 1.40x debt service coverage ratio cash sweep trigger
through the rest of 2020 and the ability to provide rent relief for
several tenants at the property.
KEY RATING DRIVERS
Credit Opinion Loans: Six loans representing 33.5% of the pool by
balance have credit characteristics consistent with
investment-grade obligations on a stand-alone basis. This is above
the 2020 YTD and 2019 averages of 27.8% and 14.2%, respectively.
Parkmerced (7.4%) received a standalone credit opinion of 'BBB+sf';
525 Market Street (7.4%) received a standalone credit opinion of
'A-sf'; The Cove at Tiburon (6.2%) received a standalone credit
opinion of 'BBB-sf'; Acuity Portfolio (5.0%) received a standalone
credit opinion of 'BBB+sf'; F5 Tower (4.9%) received a standalone
credit opinion of 'BBB-sf'; and 650 Madison Avenue (2.7%) received
a standalone credit opinion of 'BBB-sf'.
Favorable Property Type Concentration: The pool does not include
any hotels, and retail properties only comprise 12.2% of the pool,
which is below the 2020 YTD and 2019 averages of 21.0% and 23.6%,
respectively. Multifamily properties represent the highest
concentration at 30.1%. In Fitch's multiborrower model, multifamily
properties have a below-average likelihood of default, all else
equal. Office properties represent the second highest concentration
at 28.9%. Office properties have an average likelihood of default
in Fitch's multiborrower model, all else equal.
Highly Concentrated Pool: The pool's 10 largest loans comprise
58.2% of the pool, which is greater than the 2020 YTD and 2019
concentrations of 52.7% and 51.0%, respectively. The pool's LCI of
419 is also greater than the 2020 YTD and 2019 average LCIs of 393
and 371, respectively.
Higher Fitch Leverage: Overall, the pool's Fitch DSCR of 1.21x is
worse than average when compared to the 2020 YTD and 2019 averages
of 1.31x and 1.26x, respectively. The pool's trust Fitch loan to
value (LTV) of 98.9% is in line with 2020 YTD average of 99.0% but
better than the 2019 average of 103.0%. Excluding credit opinion
loans, the pool's weighted average DSCR and LTV are 1.17x and
113.9%, respectively.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
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' / 'BB-sf' /
'B-sf'
10% NCF Decline: 'AA+sf' / 'A+sf' / 'BBB+sf' / 'BB+sf' / 'BB-sf' /
'CCCsf'
20% NCF Decline: 'A+sf' / 'A-sf' / 'BBB-sf' / 'BB-sf' / 'CCCsf' /
'CCCsf'
30% NCF Decline: 'BBB+sf' / 'BBB-sf' / 'BBsf' / 'CCCsf' / 'CCCsf' /
'CCCsf'
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
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' / 'BB-sf' /
'B-sf'
20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AAAsf' / '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 (Form 15E) as
prepared by Ernst & Young 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. A copy of
the ABS Due Diligence Form 15-E received by Fitch in connection
with this transaction may be obtained via the link at the bottom of
the related rating action commentary.
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).
BENCHMARK 2018-B5: Fitch Affirms Class G-RR Certs at B-sf
---------------------------------------------------------
Fitch has affirmed 15 classes of Benchmark 2018-B5 Mortgage Trust
Commercial Mortgage Pass-Through Certificates.
Benchmark 2018-B5
- Class A-1 08160BAA2; LT AAAsf; Affirmed
- Class A-2 08160BAD6; LT AAAsf; Affirmed
- Class A-3 08160BAC8; LT AAAsf; Affirmed
- Class A-4 08160BAB0; LT AAAsf; Affirmed
- Class A-S 08160BAH7; LT AAAsf; Affirmed
- Class A-SB 08160BAE4; LT AAAsf; Affirmed
- Class B 08160BAJ3; LT AA-sf; Affirmed
- Class C 08160BAK0; LT A-sf; Affirmed
- Class D 08160BAL8; LT BBBsf; Affirmed
- Class E-RR 08160BAQ7; LT BBB-sf; Affirmed
- Class F-RR 08160BAS3; LT BB-sf; Affirmed
- Class G-RR 08160BAU8; LT B-sf; Affirmed
- Class X-A 08160BAF1; LT AAAsf; Affirmed
- Class X-B 08160BAG9; LT AA-sf; Affirmed
- Class X-D 08160BAN4 LT BBBsf; Affirmed
KEY RATING DRIVERS
Relatively Stable Performance; Increased Loss Expectations: While
loss expectations have increased since issuance due to the
significant economic impact of the coronavirus pandemic, the
majority of the pool has exhibited relatively stable performance
since issuance. Fitch has designated five Fitch Loans of Concern
(FLOCs; 9.8%), which includes two specially serviced loans (6.3%).
The largest FLOC is the specially serviced NY & CT NNN Portfolio
loan (5.6%), which is secured by a cross-collateralized and
cross-defaulted portfolio of six single-tenant retail properties
and three unanchored retail properties totaling 70,333 sf and
located in New York City and its surrounding suburbs. The loan
transferred to special servicing in December 2019 for payment
default and default on cash management provisions. Prior to its
transfer to special servicing, the loan had been flagged on the
master servicer's watchlist several times since issuance for
delinquency and payment shortfalls. Approximately 83% of the total
portfolio square footage is leased by creditworthy tenants,
including three TD Bank branches ('AA-'/Negative; 18.5% of
portfolio NRA), two Bank of America branches ('A+'/Stable; 13.5%),
two Chase bank branches ('AA-'/Negative, 10.8%), one Walgreens
pharmacy ('BBB-'/Stable, 19.4%) and one CVS pharmacy (21.3%). Per
the servicer, only the Walgreens tenant is currently paying its
rent into the cash lockbox. The lender filed for foreclosure in
federal court in March 2020 and the servicer's counsel is in the
process of assigning a receiver. No settlement plan has been
finalized to date. Late fees totaled $182,278 and default interest
totaled $5,323,125 as of June 4, 2020. The loan is current as of
the June 2020 remittance. Fitch has not received updated financials
and rent rolls for the portfolio since issuance.
The remaining FLOCs outside of the top 15 include a retail loan,
which is 60 days delinquent as of June 2020, secured by a
126,493-sf community shopping center located in Sacramento, CA
(1.4%); a multifamily loan, which remains current, secured by a
109-unit mid-rise multifamily property located in College Park, GA
(1.3%) that has experienced occupancy and cash flow decline since
issuance; a hotel loan, which is 30 days delinquent, secured by a
103-key limited-service hotel located in Wheat Ridge, CO (0.9%) and
a specially serviced hotel loan, which is 60 days delinquent,
secured by a 101-key limited-service hotel located in Chesapeake,
VA (0.7%) where the borrower has requested relief and loan
modification due to the pandemic.
Minimal Change in Credit Enhancement: As of the June 2020
distribution date, the pool's aggregate balance has paid down by
0.6% to $1.032 billion from $1.039 billion at issuance. No loans
have been paid off or defeased. There have been no realized losses
to date. Cumulative interest shortfalls totaling $81,088 are
affecting the non-rated class NR-RR. Based on the scheduled balance
at maturity, the pool is expected to pay down by 6.1% during the
term. Twenty-four loans (63.3%), including 11 of the top 15 loans,
are full-term interest-only and 14 loans (15.9%) remain in partial
interest-only periods. Loan maturities are concentrated in 2028
(79.1%), with 18.9% in 2023 and 1.9% in 2027.
Coronavirus Exposure: Eight loans (16.4%) are secured by hotel
properties. The weighted average NOI DSCR for the hotel loans is
2.25x; these hotel loans could sustain a decline in NOI of 51%
before DSCR falls below 1.0x. Sixteen loans (33.7%) are secured by
retail properties. The WA NOI DSCR for the retail loans is 1.88x;
these retail loans could sustain a decline in NOI of 45% before
DSCR falls below 1.0x. Eleven loans (12.8%) are secured by
multifamily properties. The WA NOI DSCR for the multifamily loans
is 1.75x; these multifamily loans could sustain a WA decline in NOI
of 41% before DSCR falls below 1.0x. Additional coronavirus
specific stresses were applied to six hotel loans, five retail
loans and one multifamily loan; these additional stresses
contributed to maintaining the Negative Rating Outlooks on classes
F-RR and G-RR.
Credit Opinion Loans: Five loans totaling 27.8% of the pool had
investment-grade credit opinions on a stand-alone basis at
issuance: Aventura Mall (10.0%) received a credit opinion 'Asf*' on
a stand-alone basis, eBay North First Commons (4.9%) received a
credit opinion of 'BBB-sf*' on a stand-alone basis, Workspace
(4.8%) received a credit opinion of 'Asf*' on a stand-alone basis,
Aon Center (4.2%) received a stand-alone credit opinion of
'BBB-sf*' and 181 Fremont Street (3.9%) received a stand-alone
credit opinion of 'BBB-sf*'.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes F-RR and G-RR reflect the
potential for downgrade due to concerns surrounding the ultimate
impact of the coronavirus pandemic and the performance concerns
associated with the FLOCs. The Stable Rating Outlooks on classes
A-1 through E-RR and the interest-only classes X-A, X-B and X-D
reflect the increasing credit enhancement, continued amortization
and relatively stable performance of the majority of the pool.
Factors that Could, Individually or Collectively, Lead to a
Positive Rating Action/Upgrade:
Sensitivity factors that lead to upgrades would include stable to
improved asset performance coupled with pay down and/or defeasance.
Upgrades to the 'Asf' and 'AAsf' categories would likely occur with
significant improvement in credit enhancement and/or defeasance.
However, adverse selection, increased concentrations and further
underperformance of the FLOCs or loans expected to be negatively
affected by the coronavirus pandemic could cause this trend to
reverse. Upgrades to the 'BBBsf' category would also take into
account these factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration. Classes
would not be upgraded above 'Asf' if there were likelihood for
interest shortfalls. Upgrades to the 'Bsf' and 'BBsf' categories
are not likely until the later years in a 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 classes.
Factors that Could, Individually or Collectively, Lead to a
Negative Rating Action/Downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool-level losses from underperforming or specially serviced loans.
Downgrades to the 'Asf', 'AAsf' and 'AAAsf' categories are not
likely due to the position in the capital structure, but may occur
at the 'AAsf' and 'AAAsf' categories should interest shortfalls
occur. Downgrades to the 'BBBsf' category would occur should
overall pool losses increase and/or one or more large loans have an
outsized loss, which would erode credit enhancement. Downgrades to
the 'Bsf' and 'BBsf' categories would occur should loss
expectations increase due to an increase in specially serviced
loans and/or the loans vulnerable to the coronavirus pandemic not
stabilize.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
negative rating actions, including downgrades or Negative Rating
Outlook revisions.
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).
BENEFIT STREET XX: S&P Rates Class E Notes 'BB- (sf)'
-----------------------------------------------------
S&P Global Ratings assigned its ratings to Benefit Street Partners
CLO XX Ltd./Benefit Street Partners CLO XX LLC's floating- and
fixed-rate notes.
The note issuance is a CLO securitization backed 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 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 acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
RATINGS ASSIGNED
Benefit Street Partners CLO XX Ltd./
Benefit Street Partners CLO XX LLC
Class Rating Amount (mil. $)
A-1 AAA (sf) 240.00
A-2 NR 16.00
B-1 AA (sf) 33.00
B-2 AA (sf) 11.00
C (deferrable) A (sf) 24.00
D (deferrable) BBB- (sf) 24.00
E (deferrable) BB- (sf) 12.00
Subordinated notes NR 38.20
NR--Not rated.
BLUEMOUNTAIN CLO XXIX: S&P Rates Class E Notes 'BB- (sf)'
---------------------------------------------------------
S&P Global Ratings assigned its ratings to BlueMountain CLO XXIX
Ltd.'s floating-rate notes.
The note issuance is a CLO securitization 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 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; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021. S&P is using this assumption in assessing the economic and
credit implications associated with the pandemic (see S&P's
research here: www.spglobal.com/ratings). As the situation evolves,
the rating agency will update its assumptions and estimates
accordingly.
RATINGS ASSIGNED
BlueMountain CLO XXIX Ltd./BlueMountain CLO XXIX LLC
Class Rating Amount
(mil. $)
A AAA (sf) 240.00
B AA (sf) 64.00
C (deferrable) A (sf) 22.00
D (deferrable) BBB- (sf) 22.00
E (deferrable) BB- (sf) 14.00
Subordinated notes NR 32.35
NR--Not rated.
BRAVO RESIDENTIAL 2020-RPL1: DBRS Finalizes B Rating on B-2 Notes
-----------------------------------------------------------------
DBRS, Inc. finalized provisional ratings on the following
Mortgage-Backed Notes, Series 2020-RPL1 (the Notes) to be issued by
BRAVO Residential Funding Trust 2020-RPL1 (BRAVO 2020-RPL1 or the
Trust):
-- $166.8 million Class A-1 at AAA (sf)
-- $21.9 million Class A-2 at AA (sf)
-- $188.6 million Class A-3 at AA (sf)
-- $206.8 million Class A-4 at A (sf)
-- $223.1 million Class A-5 at BBB (sf)
-- $18.2 million Class M-1 at A (sf)
-- $16.3 million Class M-2 at BBB (sf)
-- $13.9 million Class B-1 at BB (sf)
-- $10.1 million Class B-2 at B (sf)
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The AAA (sf) rating on the Class A-1 Notes reflects 47.75% of
credit enhancement provided by subordinated notes. The AA (sf), A
(sf), BBB (sf), BB (sf), and B (sf) ratings reflect 40.90%, 35.20%,
30.10%, 25.75%, and 22.60% of credit enhancement, respectively.
This transaction is a securitization of a portfolio of primarily
seasoned performing first-lien residential mortgages funded by the
issuance of the Notes, which are backed by 1,776 loans with a total
principal balance of $319,165,241 as of the Cut-Off Date (May 31,
2020).
The loans are approximately 168 months seasoned and contain 95.9%
modified loans. The modifications happened more than two years ago
for 66.8% of the modified loans. Within the pool, 1,247 mortgages
have non-interest-bearing deferred amounts, which equate to
approximately 10.6% of the total principal balance.
As of the Cut-Off Date, 67.6% of the pool is current, 24.0% is
under Coronavirus Disease (COVID-19) related deferral plans, and
3.9% is 30 days delinquent under the Mortgage Bankers Association
(MBA) delinquency method. There are 94 loans, 4.5% of the pool, in
bankruptcy. Approximately 37.8% and 68.4% of the mortgage loans
have been zero times 30 days delinquent for the past 24 months and
12 months, respectively, under the MBA delinquency method.
All loans in this pool are exempt from the Consumer Financial
Protection Bureau (CFPB) Ability-to-Repay (ATR)/Qualified Mortgage
(QM) rules.
BRAVO III Residential Funding VII Ltd., an affiliate of Loan
Funding Structure LLC (the Sponsor), will acquire the loans and
will contribute them to the Trust. The Sponsor or one of its
majority-owned affiliates will acquire and retain a 5% eligible
vertical interest in the offered Notes, consisting of 5% of each
class to satisfy the credit risk retention requirements.
The mortgage loans will be serviced by Rushmore Loan Management
Services LLC. For this transaction, the aggregate servicing fee
paid from the Trust will be 0.25%.
There will not be any advancing of delinquent principal or interest
on any mortgages by the Servicer or any other party to the
transaction; however, the Servicer is obligated to make advances in
respect of homeowner association fees, taxes, and insurance as well
as reasonable costs and expenses incurred in the course of
servicing and disposing of properties.
When the aggregate pool balance is reduced to less than 10% of the
balance as of the Cut-Off Date, the holder of the Trust
certificates may purchase all of the mortgage loans and real estate
owned (REO) properties from the issuer at a price equal to the sum
of principal balance of the mortgage loans; accrued and unpaid
interest thereon; the fair market value of REO properties net of
liquidation expenses; unpaid servicing advances; and any fees,
expenses, or other amounts owed to the transaction parties
(optional termination).
Coronavirus Pandemic and Forbearance
The coronavirus pandemic and the resulting isolation measures have
caused an economic contraction, leading to sharp increases in
unemployment rates and income reductions for many consumers. DBRS
Morningstar anticipates that delinquencies may continue to raise in
the coming months for many residential mortgage-backed securities
(RMBS) asset classes, some meaningfully.
Reperforming loans (RPL) is a traditional RMBS asset class that
consists of securitizations backed by pools of seasoned performing
and reperforming residential home loans. Although borrowers in
these pools may have experienced delinquencies in the past, the
loans have been largely performing for the past six months to 24
months since issuance. Generally, these pools are highly seasoned
and contain sizable concentrations of previously modified loans.
As a result of the coronavirus, DBRS Morningstar expects increased
delinquencies, loans on forbearance plans, and a potential
near-term decline in the values of the mortgaged properties. Such
deteriorations may adversely affect borrowers' ability to make
monthly payments, refinance their loans, or sell properties in an
amount sufficient to repay the outstanding balance of their loans.
In connection with the economic stress assumed under its moderate
scenario (see "Global Macroeconomic Scenarios: June Update,"
published on June 1, 2020) for the RPL asset class, DBRS
Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than what it previously
used. Such MVD assumptions are derived through a fundamental home
price approach based on the forecast unemployment rates and GDP
growth outlined in the aforementioned moderate scenario. In
addition, for pools with loans on forbearance plans, DBRS
Morningstar may assume higher loss expectations above and beyond
the coronavirus assumptions. Such assumptions translate to higher
expected losses on the collateral pool and correspondingly higher
credit enhancement.
In the RPL asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes that loans which were previously
delinquent, recently modified, or have higher updated loan-to-value
ratios (LTVs) may be more sensitive to economic hardships resulting
from higher unemployment rates and lower incomes. Borrowers with
previous delinquencies or recent modifications have exhibited
difficulty in fulfilling payment obligations in the past and may
revert back to spotty payment patterns in the near term. Higher LTV
borrowers with lower equity in their properties generally have
fewer refinance opportunities and, therefore, slower prepayments.
In addition, for this transaction, as permitted by the Coronavirus
Aid, Relief, and Economic Security (CARES) Act, signed into law on
March 27, approximately 24.0% of the borrowers are on deferral
plans because the borrowers reported financial hardship related to
coronavirus. These deferral plans allow temporary payment holidays,
followed by repayment once the deferral period ends. DBRS
Morningstar understands that the Servicer generally offers the
deferral of the unpaid principal and interest amounts as a main
form of payment relief in place of a repayment plan. The deferral
creates a non-interest-bearing amount that is due and payable at
the maturity of the contract or when the contract is refinanced.
The loans for which the deferrals were granted are reported as
current for the duration of the deferral period, though the actual
payments are not made but deferred. The Servicer may also pursue
other loss mitigation options, as applicable.
For these loans, DBRS Morningstar applied additional assumptions to
evaluate the impact of potential cash flow disruptions on the rated
tranches, stemming from (1) lower principal and interest
collections and (2) no servicing advances on delinquent principal
and interest (P&I). These assumptions include:
(1) Increasing delinquencies to generally two times the
forbearance percentage as of the Report Date for the AAA (sf) and
AA (sf) rating levels for the first 12 months.
(2) Increasing delinquencies to generally 1.5 times the
forbearance percentage as of the closing date for the first nine
months for the A (sf) and below rating levels.
(3) Assuming no voluntary prepayments for the first 12 months for
the AAA (sf) and AA (sf) rating levels.
(4) Delaying the receipt of liquidation proceeds during the first
12 months for the AAA (sf) and AA (sf) rating levels.
Notes: All figures are in U.S. dollars unless otherwise noted.
BRAVO RESIDENTIAL 2020-RPL1: Fitch Assigns BB Rating to 3 Tranches
------------------------------------------------------------------
Fitch Ratings has assigned ratings to BRAVO Residential Funding
Trust 2020-RPL1.
BRAVO 2020-RPL1
- Class A-1; LT AAAsf New Rating
- Class A-2; LT AAsf New Rating
- Class A-3; LT AAsf New Rating
- Class A-4; LT Asf New Rating
- Class A-5; LT BBBsf New Rating
- Class AIOS; LT NRsf New Rating
- Class B; LT NRsf New Rating
- Class B-1; LT BBsf New Rating
- Class B-2; LT Bsf New Rating
- Class B-3; LT NRsf New Rating
- Class B-4; LT NRsf New Rating
- Class B-5; LT NRsf New Rating
- Class M-1; LT Asf New Rating
- Class M-2; LT BBBsf New Rating
- Class SA; LT NRsf New Rating
- Class X; LT NRsf New Rating
TRANSACTION SUMMARY
The transaction is expected to close on June 19, 2020. The notes
are supported by one collateral group that consists of 1,776
seasoned performing loans and re-performing loans with a total
balance of approximately $319.2 million, which includes $33.8
million, or 10.6%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts, as of the
statistical calculation date.
Distributions of principal and interest and loss allocations are
based on a traditional senior-subordinate, sequential structure.
The sequential-pay structure locks out principal to the
subordinated notes until the most senior notes outstanding are paid
in full. The servicer will not be advancing delinquent monthly
payments of P&I.
KEY RATING DRIVERS
Revised GDP Due to Coronavirus (Negative): The coronavirus and the
resulting containment efforts have resulted in revisions to Fitch's
GDP estimates for 2020. Its 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 floor of 2.0 (the ERF is a
default variable in the U.S. RMBS loan loss model) was applied to
'BBBsf' and below.
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage, SPLs and RPLs. Prior to the
adjustment for forbearance and deferrals listed below, 5.2% of the
pool was 30 days delinquent as of the statistical calculation date,
and 56% of loans are current but had recent delinquencies or
incomplete 24 month pay strings. 38.8% of the loans have been
paying on time for the past 24 months. Roughly 98% has been
modified.
Payment Forbearance and Deferrals (Negative): As of the cutoff
date, approximately 23.8% (by UPB) of the loans in the pool have
received coronavirus forbearance or deferral relief. To account for
potential permanent hardship and default risk, Fitch assumed all
loans with coronavirus-related forbearance or deferrals to be
30-days delinquent. This assumption resulted in an increase to
Fitch's 'AAAsf' expected loss of almost 270bps.
Expected Payment Forbearance and Deferrals 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. Mortgage payment
forbearance or deferrals will provide immediate relief to affected
borrowers and Fitch expects servicers to broadly adopt this
practice. The missed payments will result in interest shortfalls
that will likely be recovered, the timing of which will depend on
repayment terms; if interest is added to the underlying balance as
a non-interest-bearing amount, repayment will occur at refinancing,
property liquidation, or loan maturity.
To account for the potential for cash flow disruptions, Fitch
assumed deferred payments on a minimum of 40% 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. The 40% assumption is based on observed peak
delinquencies for legacy Alt-A collateral. Under these assumptions,
the 'AAAsf' and 'AAsf' classes did not incur any shortfalls and are
expected to receive timely payments of interest. The cash flow
waterfall providing for principal otherwise distributable to the
lower rated bonds to pay timely interest to the 'AAAsf' and 'AAsf'
bonds and availability of excess spread also mitigate the risk of
interest shortfalls. The 'Asf' through 'Bsf' rated classes incurred
temporary interest shortfalls that were ultimately recovered.
Low Operational Risk (Neutral): Operational risk is well controlled
for in this transaction. The loans were acquired by certain
investment vehicles managed by PIMCO, which have a long operating
history of aggregating residential mortgage loans. PIMCO is
assessed as 'Above Average' by Fitch as an aggregator. Rushmore
Loan Management Services is the named servicer for the transaction
and is rated 'RPS2' by Fitch. Fitch did not apply adjustments to
the 'AAAsf' rating category based on the transaction parties.
Sponsor (or affiliate) retention of at least 5% of the bonds also
helps ensure an alignment of interest between both the sponsor and
investor.
Third-Party Due Diligence (Negative): A third-party due diligence
review was performed on approximately 99.8% of the loans in the
transaction pool. The review was conducted by SitusAMC and Clayton,
assessed as 'Acceptable - Tier 1' by Fitch, as well as Opus, which
is assessed as 'Acceptable - Tier 2'. The due diligence scope was
consistent with Fitch criteria for seasoned and re-performing
loans.
Approximately 41% of loans (735 loans) were graded 'C' or 'D',
which indicate a high concentration of loans with material defects.
However, of 735 loans, 662 with a final grade of 'C' or 'D' reflect
missing final HUD-1 files that are not subject to predatory
lending, missing state disclosures, or missing other documents
related to compliance testing that Fitch deemed as immaterial since
the statute of limitations on these issues have expired. No loss
adjustments were made for these 622 loans. Approximately 4% (73
loans) had missing or estimated final HUD-1 documents, which
prevented effective testing for compliance with predatory lending
regulations. Fitch adjusted its loss expectation at the 'AAAsf'
rating category by 135 bps to account for this added risk.
Representation Framework (Negative): The reps and warranties
framework is generally consistent with Tier 2 quality. The
framework contains an optional breach review for loans that have
been liquidated with a realized loss, which is triggered at the
discretion of the controlling holder. However, 25% of the aggregate
bond holders may also initiate a review. Loan level R&Ws also
include knowledge qualifiers without a clawback provision. In
addition to qualifying as Tier 2, the framework is subject to a
one-year sunset from the close of the transaction, at which point
any potential claim would be made whole through a breach reserve
account. The aggregate adjustment resulted in a 218bps addition to
the expected losses at the 'AAAsf' rating stress.
Limited Life of Rep Provider (Negative): The R&W provider is no
longer obliged to cure material breaches following the R&W Sunset
Date, which is June 2021. At this point, a breach reserve account
may be used to indemnify realized losses determined to be caused by
a material breach.
No Servicer P&I Advances (Mixed): The servicer will not be
advancing delinquent monthly payments of P&I, which reduces
liquidity to the trust. P&I advances made on behalf of loans that
become delinquent and eventually liquidate reduce liquidation
proceeds to the trust. Due to the lack of P&I advancing, the
loan-level loss severity is less for this transaction than for
those where the servicer is obligated to advance P&I. Structural
provisions and cash flow priorities, together with increased
subordination, provide for timely payments of interest to the
'AAAsf' and 'AAsf' rated classes.
Sequential-Pay Structure (Positive): The transaction's cash flow is
based on a sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to re-allocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
Deferred Amounts (Negative): Non-interest-bearing principal
forbearance or deferral amounts totaling $33.8 million (10.6%) of
the UPB are outstanding on 1,247 loans. Fitch included the deferred
amounts when calculating the borrower's loan-to-value ratio and
sustainable LTV, despite the lower payment and amounts not being
owed during the term of the loan. The inclusion resulted in a
higher probability of default and LS than if there were no
deferrals. Fitch believes that borrower default behavior for these
loans will resemble that of the higher LTVs, as exit strategies
(i.e. sale or refinancing) will be limited relative to those
borrowers with more equity in the property.
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 39.2% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
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%. Excluding the senior class which is already 'AAAsf', the
analysis indicates there is potential positive rating migration for
all of the rated classes. Specifically, a 10% gain in home prices
would result in a full category upgrade for the rated class
excluding those being assigned ratings of 'AAAsf'.
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 added a Coronavirus Sensitivity Analysis that that
includes a prolonged health crisis resulting in depressed consumer
demand and a protracted period of below-trend economic activity
that delays any meaningful recovery to beyond 2021. 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.
CRITERIA VARIATION
Fitch's analysis incorporated three criteria variations from the
"U.S. RMBS Rating Criteria." The first variation relates to the
tax/title review. The tax/title review was outdated (over six
months ago) on 100% of the reviewed loans by loan count.
Approximately 65% of lien searches were performed within at least
24 months of the transaction closing date, and the remaining 35%
were performed about 28 months from the closing date. The servicer
has a responsibility in line with the transaction documents to
advance these payments to maintain the trust's interest and
position in the loans.
The second variation is that a due diligence compliance and data
integrity review was not completed on approximately 0.2% of the
pool by loan count (four loans). Per criteria, Fitch requires a
regulatory compliance review on 100% of loans in the transaction
pool for re-performing loans when the originators are unknown. Due
to not having a compliance review, these loans were also subject to
loss severity adjustments based on Fitch's standard indeterminate
adjustment for the inability to test for compliance with predatory
lending regulations. Three out of four loans were located in states
on Freddie Mac's 'Do Not Purchase' List and received a loss
severity of 100%, while the remaining loan had a loss severity
increase by 5%. These adjustments are standard in Fitch's due
diligence analysis for regulatory compliance testing.
The third variation is that an updated aggregator review of Pacific
Investment Management Company, LLC was not conducted within the
last 18 months. Per criteria, Fitch expects to have an outstanding
operational assessment on aggregators acquiring loans for the
transaction pool. While Fitch has reviewed PIMCO in the past, it
was performed over 18 months ago which would trigger an updated
review to confirm no material changes to the aggregation platform.
Fitch conducted a review of PIMCO on June 5, 2020 and is currently
reviewing material with an official committee pending. Fitch also
has consistently rated PIMCO transactions including four newly
issued securitizations in 2019. None of these variations had a
rating impact.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Third-party due diligence was completed on approximately 99.8% of
the loans in the transaction pool. The due diligence scope included
a regulatory compliance review that tested for applicable federal,
state and local high-cost loan and/or anti-predatory laws, as well
as the Truth In Lending Act and Real Estate Settlement Procedures
Act. The reviews were conducted by Opus, SitusAMC and Clayton, all
of which are reviewed and approved TPR firms. The review scope was
consistent with Fitch criteria for due diligence on seasoned and
re-performing loans.
Fitch requests that due diligence is performed on 100% of the
transaction pool for RMBS backed by RPL collateral. Due to less
than 100% of the pool receiving a compliance review, it is
considered a variation to Fitch criteria. However, this variation
is not expected to affect the overall due diligence analysis since
the non-reviewed portion is small relative to the total loan
population (0.2% of the pool by loan count) and the loans are
subject to adjustments that reflect the inability to test for
compliance with lending regulation.
About 41% of the reviewed loans (735 loans) were assigned a grade
of 'C' or 'D'. The diligence results indicated worse operational
risk compared to other Fitch-reviewed RPL transactions. Fitch
adjusted its loss expectation at the 'AAAsf' rating stress by 135
bps to reflect these additional risks.
Fitch received certifications indicating that due diligence was
conducted in accordance with its published standards for
legal/regulatory compliance. The certifications also stated that
the companies performed their work in accordance with the
independence standards, per Fitch's "U.S. RMBS Rating Criteria."
The due diligence analysts performing the reviews met Fitch's
criteria of minimum years of experience.
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).
BUNKER HILL 2020-1: S&P Assigns Prelim B+ (sf) Rating on B-2 Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Bunker Hill
Loan Depositary Trust 2020-1's mortgage-backed notes.
The note issuance is an RMBS transaction backed by first-lien,
fixed-, and adjustable-rate and interest-only residential mortgage
loans secured by single-family residences, planned-unit
developments, two- to four-family residences, condominiums, and
other property types to both prime and nonprime borrowers.
The preliminary ratings are based on information as of June 25,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The pool's collateral composition;
-- The credit enhancement provided for this transaction;
-- The transaction's associated structural mechanics;
-- The transaction's representation and warranty (R&W) framework;
-- The mortgage aggregator and originators; 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 evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions,
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
PRELIMINARY RATINGS ASSIGNED
Bunker Hill Loan Depositary Trust 2020-1
Class Rating(i) Amount ($)
A-1 AAA (sf) 135,244,000
A-2 AA (sf) 9,331,000
A-3 A (sf) 12,535,000
M-1 BBB (sf) 10,461,000
B-1 BB (sf) 7,163,000
B-2 B+ (sf) 6,032,000
B-3 NR 7,728,662
A-IO-S NR Notional(ii)
XS NR Notional(ii)
R NR N/A
(i)The preliminary ratings address the ultimate payment of interest
and principal. They do not address payment of the cap carryover
amounts.
(ii)The notional amount equals the loans' aggregate stated
principal balance.
NR--Not rated.
N/A/--Not applicable.
CARLYLE GLOBAL 2013-1: Moody's Cuts $27MM Class D-R Notes to B1
---------------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Carlyle Global Market Strategies CLO
2013-1, Ltd:
US$38,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030, Downgraded to Ba1 (sf); previously on April 17,
2020 Baa3 (sf) Placed Under Review for Possible Downgrade
US$27,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2030, Downgraded to B1 (sf); previously on April 17, 2020
Ba3 (sf) Placed Under Review for Possible Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class C-R and Class D-R notes issued by the CLO.
Carlyle Global Market Strategies CLO 2013-1, Ltd., issued in
February 2013 and refinanced in August 2017, is a managed cashflow
CLO. The notes are collateralized primarily by a portfolio of
broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in August 2022.
RATINGS RATIONALE
The downgrade on the Class C-R and Class D-R notes reflects the
risks posed by credit deterioration and loss of collateral coverage
observed in the underlying CLO portfolio, which have been primarily
prompted by economic shocks stemming from the coronavirus pandemic.
Since the outbreak widened in March, the decline in corporate
credit has resulted in a significant number of downgrades, other
negative rating actions, or defaults on the assets collateralizing
the CLO. Consequently, the default risk of the CLO portfolio has
increased, the credit enhancement available to the CLO notes has
eroded, exposure to Caa-rated assets has increased significantly,
and expected losses on certain notes have increased materially.
Based on Moody's calculation, the weighted average rating factor
was 3546 as of May 2020, or 12% worse compared to a WARF of 3160
reported in the March 2020 trustee report [1]. Moody's calculation
also showed the WARF was failing the test level of 3020 reported in
the May 2020 trustee report [2] by 526 points. Moody's noted that
approximately 33% of the CLO's par was from obligors assigned a
negative outlook and 6% from obligors whose ratings are on review
for possible downgrade. Additionally, based on Moody's calculation,
the proportion of obligors in the portfolio with Moody's corporate
family or other equivalent ratings of Caa1 or lower (adjusted for
negative outlook and watchlist for downgrade) was approximately 24%
of the CLO par as of May 2020. Furthermore, Moody's calculated the
total collateral par balance, including recoveries from defaulted
securities, at $585.0 million, or $15.0 million less than the
deal's ramp-up target par balance, and Moody's calculated the
over-collateralization ratios (excluding haircuts) for the Class
C-R and Class D-R notes as of May 2020 at 112.15% and 106.63%,
respectively. Moody's noted that partly as a result of meaningful
OC par haircuts, on the May 2020 payment date [3], $3.4 million had
been diverted due to one or more coverage test failures to pay down
the senior notes. According to the trustee report dated May
2020[2], the OC test for the Class D notes and the interest
diversion test were failing their respective triggers. If these
test failures continue on the next payment date it would result in
a portion of excess interest collections being diverted towards
note repayment or reinvestment in collateral.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $582.3 million, defaulted par of $6.5
million, a weighted average default probability of 29.13% (implying
a WARF of 3546), a weighted average recovery rate upon default of
47.73%, a diversity score of 87 and a weighted average spread of
3.51%. Moody's also analyzed the CLO by incorporating an
approximately $15.9 million par haircut in calculating the OC and
interest diversion test ratios. Finally, Moody's also considered in
its analysis the CLO manager's recent investment decisions and
trading strategies.
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 corporate assets. 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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
CD 2017-CD5: Fitch Affirms Class X-E Debt at BB-sf
--------------------------------------------------
Fitch Ratings has affirmed 15 classes of CD 2017-CD5 Mortgage Trust
Series 2017-CD5.
CD 2017-CD5
- Class A-1 12515HAW5; LT AAAsf; Affirmed
- Class A-2 12515HAX3; LT AAAsf; Affirmed
- Class A-3 12515HAY1; LT AAAsf; Affirmed
- Class A-4 12515HAZ8; LT AAAsf; Affirmed
- Class A-AB 12515HBA2; LT AAAsf; Affirmed
- Class A-S 12515HBB0; LT AAAsf; Affirmed
- Class B 12515HBC8; LT AA-sf; Affirmed
- Class C 12515HBD6; LT A-sf; Affirmed
- Class D 12515HAA3; LT BBB-sf; Affirmed
- Class E 12515HAC9; LT BB-sf; Affirmed
- Class F 12515HAE5; LT B-sf; Affirmed
- Class X-A 12515HBJ3; LT AAAsf; Affirmed
- Class X-B 12515HBK0; LT A-sf; Affirmed
- Class X-D 12515HAQ8; LT BBB-sf; Affirmed
- Class X-E 12515HBM6; LT BB-sf; Affirmed
KEY RATING DRIVERS
Increased Loss Expectations: While many of the properties continue
to exhibit generally stable performance, Fitch's loss expectations
have increased since the prior rating action due to the increasing
number of Fitch Loans of Concern and additional stresses applied to
loans expected to be impacted in the near-term from the coronavirus
pandemic. There are currently five delinquent loans or specially
serviced loans (9% of the pool) and nine FLOCs representing 21% of
the pool.
The largest FLOC is the third largest loan in the pool. AHIP
Northeast Portfolio IV is secured by a portfolio of four hotels
located in Maryland (2) and New Jersey (2). The portfolio totals
467-keys, and all properties were built in 2002 or later and all
four were renovated in 2017. At issuance, all of the hotels ranked
first in their respective competitive sets on a RevPAR basis with a
weighted average RevPAR penetration rate of 155.4%. At issuance,
three of the four hotel properties, including Hampton Inn BWI, RI
White Marsh and RI Egg Harbor, were in markets with new supply
coming online. As of March 2020, the debt service coverage ratio
was 1.01x and occupancy was 67%. The DSCR and occupancy has
declined from 2.50x and 82%, respectively, at YE 2019.
Limited Amortization; Minimal Changes to Credit Enhancement: As of
the June 2020 distribution date, the pool's aggregate balance has
been reduced by 1.5% to $917.4 million from $931.6 million at
issuance. The pool is scheduled to amortize by 9.3% of the initial
pool balance by maturity. Thirteen loans (42%) are full-term IO and
22 loans (39%) are partial IO, similar to Fitch-rated transactions
of its vintage.
Hotel Underperformance: There are four loans (17.6% of the pool)
secured by hotel properties in the top 15. Performance of these
loans experienced declines prior to the coronavirus pandemic and
have likely seen further deterioration as a result of the pandemic.
Compared to Fitch's prior rating action in July 2019, NOI has
declined 8.8% among the four properties. The largest declines in
NOI are from the Embassy Suites Anaheim Orange, which recently
transferred to the special servicer for imminent default, and
Residence Inn Long Beach loans.
Exposure to Coronavirus: Fitch expects significant economic impacts
to certain hotels, retail and multifamily properties 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
prompted the closure of several hotel properties in gateway cities,
as well as malls, entertainment venues and individual stores.
Hotel, retail and multifamily properties comprise 21.7%, 16.6% and
2.8% of the pool balance, respectively. Fitch's base case analysis
applied additional stresses to five hotel loans and four retail
loans due to their vulnerability to the coronavirus pandemic.
Additional Considerations:
Investment-Grade Credit Opinion Loans: Three loans, representing
23% of the pool, had investment-grade credit opinions at issuance.
General Motors Building (10.9% of the pool) had an investment-grade
credit opinion of 'AAAsf' on a stand-alone basis, while 245 Park
Avenue (5.6% of the pool) and Olympic Tower (6.5% of the pool) had
investment-grade credit opinions of 'BBB-sf' and 'BBBsf',
respectively, on a stand-alone basis.
Significant Hotel Exposure: Loans secured by hotel properties
comprise 22% of the pool, which is above-average concentration
compared to similar vintage transactions.
RATING SENSITIVITIES
The Rating Outlooks for classes E and F as well as IO class X-E
remain Negative due to concerns with the FLOCs and the overall
hotel concentration within the pool. The Rating Outlooks for
classes B through D as well as IO classes X-B and X-D have been
revised to Negative from Stable due to increased loss expectations
as a result of declining reported YE 2019 NOIs at many properties
combined with coronavirus stresses.
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 pay down and/or defeasance. Upgrades
to classes B, C, and D would occur with increased paydown and/or
defeasance combined with performance stabilization, and would be
limited as concentrations increase. Upgrades to classes E and F are
not likely unless performance of the FLOCs stabilize and if the
performance of the remaining pool is stable, and would not likely
occur until later years in the transaction assuming losses were
minimal.
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 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 'AA-sf' should
interest shortfalls occur. Downgrades to classes C and D are
possible should defaults occur or loss expectations increase.
Downgrades to classes D, E and F are possible should performance of
the FLOCs fail to stabilize or decline further.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021.
Should this scenario play out, Fitch expects that a greater
percentage of classes may be assigned a Negative Rating Outlook or
those with Negative Rating Outlooks will be downgraded one or more
categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
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).
CITIGROUP 2020-EXP1: S&P Assigns Prelim B (sf) Rating to B-2 Certs
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Citigroup
Mortgage Loan Trust 2020-EXP1's mortgage pass-through
certificates.
The certificate issuance is an RMBS transaction backed by
first-lien, fixed- and adjustable-rate fully amortizing residential
mortgage loans (some with an interest-only period), secured
primarily by single-family residential properties, planned-unit
developments, condominiums, and two- to four-family residential
properties to both prime and nonprime borrowers. The pool has 431
loans, which are primarily either non-qualified or exempt mortgage
loans.
The preliminary ratings are based on information as of June 24,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary 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, Citigroup Global Markets Realty Corp; 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 Global Ratings acknowledges a high degree of uncertainty about
the evolution of the coronavirus pandemic. The consensus among
health experts is that the pandemic may now be at, or near, its
peak in some regions but will remain a threat until a vaccine or
effective treatment is widely available, which may not occur until
the second half of 2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
PRELIMINARY RATINGS ASSIGNED
Citigroup Mortgage Loan Trust 2020-EXP1
Class Rating(i) Amount ($)
A-1-A AAA (sf) 291,212,000
A-1-B AAA (sf) 37,675,000
A-2 AA (sf) 9,282,000
A-3 A (sf) 11,103,000
M-1 BBB (sf) 7,098,000
B-1 BB (sf) 3,822,000
B-2 B (sf) 2,548,000
B-3 NR 1,274,992
A-IO-S NR Notional(ii)
XS NR Notional(ii)
BC NR 1,274,992(iii)
PT NR 364,014,992(iii)
R NR N/A
(i)The collateral and structural information in this report
reflects the term sheet dated June 18, 2020. The preliminary
ratings address S&P's expectation for the ultimate payment of
interest and principal.
(ii)Notional amount equals the loans' aggregate stated principal
balance of the mortgage loans as of the first day of the related
due period.
(iii)Exchangeable certificates.
NR--Not rated.
N/A--Not applicable.
CITIGROUP COMMERCIAL 2012-GC8: Moody's Cuts Class F Certs to C
--------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on five classes
and downgraded the ratings on five classes in Citigroup Commercial
Mortgage Trust 2012-GC8, Commercial Mortgage Pass-Through
Certificates, Series 2012-GC8 as follows:
Cl. A-4, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed Aaa
(sf)
Cl. A-AB, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed
Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa3 (sf); previously on Feb 19, 2020 Affirmed Aa3
(sf)
Cl. C, Downgraded to Baa2 (sf); previously on Apr 17, 2020 A3 (sf)
Placed Under Review for Possible Downgrade
Cl. D, Downgraded to B2 (sf); previously on Apr 17, 2020 Ba1 (sf)
Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Caa3 (sf); previously on Apr 17, 2020 B2 (sf)
Placed Under Review for Possible Downgrade
Cl. F, Downgraded to C (sf); previously on Apr 17, 2020 Caa2 (sf)
Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed
Aaa (sf)
Cl. X-B*, Downgraded to Caa2 (sf); previously on Apr 17, 2020 B2
(sf) Placed Under Review for Possible Downgrade
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on four principal and interest 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 P&I classes, Cl. C, Cl. D, Cl. E, and Cl. F,
were downgraded due to a decline in pool performance, driven
primarily by higher anticipated losses from specially serviced and
troubled loans. The largest specially serviced loan, the Pinnacle
at Westchase Loan (9.8% of the pool), has experienced a significant
decline in performance as a result of reduced occupancy.
The rating on the interest only class Cl. X-A was affirmed based on
the credit quality of its referenced classes.
The rating on the interest only class Cl. X-B was downgraded due to
a decline in the credit quality of its referenced classes.
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 9.8% of the
current pooled balance, compared to 5.7% at Moody's last review.
Moody's base expected loss plus realized losses is now 6.7% of the
original pooled balance, compared to 3.9% 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 June 12th 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 32% to $710 million
from $1.04 billion at securitization. The certificates are
collateralized by 46 mortgage loans ranging in size from less than
1% to 14% of the pool, with the top ten loans (excluding
defeasance) constituting 63% of the pool. Sixteen loans,
constituting 20% 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 11, the same as at Moody's last review.
As of the June 2020 remittance report, loans representing 71% of
the pool were current or within their grace period on their debt
service payments, 4% were beyond their grace period but less than
30 days delinquent and 13% were between 30 -- 59 days delinquent.
Seven loans, constituting 31% 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.
No loans have been liquidated from the pool. Two loans,
constituting 13% of the pool, are currently in special servicing.
The largest specially serviced loan is the Pinnacle at Westchase
loan ($69.3 million -- 9.8% of the pool), which is secured by a
471,000 square feet class-A suburban office complex in the
Westchase submarket of Houston, Texas. The Loan was transferred to
special servicing in February 2020 for imminent default due to the
borrower being unable to fund debt service shortfalls. The property
is only 25% leased as a result of the departures of the largest and
the second largest tenants in 2016 and early 2020, respectively.
Further, the Westchase office submarket vacancy has also increased
significantly since the securitization. According to CBRE, the
Westchase office submarket included 9.8 million square feet of
Class-A office space in Q1 2020 with a vacancy of 25.6%, compared
to a vacancy rate of 5.7% in 2012. Due to the increased property
and market vacancy, Moody's anticipated a significant loss on this
loan.
The second-largest specially serviced loan is the Hyatt Regency --
Buffalo loan ($20.8 million -- 2.9% of the pool), which is secured
by a 396-unit Hyatt Regency in downtown Buffalo, New York. The
hotel has been closed since April 1, 2020, due to the coronavirus
pandemic. The loan was transferred to special servicing in May 2020
and is last paid through its March 2020 debt service payment. The
property's revenue and net operating income (NOI) has declined
annually since 2017. 2019 reported NOI was 15% lower than in 2017
and 29% lower than at securitization. The special servicer
indicated Hyatt has provided notice they are terminating the flag
and are currently dual tracking with foreclosure.
Moody's has also assumed a high default probability for two poorly
performing loans, constituting 3.2% of the pool. Both troubled
loans are secured by hotel properties that are currently 30 -- 59
days delinquent. Moody's has estimated an aggregate loss of $51.5
million (46% expected loss on average) from the specially serviced
and troubled loans.
Moody's received the full year 2018 operating results and full or
partial year 2019 operating results for 100% of the pool (excluding
specially serviced and defeased loans). Moody's weighted average
conduit LTV is 102%, the same as 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 12% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of
9.5%.
Moody's actual and stressed conduit DSCRs are 1.32X and 1.06X,
respectively, compared to 1.35X and 1.09X 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 36% of the pool balance. The
largest loan is the Miami Center Loan ($100.2 million -- 14.1% of
the pool), which is secured by a pari-passu portion of a $150.3
million first mortgage loan. The collateral property is a 35-story,
787,000 SF office tower located on South Biscayne Boulevard in
Miami, Florida. The property is located adjacent to an
Intercontinental Hotel and contains a 9-story parking garage. As of
March 2020, the property was 70% leased, compared to 68% as of
December 2018 and 84% at securitization. The two largest tenants,
accounting for over 23% of the net rentable area, recently extended
their leases until 2030. However, the inability to backfill large
portions of vacated space since securitization has resulted in
reduced occupancy, and the loan is currently on the master
servicer's watchlist for low DSCR. The property is of Class A
quality, offers views of Biscayne Bay and the Miami skyline and
benefits from its connection to the Intercontinental Hotel. The
loan has amortized 13% since securitization and Moody's LTV and
stressed DSCR are 114% and 0.88X, respectively, compared to 115%
and 0.87X at the last review.
The second-largest loan is the 17 Battery Place South Loan ($84.0
million -- 11.8% of the pool), which is secured by the lower 13
stories of a 31-story, mixed-use office and residential building
located in downtown Manhattan, New York, NY. The 13 stories
represent multi-tenanted office space comprising 428,450 SF. The
asset is also encumbered with $14 million of mezzanine debt. Due to
the tenant rollover, the property's occupancy had declined to 69%
in 2017 from 95% in 2013, however, recent leasing in late 2019 and
early 2020 has increased the property's occupancy to 87% in March
2020. The loan has amortized 8% since securitization and Moody's
LTV and stressed DSCR are 119% and 0.84X, respectively, compared to
120% and 0.83X at the last review.
The third-largest loan is the former Gansevoort Park Avenue Loan
($67.8 million -- 9.6% of the pool), which is secured by a
pari-passu portion of a $127.5 million first mortgage loan. The
loan is secured by a 249-room luxury full-service boutique hotel
located on East 29th Street and Park Avenue South in Manhattan, New
York. Known as the Gansevoort Park Avenue at securitization, the
property was sold for approximately $200,000,000 ($803,213 per key)
and renamed Royalton Park Avenue in late 2017. The property has
been impacted by the coronavirus pandemic and is temporarily closed
through August 1, 2020. This is last paid through its April 2020
payment. While the property has experienced declining performance
since 2016 due to increased supply in the area, the hotel benefits
from its quality and location within walking distance of Midtown
Manhattan, Union Square, and Madison Square Park. The loan has
amortized nearly 10% since securitization and Moody's LTV and
stressed DSCR are 127% and 0.87X, respectively.
CITIGROUP MORTGAGE 2030-EXP1: Fitch Rates Class B-2 Certs 'B(EXP)'
------------------------------------------------------------------
Fitch Ratings has assigned expected ratings to the residential
mortgage-backed certificates to be issued by Citigroup Mortgage
Loan Trust 2020-EXP1 (CMLTI 2020-EXP1).
RATING ACTIONS
CMLTI 2020-EXP1
Class A-1-A; LT AAA(EXP)sf; Expected Rating
Class A-1-B; LT AAA(EXP)sf; Expected Rating
Class A-2; LT AA(EXP)sf; Expected Rating
Class A-3; LT A(EXP)sf; Expected Rating
Class A-IO-S; LT NR(EXP)sf; Expected Rating
Class B-1; LT BB(EXP)sf; Expected Rating
Class B-2; LT B(EXP)sf; Expected Rating
Class B-3; LT NR(EXP)sf; Expected Rating
Class M-1; LT BBB(EXP)sf; Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 431 loans with a balance of
$364.01 million as of the May 31, 2020 cut-off date. This will be
the first Citigroup Mortgage Loan Trust Expanded-Prime transaction
consisting of loans originated by various originators and
aggregated by Citigroup Global Markets Realty, Corp.
All the loans in the transaction comply with the Ability-to-Repay
(ATR) Rule or are not subject to the ATR Rule. Approximately 44% of
the loans in the pool are designated as Non-QM, 25% qualified as
Safe Harbor QM, 4% are Higher Priced QM, and 28% are exempt from QM
as they are investor properties.
KEY RATING DRIVERS
Revised GDP Due to COVID-19: The coronavirus pandemic and the
resulting containment efforts have resulted in revisions to Fitch's
GDP estimates for 2020. Its baseline global economic outlook for
U.S. GDP growth is currently a 5.6% decline for 2020, down from
1.7% growth 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
Covid-19, 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' ratings and below.
Liquidity Stress for Payment Forbearance (Negative): The outbreak
of COVID-19 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 deferred
payments on a minimum of 40% 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.
There is no advancing of delinquent principal and interest in this
transaction, but there is a three-month reserve fund to cover
interest shortfalls and the Net WAC is based off of the
interest-bearing balance of the loans. Both of these features
should limit the amount of interest shortfalls to the bonds.
However, if the three-month reserve fund is not fully funded, the
lowest ranked classes may be vulnerable to temporary interest
shortfalls to the extent there are not enough funds available once
the more senior bonds are paid.
No Servicer Advances (Mixed): The servicers will not make advances
of delinquent P&I on any of the mortgage loans. As a result, the
loss severity is lower, but principal will need to be used to pay
interest to the notes, which will result in more credit enhancement
being needed.
Payment Forbearance (Neutral): None of the loans in the pool are on
a COVID-19 forbearance plan. After the cut-off date, one borrower
called Shellpoint to discuss a COVID-19 forbearance plan, but on
the same day the borrower made their June payment. As a result, all
the loans are contractually current and analyzed as such by Fitch.
Both Fay and Shellpoint are offering forbearance up to six months
for borrowers seeking COVID-19 relief. At the end of the
forbearance period, the borrower can opt to reinstate (i.e. repay
the missed mortgage payments in a lump sum) or repay the missed
amounts with a repayment plan. If reinstatement or a repayment plan
is not affordable, the servicers will pursue other loss mitigation
options, which may include adding the missed payments to the end of
the loan term due at payoff or maturity as deferred principal.
The servicers will not be advancing delinquent principal and
interest while the borrower is on a forbearance plan.
Expanded Prime Credit Quality (Mixed): The collateral consists of
mainly fixed-rate loans (roughly 30% are adjustable rate) that
amortize over 30 years or 40 years. The majority of the loans
(88.3%) are fully amortizing; however, 11.7% are interest-only (IO
loans). The pool is seasoned approximately eight months in
aggregate. The borrowers in this pool have strong credit profiles
with a 751 weighted-average (WA) FICO (as determined by Fitch) and
moderate leverage (77.8% sLTV). In addition, the pool contains 118
loans over $1 million and the largest loan is $3.15 million.
2.9% of the pool consists of borrowers with prior credit events in
the past seven years, and 1.97% of the pool was underwritten to
foreign nationals. There are no second lien loans in the pool. The
pool characteristics resemble recent expanded prime collateral,
and, therefore, the pool was analyzed using Fitch's non-prime
model.
Non-QM Loans (Negative): 43.5% of the loans are Non-QM loans. The
majority of these loans (26.1%) are Non-QM since they were
underwritten to ATR and were not tested for QM. The remaining loans
are Non-QM due to the loans being interest-only loans (8.6%),
having a DTI greater than 43% (4.8%), providing alternative
documents (3.0%), or were designated as investor-Non-QM rather than
ATR exempt since the cash out proceeds could not be verified
(1.1%). Fitch increased the 'AAA' loss by 27 bps to account for the
risk associated with the Non-QM loans.
High Investor Property Concentration (Negative): Approximately 29%
of the pool is comprised of investor loans. All of these loans were
underwritten to the borrower's credit profile (credit score and
debt-to-income ratio) rather than an investor cash flow program
that underwrites the loan based on a debt service coverage ratio
(DSCR). These loans have strong credit profiles of 771 WA credit
score (as calculated by Fitch) and an original CLTV of 65.7%. To
account for the additional risk of investor occupied home, Fitch
increased the PD by 55% compared to owner occupied homes.
Loans with Shared Appreciation (Negative): 5.4% of the loans in the
pool are first liens with shared appreciation. These loans used
subordinate financing to contribute to the down payment, and this
amount plus a percent of the home's appreciation is owed to the
equity contributor when the home is sold. To account for the
additional financing, the shared appreciation amount was included
as a junior lien, and the CLTV was increased as a result.
Loan Documentation (Positive): Fitch considered approximately 90%
of the pool as being underwritten to a full documentation program.
Roughly 98% of the pool had income fully verified. Specifically,
73% of the loans were underwritten to 24 months of W2s or tax
returns and approximately 26% were confirmed as being full
documentation per Fannie Mae's Desktop Underwriter (DU). Only 0.55%
of the pool was underwritten to a 24-month bank statement program,
0.67% was underwritten to a 12-month bank statement program, and
0.35% was underwritten using one year of income documentation. The
majority of the loans had fully verified assets and employment. 33%
of the pool is comprised of self-employed borrowers.
Sequential Payment Structure (Positive): The transaction has a
straight sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order with the
senior support class taking losses prior to the super senior class.
The provision to re-allocate principal to pay interest on the 'AAA'
and 'AA' rated notes prior to principal distribution to the 'AAA'
notes and prioritizing the payment of interest prior to principal
distribution for the remaining notes is highly supportive of timely
interest payments to the classes in the absence of servicer
advancing.
In addition, there is a three-month reserve fund that is funded
upfront by the seller and continuously funded from excess cash flow
following the payment of interest to the bonds. This reserve fund
can be used to pay interest if needed.
Fitch calculated the excess spread to be 2.13%. Excess cash flow
can be used to prevent interest shortfalls if needed.
Foreign Nationals (Negative): Roughly 1.97%, or eight loans, are
loans to nonpermanent residents. Fitch treated the loans to
non-permanent residents as investor occupied, nonfull documentation
loans, and removed the liquid reserves to account for the risk in
relying on foreign paystubs, bank accounts and currency risk. For
the borrowers without a credit score, Fitch assumed 650.
Geographic Concentration (Negative): Approximately 62% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in Los Angeles MSA
(22.4%) followed by the San Francisco MSA (21%) and the San Jose
MSA (6%). The top three MSAs account for 49.4% of the pool. As a
result, there was a 1.08x adjustment for geographic concentration,
which resulted in the 'AAA' expected loss increasing by 53 bps.
Low Operational Risk (Neutral): Operational risk is well controlled
for this transaction. Fitch has reviewed the Citigroup Global
Mortgage Realty Corp acquisition platform and assessed it as 'Above
Average' due to robust risk controls. Shellpoint Mortgage Servicing
(Shellpoint), rated 'RPS2-' by Fitch, and Fay Servicing, LLC (Fay),
rated 'RPS3+', are the named servicer for approximately 60% and 40%
of the transaction pool, respectively. Fitch did not apply
adjustments to the expected losses due to the low operational risk
of the counterparties involved in the transaction. Citi is also
retaining at least 5% of each class of bonds to ensure an alignment
of interest between the issuer and investors.
There is no master servicer for this transaction. Since there is no
advancing of delinquent principal and interest, and the servicers
are rated 'RPS2+' and 'RPS3+', Fitch is comfortable that there is
no master servicer in this transaction.
R&W Framework (Positive): The transaction sponsor, Citigroup Global
Mortgage Realty Corp (CGMRC), is providing loan-level
representations and warranties (R&W) with respect to the loans in
the trust. The R&W framework for this transaction is consistent
with a Tier 1 as it meets all of Fitch's loan level R&Ws and has an
automatic review and a robust enforcement mechanism. In addition to
the framework, CGMRC is an investment grade counterparty with a
long-term Issuer Default Rating of 'A', which helps support
possible repurchase obligations of the sponsor. Fitch reduced its
loss expectations 38 bps at the 'AAAsf' rating category to reflect
the Tier 1 framework and strong financial counterparty strength.
The 120-day delinquency automatic review trigger will exclude loans
subject to a forbearance plan or other loss mitigation measure due
to a hardship resulting from a pandemic or national emergency. This
will limit the number of unnecessary R&W breach reviews due to a
loan going delinquent due to COVID or FEMA disaster forbearance.
Third-Party Due Diligence Review (Positive): Third-party due
diligence was performed on 100% of loans in the transaction by
SitusAMC, Clayton and EdgeMac. Both SitusAMC and Clayton are
assessed by Fitch as 'Acceptable - Tier 1' and EdgeMac is assessed
as 'Acceptable - Tier 3'. 100% of the loans received a final grade
of 'A' or 'B' which indicates strong origination processes with no
presence of material exceptions. Approximately 49% of loans
received a final grade of 'B' for immaterial exceptions that were
mitigated with strong compensating factors or were largely
accounted for in Fitch's loan loss model. Fitch applied a credit
for the high percentage of loan level due diligence, which reduced
the 'AAAsf' loss expectation by 31bps.
The cash flow model indicated that the A-2 class could be rated
'AA+', the M-1 could be rated 'BBB+' and B-1 could be rated 'BB+';
however, Fitch assigned flat ratings to all classes ('AA', 'BBB'
and 'BB', respectively) based on the current market environment and
uncertainty due to COVID-19.
RATING SENSITIVITIES
Fitch's analysis incorporates a sensitivity analysis to demonstrate
how the ratings would react to steeper market value declines (MVDs)
than assumed at the metropolitan statistical area (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 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.
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 39% at 'AAA'. The analysis indicates that there is
some potential rating migration with higher MVDs for all rated
classes, compared with the model projection.
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to negative MVDs at the national level
(positive home price growth with no assumed overvaluation). The
analysis assumes positive home price growth of 10.0%. Excluding the
senior classes that are already rated '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.
Fitch's stress and rating sensitivity analysis are discussed in its
presale report.
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.
A third-party due diligence review was completed on 100% of the
loans in this transaction. The review was done by SitusAMC, and
Clayton, assessed by Fitch as 'Acceptable - Tier 1' TPR firms, and
EdgeMac, assessed as 'Acceptable - Tier 3'. The due diligence scope
was consistent with Fitch criteria for newly originated loans, and
the results indicate sound origination quality with no incidence of
material defects. Loan exceptions were deemed to be immaterial. No
due diligence adjustment was applied to this transaction.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the loans. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." The sponsor
engaged SitusAMC, Clayton, and EdgeMac to perform the review. Loans
reviewed under this engagement were given compliance, credit and
valuation grades and assigned initial grades for each subcategory.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. The loan-level
information Fitch received was provided in the American
Securitization Forum's (ASF) data layout format. 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 data tape layout were populated by the
due diligence company, and no material discrepancies were noted.
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).
COLT 2020-3: Fitch Assigns Bsf Rating on Class B2 Certs
-------------------------------------------------------
Fitch Ratings has assigned ratings to the residential
mortgage-backed certificates issued by COLT 2020-3.
RATING ACTIONS
COLT 2020-3
Class A1; LT AAAsf New Rating; previously at AAA(EXP)sf
Class A2; LT AAsf New Rating; previously at AA(EXP)sf
Class A3; LT Asf New Rating; previously at A(EXP)sf
Class M1; LT BBBsf New Rating; previously at BBB(EXP)sf
Class B1; LT BBsf New Rating; previously at BB(EXP)sf
Class B2; LT Bsf New Rating; previously at B(EXP)sf
Class B3; LT NRsf New Rating; previously at NR(EXP)sf
Class AIOS; LT NRsf New Rating; previously at NR(EXP)sf
Class X; LT NRsf New Rating; previously at NR(EXP)sf
TRANSACTION SUMMARY
Fitch rates the residential mortgage-backed certificates to be
issued by COLT 2020-3 Mortgage Loan Trust (COLT 2020-3) as
indicated. The certificates are supported by 527 loans with a total
balance of approximately $255.35 million as of the cutoff date.
The loans in the pool were originated by Caliber Home Loans, Inc.,
HomeXpress Mortgage Corp., Impac Mortgage Corp. and other
third-party originators. Approximately 63% of the pool is
designated as nonqualified mortgages (Non-QM), 11% consists of
higher-priced QM (HPQM) and almost 8% are Safe Harbor QM (SHQM),
while for the remainder, ability to repay (ATR) does not apply
(18%).
KEY RATING DRIVERS
Coronavirus Impact Addressed (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 declines by 5.6% 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 was
applied to 'BBBsf' and below. The ERF is a default variable in the
U.S. RMBS loan loss model.
This significantly affected Fitch's expected loss in the
non-investment-grade stresses. For example, Fitch's 'Bsf' expected
loss nearly doubled compared with the last COLT transaction rated
pre-coronavirus, at 4.75 versus 2.25.
Payment Forbearance (Mixed): Of the borrowers, 7% have requested
coronavirus payment relief plans, which includes the 10 loans
(2.9%) on deferrals. The other forbearance plans are generally
granted up to a three-month period by the servicer and borrowers
will be counted as delinquent; however, the servicer will not be
advancing delinquent principal and interest (P&I) during the
forbearance period. Of the 7% requesting a forbearance plan, eight
loans have continued to make monthly payments and are current on
the mortgage. For the remaining 14 loans opting in a plan, Fitch
treated the loans as delinquent, which resulted in a probability of
default (PD) assumption over 95%.
Nonprime Credit Quality (Mixed): The pool has a weighted average
(WA) model credit score of 715 and a WA combined loan to value
ratio of 77.4%, and sustainable loan to value ratio of 83.8%. Of
the pool, 48% had a debt to income ratio of over 43%. The pool
included 131 debt service coverage ratio loans (14.3%), which are
investment properties underwritten to the rental cash flow.
Fitch applied default penalties to account for these attributes,
and loss severity was adjusted to reflect the increased risk of ATR
challenges.
Nonfull Documentation Loans (Negative): Fitch treated approximately
42% of the pool as less than full documentation. The pool includes
25% bank statement loans and a few other programs that were treated
as stated income documentation by Fitch. These programs are not
consistent with Appendix Q standards and Fitch's view of a full
documentation program. To these loans, a 1.3x multiple was applied
as penalty to account for the higher default risk associated with
nonfull documentation programs.
Modified Sequential Payment Structure (Mixed): Unlike the prior
COLT 2020-2 transaction, but consistent with the pre-coronavirus
COLT transactions, the structure distributes principal pro rata
among the senior certificates, while shutting out the subordinate
bonds from principal until all senior classes have been reduced to
zero. If any of the cumulative loss triggers an event, the
delinquency trigger event or the credit enhancement trigger event
occurs in a given period, the principal will be distributed
sequentially to the class A-1, A-2 and A-3 certificates until they
are reduced to zero.
Payment Forbearance Assumptions Due to Coronavirus (Negative): The
outbreak of the coronavirus and widespread containment efforts in
the U.S. has resulted in higher unemployment and cash flow
disruptions. To account for the cash flow disruptions and lack of
advancing for borrower's forbearance plans, Fitch assumed at least
40% of the pool is delinquent 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, based on the May remittance data of about 13% of
seasoned/closed COLT transactions are 30+ delinquent (DQ), which
support's Fitch's assumptions.
Since these assumptions trip the delinquency triggers starting in
quarter one, to adequately test the structure Fitch also ran
delinquency sensitivities that did not trip the triggers as
quickly. These sensitivities resulted in more principal to be
distributed to the A-2 and A-3 certificates. The structure was able
to protect against Fitch's expected losses in all scenarios,
including its back-loaded default curve.
Six-Month Servicer Advances (Mixed): Advances of delinquent P&I
will be made on the mortgage loans for the first 180 days of
delinquency to the extent such advances are deemed recoverable. If
the P&I advancing party fails to make a required advance, the
master servicer (Wells Fargo) will be obligated to make such
advance.
The servicer will not be advancing delinquent P&I for borrowers on
any forbearance plan, even those relating to the coronavirus,
during the forbearance period. A borrower who does not make a
payment while on a forbearance plan will be considered delinquent;
however, the servicer will not be obligated to advance during that
time.
As P&I advances are intended to provide liquidity to the rated
notes if borrowers fail to make their monthly payments, the lack of
advancing during a forbearance period could result in temporary
interest shortfalls to the lowest ranked classes as principal can
be used to pay interest to the A-1 and A-2 classes. Fitch assumed a
no advancing scenario in its cash flow analysis for the life of the
transaction, and there were no interest shortfalls to the most
senior classes under this scenario.
Excess Cash flow (Positive): The transaction benefits from a
material amount of excess cash flow that provides benefit to the
rated notes before being paid out to the class X. The excess is
available to pay timely interest and protect against realized
losses resulting in a credit enhancement amount less than Fitch's
loss expectations. Fitch stressed the available excess cash flow
with its payment forbearance assumptions of 40% delinquency for six
months and no advancing scenario. To the extent that the collateral
weighted average coupon and corresponding excess is reduced through
a rate modification, Fitch would view the impact as credit neutral,
as the modification would reduce the borrower's probability of
default, resulting in a lower loss expectation.
Low Operational Risk (Positive): Operational risk is well
controlled for this transaction. Fitch has reviewed the Hudson
Americas L.P. mortgage acquisition platform and found it to have
sufficient risk controls, while relying on third parties to review
loans prior to purchase. Approximately 52% of loans in the
transaction pool were originated by Caliber, which has an extensive
operating history and is one of the more established originators of
non-QM loans. Approximately 31% was originated by HomeXpress, which
was reviewed by Fitch in May 2020 and assessed as "Average".
Approximately 13% was originated by Impac, which was reviewed by
Fitch in June 2020 and assessed as "Average".
Primary servicing responsibilities will be performed by Caliber and
Select Portfolio Servicing, rated by Fitch at 'RPS2-' and 'RPS1-',
respectively. Fitch reduced its loss expectations by 105bps at the
'AAAsf' rating category to reflect the strong servicer
counterparties. The sponsor's or a majority-owned affiliate's
retention of at least 5% of the market value of the bonds helps to
ensure an alignment of interest between the issuer and investors.
R&W Framework (Negative): While the reps for this transaction are
substantively consistent with those listed in Fitch's published
criteria and provide a solid alignment of interest, Fitch added
approximately 185bps to the expected loss at the 'AAAsf' rating
category to reflect the non-investment-grade counterparty risk of
the providers and the lack of an automatic review of defaulted
loans, other than for loans with a realized loss that have a
complaint or counterclaim of a violation of ATR. The lack of an
automatic review is mitigated by the ability of holders of 25% of
the total outstanding aggregate class balance to initiate a
review.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (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 analysis was conducted at the state and national levels
to assess the effect of higher MVDs for the subject pool, and lower
MVDs illustrated by a gain in home prices.
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.
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
positive home price growth with no assumed overvaluation. The
analysis assumes positive home price growth of 10%. Excluding the
senior class, which is already 'AAAsf', the analysis indicates
there is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result in a
full category upgrade for the rated class, excluding those assigned
'AAAsf' ratings.
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%, 20% and 30% in addition to the
model-projected 3.5%. The analysis indicates that there is some
potential rating migration with higher MVDs for all rated classes,
compared with the model projection. Specifically, a 10% additional
decline in home prices would lower all rated classes by one full
category.
Fitch added a coronavirus sensitivity analysis that includes a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delays
any meaningful recovery to beyond 2021. 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 effects arising from
coronavirus-related disruptions on these economic inputs will
likely affect both investment and speculative-grade ratings.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Third-party, loan-level results were reviewed by Fitch for this
transaction. The due diligence companies AMC Diligence, LLC and
Clayton Holdings examined 100% of the loan files in three areas:
compliance review, credit review and valuation review. The due
diligence scope was conducted in accordance with Fitch's existing
criteria.
Form 'ABS Due Diligence 15E' was received from each of the TPR
firms. The 15E forms were reviewed and used as a part of the rating
for this transaction.
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).
COMM 2010-C1: Moody's Lowers Class G Certs Rating to B3
-------------------------------------------------------
Moody's Investors Service affirmed the ratings on five classes,
placed one class on review for downgrade, and downgraded four
classes that remain on review for downgrade in COMM 2010-C1
Mortgage Trust, Commercial Mortgage Pass-Through Certificates,
Series 2010-C1 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Jul 15, 2019 Affirmed Aaa
(sf)
Cl. B, Affirmed Aaa (sf); previously on Jul 15, 2019 Affirmed Aaa
(sf)
Cl. C, Affirmed Aa1 (sf); previously on Jul 15, 2019 Upgraded to
Aa1 (sf)
Cl. D, A3 (sf) Placed Under Review for Possible Downgrade;
previously on Jul 15, 2019 Upgraded to A3 (sf)
Cl. E, Downgraded to Ba1 (sf) and Remains On Review for Possible
Downgrade; previously on Apr 17, 2020 Baa2 (sf) Placed Under Review
for Possible Downgrade
Cl. F, Downgraded to B1 (sf) and Remains On Review for Possible
Downgrade; previously on Apr 17, 2020 Ba2 (sf) Placed Under Review
for Possible Downgrade
Cl. G, Downgraded to B3 (sf) and Remains On Review for Possible
Downgrade; previously on Apr 17, 2020 B1 (sf) Placed Under Review
for Possible Downgrade
Cl. XS-A*, Affirmed Aaa (sf); previously on Jul 15, 2019 Affirmed
Aaa (sf)
Cl. XW-A*, Affirmed Aaa (sf); previously on Jul 15, 2019 Affirmed
Aaa (sf)
Cl. XW-B*, Downgraded to B1 (sf) and Remains On Review for Possible
Downgrade; previously on Apr 17, 2020 Ba2 (sf) Placed Under Review
for Possible Downgrade
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on three principal and interest (P&I) classes were
affirmed because the transaction's key metrics, including Moody's
loan-to-value (LTV) ratio, Moody's stressed debt service coverage
ratio (DSCR) and the transaction's Herfindahl Index (Herf), are
within acceptable ranges.
The ratings on two interest-only (IO) classes were affirmed due to
the credit quality of the referenced classes.
The rating on one P&I class was placed on review for possible
downgrade, and the ratings on three P&I classes were downgraded and
the ratings remain on review for possible downgrade due to a
decline in performance and uncertainty regarding refinancing at
upcoming maturities for the Fashion Outlets of Niagara Falls Loan
(65% of the pool) and the Auburn Mall Loan (22% of the pool), which
mature in September and October of 2020.
The rating on the IO class Cl. XW-B was downgraded due to the
decline in credit quality of the referenced classes that remain on
review for possible downgrade. The rating remains on review for
possible downgrade due to the referenced P&I classes that remain 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.
Moody's rating action reflects a base expected loss of 5.1% of the
current pooled balance, compared to 0.1% at Moody's last review.
Moody's base expected loss plus realized losses is now 1.0% of the
original pooled balance, compared to 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 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 June 12, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 81% to $161 million
from $857 million at securitization. The certificates are
collateralized by five mortgage loans ranging in size from less
than 2% to 65% of the pool. One loan, constituting 6% of the pool,
has defeased and is 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 two, compared to a Herf of six at Moody's last
review.
One loan, constituting 22% of the pool, is on the master servicer's
watchlist. The watchlist includes loans that meet certain portfolio
review guidelines established as part of the CRE Finance Council
(CREFC) monthly reporting package. As part of Moody's ongoing
monitoring of a transaction, the agency reviews the watchlist to
assess which loans have material issues that could affect
performance.
Moody's received full year 2018 and 2019 operating results for 100%
of the pool (excluding defeased loans).
The top three loans represent 92% of the pool balance. The largest
loan is the Fashion Outlets of Niagara Falls Loan ($104.4 million
-- 64.7% of the pool), which is secured by a 525,663 square foot
(SF) enclosed fashion outlet center located in Niagara, New York.
The property is located approximately five miles east of the
Niagara Falls and the Canadian border. As of December 2019, the
property was 92% leased, compared to 91% as of March 2018. Property
performance has deteriorated since 2018 and net operating income
(NOI) declined 17% from 2018 to 2019, driven primarily by a $3.4
million decrease in revenues. Moody's LTV and stressed DSCR are 92%
and 1.15X, respectively.
The second largest loan is the Auburn Mall Loan ($35.8 million --
22.2% of the pool), which is secured by a 423,270 SF portion of a
588,000 SF regional mall located in Auburn, Massachusetts south of
Worcester. At securitization, the property was anchored by Sears, a
Macy's Home Store, and a Macy's (non-collateral). The Macy's Home
Store closed at lease expiration in 2016 and has since been
replaced by Reliant Medical Center. The Sears closed in February
2020 but is contractually obligated to pay rent until the lease
expires in October 2022. As of December 2019, the property was 96%
leased, compared to 98% leased as of March 2018. A competing
lifestyle center, Shoppes at Blackstone Valley, opened in 2008
approximately 5 miles east of the property. Moody's LTV and
stressed DSCR are 94% and 1.55X, respectively.
The third largest loan is the Shoppes at Alpha Place Loan ($8.3
million -- 5.2% of the pool), which is secured by a 105,000 SF
retail center located in Highland Heights, Ohio east of Cleveland.
The property is anchored by a discount drug mart. The property was
92% leased as of March 2020, down from 93% as of December 2018. The
loan has amortized 14% since securitization. Moody's LTV and
stressed DSCR are 101% and 1.04X, respectively.
COMM 2013-CCRE12: Fitch Cuts Rating on Class F Certs to Csf
-----------------------------------------------------------
Fitch Ratings has downgraded three classes and affirmed nine
classes of Deutsche Bank Securities, Inc.'s COMM 2013-CCRE12
commercial mortgage pass-through certificates.
COMM 2013-CCRE12
- Class A-3 12591KAD7; LT AAAsf; Affirmed
- Class A-4 12591KAE5; LT AAAsf; Affirmed
- Class A-M 12591KAG0; LT AAAsf; Affirmed
- Class A-SB 12591KAC9; LT AAAsf; Affirmed
- Class B 12591KAH8; LT Asf; Affirmed
- Class C 12591KAK1; LT BBBsf; Affirmed
- Class D 12624SAE9; LT CCCsf; Downgrade
- Class E 12624SAG4; LT CCsf; Downgrade
- Class F 12624SAJ8; LT Csf; Downgrade
- Class PEZ 12591KAJ4; LT BBBsf; Affirmed
- Class X-A 12591KAF2; LT AAAsf; Affirmed
- Class X-B 12624SAA7; LT Asf; Affirmed
Classes X-A and X-B are interest only.
Class A-M, B and C certificates may be exchanged for class PEZ
certificates, and class PEZ certificates may be exchanged for class
A-M, B, and C certificates.
KEY RATING DRIVERS
Increased Loss Expectations; High Concentration of Fitch Loans of
Concern: The downgrades to classes D through F primarily reflect
increased base case loss expectations on the Fitch Loans of Concern
combined with total realized losses of $12.6 million. Fitch has
designated 20 loans (58.6% of pool) as FLOCs, including four
specially serviced loans/ REO assets (8.6%). The increased loss
also reflects concern over the impact of the ongoing coronavirus
pandemic.
High Percentage of Fitch Loans of Concern: Fitch has designated 20
loans (58.6% of pool) as FLOCs, including four specially serviced
loans/ REO assets (8.6%).
The largest FLOC is secured by 175 West Jackson (14.4%), a 1.45
million sf office property located in the Chicago CBD. The loan was
returned to the master servicer in August 2018 after being assumed
by a Brookfield related entity. Occupancy at the property has
declined substantially since issuance and the prior borrower was
unwilling to contribute additional capital towards releasing and
renovating the property. Per the March 2020 rent roll, the property
was 65.7% occupied; however, the new sponsor has been reportedly
investing substantial capital towards stabilizing the property.
The second largest FLOC is the Miracle Mile Shops loan (14.4%),
which is secured by an approximately 450,000 sf mall located on the
Las Vegas Strip adjacent to the Planet Hollywood Resort and Casino.
The mall tenancy, which has been temporarily closed due to the
ongoing coronavirus pandemic, is leased to a variety of retail
shops, restaurants and entertainment venues. The largest two
tenants are both theaters. The mall has strong sales performance
with comparable in-line sales at $835 psf, as of the TTM February
2020 sales report. Approximately 16.4% of the NRA is scheduled to
expire in 2020, including the second largest tenant Saxe Theater
(5% NRA, expiry June 30, 2020). Saxe has postponed renewal
discussions due to the ongoing pandemic. The sponsor has reportedly
requested coronavirus relief. As of June 2020, the mall has
partially re-opened with stores, restaurants and bars operating
with limited hours.
The next largest FLOC is the Oglethorpe Mall loan (5.9%), which is
secured by 626,966 sf of a 943,000 sf regional mall located in
Savannah, GA. The mall is anchored by Macy's and JCPenney as well
as a non-collateral Belk. There is also a vacant box, the former
Sears space, which is not a part of the collateral and is owned by
Seritage. Sears closed the store in November 2018. JCPenney
recently filed for bankruptcy and announced the closure of a number
of stores; however, the subject store does not appear on any recent
store closing lists. Comparable in line sales were $385 psf in
2019, compared with $397 psf in 2018 and $419 psf at the time of
issuance. As of the March 2020 rent roll, the collateral was 96%
occupied and the total mall was 81% occupied. According to the
mall's website, the property is open following a temporary closure
due to the coronavirus.
The next largest FLOC is the REO Harbourside North (3.7%), a
leasehold interest in a 121,983 sf office property located in the
Georgetown submarket of Washington D.C. The property consists of
the first five floors of a six-floor building. The loan originally
transferred to the special servicer in July 2018 due to occupancy
issues. The loan became REO in March 2019. The servicer is working
towards stabilizing the property before any disposition. As of the
March 2020 rent roll, occupancy was 82.7%.
Other FLOCs include a loan secured by a 208-unit multifamily
property located in Liverpool, NY (2.6%) that has seen declining
cash flow over the last few years, the servicer reported YE 2019
NOI debt service coverage ratio was 0.88x; a loan secured by a
student housing property located in Conway, SC (2.2%) that
transferred to special servicing in June 2019 due to payment
default after occupancy began to decline in 2018 with the addition
of new competition; a loan secured by a hotel in the Flatiron
District of Manhattan (2.0%) that is reportedly being operating as
housing for homeless families; a loan secured by a 356,000 sf
office property located in New Orleans, LA (1.6%) that had a
December 2019 occupancy of only 67.7%; a REO hotel located in
Morgantown, WV (1.4%); and a loan secured by a delinquent shopping
center located in Elkview, WV that was closed for a long period due
to flood damage (1.3%), and nine other loans that individually,
each comprise less than 1.0% of the pool.
Credit Enhancement Decline to Junior Classes: As of the June 2020
distribution date, the pool's aggregate principal balance has been
reduced by 17.8% to $983 million from $1.2 billion at issuance.
There has been 16.8% in pay down from the payoff/resolution of 12
loans/REO assets as well as scheduled amortization. There has been
$12.6 million in realized losses primarily related to the
disposition of four REO assets over the last year.
All performing loans in the pool are now amortizing. Ten loans
(9.6% of pool) have been defeased. No loans mature prior to 2023.
Exposure to Coronavirus: Fitch expects significant economic impacts
to certain hotels, retail and multifamily properties 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
prompted the closure of several hotel properties in gateway cities,
as well as malls, entertainment venues and individual stores.
Hotel, retail and multifamily properties comprise 4.8%, 34.0% and
10.1% of the pool balance, respectively. Multifamily includes two
student housing properties (2.6% of the pool). Fitch's base case
analysis applied additional stresses to two hotel loans, nine
retail loans and two multifamily loans due to their vulnerability
to the coronavirus pandemic.
Alternative Loss Consideration: Fitch is concerned about the
possibility of an outsize loss on the Oglethorpe Mall loan, should
performance continue to deteriorate. Fitch performed an additional
sensitivity on the loan that assumed a 50% loss; the negative
rating outlooks on class A-M and below factor in this scenario.
RATING SENSITIVITIES
The Negative Outlooks on classes A-M, B, C, PEZ, and interest only
X-A and X-B reflect concerns over the FLOCS including four
specially serviced loans/assets. The Stable Outlooks on classes
A-SB, A-3, and A-4 reflect the substantial credit enhancement to
the classes and senior position in the capital stack.
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, particularly on the FLOCs, coupled with
pay down and/or defeasance. Upgrades of the 'Asf' category 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' category 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. The distressed classes are unlikely to be
upgraded absent significant performance improvement and
substantially higher recoveries than expected on the specially
serviced loans/assets.
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/assets. Downgrades to classes A-SB, A-3 and A-4 are not
expected given the position in the capital structure, but may occur
should interest shortfalls occur. Downgrades to the Negative
Outlook classes are possible should performance of the FLOCs
continue to decline and should further loans transfer to special
servicing and/or should further losses be realized. The distressed
classes could be further downgraded should losses increase or
become more certain.
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 those classes
with Negative Rating Outlooks may be downgraded by more than one
category.
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
COMM 2013-CCRE12: Exposure to Social Impacts: 4
The transaction has exposure to sustained structural shift in
secular preferences affecting consumer trends, occupancy trends,
etc. which, in combination with other factors, impacts the rating.
Except for the matters discussed, 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).
CRESTLINE DENALI XIV: Moody's Cuts Rating on F-R Notes to Caa2
--------------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Crestline Denali CLO XIV, Ltd.:
US$19,500,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2031 (the "Class C-R Notes"), Downgraded to A3 (sf);
previously on June 3, 2020 A2 (sf) Placed Under Review for Possible
Downgrade
US$23,400,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2031 (the "Class D-R Notes"), Downgraded to Ba1 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$19,500,000 Class E-R Secured Deferrable Floating Rate Notes due
2031 (the "Class E-R Notes"), Downgraded to B1 (sf); previously on
April 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
US$3,000,000 Class F-R Secured Deferrable Floating Rate Notes due
2031 (the "Class F-R Notes"), Downgraded to Caa2 (sf); previously
on April 17, 2020 B3 (sf) Placed Under Review for Possible
Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D-R notes, E-R notes, and F-R notes and on
June 3, 2020 on the Class C-R notes. The CLO, originally issued in
October 2016 and refinanced in November 2018, is a managed cashflow
CLO. The notes are collateralized primarily by a portfolio of
broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in October 2023.
RATINGS RATIONALE
The downgrades on the Class C-R notes, D-R notes, E-R notes, and
F-R notes reflect the risks posed by credit deterioration and loss
of collateral coverage observed in the underlying CLO portfolio,
which have been primarily prompted by economic shocks stemming from
the coronavirus pandemic. Since the outbreak widened in March, the
decline in corporate credit has resulted in a significant number of
downgrades, other negative rating actions, or defaults on the
assets collateralizing the CLO. Consequently, the default risk of
the CLO portfolio has increased substantially, the credit
enhancement available to the CLO notes has eroded, exposure to
Caa-rated assets has increased significantly, and expected losses
on certain notes have increased materially.
Based on Moody's calculation, the weighted average rating factor is
3548 as of May 2020, or 21.1% worse compared to 2930 reported in
the March 2020 trustee report [1]. Moody's calculation also showed
the WARF was failing the test level of 2999 reported in the May
2020 trustee report [2]by 549 points. Moody's notes that currently
approximately 27.8% and 5.7% of the CLO's par is from obligors
assigned a negative outlook or whose ratings are on review for
possible downgrade, respectively. Additionally, based on Moody's
calculation, the proportion of obligors in the portfolio with
Moody's corporate family or other equivalent ratings of Caa1 or
lower (after any adjustments for negative outlook and watchlist for
possible downgrade) is currently approximately 23.5%. Furthermore,
Moody's calculated total collateral par balance, including
recoveries from defaulted securities, is at $380.9 million, or $9.1
million less than the deal's ramp-up target par balance. Based on
the May 2020 trustee report [3], the over-collateralization ratios
for the Class E-R notes is reported at 103.68%, and is currently
failing the trigger level of 104.7%.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $378.5 million, defaulted par of $6.6
million, a weighted average default probability of 29.35% (implying
a WARF of 3548), a weighted average recovery rate upon default of
48.84%, a diversity score of 86 and a weighted average spread of
3.50%. Moody's also analyzed the CLO by incorporating an
approximately $8.9 million par haircut in calculating the OC and
interest diversion test ratios.
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 corporate assets.
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
CRESTLINE DENALI XV: Moody's Cuts Rating on Class E-2 Notes to B3
-----------------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued Crestline Denali CLO XV, Ltd.
US$24,000,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2030 (the "Class C Notes"), Downgraded to A3 (sf); previously
on June 3, 2020 A2 (sf) Placed Under Review for Possible Downgrade
US$22,000,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2030 (the "Class D Notes"), Downgraded to Ba1 (sf); previously
on April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$16,000 000 Class E-1 Secured Deferrable Floating Rate Notes due
2030 (the "Class E-1 Notes"), Downgraded to Ba3 (sf); previously on
April 17, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade
US$6,000 000 Class E-2 Secured Deferrable Floating Rate Notes due
2030 (the "Class E-2 Notes"), Downgraded to B3 (sf); previously on
April 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D notes, E-1 notes, and E-2 notes and on June
3, 2020 on the Class C notes. The CLO, issued in May 2017 is a
managed cashflow CLO. The notes are collateralized primarily by a
portfolio of broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in April 2022.
RATINGS RATIONALE
The downgrades on the Class C notes, D notes, E-1 notes, and E-2
notes reflect the risks posed by credit deterioration and loss of
collateral coverage observed in the underlying CLO portfolio, which
have been primarily prompted by economic shocks stemming from the
coronavirus pandemic. Since the outbreak widened in March, the
decline in corporate credit has resulted in a significant number of
downgrades, other negative rating actions, or defaults on the
assets collateralizing the CLO. Consequently, the default risk of
the CLO portfolio has increased substantially, the credit
enhancement available to the CLO notes has eroded, exposure to
Caa-rated assets has increased significantly, and expected losses
on certain notes have increased materially.
Based on Moody's calculation, the weighted average rating factor is
3544 as of May 2020, or 22.6% worse compared to 2891 reported in
the March 2020 trustee report [1]. Moody's calculation also showed
the WARF was failing the test level of 2795 reported in the May
2020 trustee report [2] by 749 points. Moody's notes that currently
approximately 27.9% and 5.3% of the CLO's par is from obligors
assigned a negative outlook or whose ratings are on review for
possible downgrade, respectively. Additionally, based on Moody's
calculation, the proportion of obligors in the portfolio with
Moody's corporate family or other equivalent ratings of Caa1 or
lower (after any adjustments for negative outlook and watchlist for
possible downgrade) is currently approximately 23.8%. Furthermore,
Moody's calculated total collateral par balance, including
recoveries from defaulted securities, is at $391.6 million, or $8.4
million less than the deal's ramp-up target par balance. Based on
the May 2020 trustee report [3], the over-collateralization ratios
for the Class E-R notes is reported at 102.99%, and is currently
failing the trigger level of 103.52%.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $389.1 million, defaulted par of $5.8
million, a weighted average default probability of 29.42% (implying
a WARF of 3544), a weighted average recovery rate upon default of
48.70%, a diversity score of 85 and a weighted average spread of
3.48%. Moody's also analyzed the CLO by incorporating an
approximately $8.6 million par haircut in calculating the OC and
interest diversion test ratios.
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 corporate assets.
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
CROWN CITY I: S&P Rates Class D Notes 'BB- (sf)'
------------------------------------------------
S&P Global Ratings assigned its ratings to Crown City CLO I/Crown
City CLO I LLC's floating-rate notes.
The note issuance is a CLO transaction backed by primarily senior
secured loans.
The 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 (O/C).
-- 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.
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021. S&P is using this assumption in assessing the economic and
credit implications associated with the pandemic (see S&P's
research at www.spglobal.com/ratings). As the situation evolves,
S&P will update its assumptions and estimates accordingly.
RATINGS ASSIGNED
Crown City CLO I/Crown City CLO I LLC
Class Rating Amount (mil. $)
A-1 AAA (sf) 210.00
A-2 AA (sf) 56.00
B (deferrable) A (sf) 21.00
C (deferrable) BBB- (sf) 17.50
D (deferrable) BB- (sf) 10.50
Subordinated notes NR 37.30
NR--Not rated.
CROWN POINT 9: S&P Rates Class E Notes 'BB- (sf)'
-------------------------------------------------
S&P Global Ratings assigned its 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 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 management team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
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.
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 36.95
NR--Not rated.
CSMC TRUST 2017-CHOP: S&P Lowers Class F Certs Rating to CCC (sf)
-----------------------------------------------------------------
S&P Global Ratings lowered its ratings on the class E and F
commercial mortgage pass-through certificates from CSMC Trust
2017-CHOP, a U.S. CMBS transaction and placed them on CreditWatch
with negative implications. In addition, S&P affirmed its ratings
on six other classes and placed its rating on the class D
certificates from the same transaction on CreditWatch with negative
implications.
The downgrades on classes E and F as well as the CreditWatch
negative placements on classes D, E, and F reflect susceptibility
to liquidity interruption as well as credit support erosion that
S&P anticipates will occur upon the eventual resolution of the
specially serviced loan. S&P's analysis also considered the
negative impact that the COVID-19 pandemic is currently having on
the lodging properties that secure the mortgage loan and the
uncertainty as to when property performance may rebound.
The CreditWatch negative placements also reflect additional
information that S&P anticipates obtaining from the special
servicer in the next few months regarding its resolution strategy,
the properties' operating performance, and updated appraisals. The
loan transferred to the special servicer on April 20, 2020, due to
an imminent monetary default and has a reported nonperforming
matured balloon payment status. The loan matured June 9, 2020. The
special servicer, Midland Loan Services, is evaluating all
resolution strategies, including receivership and foreclosure,
after it failed to come to an agreement with the borrower on a loan
modification. S&P expects to resolve the CreditWatch placements
after reviewing the additional information.
"We affirmed our ratings on classes A, B, C, and D even though the
model-indicated ratings were lower than the classes' current rating
levels because we qualitatively considered the underlying
collateral quality, the significant market value decline that would
be needed before these classes experience losses, liquidity support
provided in the form of servicer advancing, and position in the
waterfall," S&P said.
"We affirmed the ratings on the class X-CP and X-EXT interest-only
(IO) certificates based on our criteria for rating IO securities,
in which the ratings on the IO securities would not be higher than
that of the lowest-rated reference class. The notional balances on
classes X-CP and X-EXT reference a portion of the class A
certificates," the rating agency said.
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.
This is a stand-alone (single borrower) transaction backed by a
floating-rate IO mortgage loan secured by the borrowers' fee and
leasehold interests in a portfolio of 29 limited-service and 19
extended-stay lodging properties, totaling 6,401 guestrooms, in 21
U.S. states. S&P's property-level analysis included a reevaluation
of the lodging properties that secure the mortgage loan in the
trust and considered the stable reported revenue per available room
(RevPAR) and increasing net operating income (NOI) for the past
three years (2017 through 2019). S&P also reviewed the property
inspection reports and the January 2020 Smith Travel (STR) reports
for the 48 properties (details below). S&P derived its sustainable
in-place net cash flow (NCF), which is the same as at issuance, and
divided it by a capitalization rate of 10.07% (up from 9.57% at
issuance, details below) to determine the rating agency's
expected-case value. This yielded an overall S&P's loan-to-value
ratio of 134.6% on the trust balance.
S&P noted that between year-end 2017 and 2019, the portfolio's NOI
increased 6.7%, while RevPAR increased 1.2%. The January 2020 STR
reports indicate that of the 48 properties securing the loan, 40
properties (86.8% by allocated loan amount) had a RevPAR
penetration rate--which measures the RevPAR of the hotel relative
to its competitors, with 100% indicating parity with
competitors--exceeding 100% as of year-end 2019. According to the
special servicer, the properties have remained open during the
COVID-19 pandemic; however, portfolio occupancy was 68.2% as of the
trailing-12 months ending April 2020 (down from 76.0% in 2019) and
was just 20.7% in April. Hence, while it does not yet have updated
financial statements, S&P expects NOI to be significantly below
2019 levels.
S&P increased its capitalization rate by 50 basis points from
issuance to account for the geographic concentration of the
properties in New Jersey (six hotels; 13.9% by allocated loan
amount) and New York (five hotels; 12.6%), states where lodging
demand has been significantly impacted by COVID-19 and the related
travel and social distancing restrictions, as well as in Texas
(eight hotels; 11.6%), where recent oil shocks have negatively
impacted the local economy. The rating agency also considered that
a distressed sale of lodging assets in the current environment,
where there is depressed lodging demand and NCFs, limited
availability of hotel financing, and uncertainty around the
willingness and ability of buyers to bid, could result in
lower-than-expected liquidation proceeds and reduced liquidity to
the trust.
Although COVID-19-related restrictions are now easing in certain
states, S&P expects that travel will remain tempered for several
quarters. Airlines are operating on limited schedules, corporations
have restricted business travel and opted out of holding or
attending large meetings and conventions, and leisure travel is
constrained due to consumers' fears of traveling. There is
significant uncertainty regarding not only the duration of the
pandemic but also the time needed for lodging demand to return to
normalized levels once travel restrictions are lifted.
According to the June 15, 2020, trustee remittance report, the IO
mortgage loan has a trust and whole loan balance of $780.0 million,
the same as at issuance. The IO loan pays a per annum floating
interest rate of LIBOR plus a weighted average spread of 3.30%. The
two-year, floating-rate loan initially matured in June 2019 and had
three one-year extension options. To date, while the trust has not
incurred any principal losses, accumulated interest shortfalls
totaling $203,125 due to special servicing fees have impacted class
HRR (not rated by S&P).
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety.
RATINGS LOWERED AND PLACED ON CREDITWATCH WITH NEGATIVE
IMPLICATIONS
Rating
Class To From
E B+ (sf)/Watch Neg BB- (sf)
F CCC (sf)/Watch Neg B- (sf)
RATING AFFIRMED AND PLACED ON CREDITWATCH WITH NEGATIVE
IMPLICATIONS
Rating
Class To From
D BBB- (sf)/Watch Neg BBB- (sf)
RATINGS AFFIRMED
Class Rating
A AAA (sf)
B AA- (sf)
C A- (sf)
X-CP AAA (sf)
X-EXT AAA (sf)
DBUBS MORTGAGE 2011-LC1: Fitch Affirms Class G Certs at Bsf
-----------------------------------------------------------
Fitch Ratings has affirmed eight classes of DBUBS Mortgage Trust
commercial mortgage pass-through certificates series 2011-LC1. In
addition, Fitch revised the Outlook for one class to Negative from
Stable.
DBUBS 2011-LC1
- Class A-3 233050AC7; LT AAAsf; Affirmed
- Class B 233050AF0; LT AAAsf; Affirmed
- Class C 233050AG8; LT AAAsf; Affirmed
- Class D 233050AH6; LT AAsf; Affirmed
- Class E 233050AJ2; LT BBBsf; Affirmed
- Class F 233050AK9; LT BBsf; Affirmed
- Class G 233050AL7; LT Bsf; Affirmed
- Class X-A 233050AD5; LT AAAsf; Affirmed
KEY RATING DRIVERS
Coronavirus Exposure: The social and market disruption caused by
the effects of the coronavirus pandemic and related containment
measures has contributed to the increased loss expectations for the
pool. Fitch expects that several loans will face particular
challenges refinancing at maturity, which is quickly approaching
for a majority of the pool. Retail is the largest property type
represented, accounting for 58.6% of the pool, followed by office
and lodging with 21.6% and 14% of the pool, respectively. Two
office loans (21.6% of the pool) are backed by single-tenant
properties where the current lease-in-place is likely to roll at or
prior to the loan's scheduled maturity. Two retail loans (3.2% of
the pool) have a 50% NRA or higher exposure to a fitness tenant
that is temporarily closed. Fitch's analysis included increased
stresses to an additional four loans (one hotel and three retail
properties) in light of the coronavirus outbreak. These stresses
are the primary contributors to the Negative Outlooks.
FItch Loans of Concern: With 21 loans remaining and the top 15
loans representing 94% of the pool, the pool is considered
extremely concentrated. Five of these loans (37.5% of the pool) are
flagged as Fitch Loans of Concern.
The largest FLOC is the second largest loan, 1200 K Street (16.5%
of the pool). It is secured by a Class A office building in the
heart of Washington, DC's East End neighborhood. The government
leases 97.8% of the NRA through the Pension Benefit Guaranty
Corporation, which has occupied the building since 1993. The
federal government will be consolidating PBGC's headquarters from
three buildings (including the subject) to The Portals in southwest
Washington DC. The proposed space won't be delivered for another
couple of years, according to the servicer commentary, and the
tenant recently extended its lease at the subject. Per the
servicer, the earliest PBGC can vacate is May 2021. This loan is
scheduled to mature in February 2021, and the timing of the
tenant's move could pose a significant refinance challenge. Fitch's
base case treatment includes a 35% haircut to the servicer reported
NOI, based on a dark-value analysis of the asset, and resulted in a
modeled loan-level loss of 36%.
The third largest loan, Marriott Crystal Gateway, is a FLOC and
represents 12.6% of the pool. It is secured by a 697-key
full-service hotel in Arlington, VA that was built in 1982 and
fully renovated in 2008. Marriott International, Inc. (rated
'BBB-/F3' with Negative outlook by Fitch) acts as property manager.
The property is well located in the Crystal City area of Arlington,
approximately two miles from Reagan National Airport. Although
Fitch did not receive a recent STR report for the asset, it has
historically outperformed its competitive set. The loan transferred
to the special servicer in June 2020 after having missed the April,
May and June debt service payments. No modification terms have yet
been discussed, according to the special servicer. The loan is
scheduled to mature in November 2020. Fitch's modeled loan-level
loss is 5%.
The fifth largest loan, Westgate I Corporate Center, is a FLOC and
represents 5.2% of the pool. It is secured by a suburban New Jersey
office property fully occupied by Everest Reinsurance. The tenant
will be moving its headquarters from the subject to a nearby
development in the near term and it is not expected that they will
renew their lease, which is scheduled to expire in December 2020.
This timing could pose a significant refinance challenge, as the
loan is scheduled to mature in January 2021. Fitch's base case
treatment includes a 50% haircut to the servicer reported NOI,
based on a dark value analysis of the asset and resulted in a
modeled loss of 18%. Fitch also ran a sensitivity stress, which
assumed a loss of 30%, given the tenant's near-term roll.
The fourteenth largest loan, Fordham Road Retail, is a FLOC and
represents 1.8% of the pool. The collateral includes two adjacent
retail properties located in Bronx's Fordham Heights neighborhood.
The largest tenant between the two assets is Planet Fitness (56.6%
NRA through July 2025), which is temporarily closed. The remaining
tenants are a mix of service and commercial tenants. The loan,
which is scheduled to mature in January 2021, missed the May and
April 2020 debt service payments. According to the servicer,
payments have recently been brought current through June 2020.
Fitch's analysis included a 50% NOI haircut to reflect potential
cash flow disruption and maturity default due to the temporary
closure of the largest tenant. This resulted in a modeled
loan-level loss of 17.8%.
The sixteenth largest loan, Main Street Plaza, is a FLOC and
represents 1.4% of the pool. The collateral is a neighborhood
retail center anchored by 24 Hour Fitness (52.6% of the NRA through
November 2024) and Ross Dress for Less (37.4% of the NRA through
January 2025). 24 Hour Fitness recently filed for Chapter 11
bankruptcy protection, and plans to permanently close approximately
one third of its national locations, primarily in California and
Texas. Although the subject location is not on the most recent
closing list, it has been temporarily closed. The loan, which is
scheduled to mature in December 2020, remains current. Fitch's
analysis included a 50% NOI haircut to reflect potential cash flow
disruption and maturity default due to the temporary closure of the
largest tenant. This resulted in a modeled loan-level loss of
14.6%.
Stable Performance Despite Increased Loss Expectations: Overall,
the pool's performance is stable to improving. Credit metrics,
including DSCR and Debt Yield continue to improve. There are
pockets of concern, especially relating to several loans with
exposures to large or single-tenants with upcoming lease
expirations. Additionally, Fitch has identified several loans
properties facing cash flow challenges in light of store closures
and social distancing measures put in place to slow the spread of
coronavirus. There are five loans, representing 37.5% of the pool,
which have been flagged as FLOCs, including two loans that recently
became delinquent.
Continued Amortization; Upcoming Maturities: Since the last rating
action, four loans have repaid from the trust. This contributed to
the repayment of class A-2. Since issuance, the pool has
experienced 66.9% collateral reduction. There are seven defeased
loans; defeasance accounts for 22.4% of the pool balance. All
outstanding non-defeased loans are scheduled to mature by February
2021. Those scheduled to mature in 2020 represent 47.6% of the pool
and have a weighted-average NOI DSCR and Debt Yield of 2.03 and
17.5%, respectively. Those scheduled to mature in 2021 represent
30% of the pool and have a weighted-average NOI DSCR and Debt Yield
of 1.42x and 12.7%, respectively.
RATING SENSITIVITIES
The Negative Outlooks reflect the potential for a near-term rating
change should the performance of the FLOCs deteriorate. It also
reflects concerns with hotel and retail properties due to the
decline in travel and commerce as a result of the coronavirus
pandemic. The Stable Outlooks reflect the overall stable
performance of the pool and expected continued amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that lead to upgrades would include stable to improved
asset performance coupled with paydown and/or defeasance. An
upgrade of class D may occur with further improvement in credit
enhancement or defeasance but would be limited based on sensitivity
to concentrations or the potential for future concentration in the
pool. Classes would not be upgraded above 'Asf' if there is a
likelihood for interest shortfalls. An upgrade to class E is
unlikely unless replacement leases are executed for either 1200 K
Street or Westgate I Corporate Center. Upgrades to classes F and G
are not likely while coronavirus-related stresses continue to play
a role in the analysis. The Negative Rating Outlooks may be revised
back to Stable if properties vulnerable to the social distancing
guidelines put in place due to coronavirus stabilize once the
pandemic is over.
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 loans or the transfer of loans to
special servicing. Downgrades to classes A-3, B, C and X-A are not
likely due to the position in the capital structure, defeasance and
the high credit enhancement but could occur if interest shortfalls
occur or if a high proportion of the pool defaults and expected
losses increase significantly. A downgrade of class D may occur
should a significant number of loans not currently flagged as FLOCs
default at maturity. A downgrade of classes E, F and G may occur
should loss expectations increase due to an increase in specially
serviced loans.
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, and should there be outstanding
loans remaining in the pool, Fitch expects that a greater
percentage of classes may be assigned a Negative Rating 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).
DEEPHAVEN RESIDENTIAL 2020-2: Fitch Rates Class B-2 Certs Bsf
-------------------------------------------------------------
Fitch Ratings assigned ratings to the residential mortgage-backed
certificates issued by Deephaven Residential Mortgage Trust
2020-2.
RATING ACTIONS
Deephaven Residential Mortgage Trust 2020-2
Class A-1; LT AAAsf New Rating; previously at AAA(EXP)sf
Class A-2; LT AAsf New Rating; previously at AA(EXP)sf
Class A-3; LT Asf New Rating; previously at A(EXP)sf
Class M-1; LT BBB-sf New Rating; previously at BBB-(EXP)sf
Class B-1; LT BBsf New Rating; previously at BB(EXP)sf
Class B-2; LT Bsf New Rating; previously at B(EXP)sf
Class B-3; LT NRsf New Rating; previously at NR(EXP)sf
Class B-4; LT NRsf New Rating; previously at NR(EXP)sf
Class A-IO-S; LT NRsf New Rating; previously at NR(EXP)sf
Class XS; LT NRsf New Rating; previously at NR(EXP)sf
TRANSACTION SUMMARY
The notes are supported by 868 loans with a balance of $351.5
million as of the cutoff date. This will be the first transaction
issued by Deephaven Mortgage LLC (Deephaven) that Fitch is expected
to rate.
The notes are secured mainly by nonqualified mortgages (Non-QM) as
defined by the Ability to Repay (ATR) rule. 81% of the pool is
designated as Non-QM and the remaining 19% is not subject to ATR.
Distributions of principal and interest (P&I) and loss allocations
are based on a traditional senior-subordinate, sequential
structure. The sequential-pay structure locks out principal to the
subordinated notes until the most senior notes outstanding are paid
in full. The transaction has a stop advance feature where the
servicer will advance delinquent P&I up to 180 days.
KEY RATING DRIVERS
Revised GDP Due to Coronavirus: The coronavirus 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.
Payment Forbearance (Mixed): Roughly 24% of the borrowers (160
loans) in the pool are on a coronavirus forbearance plan. These
borrowers were generally granted up to a three-month forbearance
period by the servicer. While a borrower who does not make a
payment while on a forbearance plan, related to coronavirus or not,
will be considered delinquent, the servicer will not be obligated
to advance the missed forborne payments.
Of the 24% (160 loans) requesting a forbearance plan, 56% paid
their mortgage in April and May. Fitch treated the remaining 44%
who opted in a plan and are not making the monthly payments, as
delinquent, which resulted in a 98% 'AAAsf' probability of default
(PD) assumption.
Liquidity Stress for Payment Forbearance (Negative): The outbreak
of 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 forbearance
payments on a minimum of 40% 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.
P&I Advancing During Forbearance Period (Mixed): The servicer
Selene Finance LP (Selene) will not be obligated to advance
delinquent principal and interest (P&I) for loans on a forbearance
plan, irrespective of whether coronavirus-related or not. At the
end of the three-month forbearance period, the servicer may
evaluate repayment and/or loss mitigation options.
Repayment options are likely to include reinstatement (i.e. lump
sum repayment of the missed payments), repayment plans, deferrals
of the missed payments to the end of the loan term, or
capitalization of the missed payments. Loss mitigation options for
borrowers with permanent hardships could be offered rate and/or
term modifications, principal reduction modifications, short sales
or deed-in-lieu resolution strategies.
If the borrower cannot resume making its monthly payments after the
forbearance period and is no longer on a forbearance plan, the
servicer will advance delinquent P&I until the loan is 180 days
delinquent.
Six-Month Servicer Advances (Mixed): The transaction has a stop
advance feature where the servicer, Selene Finance LP (Selene),
will advance delinquent P&I up to 180 days. However, the servicer
will not be obligated to make advance for loans on a forbearance
plan. If the servicer fails to make a required advance, the master
servicer, Nationstar Mortgage LLC (Nationstar), will be obligated
to make such advance. If the master servicer fails to make
advances, the paying agent (Citibank, N.A.) will fund advances.
As P&I advances are intended to provide liquidity to the rated
notes if borrowers fail to make their monthly payments, the lack of
advancing during a forbearance period could result in temporary
interest shortfalls to the lowest ranked classes as principal can
be used to pay interest to the A-1 and A-2 classes. To address
this, Fitch assumed a no advancing scenario in its cash flow
analysis. There were no interest shortfalls to the most senior
classes under this scenario.
Mitigating the risk of interest shortfalls is a waterfall that
allows principal collections to pay timely interest to the 'AAAsf'
and 'AAsf' rated bonds. Additionally, as of the closing date, the
deal benefits from approximately 260 bps of excess spread, which
will be available to cover shortfalls prior to any write-downs.
Expanded Prime Credit Quality (Mixed): The collateral consists of
15-year, 25-year, 30-year and 40-year fixed-rate and
adjustable-rate loans (51% of the loans are adjustable rate); 13%
of the loans are interest-only (IO) loans. The pool is seasoned
approximately five months in aggregate. The borrowers in this pool
have moderate credit profiles with a 695 weighted average (WA)
Fitch-calculated model FICO and moderate leverage (80.5% sLTV).
1.5% of the loans in the pool were underwritten to foreign national
borrowers and 64% of the loans were underwritten with alternative
documentation. The pool characteristics resemble recent nonprime
collateral and, therefore, the pool was analyzed using Fitch's
nonprime model.
Nonfull Documentation Loans (Negative): Approximately 64% of the
loans used alternative documentation to underwrite the loan. 50% of
the overall pool was underwritten to a bank statement program (26%
to a 24-month bank statement program and 24% to a 12-month bank
statement program), which is not consistent with Appendix Q
standards or Fitch's view of a full documentation program. To
reflect the additional risk, Fitch increases the probability of
default (PD) for the loans which underwritten to alternative
documentation.
High Investor Property Concentration (Negative): Approximately 19%
of the pool comprises investment properties. Of the 19%, 7.4% were
underwritten using the borrower's credit profile, and the remaining
11.6% were originated through an investor cash flow program that
targets real estate investors qualified on a debt service coverage
ratio (DSCR) basis. The borrowers of the Non-DSCR investor
properties in the pool have strong credit profiles, with a WA FICO
of 714 (as calculated by Fitch) and an original CLTV of 67.1% and
the DSCR loans have a WA FICO of 732 (as calculated by Fitch) and
an original CLTV of 64.6%. Fitch increased the PD by approximately
2.0x for the cash flow ratio loans (relative to a traditional
income documentation investor loan) to account for the increased
risk.
A key distinction between this pool and legacy Alt-A loans is that
these loans adhere to underwriting and documentation standards
required under the Consumer Finance Protection Bureau's (CFPB) ATR
Rule (the Rule), which reduce the risk of borrower default arising
from lack of affordability, misrepresentation or other operational
quality risks due to the rigor of the Rule's mandates for
underwriting and documenting a borrower's ability to repay.
Sequential Payment Structure (Positive): The transaction's cash
flow is based on a sequential-pay structure whereby the subordinate
classes do not receive principal until the senior classes are
repaid in full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to re-allocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
those classes.
Moderate Operational Risk (Negative): Operational risk is
adequately controlled for in this transaction. Due to the
coronavirus' impact on the non-QM market, Deephaven Mortgage LLC
(Deephaven) laid off roughly 90% of its workforce in March 2020. As
a result, Fitch's review revolved around the company's risk
management framework, sourcing and acquisition strategy, and
appraisal valuation controls that were in place prior to the
suspension of their aggregation business. Prior to the suspension
of Deephaven's aggregation business, the company employed an
effective acquisition operation with strong management, an
experienced underwriting team and risk management framework.
Fitch's assessment of 'Average' reflects Deephaven's established
processes and infrastructure prior to March 2020 as well as the
uncertainty of company's future operations.
Primary and master servicing functions will be performed by Selene
Finance LP (Selene) and Nationstar Mortgage LLC (Nationstar), rated
'RPS3+' and 'RMS2+', respectively. The sponsor's retention of at
least 5% of the bonds helps ensure an alignment of interest between
issuer and investor.
Alignment of Interests (Positive): The transaction benefits from an
alignment of interest between the issuer and investors. PMCP
Sponsor LLC, as sponsor, will retain a horizontal residual interest
of at least 5% of the aggregate note balance.
R&W Framework (Negative): The R&W framework for this transaction is
classified as a Tier 2 due to the lack of an automatic review for
loans other than those with ATR realized losses. The R&Ws are being
provided by Deephaven Mortgage LLC and Pretium Mortgage Credit
Partners I Loan Acquisition, LP, which do not have a financial
credit opinion or public rating from Fitch. Fitch increased its
loss expectations 235 bps at the 'AAAsf' rating category to account
for the limitations of the Tier 2 framework and the counterparty
risk.
The number of unnecessary R&W breach reviews due to a loan going
delinquent due to coronavirus forbearance should be limited since
the R&W review trigger is based on the loan having a realized loss
and an ATR violation.
Due Diligence Review Results (Positive): Third-party due diligence
was performed on 100% of loans in the transaction by SitusAMC (AMC)
and Clayton Services (Clayton). The due diligence results are in
line with industry averages and 98% received an overall grade of
'A' or 'B'. Loan exceptions with an overall grade 'B' either had
strong mitigating factors or were accounted for in Fitch's loan
loss model resulting in no additional adjustments. Fitch applied
adjustments for 11 loans with 'C' grades for compliance, which had
an immaterial impact to the losses. The model credit for the high
percentage of loan level due diligence combined with the
adjustments for loan exceptions reduced the 'AAAsf' loss
expectation by 50 bps.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (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 analysis 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.
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.
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
positive home price growth with no assumed overvaluation. The
analysis assumes positive home price growth of 10%. Excluding the
senior class, which is already 'AAAsf', the analysis indicates
there is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result in a
full category upgrade for the rated class excluding those being
assigned ratings of 'AAAsf'.
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%, 20% and 30% in addition to the
model-projected 8.3%. The analysis indicates that there is some
potential rating migration with higher MVDs for all rated classes,
compared with the model projection. Specifically, a 10% additional
decline in home prices would lower all rated classes by one full
category.
Fitch has added a coronavirus sensitivity analysis that includes a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delays
any meaningful recovery to beyond 2021. 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 effects arising from
coronavirus-related disruptions on these economic inputs will
likely affect both investment- and speculative-grade ratings.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
A third-party due diligence review was completed on 100% of the
loans in this transaction by AMC and Clayton. The review scope was
consistent with Fitch's criteria and the overall diligence grades
are in-line with prior non-QM transactions which Fitch has rated.
Sixteen loans have a compliance grade of 'C', eleven due to a TRID
violation, 1 loan has a property grade of 'C' due to the secondary
valuation having a greater than -10% variance and 1 loan has a
credit grade of 'C'. Adjustments were applied based on the due
diligence findings which had an immaterial impact to the losses.
Eleven loans had a compliance grade of 'C' for TRID exceptions that
could not be cured. Fitch applied a $15,500 loss severity
adjustment to the loans to account for the increased risk of
statutory damages, which increased the LS by approximately 5bps.
The remaining 5 loans were graded 'C' for compliance due to
disclosure issues that are unable to be cured but do not add
material risk to bondholders.
One loan received a property valuation grade of 'C' due to the
secondary desk review having a negative variance greater than 10%
from the original appraised value. The lower property value was
used to calculate the LTV in Fitch's analysis. One loan was graded
'C' for credit as the index type listed on the final closing
disclosure did not reflect the index type on the note. No
adjustment was applied as the loan tape reflected the correct index
type and the discrepancy does not materially affect the borrower.
Approximately 27% or 238 loans were assigned a final credit grade
of 'B'. The credit exceptions graded 'B' were approved by the
originator or waived by Deephaven due to the presence of
compensating factors.
34% of the loans were graded 'B' for compliance exceptions. The
majority of these exceptions are either TRID related issues that
were corrected with subsequent documentation, timing of when
appraisal was provided and points and fees over the QM thresholds.
No adjustments were applied for the 'B' graded loans.
Form 'ABS Due Diligence 15E' was received from each of the TPR
firms. The 15E forms were reviewed and used as a part of the rating
for this transaction.
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).
DENALI CAPITAL XI: Moody's Cuts Rating on Class E-R Notes to Caa2
-----------------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Denali Capital CLO XI, Ltd.:
US$19,740,000 Class C-R Senior Secured Deferrable Floating Rate
Notes Due 2028 (the "Class C-R Notes"), Downgraded to Ba1 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$16,400,000 Class D-R Secured Deferrable Floating Rate Notes Due
2028 (the "Class D-R Notes"), Downgraded to B1 (sf); previously on
April 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
US$6,600,000 Class E-R Secured Deferrable Floating Rate Notes Due
2028 (the "Class E-R Notes"), Downgraded to Caa2 (sf); previously
on April 17, 2020 B3 (sf) Placed Under Review for Possible
Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class C-R notes, D-R notes and E-R notes. The CLO,
originally issued in March 2015 and refinanced in October 2018, is
a managed cashflow CLO. The notes are collateralized primarily by a
portfolio of broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in October 2020.
RATINGS RATIONALE
The downgrade on the Class C-R notes, D-R notes and E-R notes
reflects the risks posed by credit deterioration and loss of
collateral coverage observed in the underlying CLO portfolio, which
have been primarily prompted by economic shocks stemming from the
coronavirus pandemic. Since the outbreak widened in March, the
decline in corporate credit has resulted in a significant number of
downgrades, other negative rating actions, or defaults on the
assets collateralizing the CLO. Consequently, the default risk of
the CLO portfolio has increased substantially, the credit
enhancement available to the CLO notes has eroded, exposure to
Caa-rated assets has increased significantly, and expected losses
on certain notes have increased materially.
Based on Moody's calculation, the weighted average rating factor is
3538 as of May 2020 or 20.8% worse compared to 2928 reported in the
March 2020 trustee report [1]. Moody's calculation also showed the
WARF was failing the test level of 3023 reported in the May 2020
trustee report [2]by 515 points. Moody's notes that currently
approximately 27.9% and 8.6% of the CLO's par is from obligors
assigned a negative outlook or whose ratings are on review for
possible downgrade, respectively. Additionally, based on Moody's
calculation, the proportion of obligors in the portfolio with
Moody's corporate family or other equivalent ratings of Caa1 or
lower (after any adjustments for negative outlook and watchlist for
possible downgrade) is currently approximately 24.2%. Furthermore,
Moody's calculated total collateral par balance, including
recoveries from defaulted securities, is at $320.8 million, or $8.2
million less than the deal's ramp-up target par balance. Based on
the May 2020 trustee report [3], the over-collateralization ratios
for the Class E-R notes is reported at 101.6%, and is currently
failing the trigger level of 102.4%.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $319.1 million, defaulted par of $5.4
million, a weighted average default probability of 25.94% (implying
a WARF of 3538), a weighted average recovery rate upon default of
48.63%, a diversity score of 77 and a weighted average spread of
3.48%. Moody's also analyzed the CLO by incorporating an
approximately $6.7 million par haircut in calculating the OC and
interest diversion test ratios.
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 corporate assets.
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
FREDDIE MAC 2020-DNA3: Fitch Gives 'B(EXP)' Rating on 16 Tranches
-----------------------------------------------------------------
Fitch Ratings expects to rate Freddie Mac's Structured Agency
Credit Risk REMIC Trust 2020-DNA3 as follows:
STACR 2020-DNA3
- Class A-H; LT NR(EXP)sf Expected Rating
- Class B-1; LT NR(EXP)sf Expected Rating
- Class B-1A; LT NR(EXP)sf Expected Rating
- Class B-1AH; LT NR(EXP)sf Expected Rating
- Class B-1AI LT NR(EXP)sf Expected Rating
- Class B-1AR; LT NR(EXP)sf Expected Rating
- Class B-1B; LT NR(EXP)sf Expected Rating
- Class B-1BH; LT NR(EXP)sf Expected Rating
- Class B-2; LT NR(EXP)sf Expected Rating
- Class B-2A; LT NR(EXP)sf Expected Rating
- Class B-2AH; LT NR(EXP)sf Expected Rating
- Class B-2AI; LT NR(EXP)sf Expected Rating
- Class B-2AR; LT NR(EXP)sf Expected Rating
- Class B-2B; LT NR(EXP)sf Expected Rating
- Class B-2BH; LT NR(EXP)sf Expected Rating
- Class B-2H; LT NR(EXP)sf Expected Rating
- Class B-3H; LT NR(EXP)sf Expected Rating
- Class M-1; LT BBB-(EXP)sf Expected Rating
- Class M-1H; LT NR(EXP)sf Expected Rating
- Class M-2; LT B(EXP)sf Expected Rating
- Class M-2A; LT BB(EXP)sf Expected Rating
- Class M-2AH; LT NR(EXP)sf Expected Rating
- Class M-2AI; LT BB(EXP)sf Expected Rating
- Class M-2AR; LT BB(EXP)sf Expected Rating
- Class M-2AS; LT BB(EXP)sf Expected Rating
- Class M-2AT; LT BB(EXP)sf Expected Rating
- Class M-2AU; LT BB(EXP)sf Expected Rating
- Class M-2B; LT B(EXP)sf Expected Rating
- Class M-2BH; LT NR(EXP)sf Expected Rating
- Class M-2BI; LT B(EXP)sf Expected Rating
- Class M-2BR; LT B(EXP)sf Expected Rating
- Class M-2BS; LT B(EXP)sf Expected Rating
- Class M-2BT; LT B(EXP)sf Expected Rating
- Class M-2BU; LT B(EXP)sf Expected Rating
- Class M-2I; LT B(EXP)sf Expected Rating
- Class M-2R; LT B(EXP)sf Expected Rating
- Class M-2RB; LT B(EXP)sf Expected Rating
- Class M-2S; LT B(EXP)sf Expected Rating
- Class M-2SB; LT B(EXP)sf Expected Rating
- Class M-2T; LT B(EXP)sf Expected Rating
- Class M-2TB; LT B(EXP)sf Expected Rating
- Class M-2U; LT B(EXP)sf Expected Rating
- Class M-2UB; LT B(EXP)sf Expected Rating
TRANSACTION SUMMARY
This is Freddie Mac's seventh risk transfer transaction in which
the notes are not general, senior unsecured obligations of Freddie
Mac but instead are issued as a REMIC from a bankruptcy-remote
trust.
However, similar to prior transactions, the notes are still subject
to the credit and principal payment risk of a pool of certain
residential mortgage loans (reference pool) held in various Freddie
Mac-guaranteed MBS. The switch in transaction structure is to
expand the investor base, align tax treatment and better align the
program with other mortgage-related securities as well as to reduce
counterparty exposure to Freddie Mac.
KEY RATING DRIVERS
Coronavirus Impact Addressed (Negative): The coronavirus outbreak
and the resulting containment efforts have resulted in revisions to
Fitch's GDP estimates for 2020. Its 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 - a default
variable in the U.S. RMBS loan loss model) floor of 2.0 was applied
to 'BBBsf' and below.
COVID Forbearance Loans Removed (Neutral): Freddie Mac removed any
loan from the reference pool that was reported with a forbearance
indicator as of the May 31, 2020 cut-off date. Any loans that were
missed but otherwise reported as delinquent and in forbearance as
of May 31, 2020 to Freddie Mac in June 2020, which is expected to
be a small amount, will be removed from the pool in the first
distribution period as full prepayment without loss to investors.
The servicers are required to report to Freddie Mac any loans that
are in forbearance and delinquent.
COVID Relief Options (Neutral): COVID relief options offered to
mortgagors who have been affected by the COVID pandemic include
forbearance plans (in accordance to CARES Act), payment deferrals
and modifications. Mortgagors who enter a forbearance plan will not
be required to make their monthly payment for up to 12 months. At
the end of the forbearance period, mortgagors who have the ability
to make their monthly payments will have the option of deferring
forborne payments until the end of the mortgage loan. Payment
deferrals will not be considered a modification in this transaction
and will not result in writedowns to the reference tranches or the
corresponding class of notes. Mortgagors who are unable to make
their monthly payments at the end of the forbearance period will
likely be offered modification options that lower payments or keep
payments the same after the forbearance period. Ultimately, these
modification options may result in writedowns to the reference
tranches and the corresponding class of notes. Fitch feels that the
credit enhancement provided in this transaction is sufficient to
cover any potential writedowns to the rated notes.
High-Quality Mortgage Pool (Positive): The reference pool consists
of 179,314 fixed-rate fully amortizing loans with terms of 360
months totaling $48.3 billion. The loans were acquired by Freddie
Mac between Jan. 1, 2015 and Dec. 31, 2019 and have original
loan-to-values (LTV) between 60% up to 80%. The borrowers in this
pool have strong credit profiles (755 FICO) and relatively low
leverage (80.5% sLTV).
Geographic Concentration (Neutral): Approximately 20% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in Los Angeles MSA
(6.3%) followed by the New York MSA (4.8%) and the Chicago MSA
(3.0%). The top three MSAs account for 14.1% of the pool. As a
result, there was no adjustment for geographic concentration.
Very Low Operational Risk (Positive): Fitch considers this
transaction to have very low operational risk. Freddie Mac is an
industry leader in residential mortgage activities and is assessed
by Fitch as an 'Above-Average' aggregator. The government-sponsored
enterprise maintains strong seller oversight and implements a
comprehensive risk management framework on its acquisition
processes. While multiple counterparties are performing primary
servicing functions for the loans in the reference pool, Freddie
Mac has robust servicer oversight to mitigate servicer disruption
risk.
Production Sample and Limited Size of Third-Party Due Diligence
(Neutral): Third-party due diligence was conducted on a sample of
the reference pool by Adfitech, Inc., which is assessed by Fitch as
an 'Acceptable — Tier 2' third-party review firm. The review was
performed on a sample of loans selected from a population of loans
that were subject to Freddie Mac's post-purchase quality control
review. Freddie Mac recently transitioned to a due diligence
process to review ongoing loan production compared to previously
selecting loans to review per credit risk transfer issuance.
While the review does not cover 100% of loans in the pool, the
sampling methodology and review scope for the due diligence is
consistent with Fitch criteria and prior Freddie Mac-issued CRT
transactions. The due diligence results support Fitch's opinion of
Freddie Mac as an 'Above-Average' aggregator. Fitch did not apply
loss adjustments based on the results.
Solid Alignment of Interests (Positive): While the transaction is
designed to transfer credit risk to private investors, Fitch
believes the transaction benefits from solid alignment of
interests. Freddie Mac will retain credit risk in the transaction
by holding the senior reference tranche A-H, which has 4.00% of
loss protection, as well as a minimum of 5% of the M-1, M-2A, M-2B,
B-1A, B-1B, B-2A and B-2B reference tranches and 100% of the
first-loss B-3H reference tranche. Initially, Freddie Mac will
retain an approximately 65% vertical slice/interest through the
M-1H, M-2AH, M-2BH, B-1AH, B-1BH, B-2AH and B-2BH reference
tranches.
REMIC Structure (Neutral): This is Freddie Mac's eighth credit risk
transfer transaction (fourth Fitch rated) being issued as a REMIC
from a bankruptcy-remote trust. This limits the transaction's
dependency on Freddie Mac for payments of principal to the notes.
Under the current structure, Freddie Mac still acts as a final
backstop with regard to payments of interest on the notes as well
as potential investment losses of principal. As a result, ratings
may still be linked to Freddie Mac's corporate rating, but to a
lesser extent than in previous transactions where payment of both
principal and interest were direct obligations of Freddie Mac.
Receivership Risk Considered (Neutral): Under the Federal Housing
Finance Regulatory Reform Act, the Federal Housing Finance Agency
(FHFA) must place Freddie Mac into receivership if it determines
that the GSE's assets are less than its obligations for longer than
60 days following the deadline of its SEC filing. As receiver, FHFA
could repudiate any contract entered into by Freddie Mac if it is
determined that such action would promote an orderly administration
of the GSE's affairs. Fitch believes that the U.S. government will
continue to support Freddie Mac, as reflected in its current rating
of the GSE. However, if at some point Fitch views the support as
being reduced and receivership likely, the rating of Freddie Mac
could be downgraded and ratings on the M-1, M-2A and M-2B notes,
along with their corresponding MACR notes, could be affected.
RATING SENSITIVITIES
Fitch's analysis incorporates a sensitivity analysis to demonstrate
how the ratings would react to steeper market value declines 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
may be considered in the surveillance of the transaction. Two sets
of sensitivity analyses were 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 a
negative rating action/downgrade:
The defined negative stress 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 MVD. The analysis indicates that there is some
potential rating migration with higher MVDs, compared with the
model projection.
Factors that could, individually or collectively, lead to a
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% and 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 added a Coronavirus Sensitivity Analysis that that
includes a prolonged health crisis resulting in depressed consumer
demand and a protracted period of below-trend economic activity
that delays any meaningful recovery to beyond 2021. 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 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
Fitch was provided with due diligence information from Adfitech,
Inc. The due diligence focused on credit and compliance reviews,
desktop valuation reviews and data integrity. Adfitech examined
selected loan files with respect to the presence or absence of
relevant documents. Fitch received certification indicating that
the loan-level due diligence was conducted in accordance with
Fitch's published standards. The certification also stated that the
company performed its work in accordance with the independence
standards, per Fitch's criteria, and that the due diligence
analysts performing the review met Fitch's criteria of minimum
years of experience. Fitch considered this information in its
analysis and the findings did not have an impact on the analysis.
While Fitch was provided due diligence from a third-party, Form 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
STACR 2020-DNA3: Customer Welfare - Fair Messaging, Privacy & Data
Security: '4', Human Rights, Community Relations, Access and
Affordability: '4'.
STACR 2020-DNA3 has an ESG Relevance Score of '4' for customer
welfare — fair messaging and privacy and data security, as STACR
is a GSE program focused on customer welfare and fair messaging
while driving strong performance, contributing to reduced expected
losses in the rating analysis. This transaction also has an ESG
Relevance Score of '4' for human rights, community relations, and
access and affordability, as STACR is a GSE program that addresses
access and affordability while driving strong performance,
contributing to reduced expected losses in the rating analysis.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3' - ESG issues are
credit neutral or have only a minimal credit impact on the
entity(ies), either due to their nature or the way in which they
are being managed by the entity(ies).
FREDDIE MAC 2020-DNA3: S&P Assigns Prelim 'B' Rating to B-1 Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Freddie Mac
STACR REMIC Trust 2020-DNA3's notes.
The note issuance is an RMBS securitization backed by fully
amortizing, first-lien, fixed-rate residential mortgage loans
secured by one- to four-family residences, planned-unit
developments, condominiums, cooperatives, and manufactured housing
to prime borrowers.
The preliminary ratings are based on information as of June 25,
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 credit enhancement provided by the subordinated reference
tranches, as well as the associated structural deal mechanics;
-- The credit quality of the collateral included in the reference
pool;
-- A real estate mortgage investment conduit (REMIC) structure
that reduces the counterparty exposure to Freddie Mac for periodic
principal and interest payments but, at the same time, pledges the
support of Freddie Mac (a highly rated counterparty) to cover
shortfalls, if any, on interest payments and to make up for any
investment losses;
-- The issuer's aggregation experience and the alignment of
interests between the issuer and noteholders in the deal's
performance, which in S&P's view, enhances the notes' strength;
-- The enhanced credit risk management and quality control
processes Freddie Mac uses in conjunction with the underlying
representations and warranties framework; and
-- The impact that COVID-19 is likely to have on the U.S. economy
and the U.S. housing market, and the additional structural
provisions included to address corresponding forbearance and
subsequent defaults.
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
PRELIMINARY RATINGS ASSIGNED
Freddie Mac STACR REMIC Trust 2020-DNA3
Class Rating Amount ($)
A-H(i) NR 46,395,132,712.00
M-1 A- (sf) 180,000,000.00
M-1H(i) NR 303,282,632.00
M-2 BBB- (sf) 225,000,000.00
M-2R BBB- (sf) 225,000,000.00
M-2S BBB- (sf) 225,000,000.00
M-2T BBB- (sf) 225,000,000.00
M-2U BBB- (sf) 225,000,000.00
M-2I BBB- (sf) 225,000,000.00
M-2A BBB+ (sf) 112,500,000.00
M-2AR BBB+ (sf) 112,500,000.00
M-2AS BBB+ (sf) 112,500,000.00
M-2AT BBB+ (sf) 112,500,000.00
M-2AU BBB+ (sf) 112,500,000.00
M-2AI BBB+ (sf) 112,500,000.00
M-2AH(i) NR 189,551,645.00
M-2B BBB- (sf) 112,500,000.00
M-2BR BBB- (sf) 112,500,000.00
M-2BS BBB- (sf) 112,500,000.00
M-2BT BBB- (sf) 112,500,000.00
M-2BU BBB- (sf) 112,500,000.00
M-2BI BBB- (sf) 112,500,000.00
M-2RB BBB- (sf) 112,500,000.00
M-2SB BBB- (sf) 112,500,000.00
M-2TB BBB- (sf) 112,500,000.00
M-2UB BBB- (sf) 112,500,000.00
M-2BH(i) NR 189,551,645.00
B-1 B (sf) 100,000,000.00
B-1A BB (sf) 50,000,000.00
B-1AR BB (sf) 50,000,000.00
B-1AI BB (sf) 50,000,000.00
B-1AH(i) NR 191,641,317.00
B-1B B (sf) 50,000,000.00
B-1BH(i) NR 191,641,317.00
B-2 NR 50,000,000.00
B-2A NR 25,000,000.00
B-2AR NR 25,000,000.00
B-2AI NR 25,000,000.00
B-2AH(i) NR 95,820,658.00
B-2B NR 25,000,000.00
B-2BH(i) NR 95,820,658.00
B-3H(i) NR 120,820,657.00
(i)Reference tranche only and will not have corresponding notes.
Freddie Mac retains the risk of each of these tranches.
NR--Not rated.
GLOBAL SC FUNDING 2015-1: S&P Affirms BB+ (sf) Rating on B-1 Notes
------------------------------------------------------------------
S&P Global Ratings affirmed its ratings on Cronos Containers
Program I Ltd.'s (Cronos) series 2013-1, 2014-1, and 2014-2; Global
SC Finance II SRL's (GSCF II) series 2013-1 and 2014-1; Global SC
Finance IV Ltd.'s (GSCF IV) series 2017-1 and 2018-1; and Global SC
Funding Two Ltd.'s (Global Two) series 2015-1.
Cronos, GSCF II, and GSCF IV are ABS transactions collateralized by
dry cargo and specialized marine containers (including refrigerated
containers), along with the related lease contracts, receivables,
and the assets' associated sales proceeds. The series within each
master trust share the collateral pool. Global Two is an ABS
transaction backed by all outstanding class A shares of GSCF II,
which include the rights to receive cash flows from available
payments at the bottom of the payment waterfalls in GSFC II.
Interest payments on Global Two's series 2015-1 class B-1 notes are
deferrable (up to their legal final maturity date).
Seaco SRL, the manager, is a wholly owned subsidiary of Global Sea
Containers Ltd., an indirect wholly owned subsidiary of Bohai
Leasing Co. Ltd., which is controlled by the HNA Group. Cronos
Ltd., the former manager of the Cronos securitization program, was
acquired and successfully integrated into Seaco SRL. S&P reviewed
the updated collateral pool data as of March 31, 2020, and ran a
stress scenario analysis, which indicates sufficient cash flows to
make required principal and interest payments on the notes at their
current rating levels.
The affirmations reflect S&P's view of the portfolios' stable
performance, the manager's servicing capabilities, the collateral
characteristics, as well as the lower advance rates since the last
review on each master trust. According to the manager reports for
the May 2020 payment date, all classes are currently paid down to
their scheduled principal balance and all covenants are in
compliance.
S&P last reviewed Cronos in November 2017. Since then, the
transaction has continued to de-lever. Specifically, the excess
asset base, which is the excess of 82% of the container portfolio's
net book value (NBV) plus the restricted cash account (RCA) over
the balance of the outstanding series of notes, increased to $73.78
million as of the May 2020 payment date from $56.71 million as of
the October 2017 payment date. At the same time, the advance rate,
which is the outstanding balance of the notes minus the RCA balance
divided by the NBV, decreased to 63.45% from 72.96%. S&P's criteria
generally cap ratings on container lease-backed ABS at 'A+ (sf)',
which is the current rating level for Cronos.
"GSCF II and Global Two were last reviewed in October 2017, when
S&P downgraded GSCF II's class A notes to 'A- (sf)' from 'A (sf)'
and Global Two's class B notes to 'BB+ (sf)' from 'BBB (sf)'. As of
the May 2020 payment date, there were 135,234 units in the pool,
which decreased by approximately 53% from 291,733 as of the October
2017 payment date, while the average age (by unit) increased to 7.4
years from 7.2 years during the same period, which indicated the
sale or retirement of some older containers. The average lease rate
decreased slightly to $1.26 from $1.34. The average remaining term
(by unit) increased to 2.4 years and 7.8 years for the operating
and DFL fleets, respectively, from 1.9 years and 5.5 years. Despite
the portfolios' largely stable performance since the last review,
some of the portfolio characteristics are still weaker than those
at closing, as evidenced in the lower portfolio lease rate and
utilization. The senior leverage, calculated as the balance of GSCF
II's class A notes as a percentage of asset base (82% of NBV plus
RCA balance), decreased to 91.5% from 98.08%. The overall advance
rate for both GSCF II and Global Two, which is the aggregate note
balance minus the RCA balance divided by the NBV, decreased to
80.49% from 87.88%. Although S&P's cash flow analysis implied that
the class A notes can currently withstand 'A' level stress, the
rating agency does not believe an upgrade would be appropriate at
this time because of the uncertainty in the current macroeconomic
environment. In addition, the transaction documents allow the
manager to sell containers, subject to the asset base test, which
could increase the leverage discussed above.
Global SC IV's portfolio has remained generally stable since the
closing of its series 2018-1, except for a slight decrease in
utilization to 94.8% from 97.6% and in the average remaining term
(by unit) to 2.3 years from 2.9 years. Leverage on both the class A
and B notes reduced by less than 1.0%. Although S&P's cash flow
analysis implied that the class B notes can withstand 'A' level
stress, it does not believe upgrades would be appropriate at this
time because of the uncertainty in the current macroeconomic
environment and the class B notes' structural subordination to the
class A notes in the payment waterfall. In addition, the
transaction documents allow the manager to sell containers, subject
to the asset base test, which could reduce or eliminate the excess
asset base, if any.
Despite the extensive and immediate disruption in certain sectors,
the impact of the COVID-19 pandemic has been far less severe on the
container leasing markets. S&P will continue to review whether, in
its view, the ratings currently assigned to the notes remain
consistent with the credit enhancement available to support them,
and it will take further rating actions as it deems necessary.
S&P Global Ratings acknowledges a high degree of uncertainty about
the evolution of the coronavirus pandemic. The consensus among
health experts is that the pandemic may now be at, or near, its
peak in some regions but will remain a threat until a vaccine or
effective treatment is widely available, which may not occur until
the second half of 2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
RATINGS AFFIRMED
Cronos Containers Program I Ltd.
Series Class Rating
2013-1 A A+ (sf)
2014-1 A A+ (sf)
2014-2 A A+ (sf)
Global SC Finance II SRL
Series Class Rating
2013-1 A A- (sf)
2014-1 A-1 A- (sf)
2014-1 A-2 A- (sf)
Global SC Funding Two Ltd.
Series Class Rating
2015-1 B-1 BB+ (sf)
Global SC Finance IV Ltd.
Series Class Rating
2017-1 A A (sf)
2018-1 A A (sf)
2018-1 B BBB (sf)
GS MORTGAGE 2012-GCJ9: Moody's Cuts Class F Certs to Caa1
---------------------------------------------------------
Moody's Investors Service has affirmed the ratings on six classes,
confirmed the rating on one class, and downgraded the ratings on
three classes in GS Mortgage Securities Trust 2012-GCJ9, Commercial
Mortgage Pass-Through Certificates, Series 2012-GCJ9 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Dec 23, 2019 Affirmed Aaa
(sf)
Cl. A-AB, Affirmed Aaa (sf); previously on Dec 23, 2019 Affirmed
Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Dec 23, 2019 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa2 (sf); previously on Dec 23, 2019 Upgraded to
Aa2 (sf)
Cl. C, Affirmed A3 (sf); previously on Dec 23, 2019 Affirmed A3
(sf)
Cl. D, Confirmed at Baa3 (sf); previously on Apr 17, 2020 Baa3 (sf)
Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Ba3 (sf); previously on Apr 17, 2020 Ba2 (sf)
Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Caa1 (sf); previously on Apr 17, 2020 B2 (sf)
Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Dec 23, 2019 Affirmed
Aaa (sf)
Cl. X-B*, Downgraded to B3 (sf); previously on Apr 17, 2020 B1 (sf)
Placed Under Review for Possible Downgrade
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on five principal and interest classes were affirmed
and the rating on one P&I class was confirmed 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 two P&I classes, Cl. E and Cl. F, were downgraded
due to a decline in pool performance and higher anticipated losses
from specially serviced and troubled loans.
The rating on the interest only class Cl. X-A was affirmed based on
the credit quality of its referenced classes.
The rating on the interest only class Cl. X-B was downgraded due to
a decline in the credit quality of its referenced classes.
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 3.4% of the
current pooled balance, compared to 2.5% at Moody's last review.
Moody's base expected loss plus realized losses is now 3.5% of the
original pooled balance, compared to 2.8% 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 June 12th 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 25% to $1.04 billion
from $1.39 billion at securitization. The certificates are
collateralized by 63 mortgage loans ranging in size from less than
1% to 14% of the pool, with the top ten loans (excluding
defeasance) constituting 55% of the pool. Twenty-two loans,
constituting 24% 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 12, compared to 13 at Moody's last review.
As of the June 2020 remittance report, loans representing 84% of
the pool were current or within their grace period on their debt
service payments, 2% were beyond their grace period but less than
30 days delinquent and 13% were between 30- and 59-days
delinquent.
Eleven loans, constituting 29% 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.
Four loans have been liquidated from the pool, resulting in an
aggregate realized loss of $12.5 million (for an average loss
severity of 58%). Two loans, constituting 1% of the pool, are
currently in special servicing. The largest specially serviced loan
is the Residence Inn -- Buffalo loan ($5.5 million -- 0.5% of the
pool), which is secured by a 112-unit extended stay lodging
property located in Buffalo, New York. The property performance has
declined annually since 2017 and the loan was transferred to
special servicing in May 2019 for imminent default. The special
servicer indicated a deed in lieu foreclosure is pending
execution.
The other specially serviced loan is the Holiday Inn Express Hotel
& Suites Lancaster - Lititz ($4.6 million -- 0.4% of the pool),
which is secured by a 90-room limited service hotel built in 2005
and located in Lititz, Pennsylvania. The loan was recently
transferred to special servicing in April 2020 for imminent
monetary default at borrowers' request as a result of the Covid-19
pandemic.
Moody's has also assumed a high default probability for five poorly
performing loans, constituting 5.2% of the pool. The largest
troubled loan is secured by two independent living centers located
in Knoxville, Tennessee, which has experienced performance declines
since securitization. The has had an actual DSCR below 1.00X since
2018. The other four troubled loans are secured by two retail and
two office properties that have either experienced declines in
performance or are 60+ day delinquent.
Moody's has estimated an aggregate loss of $17.6 million (a 28%
expected loss on average) from these specially serviced and
troubled loans.
Moody's analysis also took into account concerns over the
concentrated lease rollover risks of two office loans. The Chase
Tower Milwaukee loan ($22.0 million -- 2.1% of the pool) with the
two largest tenants, occupying 49% of the NRA, having lease
expiration dates in 2021 and the Reston Commons loan ($21.7 million
-- 2.1% of the pool) with the single tenant occupying 100% of the
NRA having a lease expiration date in the beginning of 2023.
Moody's received full year 2018 operating results and full or
partial year 2019 operating results for 100% of the pool (excluding
specially serviced and defeased loans). Moody's weighted average
conduit LTV is 100%, compared to 97% 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 10% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of
9.3%.
Moody's actual and stressed conduit DSCRs are 1.47X and 1.04X,
respectively, compared to 1.53X and 1.09X 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 32% of the pool balance. The
largest loan is the Bristol Portfolio loan ($140 million -- 13.5%
of the pool), which is secured by two multifamily properties
located at 200 East 65th Street and 336 East 71st Street in New
York City. The property on 200 East 65th Street, also known as
Bristol Plaza, contains 297 residential condominiums, medical
office and retail space, of which 173 condominium units and the
commercial space serve as collateral for the loan. The property at
336 East 71st Street is a 30-unit apartment building built in 1910.
As of December 2019, the portfolio was 96% occupied, compared to
97% as of December 2018. The loan is interest only for the full
term and Moody's current LTV and stressed DSCR are 82% and 1.04X,
respectively, the same as at the last review.
The second largest loan is the Pinnacle I loan ($123.1 million --
11.8% of the pool), which is secured by a Class A, six-story,
393,000 square feet office building that includes a four-level
sub-grade parking garage located in Burbank, California. As the
result of the departure of the largest tenant Warner Music Group
(50% of the net rentable area; lease expiration December 2019), the
property's occupancy was reduced to 71% leased in March 2020 from
98% in December 2019 and 97% in December 2018. The borrower has
entered into three lease agreements commencing between June and
August 2020 for a combined 114,467 SF that would back-fill the
vacant space and would increase the occupancy to 100%. The loan has
amortized nearly 5% since securitization and Moody's current LTV
and stressed DSCR are 108% and 0.95X, respectively, compared to
109% and 0.94X at the last review.
The third largest loan is the Jamaica Center loan ($69.5 million --
6.7% of the pool), which is secured by a leasehold interest in a
3-story mixed-use complex containing 215,806 SF and located in
Jamaica, Queens, New York. The improvements were constructed in
2002 and contain 95,295 SF of retail space, 83,000 SF of theater
space, and 37,511 SF of office space. In addition, there is a
two-level, below grade parking garage providing 375 parking spaces.
The former tenant, K&G Men's company (7% of the NRA), vacated their
space in 2018, however, New York & Company signed a lease in July
2019 to backfill the location. As per the September 2019 rent roll
the property was 87% leased, compared to 77% leased in December
2018 and 88% in December 2017. The loan is on the master servicer's
watchlist as it has been affected by the coronavirus pandemic and
is last paid through its April 2020 payment date. The property
benefits from its infill location near the Jamaica Center
transportation hub in Queens, New York and the loan benefits from
amortization and has amortized 14% since securitization. Moody's
current LTV and stressed DSCR is 114% and 0.84X, respectively.
GS MORTGAGE 2017-GS7: Fitch Affirms B- Rating on Cl. H-RR Certs
---------------------------------------------------------------
Fitch Ratings has affirmed 16 classes of GS Mortgage Securities
Trust 2017-GS7 commercial mortgage pass-through certificates.
GSMS 2017-GS7
- Class A-1 36254CAS9; LT AAAsf; Affirmed
- Class A-2 36254CAT7; LT AAAsf; Affirmed
- Class A-3 36254CAU4; LT AAAsf; Affirmed
- Class A-4 36254CAV2; LT AAAsf; Affirmed
- Class A-AB 36254CAW0; LT AAAsf; Affirmed
- Class A-S 36254CAZ3; LT AAAsf; Affirmed
- Class B 36254CBA7; LT AA-sf; Affirmed
- Class C 36254CBB5; LT A-sf; Affirmed
- Class D 36254CAA8; LT BBB+sf; Affirmed
- Class E 36254CAE0; LT BBB-sf; Affirmed
- Class F-RR 36254CAG5; LT BBB-sf; Affirmed
- Class G-RR 36254CAJ9; LT BB-sf; Affirmed
- Class H-RR 36254CAL4; LT B-sf; Affirmed
- Class X-A 36254CAX8; LT AAAsf; Affirmed
- Class X-B 36254CAY6; LT A-sf; Affirmed
- Class X-D 36254CAC4; LT BBB-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 performance concerns related to the
coronavirus. Fitch identified 10 loans (21.4%) as FLOCs, including
three (11.1%) loans secured by hotels in the top 15.
The largest FLOC is the Marriott Quorum loan (5.6%), which is
secured by a 547 key full-service hotel located in Dallas, TX,
approximately 14 miles north of the CBD. In 2018, the property
completed a property improvement plan of approximately $9.01
million ($19,694 per key) for full case and soft goods replacement.
As of March 2020, the trailing 12-month occupancy was reported to
be 64% compared to 63% at issuance. The property has experienced
performance declines as a result of the coronavirus pandemic, and
the March 2020 occupancy was reported to be 37%. As part of a
recent relief agreement, the servicer has granted the borrower
(Deason Capital Services) the ability to make payments from reserve
funds.
While no loans have yet transferred to special servicing, there are
two loans (3.4%) classified as 30 days delinquent. As of the June
2020 distribution period, there are five (8.9%) loans on the
servicer's watch list for delinquency, expense increases and relief
requests.
Minimal Change in Credit Enhancement: CE has had minimal change
since issuance due to limited amortization, no loan payoffs and no
defeasance. As of the June 2020 distribution period, the pool's
aggregate balance has been paid down by 0.70% to $1.07 billion from
$1.08 billion at issuance. There are 12 loans (65.2% of the pool)
that are full-term, IO and 14 loans (19.7%) that are partial IO
that have not yet begun to amortize.
Highly Concentrated Pool: The pool is concentrated and consists of
32 loans, which is well below other Fitch-rated 2017 vintage
transactions that average 49 loans. The largest 10 loans compose
64.5% of the pool.
High Office Concentration: The largest property-type concentration
is office at 50.7% of the pool, followed by retail at 16.8% and
mixed-use at 14.5%. The pool's office concentration is
substantially above the 2017 and the 2016 averages for office of
39.8% and 28.7%, respectively, for other Fitch-rated multi-borrower
transactions.
Coronavirus Exposure: The three loans (11.1%) that are secured by
hotel properties have a weighted average NOI DSCR of 1.84x. Eleven
loans (16.8%), which have a WA NOI DSCR of 1.93x, are secured by
retail properties. The base case analysis applied additional
stresses to all three hotel loans and six retail loans due to their
vulnerability to the coronavirus pandemic. These additional
stresses contributed to maintaining the Negative Outlook on class
H-RR.
Pari-Passu Loans: Twelve loans (62.3% of pool), including nine of
the top 15, are pari passu loans.
RATING SENSITIVITIES
The Negative Outlook on class H-RR reflects the potential for
future downgrades due to performance concerns as a result of the
economic slowdown stemming from the coronavirus pandemic. The
Stable Outlooks on classes A-1 through G-RR reflect the overall
stable pool performance for the majority of the pool and expected
continued paydown.
Factors That Could, Individually or Collectively, Lead to a
Positive Rating Action/Upgrade:
-- Sensitivity factors that lead to upgrades would include stable
to improved asset performance coupled with pay down and/or
defeasance. Upgrades to the 'Asf' and 'AAsf' categories would
likely occur with significant improvement in CE and/or defeasance;
however, adverse selection, increased concentrations and/or further
underperformance of the FLOCs or loans expected to be negatively
affected by the coronavirus pandemic could cause this trend to
reverse.
Upgrades to the 'BBBsf' category would also take into account these
factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration. Classes
would not be upgraded above 'Asf' if there were likelihood for
interest shortfalls. Upgrades to the 'Bsf' and 'BBsf' categories
are not likely until the later years in a 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 CE to the classes.
Factors That Could, Individually or Collectively, Lead to a
Negative Rating Action/Downgrade:
-- Sensitivity factors that lead to downgrades include an
increase in pool level losses from underperforming or specially
serviced loans. Downgrades to the 'Asf', 'AAsf' and 'AAAsf'
categories are not likely due to the position in the capital
structure, but may occur at the 'AAsf' and 'AAAsf' categories
should interest shortfalls occur. Downgrades to the 'BBBsf'
category would occur if a high proportion of the pool defaults and
expected losses increase significantly.
Downgrades to the 'Bsf' and 'BBsf' categories would occur should
loss expectations increase due to an increase in specially serviced
loans and/or the loans vulnerable to the coronavirus pandemic not
stabilize. The Rating Outlook on class H-RR may be revised back to
Stable if the performance of the FLOC's and/or properties
vulnerable to the coronavirus stabilize once the pandemic is over.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
additional negative rating actions, including downgrades or
Negative Rating Outlook revisions. For more information on Fitch's
original rating sensitivity on the transaction, please refer to the
new issuance report.
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.
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).
HALCYON LOAN 2014-2: Moody's Cuts Class E Debt Rating to Ca
-----------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Halcyon Loan Advisors Funding 2014-2
Ltd.:
US$33,000,000 Class C Senior Secured Deferrable Floating Rate Notes
Due April 2025, Downgraded to Ba1 (sf); previously on Apr 17, 2020
Baa3 (sf) Placed Under Review for Possible Downgrade
US$27,500,000 Class D Senior Secured Deferrable Floating Rate Notes
Due April 2025 (current outstanding balance of $27,972,373),
Downgraded to Caa3 (sf); previously on Apr 17, 2020 B3 (sf) Placed
Under Review for Possible Downgrade
US$5,500,000 Class E Senior Secured Deferrable Floating Rate Notes
Due April 2025 (current outstanding balance of $5,953,448),
Downgraded to Ca (sf); previously on Apr 17, 2020 Caa3 (sf) Placed
Under Review for Possible Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class C, Class D and Class E notes. The CLO, issued
in April 2014 and partially refinanced in April 2017 is a managed
cashflow CLO. The notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. The
transaction's reinvestment period ended in April 2018.
RATINGS RATIONALE
The downgrades on the Class C, Class D, and Class E notes reflect
the risks posed by credit deterioration and loss of collateral
coverage observed in the underlying CLO portfolio, which have been
primarily prompted by economic shocks stemming from the coronavirus
pandemic. Since the outbreak widened in March, the decline in
corporate credit has resulted in a significant number of
downgrades, other negative rating actions, or defaults on the
assets collateralizing the CLO. Consequently, in conjunction with
cumulative credit deterioration and par losses experienced by the
CLO since its closing, the default risk of the CLO portfolio has
increased substantially, the credit enhancement available to the
CLO notes has eroded, exposure to Caa-rated assets has increased
significantly, and expected losses on certain notes have increased
materially.
Based on Moody's calculation, the weighted average rating factor
was 3675 as of June 2020, or 4% worse compared to a WARF of 3541
reported by the trustee in March 2020[1]. Moody's calculation also
showed the WARF was failing the test level of 2650 reported in the
May 2020 trustee report [2] by 1,025 points, a degree of failure
which Moody's observed to be significantly higher than the average
for other BSL CLOs. Moody's noted that approximately 51% of the
CLO's portfolio par was from obligors assigned a negative outlook,
and 10% from obligors whose ratings are on review for possible
downgrade. Additionally, based on Moody's calculation, the current
proportion of obligors in the portfolio with Moody's corporate
family or other equivalent ratings of Caa1 or lower (after any
adjustments for negative outlook and watchlist for possible
downgrade) was approximately 26% of the CLO par as of June 2020.
Furthermore, Moody's calculated the total collateral par balance,
including recoveries from defaulted securities, at $177.5 million,
and Moody's calculated the over-collateralization (OC) ratios
(excluding haircuts) for the Class C, Class D, and Class E notes as
of June 2020 at 113.6%, 96.4%, and 93.4%, respectively. According
to the trustee report dated May 13, 2020[2], the OC tests for the
Class C and Class D notes, and the interest diversion test are
failing their respective triggers, and on the April 2020 payment
date, the trustee reported that $19.7 million[3] had been diverted
due to one or more coverage test failures to pay down the senior
notes.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $167.0 million, defaulted par of
$42.9 million, a weighted average default probability of 22.49%
(implying a WARF of 3675), a weighted average recovery rate upon
default of 46.73%, a diversity score of 37 and a weighted average
spread of 3.65%. Moody's also analyzed the CLO by incorporating an
approximately $11.4 million par haircut in calculating the OC and
interest diversion test ratios. Finally, Moody's also considered in
its analysis restrictions on the CLO manager's trading resulting
from the end of the reinvestment period as well as the continuing
applicability of a Restricted Trading Period.
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 corporate assets.
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
HALSEYPOINT CLO II: S&P Assigns Prelim BB- (sf) Rating to E Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Halseypoint
CLO II Ltd./Halseypoint CLO II LLC's floating-rate notes.
The note issuance is a CLO transaction backed by primarily broadly
syndicated speculative-grade 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 22,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The diversification of the 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 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
Halseypoint CLO II Ltd./Halseypoint CLO II LLC
Class Rating Amount (mil. $)
A-1 AAA (sf) 225.000
A-2 AAA (sf) 11.250
B AA (sf) 39.375
C A (sf) 26.250
D BBB- (sf) 22.500
E BB- (sf) 14.000
Subordinated notes NR 39.375
NR--Not rated.
HORIZON AIRCRAFT III: Fitch Affirms BBsf Rating on Class C Debt
---------------------------------------------------------------
Fitch Ratings has affirmed the ratings on the outstanding series A,
B and C fixed rate notes issued by Horizon Aircraft Finance I
Limited, Horizon Aircraft Finance II Limited, and Horizon Aircraft
Finance III Limited (Horizon I, II, and III, respectively). Fitch
maintained the Negative Outlook (NO) on the Horizon I series A
notes and on each series of notes for Horizon II and III. Further,
both series B and C of Horizon I were placed on NO from Rating
Watch Negative (RWN).
RATING ACTIONS
Horizon Aircraft Finance III Limited
Class A 44040JAA6; LT Asf Affirmed; previously Asf
Class B 44040JAB4; LT BBBsf Affirmed; previously BBBsf
Class C 44040JAC2; LT BBsf Affirmed; previously BBsf
Horizon Aircraft Finance II Limited
Series A 44040HAA0; LT Asf Affirmed; previously Asf
Series B 44040HAB8; LT BBBsf Affirmed; previously BBBsf
Series C 44040HAC6; LT BBsf Affirmed; previously BBsf
Horizon Aircraft Finance I Limited
Class A 440405AE8; LT Asf Affirmed; previously Asf
Class B 440405AF5; LT BBBsf Affirmed; previously BBBsf
Class C 440405AG3; LT BBsf Affirmed; previously BBsf
TRANSACTION SUMMARY
The rating actions reflect ongoing deterioration of all airline
lessee credits backing the leases in each transaction, downward
pressure on certain aircraft values, Fitch's updated assumptions
and stresses, and resulting impairments to modeled cash flows and
coverage levels.
As of this review, all notes of each transaction are on NO.
The rating actions reflect 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 series A of Horizon I, and all
series of notes of Horizon II and III on RON, and placed Horizon I
series B and C on RWN 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 the 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.
Certain third parties managed and serviced by BBAM Limited
Partnership and its subsidiaries (BBAM) are the sellers of the
initial assets. BBAM acts as servicer for all three of the
transactions. Fitch does not rate BBAM publicly. Fitch deems the
servicer to be adequate to service these transactions based on its
experience as a lessor servicing and performance of its portfolio
and ABS, and overall servicing capabilities.
BBAM was founded in 1990 as a division of Babcock & Brown LP and is
one of the most experienced aircraft asset managers/servicers. BBAM
is an independent company owned 35% by its management team, 35% by
Onex and 30% by GIC. The asset manager/servicer provides asset
origination and management services in the aircraft leasing
industry, had over $28.9 billion of assets under management as of
(1Q20), and manages assets for a variety of capital partners
providing a complete array of services required by investors in the
aircraft leasing industry.
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 Horizon pools with assumed Issuer Default Ratings
(IDR) of 'CCC' or lower increased to 79.8% for Horizon I from 27.3%
at closing. For Horizon II, this metric jumped to 78.8% from 46.5%
at closing, and Horizon III moved up to 86.0% from 44.5% at
closing.
For this review, newly-assumed 'CCC' credit airlines for Horizon I
include GOL Linhas Aereas Inteligentes S.A., Eastar Jet, Thai
AirAsia, Philippines AirAsia, Inc. (Philippines AirAsia), TUI fly
Deutschland (TUI), Indonesia AirAsia, and Jetstar Pacific Airlines.
Newly assumed 'CCC' credit airlines for Horizon II include Eastar
Jet, Batik Air, Thai AirAsia, Sunwing Airlines Inc. (Sunwing
Airlines), and TUI. For Horizon III, assumed 'CCC' credit airlines
include Batik Air, Philippines AirAsia, Thai AirAsia, TUI, and
Sunwing Airlines for this review. Airline lessees assumed to
immediately default ('D' IDR assumption) in this analysis include
Virgin Australia (VA) for Horizon I, and Fly Gangwon for Horizon
III. VA recently filed for bankruptcy in May and Fly Gangwon has
limited operational history, so both airlines have a high risk of
default in the pool. Any publicly rated airlines in the pool whose
ratings have shifted since close were updated for this review.
All 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 in
administration/bankruptcy or assumed to immediately default in
Fitch's modeling, narrowbody (NB) aircraft were assumed to remain
on ground for three additional 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:
As of the June servicer report, the three pools consist of mostly
liquid, mid-life NB aircraft with weighted-average (WA) age of 11.5
years for Horizon I, 9.4 years for Horizon II, and 9.0 years for
Horizon III. There are no widebody aircraft in the three pools
which is a positive for all transactions.
Fitch utilized the average excluding the highest (AEH) of the three
most current appraisal values for all three transactions. This
approach resulted in Fitch-modeled values of $623.5 million for
Horizon I, $496.3 million for Horizon II, and $461.1 million for
Horizon III. This is notably lower compared to the $667.3 million,
$527.0 million and $486.0 million values as stated in the recent
June 2020 servicer reports, by 6.6%, 5.8% and 5.1% for each pool,
respectively.
Morten Beyer & Agnew Inc. (mba), Collateral Verifications, LLC (CV)
and IBA Group Ltd. (IBA) are the appraisers for the three
transactions. The transactions were last appraised in December
2019.
Transaction Performance:
Lease collections and transaction cash flows have trended downward
in the recent months for all transactions. As of the May 2020
collection period (June servicer report), Horizon I received $2.0
million versus $2.2 million in the April collection period. Horizon
II received $1.5 million versus $1.1 million in the April
collection period, while Horizon III received $0.7 million in the
May collection period versus $1.1 million in the prior month.
As of the June servicer report, all three transactions made full
payments of class A and class B interest, however principal
payments were not paid. Due to the low collections and cash flow in
recent months, the debt-service coverage ratios (DSCRs) are below
their current cash trap trigger levels of 1.20x and their early
amortization event DSCR threshold of 1.15x, at 0.74x, 1.05x and
1.07x, for Horizon I, II and III, respectively.
All three transactions have no aircraft off-lease as of the end of
May 2020.
Nearly all lessees across the three transactions have requested
some form of payment relief/deferrals, consistent across peer
aircraft ABS pools due to disruptions related to the coronavirus
pandemic. A portion of lessees in each pool were granted deferrals
to date. For modeling purposes, Fitch assumed lease deferrals for
only those lessees who have to date been granted deferrals by
BBAM.
Fitch Modeling Assumptions:
Nearly all servicer-driven assumptions applied in this review are
consistent from closing for each transaction. These include costs
and certain downtime assumptions relating to aircraft repossessions
and remarketing, terms of new leases and extension terms.
With the grounding of global fleets and significant reduction in
air travel, maintenance revenue and costs will be impacted 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, and such missed payments were assumed
to be recouped in the following 12 months thereafter, starting June
2021. Maintenance costs over the immediate next six months were
assumed to be incurred as reported. Costs in the following month
were reduced by 50% and assumed to increase straight line to 100%
over a 12-month period. Any deferred costs were incurred in the
following 12 months.
RATING SENSITIVITIES
The Negative Outlooks on all classes of Horizon I, II, and III
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 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 these transactions.
In the initial 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 transaction could perform
better than expected.
In this "Up" scenario, RV recoveries at time of sale are assumed to
be 70% of their depreciated market values, higher than the base
case scenario of 50% for most aircraft. Net cash flow increased by
approximately $48-54 million for Horizon I, $35-40 million for
Horizon II, and $32-36 million for Horizon III across rating stress
levels. Notes are able to pay in full at their current rating
stress levels.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Down: Base Assumptions with Standardized Deferrals and Additional
Downtime of Six Months
Many lessees have requested some form of payment relief/deferrals
due to disruptions related to the coronavirus pandemic. Fitch ran a
sensitivity that assumed a standard deferral across all lessees in
each pool. Fitch assumed three-months of lease deferrals with
contractual lease payments resuming thereafter, plus additional
repayment of deferred amounts over a six-month period.
Additionally, during this coronavirus pandemic, parked aircraft,
sharply reduced air travel demand and increased bankruptcies would
lead to lessors facing significant challenges to place aircraft to
new lessees or extending existing leases. As a result, downtimes
can be longer during this recession. Fitch ran a sensitivity to
extend downtime by six months for leases maturing within the next
four years.
Under this scenario, deferrals were applied to all lessees and
leases that mature during the first recession were assumed six
months of additional jurisdictional downtime. Net cash flow
decreased by approximately $4-7 million for Horizon I, $8-10
million for Horizon II, and $2-5 million for Horizon III across
rating stress levels. All notes are able to pay in full at their
current rating stress levels
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).
IMSCI 2012-2: DBRS Keeps B(low) Rating on G Certs on Review
-----------------------------------------------------------
DBRS Limited maintained the Under Review with Negative Implication
status on the following classes of Commercial Mortgage Pass-Through
Certificates Series 2012-2 issued by Institutional Mortgage
Securities Canada Inc. (IMSCI) 2012-2:
-- Class XC at A (sf), Under Review with Negative Implications
-- Class D at BBB (high) (sf), Under Review with Negative
Implications
-- Class E at BBB (low) (sf), Under Review with Negative
Implications
-- Class F at BB (low) (sf), Under Review with Negative
Implications
-- Class G at B (low) (sf), Under Review with Negative
Implications
These ratings do not carry trends.
These rating actions are reflective of the uncertainty surrounding
the resolution of the Centre 1000 loan (Prospectus ID#7; 8.7% of
the pool), which remains in special servicing after the loan's
sponsor, Strategic Group LLC, submitted an application filing in
December 2019 under Canada's Companies' Creditors Arrangement Act
(CCAA) that affected the property and 49 others within the
sponsor's 171-property portfolio. The interim receiver assigned at
the time of the CCAA proceedings was recently replaced by Trillium
Property Group, and the property manager is now Jones Lang
LaSalle.
Given the sharp declines in cash flow for the collateral property
over the last several years, difficult market conditions for office
properties from both a tenant- and investor-demand perspective, and
the general stress on the Canadian economy amid the Coronavirus
Disease (COVID-19) pandemic, the risks for this loan have
significantly increased from issuance. There is a partial-recourse
guarantee in the amount of $3.1 million in place to Riaz Mamdani,
the guarantor, and Indemnitor, who indirectly controls the
borrowing entity, Centre 1000 LP. However, DBRS Morningstar
believes the servicer's ability to enforce recourse provisions may
be limited amid the economic difficulties for the guarantor.
DBRS Morningstar also continues to monitor the increased risks for
another Alberta loan in Lakewood Apartments (Prospectus ID#3; 10.1%
of the pool), which is secured by a multifamily property in Fort
McMurray, Alberta. The borrower recently requested payment relief
due to the increased stress on oil markets amid the pandemic, and
the servicer has confirmed that an approval for a loan modification
to allow for interest-only (IO) payments for the period between
April 2020 and August 2020 has been granted. The terms of the
modification also defer principal paydown structured as part of a
previous loan modification to extend the maturity date through the
end of the IO period. Given these latest developments and the most
recent difficulties for oil markets that could persist through a
larger economic downturn, the subject loan has been placed on the
DBRS Morningstar Hotlist and will be monitored closely for
developments.
DBRS Morningstar also notes two additional loans—Mont-Tremblant
Retail (Prospectus ID#9; 7.6% of the pool) and Lachenaie Retail
(Prospectus ID#11; 6.2% of the pool)—have both been confirmed to
have requested in the process from the respective borrowers for
payment relief amid the pandemic. The collateral property for the
Mont-Tremblant Retail loan has been closed due to mandatory
closures, resulting in the inability of tenants to make rental
payments. The master servicer approved a full deferral of scheduled
principal and interest payments for the period between April 2020
and June 2020, with deferrals to be repaid over a six-month
repayment period beginning in July 2020. The Lachenaie Retail loan
was added to the servicer's watchlist in May 2020 as the borrower
received notice from the majority of the collateral property's
tenants of their inability to fulfill rental obligations under the
current conditions. The master servicer approved IO payments for
the period from May 2020 through July 2020, with the deferred
principal to be repaid over a six-month repayment period beginning
in August 2020. For further information on these loans and the
Lakewood Apartments loan, please see the DBRS Viewpoint platform,
for which information has been provided, below.
Class XC is an IO certificate that references a single rated
tranche or multiple rated tranches. The IO rating mirrors the
lowest-rated applicable reference obligation tranche adjusted
upward by one notch if senior in the waterfall.
Notes: All figures are in Canadian dollars unless otherwise noted.
IMSCI 2013-3: DBRS Keeps B(low) Rating on G Certs on Review
-----------------------------------------------------------
DBRS Limited maintained the Under Review with Negative Implications
status on the following classes of Commercial Mortgage Pass-Through
Certificates Series 2013-3 issued by Institutional Mortgage
Securities Canada Inc. (IMSCI) Series 2013-3:
-- Class X at A (sf), Under Review with Negative Implications
-- Class D at BBB (sf), Under Review with Negative Implications
-- Class E at BBB (low) (sf), Under Review with Negative
Implications
-- Class F at B (sf), Under Review with Negative Implications
-- Class G at B (low) (sf), Under Review with Negative
Implications
These ratings do not carry trends.
DBRS Morningstar has maintained the Under Review with Negative
Implications designation on the aforementioned classes due to the
uncertainty surrounding the resolution of two loans that
transferred to special servicing in January 2020. Deerfoot Court
(Prospectus ID#5, 9.0% of the pool) and Airways Business Plaza
(Prospectus ID#12, 6.0% of the pool) are both secured by office
properties in Calgary and were transferred to special servicing
after Strategic Group, a Calgary-based real estate investment firm,
submitted an initial application filing under Canada's Companies'
Creditors Arrangement Act (CCAA). The filing affected entities
affiliated with 50 commercial properties within the company's
171-property portfolio, including the two aforementioned
properties. The interim receiver assigned at the time of the CCAA
proceedings was recently replaced by Trillium Property Group and
the property manager is now Jones Lang LaSalle.
According to the February 2020 appraisals, the Deerfoot Court
property's as-is value was reported at $9.5 million (down from
$15.6 million at issuance) and the Airways Business Plaza
property's as-is value was reported at $10.0 million (down from
$12.0 million at issuance). Given the soft market, depressed oil
prices, as well as the general risks to the Canadian economy amid
the Coronavirus Disease (COVID-19) pandemic, DBRS Morningstar
believes the workout period for these loans could be extended, with
the value declines suggesting significantly increased risk of
losses to the trust at disposition. Both loans have recourse to the
borrowing entity and sponsor for the full amount of the outstanding
debt; however, there is substantial uncertainty surrounding the
financial wherewithal of the recourse providers.
In addition to the assets above, DBRS Morningstar continues to
monitor increased risks for three loans secured by multifamily
properties in Fort McMurray, Alberta: Lunar and Whimbrel Apartments
(Prospectus ID#10, 5.2% of the pool), Snowbird and Skyview
Apartments (Prospectus ID#11, 5.0% of the pool), and Parkland and
Gannet Apartments (Prospectus ID#17, 4.3% of the pool). All three
collateral properties have seen significant performance declines
amid the turmoil in the oil and gas markets over the last several
years. The loans, which spent time in special servicing in 2016 and
2018, were modified to allow for an extension of the maturity
dates, with the most recent extension granted to February 2022. The
economic impact of the coronavirus pandemic has compounded previous
difficulties for the collateral properties, a factor in the
borrower's recent request for payment relief, which was granted by
the servicer and allows for a nine-month deferral of scheduled
principal and interest payments between April 2020 and December
2020. The deferred payments along with compounded interest are due
at the extended loan maturity date.
In addition, DBRS Morningstar is monitoring a coronavirus-related
relief request submitted by the borrower for the third-largest
loan, Marche Terrabone (Prospectus ID#8, 8.3% of the pool), which
is secured by a retail property in Terrebonne, Quebec. The servicer
has approved a modification to allow for interest-only (IO)
payments from May 2020 to July 2020, with deferred payments to be
repaid over a six-month period beginning in August 2020.
Class X is an IO certificate that references a single rated tranche
or multiple rated tranches. The IO rating mirrors the lowest-rated
applicable reference obligation tranche adjusted upward by one
notch if senior in the waterfall.
Notes: All figures are in Canadian dollars unless otherwise noted.
JP MORGAN 2010-C1: Moody's Lowers Rating on 2 Tranches to C
-----------------------------------------------------------
Moody's Investors Service confirmed the ratings on one, downgraded
the ratings on two and affirmed the rating on one class of in J.P.
Morgan Chase Commercial Mortgage Securities Trust 2010-C1 as
follows:
Cl. C, Confirmed at B1 (sf); previously on Apr 17, 2020 B1 (sf)
Placed Under Review for Possible Downgrade
Cl. D, Downgraded to C (sf); previously on Apr 17, 2020 Caa3 (sf)
Placed Under Review for Possible Downgrade
Cl. E, Affirmed C (sf); previously on May 1, 2019 Affirmed C (sf)
Cl. X-B*, Downgraded to C (sf); previously on Apr 17, 2020 Ca (sf)
Placed Under Review for Possible Downgrade
* Reflects interest-only classes
RATINGS RATIONALE
The rating on P&I class, Cl. C, was confirmed because the ratings
are consistent with Moody's expected loss plus realized losses. The
deal has paid down 91% since last review.
The rating on P&I class, Cl. D was downgraded due to the exposure
to specially serviced loans, which now constitute 100% of the pool.
These specially serviced loans are both REO and have been deemed
non-recoverable by the master servicer.
The rating on Cl. E was affirmed because the ratings are consistent
with Moody's expected loss plus realized losses.
The rating on the IO class, Cl. X-B, was downgraded based on the
credit quality of the referenced classes.
The actions conclude the review for downgrade initiated on April
17, 2020.
Moody's rating action reflects a base expected loss of 74.5% of the
current pooled balance, compared to 7.9% at Moody's last review.
Moody's base expected loss plus realized losses are now 8.5% of the
original pooled balance, compared to 7.9% at Moody's last review.
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 regard
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, 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 class was "Moody's Approach to Rating Large Loan and
Single Asset/Single Borrower CMBS" published in May 2020.
Moody's analysis incorporated a loss and recovery approach in
rating the P&I classes in this deal since 100% of the pool is in
special servicing. In this approach, Moody's determines a
probability of default for each specially serviced and troubled
loan that it expects will generate a loss and estimates a loss
given default based on a review of broker's opinions of value (if
available), other information from the special servicer, available
market data and Moody's internal data. The loss given default for
each loan also takes into consideration repayment of servicer
advances to date, estimated future advances and closing costs.
Translating the probability of default and loss given default into
an expected loss estimate, Moody's then applies the aggregate loss
from specially serviced to the most junior classes and the recovery
as a pay down of principal to the most senior classes.
DEAL PERFORMANCE
As of the June 17, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 97.4% to $18.6
million from $716 million at securitization. The certificates are
collateralized by two mortgage loans ranging in size from 37% to
63% of the pool.
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 two, compared to a Herf of six at Moody's last
review.
One loan has been liquidated from the pool, contributing to an
aggregate realized loss of $47 million (for an average loss
severity of 9%). Two loans, constituting 100% of the pool, are
currently in special servicing. These specially serviced loans are
both REO and one has been deemed non-recoverable by the master
servicer. The largest specially serviced loan is the Aquia Office
Building Loan ($11.8 million -- 63% of the pool), which is secured
by a 98,000 square foot (SF) office building located in Stafford,
Virginia, approximately 40 miles southwest of Washington, DC. The
loan was initially transferred to the special servicer in March
2015 when the borrower indicated it would be unable to pay-off the
loan at maturity after the largest tenant (63% of the NRA)
exercised a lease termination option. The loan returned to the
master servicer in November 2015 after a maturity date extension,
but subsequently transferred back to the special servicer in June
2016 due to maturity default. The loan is now real estate owned
(REO) and the property was 60% leased as of February 2020 compared
to 72% in February 2019. The loan has been deemed non-recoverable
by the master servicer in March 2020.
The second largest specially serviced loan is the Del Alba Plaza
Loan ($6.8 million -- 37% of the pool), which is secured by a
72,000 SF grocery store anchored retail property located in
Pittsfield, Massachusetts, approximately 40 miles southeast of
Albany, New York. The loan transferred to special servicing in June
2019 due to imminent default as the grocer anchor tenant failed to
renew their lease upon expiration in October 2019. At time of
transfer, the anchor tenant renewed its lease with reduced rent,
insufficient to cover the debt service. The loan became REO in
December 2019 and has been deemed non-recoverable by the master
servicer in June 2020.
As of the June 17, 2020 remittance statement cumulative interest
shortfalls were $5.3 million. Moody's anticipates interest
shortfalls will continue because of the exposure to specially
serviced loans. Interest shortfalls are caused by special servicing
fees, including workout and liquidation fees, appraisal entitlement
reductions (ASERs), loan modifications and extraordinary trust
expenses.
JP MORGAN 2020-4: DBRS Assigns Prov. B Rating on 2 Tranches
-----------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Mortgage Pass-Through Certificates, Series 2020-4 (the
Certificates) to be issued by J.P. Morgan Mortgage Trust 2020-4:
-- $502.3 million Class A-1 at AAA (sf)
-- $470.3 million Class A-2 at AAA (sf)
-- $396.4 million Class A-3 at AAA (sf)
-- $396.4 million Class A-3-A at AAA (sf)
-- $396.4 million Class A-3-X at AAA (sf)
-- $297.3 million Class A-4 at AAA (sf)
-- $297.3 million Class A-4-A at AAA (sf)
-- $297.3 million Class A-4-X at AAA (sf)
-- $99.1 million Class A-5 at AAA (sf)
-- $99.1 million Class A-5-A at AAA (sf)
-- $99.1 million Class A-5-X at AAA (sf)
-- $236.2 million Class A-6 at AAA (sf)
-- $236.2 million Class A-6-A at AAA (sf)
-- $236.2 million Class A-6-X at AAA (sf)
-- $160.2 million Class A-7 at AAA (sf)
-- $160.2 million Class A-7-A at AAA (sf)
-- $160.2 million Class A-7-X at AAA (sf)
-- $61.1 million Class A-8 at AAA (sf)
-- $61.1 million Class A-8-A at AAA (sf)
-- $61.1 million Class A-8-X at AAA (sf)
-- $29.7 million Class A-9 at AAA (sf)
-- $29.7 million Class A-9-A at AAA (sf)
-- $29.7 million Class A-9-X at AAA (sf)
-- $69.4 million Class A-10 at AAA (sf)
-- $69.4 million Class A-10-A at AAA (sf)
-- $69.4 million Class A-10-X at AAA (sf)
-- $73.9 million Class A-11 at AAA (sf)
-- $73.9 million Class A-11-X at AAA (sf)
-- $73.9 million Class A-11-A at AAA (sf)
-- $73.9 million Class A-11-AI at AAA (sf)
-- $73.9 million Class A-11-B at AAA (sf)
-- $73.9 million Class A-11-BI at AAA (sf)
-- $73.9 million Class A-12 at AAA (sf)
-- $73.9 million Class A-13 at AAA (sf)
-- $32.1 million Class A-14 at AAA (sf)
-- $32.1 million Class A-15 at AAA (sf)
-- $423.4 million Class A-16 at AAA (sf)
-- $78.9 million Class A-17 at AAA (sf)
-- $502.3 million Class A-X-1 at AAA (sf)
-- $502.3 million Class A-X-2 at AAA (sf)
-- $73.9 million Class A-X-3 at AAA (sf)
-- $32.1 million Class A-X-4 at AAA (sf)
-- $8.6 million Class B-1 at AA (sf)
-- $8.6 million Class B-1-A at AA (sf)
-- $8.6 million Class B-1-X at AA (sf)
-- $9.6 million Class B-2 at A (sf)
-- $9.6 million Class B-2-A at A (sf)
-- $9.6 million Class B-2-X at A (sf)
-- $6.1 million Class B-3 at BBB (sf)
-- $6.1 million Class B-3-A at BBB (sf)
-- $6.1 million Class B-3-X at BBB (sf)
-- $3.5 million Class B-4 at BB (sf)
-- $1.6 million Class B-5 at B (sf)
-- $24.3 million Class B-X at BBB (sf)
-- $1.6 million Class B-5-Y at B (sf)
Classes A-3-X, A-4-X, A-5-X, A-6-X, A-7-X, A-8-X, A-9-X, A-10-X,
A-11-X, A-11-AI, A-11-BI, A-X-1, A-X-2, A-X-3, A-X-4, B-1-X, B-2-X,
B-3-X, and B-X are interest-only certificates. The class balances
represent notional amounts.
Classes A-1, A-2, A-3, A-3-A, A-3-X, A-4, A-4-A, A-4-X, A-5, A-5-A,
A-5-X, A-6, A-7, A-7-A, A-7-X, A-8, A-9, A-10, A-11-A, A-11-AI,
A-11-B, A-11-BI, A-12, A-13, A-14, A-16, A-17, A-X-2, A-X-3, B-1,
B-2, B-3, B-X, B-5-Y, B-6-Y, and B-6-Z are exchangeable
certificates. These classes can be exchanged for combinations of
base depositable certificates as specified in the offering
documents.
Classes A-2, A-3, A-3-A, A-4, A-4-A, A-5, A-5-A, A-6, A-6-A, A-7,
A-7-A, A-8, A-8-A, A-9, A-9-A, A-10, A-10-A, A-11, A-11-A, A-11-B,
A-12, and A-13 are super-senior certificates. These classes benefit
from additional protection from the senior support certificates
(Classes A-14 and A-15) with respect to loss allocation.
The AAA (sf) ratings on the Certificates reflect 6.00% of credit
enhancement provided by subordinated certificates. The AA (sf), A
(sf), BBB (sf), BB (sf), and B (sf) ratings reflect 4.40%, 2.60%,
1.45%, 0.80%, and 0.50% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This securitization is a portfolio of first-lien fixed-rate prime
residential mortgages funded by the issuance of the Certificates.
The Certificates are backed by 763 loans with a total principal
balance of $534,399,556 as of the Cut-Off Date (June 1, 2020).
The pool consists of fully amortizing fixed-rate mortgages with
original terms to maturity of up to 30 years. Approximately 48.3%
of the loans in the pool are conforming mortgage loans
predominantly originated by United Shore Financial Services, LLC
doing business as (dba) United Wholesale Mortgage and Shore
Mortgage (USFS), loanDepot.com, LLC (loanDepot), Quicken Loans Inc.
(Quicken), and Amerihome Mortgage Company, LLC (Amerihome), which
were eligible for purchase by Fannie Mae or Freddie Mac. Details on
the underwriting of conforming loans can be found in the Key
Probability of Default Drivers section.
The originators for the aggregate mortgage pool are USFS (48.0%),
Quicken (22.9%), loanDepot (15.8%), and various other originators,
each comprising less than 15.0% of the mortgage loans. The mortgage
loans will be serviced or sub-serviced by Cenlar FSB (Cenlar;
72.6%), Quicken (22.9%), and Nationstar Mortgage LLC. dba Mr.
Cooper (Nationstar, 4.5%). For Cenlar-sub-serviced loans, the
Servicers include Amerihome, loanDepot, and USFS. For Nationstar
sub-serviced mortgage loans, the Servicer is USAA Federal Savings
Bank. For this transaction, the servicing fee payable for mortgage
loans serviced by USFS is composed of three separate components:
the aggregate base servicing fee, the aggregate delinquent
servicing fee, and the aggregate additional servicing fee. These
fees vary based on the delinquency status of the related loan and
will be paid from interest collections before distribution to the
securities.
Nationstar will act as the Master Servicer. Citibank, N.A. (rated
AA (low) with a Stable trend by DBRS Morningstar) will act as
Securities Administrator and Delaware Trustee. Wells Fargo Bank,
N.A. (rated AA with a Negative trend by DBRS Morningstar) will act
as Custodian. Pentalpha Surveillance LLC will serve as the
representations and warranties (R&W) Reviewer.
The transaction employs a senior-subordinate, shifting-interest
cash flow structure that is enhanced from a pre-crisis structure.
As of the Cut-off Date, no borrower within the pool has entered
into a Coronavirus Disease (COVID-19)-related forbearance plan with
a servicer. In the event a borrower requests or enters into a
coronavirus-related forbearance plan after the Cut-off Date but
prior to the Closing Date, the Mortgage Loan Seller will remove
such loan from the mortgage pool and remit the related Closing Date
substitution amount. Loans that enter a coronavirus-related
forbearance plan after the Closing Date will remain in the pool.
Coronavirus Pandemic Impact
The coronavirus pandemic and the resulting isolation measures have
caused an economic contraction, leading to sharp increases in
unemployment rates and income reductions for many consumers. DBRS
Morningstar anticipates that delinquencies may continue to raise in
the coming months for many residential mortgage-backed security
(RMBS) asset classes, some meaningfully.
The prime mortgage sector is a traditional RMBS asset class that
consists of securitizations backed by pools of residential home
loans originated to borrowers with prime credit. Generally, these
borrowers have decent FICO scores, reasonable equity, and robust
income and liquid reserves.
As a result of the coronavirus, DBRS Morningstar expects increased
delinquencies, loans on forbearance plans, and a potential
near-term decline in the values of the mortgaged properties. Such
deteriorations may adversely affect borrowers' ability to make
monthly payments, refinance their loans, or sell properties in an
amount sufficient to repay the outstanding balance of their loans.
In connection with the economic stress assumed under its moderate
scenario (see "Global Macroeconomic Scenarios: June Update,"
published on June 1, 2020), for the prime asset class, DBRS
Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than what it previously
used. Such MVD assumptions are derived through a fundamental home
price approach based on the forecasted unemployment rates and GDP
growth outlined in the aforementioned moderate scenario. In
addition, for pools with loans on forbearance plans, DBRS
Morningstar may assume higher loss expectations above and beyond
the coronavirus assumptions. Such assumptions translate to higher
expected losses on the collateral pool and correspondingly higher
credit enhancement.
In the prime asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes that this sector should have low
intrinsic credit risk. Within the prime asset class, loans
originated to (1) self-employed borrowers or (2) higher
loan-to-value (LTV) ratio borrowers may be more sensitive to
economic hardships resulting from higher unemployment rates and
lower incomes. Self-employed borrowers are potentially exposed to
more volatile income sources, which could lead to reduced cash
flows generated from their businesses. Higher LTV borrowers, with
lower equity in their properties, generally have fewer refinance
opportunities and therefore slower prepayments. In addition,
certain pools with elevated geographic concentrations in densely
populated urban metropolitan statistical areas may experience
additional stress from extended lockdown periods and the slowdown
of the economy.
For more information regarding rating methodologies and the
coronavirus, please see the following DBRS Morningstar
publications: "DBRS Morningstar Provides Update on Rating
Methodologies in Light of Measures to Contain Coronavirus Disease
(COVID-19)," dated March 12, 2020; "DBRS Morningstar Global
Structured Finance Rating Methodologies and Coronavirus Disease
(COVID-19)," dated March 20, 2020; and "Global Macroeconomic
Scenarios: June Update," dated June 1, 2020.
The ratings reflect transactional strengths that include
high-quality credit attributes, well-qualified borrowers,
satisfactory third-party due diligence review, structural
enhancements, and 100% current loans.
The ratings reflect transactional challenges that include
weaknesses in the R&W framework, entities lacking financial
strength or securitization history, and servicers' financial
capabilities.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2020-4: Moody's Assigns '(P)B3' Rating to on 2 Tranches
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 55
classes of residential mortgage-backed securities issued by J.P.
Morgan Mortgage Trust 2020-4. The ratings range from (P)Aaa (sf) to
(P)B3 (sf).
The certificates are backed by 763 fully-amortizing fixed-rate
mortgage loans with a total balance of $534,399,556. as of the June
1, 2020 cut-off date. The loans have original terms to maturity of
up to 30 years. Similar to prior JPMMT transactions, JPMMT 2020-4
includes agency-eligible mortgage loans (approximately 48.3% by
loan balance) underwritten to the government sponsored enterprises
guidelines, in addition to prime jumbo non-agency eligible
mortgages purchased by J.P. Morgan Mortgage Acquisition Corp., the
sponsor and mortgage loan seller, from various originators. United
Shore Financial Services, LLC d/b/a United Wholesale Mortgage and
Shore Mortgage, Quicken Loans, LLC, and loanDepot.com, LLC
originated approximately 48.0%, 23.0%, and 15.8% of the mortgage
loans (by balance) in the pool, respectively. All other originators
accounted for less than 10% of the pool by balance. With respect to
the mortgage loans, each originator made a representation and
warranty that the mortgage loan constitutes a qualified mortgage
under the qualified mortgage rule.
United Shore will service about 48.0% of the mortgage loans
(subserviced by Cenlar, FSB), Quicken Loans will service about
23.0% of the mortgage loans, loanDepot will service about 15.8%
(subserviced by Cenlar, FSB), and remaining servicers each account
for less than 10% of the aggregate principal balance. The servicing
fee for loans serviced by loanDepot and United Shore will be based
on a step-up incentive fee structure with additional fees for
servicing delinquent and defaulted loans. Quicken Loans, AmeriHome
Mortgage Company LLC and USAA Federal Savings Bank have a fixed fee
servicing framework. Nationstar Mortgage LLC will be the master
servicer and Citibank, N.A. will be the securities administrator
and Delaware trustee. Pentalpha Surveillance LLC will be the
representations and warranties breach reviewer. Distributions of
principal and interest and loss allocations are based on a typical
shifting interest structure that benefits from senior and
subordination floors.
The complete rating actions are as follows:
Issuer: J.P. Morgan Mortgage Trust 2020-4
Cl. A-1, Rating Assigned (P)Aaa (sf)
Cl. A-2, Rating Assigned (P)Aaa (sf)
Cl. A-3, Rating Assigned (P)Aaa (sf)
Cl. A-3-A, Rating Assigned (P)Aaa (sf)
Cl. A-3-X*, Rating Assigned (P)Aaa (sf)
Cl. A-4, Rating Assigned (P)Aaa (sf)
Cl. A-4-A, Rating Assigned (P)Aaa (sf)
Cl. A-4-X*, Rating Assigned (P)Aaa (sf)
Cl. A-5, Rating Assigned (P)Aaa (sf)
Cl. A-5-A, Rating Assigned (P)Aaa (sf)
Cl. A-5-X*, Rating Assigned (P)Aaa (sf)
Cl. A-6, Rating Assigned (P)Aaa (sf)
Cl. A-6-A, Rating Assigned (P)Aaa (sf)
Cl. A-6-X*, Rating Assigned (P)Aaa (sf)
Cl. A-7, Rating Assigned (P)Aaa (sf)
Cl. A-7-A, Rating Assigned (P)Aaa (sf)
Cl. A-7-X*, Rating Assigned (P)Aaa (sf)
Cl. A-8, Rating Assigned (P)Aaa (sf)
Cl. A-8-A, Rating Assigned (P)Aaa (sf)
Cl. A-8-X*, Rating Assigned (P)Aaa (sf)
Cl. A-9, Rating Assigned (P)Aaa (sf)
Cl. A-9-A, Rating Assigned (P)Aaa (sf)
Cl. A-9-X*, Rating Assigned (P)Aaa (sf)
Cl. A-10, Rating Assigned (P)Aaa (sf)
Cl. A-10-A, Rating Assigned (P)Aaa (sf)
Cl. A-10-X*, Rating Assigned (P)Aaa (sf)
Cl. A-11, Rating Assigned (P)Aaa (sf)
Cl. A-11-A, Rating Assigned (P)Aaa (sf)
Cl. A-11-AI*, Rating Assigned (P)Aaa (sf)
Cl. A-11-B, Rating Assigned (P)Aaa (sf)
Cl. A-11-BI*, Rating Assigned (P)Aaa (sf)
Cl. A-11-X*, Rating Assigned (P)Aaa (sf)
Cl. A-12, Rating Assigned (P)Aaa (sf)
Cl. A-13, Rating Assigned (P)Aaa (sf)
Cl. A-14, Rating Assigned (P)Aa2 (sf)
Cl. A-15, Rating Assigned (P)Aa2 (sf)
Cl. A-16, Rating Assigned (P)Aaa (sf)
Cl. A-17, Rating Assigned (P)Aaa (sf)
Cl. A-X-1*, Rating Assigned (P)Aa1 (sf)
Cl. A-X-2*, Rating Assigned (P)Aa1 (sf)
Cl. A-X-3*, Rating Assigned (P)Aaa (sf)
Cl. A-X-4*, Rating Assigned (P)Aa2 (sf)
Cl. B-1, Rating Assigned (P)Aa3 (sf)
Cl. B-1-A, Rating Assigned (P)Aa3 (sf)
Cl. B-1-X*, Rating Assigned (P)Aa3 (sf)
Cl. B-2, Rating Assigned (P)A3 (sf)
Cl. B-2-A, Rating Assigned (P)A3 (sf)
Cl. B-2-X*, Rating Assigned (P)A3 (sf)
Cl. B-3, Rating Assigned (P)Baa3 (sf)
Cl. B-3-A, Rating Assigned (P)Baa3 (sf)
Cl. B-3-X*, Rating Assigned (P)Baa3 (sf)
Cl. B-4, Rating Assigned (P)Ba3 (sf)
Cl. B-5, Rating Assigned (P)B3 (sf)
Cl. B-5-Y, Rating Assigned (P)B3 (sf)
Cl. B-X*, Rating Assigned (P)Baa1 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
0.49% and reaches 5.88% at a stress level consistent with its Aaa
ratings.
Its analysis has considered the effect of the COVID-19 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 mortgage loans. 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
expected loss for this pool in a baseline scenario-mean is 0.49%,
in a baseline scenario-median is 0.27%, and reaches 5.88% at a
stress level consistent with its Aaa ratings. These losses
incorporate an additional stress of 10%, 15% and 5%, respectively,
to account for the increased likelihood of deterioration in the
performance of the underlying mortgage loans as a result of a
slowdown in US economic activity in 2020 due to the coronavirus
outbreak.
Moody's regards the COVID-19 outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Servicing practices, including tracking COVID-19-related loss
mitigation activities, may vary among servicers in the transaction.
These inconsistencies could impact reported collateral performance
and affect the timing of any breach of performance triggers,
servicer advance recoupment, the extent of servicer fees, and
additional expenses for R&W breach reviews when loans become
seriously delinquent.
Moody's may infer and extrapolate from the information provided
based on this or other transactions or industry information, or
make stressed assumptions.
Moody's bases its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
its assessments of the origination quality and servicing
arrangement, the strength of the third-party due diligence and the
R&W framework of the transaction.
Collateral Description
JPMMT 2020-4 is a securitization of a pool of 763 fully-amortizing
fixed-rate mortgage loans with a total balance of $534,399,556 as
of the cut-off date, with a weighted average remaining term to
maturity of 360 months, and a WA seasoning of 4.23 months. The WA
current FICO score is 767 and the WA original combined
loan-to-value ratio is 68.8%. The characteristics of the loans
underlying the pool are generally comparable to those of other
JPMMT transactions backed by prime mortgage loans that Moody's has
rated.
Aggregation/Origination Quality
Moody's considers JPMMAC's aggregation platform to be adequate and
it did not apply a separate loss-level adjustment for aggregation
quality. In addition to reviewing JPMMAC as an aggregator, Moody's
has also reviewed the originator(s) contributing a significant
percentage of the collateral pool (above 10%). Additionally, it
increased its base case and Aaa loss expectations for certain
originators of non-conforming loans where it does not have clear
insight into the underwriting practices, quality control and credit
risk management. Moody's did not make an adjustment for
GSE-eligible loans, since those loans were underwritten in
accordance with GSE guidelines. In addition, it reviewed the loan
performance for some of these originators. It viewed the loan
performance as comparable to the GSE loans due to consistently low
delinquencies, early payment defaults and repurchase requests.
United Shore and LoanDepot originated approximately 58.7% and 26.5%
of the non-conforming mortgage loans (by balance) in the pool,
respectively. All other originators accounted for less than 10% of
the non-conforming mortgage loans by balance.
United Shore (originator): Loans originated by United Shore have
been included in several prime jumbo securitizations that Moody's
has rated. United Shore originated approximately 48.0% of the
mortgage loans by pool balance (compared with about 86.9% by pool
balance in JPMMT 2019-9). The majority of these loans were
originated under United Shore's High Balance Nationwide program
which are processed using the Desktop Underwriter (DU) automated
underwriting system, and are therefore underwritten to Fannie Mae
guidelines. The loans receive a DU Approve Ineligible feedback due
to the loan amount only. Moody's made a negative origination
adjustment (i.e. it increased its loss expectations) for United
Shore's loans due mostly to 1) the lack of statistically
significant program specific loan performance data and 2) the fact
that United Shore's High Balance Nationwide program is unique and
fairly new and no performance history has been provided to Moody's
on these loans. Under this program, the origination criteria rely
on the use of GSE tools (DU/LP) for prime-jumbo non-conforming
loans, subject to Qualified Mortgage overlays. More time is needed
to assess United Shore's ability to consistently produce
high-quality prime jumbo residential mortgage loans under this
program.
loanDepot (originator) contributed 15.8% by loan balance to the
pool. Founded in 2009 and launched in 2010, loanDepot has funded
approximately $180 billion residential mortgage loans to date.
After its initial launch, loanDepot's growth strategy included
acquiring independent retail platforms across the country and using
mobile, licensed lending officers to build a nationwide retail
presence. loanDepot is primarily engaged in the origination of
residential mortgages and home equity loans. In addition to its
core lending activities, loanDepot has also invested in several
strategic joint ventures whose services complement its core
mortgage lending business such as escrow, settlement, title,
closing, new home construction and investment management. Moody's
considers LoanDepot an adequate originator of prime jumbo loans. As
a result, Moody's did not make any adjustments to its loss levels
for these loans.
Quicken Loans (originator, rated long-term senior unsecured Ba1)
contributed 22.9% by loan balance to the pool. Quicken Loans is one
of the largest US residential mortgage originators and the largest
retail originator. Quicken Loans' origination of agency-eligible
loans is designed to be executed in accordance with underwriting
guidelines established by the Fannie Mae Single Family Selling
Guide and the Freddie Mac Single Family Seller/Servicer Guide.
Quicken Loans generally requires that each agency-eligible mortgage
loan have valid findings and an approve or accept response from the
requirements of the automated underwriting systems of the GSEs, and
that documentation requirements for income, employment and/or
assets are generally followed. All the loans in this transaction
originated by Quicken Loans are agency-eligible mortgage loans,
underwritten to the government sponsored enterprises guidelines,
therefore, Moody's did not apply any adjustment to its expected
losses.
Servicing Arrangement
Moody's considers the overall servicing arrangement for this pool
to be adequate given the strong servicing arrangement of the
servicers, as well as the presence of a strong master servicer to
oversee the servicers. The servicers are contractually obligated to
the issuing entity to service the related mortgage loans. However,
the servicers may perform their servicing obligations through
sub-servicers. In this transaction, Nationstar Mortgage LLC
(Nationstar Mortgage Holdings Inc. rated B2) will act as the master
servicer. The servicers are required to advance principal and
interest on the mortgage loans. To the extent that the servicers
are unable to do so, the master servicer will be obligated to make
such advances. In the event that the master servicer, Nationstar,
is unable to make such advances, the securities administrator,
Citibank (rated Aa3) will be obligated to do so to the extent such
advance is determined by the securities administrator to be
recoverable.
COVID-19 Impacted Borrowers
Per its conversation with multiple servicers in the market, the
process related to borrower relief efforts for COVID-19 impacted
loans is generally similar across servicers. Typically, the
borrower must contact the servicer and attest they have been
impacted by a COVID-19 hardship and that they require payment
assistance. The servicer will offer an initial forbearance period
to the borrower, which can be extended if the borrower attests that
they require additional payment assistance.
At the end of the forbearance period, if the borrower is unable to
make the forborne payments on such mortgage loan as a lump sum
payment or does not enter into a repayment plan, the servicer may
defer the missed payments, which could be added as a
non-interest-bearing payment due at the end of the loan term. If
the borrower can no longer afford to make payments in line with the
original loan terms, the servicer would typically work with the
borrower to modify the loan (although the servicer may utilize any
other loss mitigation option permitted under the pooling and
servicing agreement with respect to such mortgage loan at such time
or any time thereafter).
Servicing Fee Framework
The servicing fee for loans serviced by United Shore and LoanDepot
will be based on a step-up incentive fee structure with a monthly
base fee of $40 per loan and additional fees for servicing
delinquent and defaulted loans. Quicken Loans, AmeriHome and USAA
FSB will be paid a monthly flat servicing fee equal to one-twelfth
of 0.25% of the remaining principal balance of the mortgage loans.
The servicing fee framework is comparable to other recent JPMMT
transactions backed by prime mortgage loans that Moody's has rated.
By establishing a base servicing fee for performing loans that
increases when loans become delinquent, the fee-for-service
structure aligns monetary incentives to the servicer with the costs
of servicing. The servicer receives higher fees for labor-intensive
activities that are associated with servicing delinquent loans,
including loss mitigation, than they receive for servicing a
performing loan, which is less costly and labor-intensive. The
fee-for-service compensation is reasonable and adequate for this
transaction because it better aligns the servicer's costs with the
deal's performance. Furthermore, higher fees for the more
labor-intensive tasks make the transfer of these loans to another
servicer easier, should that become necessary.
The incentive structure includes an initial monthly base servicing
fee of $40 for all performing loans and increases according to a
pre-determined delinquent and incentive servicing fee schedule. The
delinquent and incentive servicing fees will be deducted from the
available distribution amount and Class B-6 net WAC. The
transaction does not have a servicing fee cap, so, in the event of
a servicer replacement, any increase in the base servicing fee
beyond the current fee will be paid out of the available
distribution amount.
Third-Party Review
Four third party review firms, AMC Diligence, LLC, Clayton Services
LLC, Digital Risk LLC and Opus Capital Markets Consultants, LLC
verified the accuracy of the loan-level information that Moody's
received from the sponsor. These firms conducted detailed credit,
valuation, regulatory compliance and data integrity reviews on 100%
of the mortgage pool. The TPR results indicated compliance with the
originators' underwriting guidelines for majority of loans, no
material compliance issues, and no appraisal defects. Overall, the
loans that had exceptions to the originators' underwriting
guidelines had strong documented compensating factors such as low
DTIs, low LTVs, high reserves, high FICOs, or clean payment
histories. The TPR firms also identified minor compliance
exceptions for reasons such as inadequate RESPA disclosures (which
do not have assignee liability) and TILA/RESPA Integrated
Disclosure violations related to fees that were out of variance but
then were cured and disclosed.
R&W Framework
JPMMT 2020-4's R&W framework is in line with that of other JPMMT
transactions where an independent reviewer is named at closing, and
costs and manner of review are clearly outlined at issuance. Its
review of the R&W framework considers the financial strength of the
R&W providers, scope of R&Ws (including qualifiers and sunsets) and
enforcement mechanisms. The R&W providers vary in financial
strength. The creditworthiness of the R&W provider determines the
probability that the R&W provider will be available and have the
financial strength to repurchase defective loans upon identifying a
breach. An investment grade rated R&W provider lends substantial
strength to its R&Ws. Moody's analyzed the impact of less
creditworthy R&W providers case by case, in conjunction with other
aspects of the transaction.
The R&W providers are unrated and/or financially weaker entities.
Moody's applied an adjustment to the loans for which these entities
provided R&Ws.
No other party will backstop or be responsible for backstopping any
R&W providers who may become financially incapable of repurchasing
mortgage loans. With respect to the mortgage loan R&Ws made by such
originators or the aggregator, as applicable, as of a date prior to
the closing date, JPMMAC will make a "gap" representation covering
the period from the date as of which such R&W is made by such
originator or the aggregator, as applicable, to the cut-off date or
closing date, as applicable. Additionally, no party will be
required to repurchase or substitute any mortgage loan until such
loan has gone through the review process.
Trustee and Master Servicer
The transaction Delaware trustee is Citibank. The custodian's
functions will be performed by Wells Fargo Bank, N.A. The paying
agent and cash management functions will be performed by Citibank.
Nationstar, as master servicer, is responsible for servicer
oversight, servicer termination and for the appointment of any
successor servicer. In addition, Nationstar is committed to act as
successor if no other successor servicer can be found. The master
servicer is required to advance principal and interest if the
servicer fails to do so. If the master servicer fails to make the
required advance, the securities administrator is obligated to make
such advance.
Tail Risk & Subordination Floor
This deal has a standard shifting interest structure, with a
subordination floor to protect against losses that occur late in
the life of the pool when relatively few loans remain (tail risk).
When the total senior subordination is less than 0.75% of the
original pool balance, the subordinate bonds do not receive any
principal and all principal is then paid to the senior bonds. The
subordinate bonds benefit from a floor as well. When the total
current balance of a given subordinate tranche plus the aggregate
balance of the subordinate tranches that are junior to it amount to
less than 0.65% of the original pool balance, those tranches that
are junior to it do not receive principal distributions. The
principal those tranches would have received is directed to pay
more senior subordinate bonds pro-rata.
In addition, until the aggregate class principal amount of the
senior certificates (other than the interest only certificates) is
reduced to zero, if on any distribution date, the aggregate
subordinate percentage for such distribution date drops below 6.00%
of current pool balance, the senior distribution amount will
include all principal collections and the subordinate principal
distribution amount will be zero.
Moody's calculates the credit neutral floors for a given target
rating as shown in its principal methodology. The senior
subordination floor is equal to an amount which is the sum of the
balance of the six largest loans at closing multiplied by the
higher of their corresponding MILAN Aaa severity or a 35% severity.
The credit neutral floor for Aaa rating is $4,007,997. The senior
subordination floor of 0.75% and subordinate floor of 0.65% are
consistent with the credit neutral floors for the assigned
ratings.
Transaction Structure
The transaction has a shifting interest structure in which the
senior bonds benefit from a number of protections. Funds collected,
including principal, are first used to make interest payments to
the senior bonds. Next, principal payments are made to the senior
bonds. Next, available distribution amounts are used to reimburse
realized losses and certificate write-down amounts for the senior
bonds (after subordinate bond have been reduced to zero i.e. the
credit support depletion date). Finally, interest and then
principal payments are paid to the subordinate bonds in sequential
order.
Realized losses are allocated in a reverse sequential order, first
to the lowest subordinate bond. After the balance of the
subordinate bonds is written off, losses from the pool begin to
write off the principal balance of the senior support bond, and
finally losses are allocated to the super senior bonds.
In addition, the pass-through rate on the bonds (other than the
Class A-R Certificates) is based on the net WAC as reduced by the
sum of (i) the reviewer annual fee rate and (ii) the capped trust
expense rate. In the event that there is a small number of loans
remaining, the last outstanding bonds' rate can be reduced to
zero.
The Class A-11 Certificates will have a pass-through rate that will
vary directly with the rate of one-month LIBOR and the Class A-11-X
Certificates will have a pass-through rate that will vary inversely
with the rate of one-month LIBOR. If the securities administrator
notifies the depositor that it cannot determine one-month LIBOR in
accordance with the methods prescribed in the sale and servicing
agreement and a benchmark transition event has not yet occurred,
one-month LIBOR for such accrual period will be one-month LIBOR as
calculated for the immediately preceding accrual period. Following
the occurrence of a benchmark transition event, a benchmark other
than one-month LIBOR will be selected for purposes of calculating
the pass-through rate on the class A-11 certificates.
Factors that would lead to an upgrade or downgrade of the ratings:
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.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate 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.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in May 2020.
JPMDB 2020-COR7: Fitch Withdraws 'B-(EXP)' on Class H-RR Certs
--------------------------------------------------------------
Fitch Ratings has withdrawn its expected ratings and removed its
presale report for JPMDB 2020-COR7 commercial mortgage pass-through
certificates, series 2020-COR7.
JPMDB 2020-COR7
- Class A-1; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class A-2; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class A-3; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class A-4; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class A-5; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class A-S; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class A-SB; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class B; LT WDsf Withdrawn; previously at AA-(EXP)sf
- Class C; LT WDsf Withdrawn; previously at A-(EXP)sf
- Class D; LT WDsf Withdrawn; previously at BBB(EXP)sf
- Class E; LT WDsf Withdrawn; previously at BBB-(EXP)sf
- Class F-RR; LT WDsf Withdrawn; previously at BBB-(EXP)sf
- Class G-RR; LT WDsf Withdrawn; previously at BB-(EXP)sf
- Class H-RR; LT WDsf Withdrawn; previously at B-(EXP)sf
- Class X-A; LT WDsf Withdrawn; previously at AAA(EXP)sf
- Class X-B; LT WDsf Withdrawn; previously at AA-(EXP)sf
- Class X-D; LT WDsf Withdrawn; previously at BBB-(EXP)sf
KEY RATING DRIVERS
The issuer is anticipated to materially change the composition of
the loans contributed to the trust. As such, Fitch has withdrawn
its expected ratings and removed its presale report from its
website for the JPMDB 2020-COR7 transaction. Fitch anticipates
providing updated expected ratings and publishing an updated
presale report based on the revised pool of loans on June 23,
2020.
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.
JPMDB COMMERCIAL 2020-COR7: Fitch to Rate Class H-RR Certs 'B+sf'
-----------------------------------------------------------------
Fitch Ratings has issued a presale report on JPMDB Commercial
Mortgage Securities Trust 2020-COR7 commercial mortgage
pass-through certificates series 2020-COR7.
RATING ACTIONS
Fitch expects to rate the transaction and assign Rating Outlooks as
follows:
-- $13,360,000 class A-1 'AAAsf'; Outlook Stable;
-- $49,250,000 class A-2 'AAAsf'; Outlook Stable;
-- $80,800,000 class A-3 'AAAsf'; Outlook Stable;
-- $72,500,000a class A-4 'AAAsf'; Outlook Stable;
-- $266,313,000a class A-5 'AAAsf'; Outlook Stable;
-- $26,960,000 class A-SB 'AAAsf'; Outlook Stable;
-- $565,557,000b class X-A 'AAAsf'; Outlook Stable;
-- $25,460,000b class X-B 'AA-sf'; Outlook Stable;
-- $56,374,000 class A-S 'AAAsf'; Outlook Stable;
-- $25,460,000 class B 'AA-sf'; Outlook Stable;
-- $37,279,000 class C 'A-sf'; Outlook Stable;
-- $30,733,000bc class X-D 'BBB-sf'; Outlook Stable;
-- $22,732,000c class D 'BBBsf'; Outlook Stable;
-- $8,001,000c class E 'BBB-sf'; Outlook Stable;
-- $14,730,000cd class F-RR 'BBB-sf'; Outlook Stable;
-- $15,457,000cd class G-RR 'BBsf'; Outlook Stable;
-- $7,274,000cd class H-RR 'B+sf'; Outlook Stable.
The following class is not expected to be rated by Fitch:
-- $30,915,614cd class NR-RR.
(a) The initial certificate balances of classes A-4 and A-5 are
unknown and expected to be $338,813,000 in aggregate. The
certificate balances will be determined based on the final pricing
of those classes of certificates. The expected class A-4 balance
range is $0 to $145,000,000, and the expected class A-5 balance
range is$193,813,000 to $338,813,000. The balances of classes A-4
and A-5 showed reflect the midpoints of the class ranges.
(b) Notional amount and interest-only.
(c) Privately placed and pursuant to Rule 144A.
(d) Non-offered Horizontal credit-risk retention interest.
The expected ratings are based on information provided by the
issuer as of June 22, 2020.
Fitch initially published expected ratings and a presale report for
this transaction on June 17, 2020. On June 22, 2020, the pool was
revised with the following changes:
-- The 530 Broadway loan (previously the pool's largest loan;
8.8% of pool) was removed;
-- The 12555 & 12655 Jefferson loan (previously the pool's fourth
largest loan; 6.3% of pool) was removed;
-- The Belvedere Place loan (previously the pool's 25th largest
loan; 1.2% of pool) was removed;
-- The Chase Center Tower I loan balance was reduced to
$18,213,750 from $36,427,500;
-- The Chase Center Tower II loan balance was reduced to
$15,536,250 from $31,072,500.
As such, on June 22, 2020, Fitch withdrew its previously published
expected ratings and removed its previously published presale
report from its website for the JPMDB 2020-COR7 transaction.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 34 loans secured by 149
commercial properties having an aggregate principal balance of
$727,405,614 as of the cut-off date. The loans were contributed to
the trust by JP Morgan Chase Bank, LoanCore Capital Markets LLC,
German American Capital Corporation and Goldman Sachs Mortgage
Company.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 55.9% of the properties
by balance, cash flow analysis of 95.8% and asset summary reviews
on 100.0% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus 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. However, 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; however, the sponsors for two loans,
Hampton Roads Office Portfolio (5.8% of pool) and Willow Lake Tech
Center (0.7% of pool), have negotiated loan modifications to defer
ongoing capex and rollover reserve account deposits.
KEY RATING DRIVERS
Fitch Leverage Exceeds Recent Transactions: The pool has slightly
higher leverage than other, recent, Fitch-rated multiborrower
transactions. The pool's Fitch LTV of 101.6% is higher than the YTD
2020 average of 99.0%, but lower than the 2019 average of 103.0%.
The pool's Fitch DSCR of 1.20x is lower than the YTD 2020 average
of 1.31x and the 2019 average of 1.26x.
Significant Office and California Concentrations: Loans secured
primarily by office properties account for 79.5% of the pool, which
is significantly higher than the YTD 2020 and 2019 averages of
35.4% and 34.2%, respectively.
However, the pool includes only three loans (3.9% of pool) secured
by retail properties and no loans secured by hotel properties.
Additionally, loans secured by properties in California account for
37.4% of the pool while loans secured by properties in New York
account for 15.3% of the pool. Large concentrations by property
type and geographic region increase correlation risk, which
increases the frequency of high loss scenarios in Fitch's
multiborrower model.
Investment-Grade Credit Opinion Loans: Six loans, representing
23.2% of the pool, received investment-grade credit opinions. This
is below the YTD 2020 average of 27.7% but greater than the 2019
average of 14.2%. 1633 Broadway (7.9% of pool), BX Industrial
Portfolio (5.1% of pool), Chase Center Towers I & II (combined 4.6%
of the pool), City National Plaza (2.7% of pool) and Moffett Towers
Buildings A, B & C (2.7% of pool) each received a stand-alone
credit opinion of 'BBB-sf*'.
Concentrated Pool: The top 10 loans constitute 59.0% of the pool
(including the crossed loans Chase Center Towers I & II as one
loan), which is greater than the YTD 2020 average of 52.7% and the
2019 average of 51.0%. The loan concentration index (LCI) of 459 is
greater than the YTD 2020 and 2019 averages of 393 and 379,
respectively. Additionally, the sponsor concentration index (SCI)
of 467 indicates no material sponsor concentration.
RATING SENSITIVITIES
This section provides insight into the sensitivity of ratings when
one assumption is modified, while holding others equal. For U.S.
CMBS, the sensitivity reflects the impact of changes to property
net cash flow (NCF) 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.
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 indicates the model implied
rating sensitivity to changes in one variable, Fitch NCF:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf'/ 'BBB-sf' /
'BBsf' / 'B+sf'
10% NCF Decline: 'A+sf '/ 'A-sf' / 'BBB-sf' / 'BB+sf'/ 'BB-sf' /
'CCCsf' / 'CCCsf'
20% NCF Decline: 'A-sf' / 'BBBsf' / 'BB+sf' / 'BB-sf'/ 'CCCsf' /
'CCCsf' / 'CCCsf'
30% NCF Decline: 'BBBsf' / 'BBB-sf' / 'BB-sf' / '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 indicates
the model implied rating sensitivity to changes to the same one
variable, Fitch NCF:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf'/ 'BBB-sf' /
'BBsf' / 'B+sf'
20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AA+sf' / 'A+sf' / 'A-sf' /
'BBBsf' / 'BBB-sf'
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).
KKR CLO 15: Moody's Cuts Rating on Class F-R Notes to Caa2
----------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by KKR CLO 15 Ltd.:
US$23,500,000 Class E-R Senior Secured Deferrable Floating Rate
Notes Due 2032 (the "Class E-R Notes"), Downgraded to B1 (sf);
previously on April 17, 2020, Ba3 (sf) Placed Under Review for
Possible Downgrade
US$4,000,000 Class F-R Senior Secured Deferrable Floating Rate
Notes Due 2032 (the "Class F-R Notes"), Downgraded to Caa2 (sf);
previously on April 17, 2020 B3 (sf) Placed Under Review for
Possible Downgrade
Moody's also confirmed the rating on the following notes:
US$19,750,000 Class C-R Senior Secured Deferrable Floating Rate
Notes Due 2032 (the "Class C-R Notes"), Confirmed at A2 (sf);
previously on June 3, 2020 A2 (sf) Placed Under Review for Possible
Downgrade
US$24,250,000 Class D-R Senior Secured Deferrable Floating Rate
Notes Due 2032 (the "Class D-R Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D-R Notes, Class E-R Notes and Class F-R
Notes and June 3, 2020 on the Class C-R Notes. The CLO, originally
issued in September 2016 and refinanced in November 2018 is a
managed cashflow CLO. The notes are collateralized primarily by a
portfolio of broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in January 2024.
RATINGS RATIONALE
The downgrades on the Class E-R and Class F-R Notes reflect the
risks posed by credit deterioration and loss of collateral coverage
observed in the underlying CLO portfolio, which have been primarily
prompted by economic shocks stemming from the coronavirus pandemic.
Since the outbreak widened in March, the decline in corporate
credit has resulted in a significant number of downgrades, other
negative rating actions, or defaults on the assets collateralizing
the CLO. Consequently, the default risk of the CLO portfolio has
increased substantially, and the credit enhancement available to
the CLO notes has eroded and exposure to Caa-rated assets has
increased significantly.
Based on Moody's calculation, the weighted average rating factor
(WARF) is currently 3560 compared to 2902 reported in the February
2020 trustee report [1]. Moody's notes that currently approximately
35.3% and 6.6% of the CLO's par is from obligors assigned a
negative outlook or whose ratings are on review for possible
downgrade, versus approximately 30.0% and 4.7% of the universe of
assets in US BSL CLO portfolios respectively. Additionally, based
on Moody's calculation, the proportion of obligors in the portfolio
with Moody's corporate family or other equivalent ratings of Caa1
or lower (after any adjustments for negative outlook and watchlist
for possible downgrade) is currently approximately 25.28%.
Furthermore, Moody's calculated total collateral par balance,
including recoveries from defaulted securities, is at $391.4
million, or $8.6 million less than the deal's ramp-up target par
balance less paydown on the notes, and the over-collateralization
ratios for the Class E-R notes and interest diversion test
according to the April 2020 trustee report, are at 103.41% and
103.41% respectively and failing their respective trigger levels of
103.70% and 104.70%[2]. Finally, Moody's also considered manager's
investment decisions and trading strategies. Moody's notes that it
also considered the information in the May 2020 trustee report
which became available immediately prior to the release of this
announcement.
The rating confirmation on the Class C-R Notes and Class D-R Notes
reflects the notes' priority position in the CLO's capital
structure and the level of credit enhancement available to it
either from over-collateralization or from cash flows that would be
diverted as a result of coverage test failures. Following analysis
of the CLO's latest portfolio, recent trading activity and the full
set of structural features of the transaction, Moody's has
confirmed the rating on the Class C-R Notes and Class D-R Notes.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $386.4 million, defaulted par of
$10.2 million, a weighted average default probability of 29.39%
(implying a WARF of 3560), a weighted average recovery rate upon
default of 48.48%, a diversity score of 70 and a weighted average
spread of 3.35%. Moody's also analyzed the CLO by incorporating an
approximately $10.0 million par haircut in calculating the OC and
interest diversion test ratios.
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 corporate assets.
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
LOOMIS SAYLES II: Moody's Cuts Rating on $20MM Cl. D-R Notes to B1
------------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Loomis Sayles CLO II, Ltd. (the "CLO" or
"Issuer"):
US$20,750,000 Class D-R Secured Deferrable Floating Rate Notes Due
April 2028, Downgraded to B1 (sf); previously on April 17, 2020 Ba3
(sf) Placed Under Review for Possible Downgrade
Moody's also confirmed the rating on the following notes:
US$26,300,000 Class C-R Senior Secured Deferrable Floating Rate
Notes Due April 2028, Confirmed Baa3 (sf); previously on April 17,
2020 Baa3 (sf) Placed Under Review for Possible Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class C-R and Class D-R notes. The CLO, issued in
August 2015 and partially refinanced in April 2018 is a managed
cashflow CLO. The notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. The
transaction's reinvestment period ended in April 2020.
RATINGS RATIONALE
The downgrade rating actions on the Class D-R notes reflect the
risks posed by credit deterioration and loss of collateral coverage
observed in the underlying CLO portfolio, which have been primarily
prompted by economic shocks stemming from the coronavirus pandemic.
Since the outbreak widened in March, the decline in corporate
credit has resulted in a significant number of downgrades, other
negative rating actions, or defaults on the assets collateralizing
the CLO. Consequently, the default risk of the CLO portfolio has
increased substantially, and exposure to Caa-rated assets has
increased significantly.
Based on Moody's calculation, the weighted average rating factor
(WARF) was 3571 as of June 2020, or 24.4% worse compared to 2871
reported in the March 2020 trustee report [1]. Moody's calculation
also showed the WARF was failing the test level of 3133 reported in
the June 2020 trustee report [2] by 438 points. Moody's notes that
approximately 39.1% of the CLO's par was from obligors assigned a
negative outlook and 6.2% from obligors whose ratings are on review
for possible downgrade. Additionally, based on Moody's calculation,
the proportion of obligors in the portfolio with Moody's corporate
family or other equivalent ratings of Caa1 or lower (after any
adjustments for negative outlook and watchlist for possible
downgrade) is approximately 26.7% as of June 2020. Furthermore,
Moody's calculated total collateral par balance, including
recoveries from defaulted securities, is at $386 million, or $14
million less than the deal's ramp-up target par balance, and
Moody's calculated the over-collateralization (OC) ratios
(excluding haircuts) for the Class C and Class D notes as of June
2020 at 111.5% and 105.2% respectively.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Class C-R Notes continue to be consistent with the current
rating after taking into account the CLO's latest portfolio, its
relevant structural features and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the rating on the
Classes C-R Notes. Based on Moody's calculation, the Class C OC is
currently 111.5%, and the Class OC after incorporating various
haircuts, including Caa haircut, is 109.0%.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $379.3 million, defaulted par of
$17.7 million, a weighted average default probability of 25.18%
(implying a WARF of 3571), a weighted average recovery rate upon
default of 47.14%, a diversity score of 73 and a weighted average
spread of 3.31%. Moody's also analyzed the CLO by incorporating an
approximately $13.3 million par haircut in calculating the OC.
Finally, Moody's also considered in its analysis restrictions on
trading resulting from the end of the reinvestment period and the
CLO manager's recent investment decisions and trading strategies.
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 corporate assets.
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
MARLIN RECEIVABLES 2018-1: Fitch Affirms BB Rating on Class E Notes
-------------------------------------------------------------------
Fitch Ratings has affirmed the outstanding A, C, D and E notes and
upgraded the B notes for Marlin Receivables 2018-1 LLC. The market
disruption caused by the coronavirus and related containment
measures did not negatively affect the rating, because there is
sufficient credit enhancement to cover higher losses projected
after more severe assumptions were applied. The sensitivity of the
ratings to scenarios more severe than currently expected is
provided in the Rating Sensitivities section.
Marlin Receivables 2018-1 LLC
- Class A-2 571183AB8; LT PIFsf; Paid In Full
- Class A-3 571183AC6; LT AAAsf; Affirmed
- Class B 571183AD4; LT AAAsf; Upgrade
- Class C 571183AE2; LT Asf; Affirmed
- Class D 571183AF9; LT BBBsf; Affirmed
- Class E 571183AG7 LT BBsf; Affirmed
KEY RATING DRIVERS
The affirmation of the outstanding A, C, D and E notes and upgrade
of the class B notes to 'AAAsf' from 'AAsf' reflect loss coverage
levels consistent with the respective rating categories. The Stable
Outlook reflects Fitch's expectation for future stable
performance.
As of the June 2020 reporting period, 61+ day delinquencies
represent 3.41%. Cumulative gross defaults represent 2.74% and are
projecting below the initial base case loss proxy of 4.50%. Hard CE
has increased to 69.60%, 51.35%, 31.37%, 21.77% and 14.09% for
classes A, B, C, D and E, respectively. This is up from 23.35%,
18.60%, 13.40%, 10.90% and 8.90% for each respective class at
close.
Fitch has made assumptions about the spread of coronavirus and the
economic impact of the related containment measures. As a base-case
scenario, Fitch assumes a global recession in 1H20 driven by sharp
economic contractions in major economies with a rapid spike in
unemployment, followed by a recovery that begins in 3Q20 as the
health crisis subsides. As a downside (sensitivity) scenario
provided in the Rating Sensitivities section, Fitch considers a
more severe and prolonged period of stress with an inability to
begin meaningful recovery until after 2021.
To account for potential increases in delinquencies and losses,
utilizing the base case coronavirus ratings scenario detailed
above, Fitch applied conservative assumptions in deriving the
updated base case proxy by utilizing recessionary vintage and
combined with more recent vintage static managed portfolio
performance along with projections based on current performance.
Based on the transaction's performance to date, Fitch revised the
CGD assumption under the stressed loss approach back to the initial
base case of 4.50% from 4.00% at last review. Fitch's stressed cash
flow assumptions were unchanged from close. Under these
assumptions, loss coverage for the class A, B, C, D and E notes are
able to support multiples in excess of the respective recommended
categories. Current obligor concentrations have declined from
initial levels; thus, Fitch believes the transactions have limited
exposure to obligor concentration risk. As such, the primary rating
approach is the stressed loss approach.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and consideration
for potential affirmations. If CGD is 20% less than projected CGD
proxy, the subordinate notes could be upgraded by up to two
categories or ratings with stronger multiples could be affirmed.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Unanticipated increases in the frequency of defaults could produce
default levels higher than the current projected base case default
proxy and affect available loss coverage and multiples levels for
the transaction. Weakening asset performance is strongly correlated
to increasing levels of delinquencies and defaults that could
negatively impact CE levels. Lower loss coverage could affect the
rating and Rating Outlook, depending on the extent of the decline
in coverage.
In its initial reviews, the notes were found to have limited
sensitivity to a 1.5x and 2.0x increase of Fitch's base case loss
expectation for each transaction. The 2.0x scenario was updated and
is considered Fitch's coronavirus downside rating sensitivity. This
sensitivity suggests ratings for the outstanding notes could be
downgraded by up to one rating category, and the transaction has
experienced strong performance with losses within Fitch's initial
expectations to date, with adequate loss coverage and multiple
levels. Therefore, a material deterioration in performance would
have to occur within the asset collateral to have a potential
negative impact on the outstanding rating.
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).
MCAP CMBS 2014-1: DBRS Keeps B Rating on Cl. G Certs Under Review
-----------------------------------------------------------------
DBRS Limited maintained the Under Review with Negative Implications
status for three ratings of the Commercial Mortgage Pass-Through
Certificates, Series 2014-1 issued by MCAP CMBS Issuer Corporation,
Series 2014-1 as follows:
-- Class E at BBB (low) (sf), Under Review with Negative
Implications
-- Class F at BB (sf), Under Review with Negative Implications
-- Class G at B (sf), Under Review with Negative Implications
These ratings do not carry a trend.
These rating actions reflect ongoing concerns surrounding the
resolution for the specially serviced loan, 1121 Centre Street NW
(Prospectus ID#7, 35.7% of the pool), which is secured by an office
property in Calgary. In December 2019, the loan sponsor, Strategic
Group LLC, submitted an application filing under Canada's
Companies' Creditors Arrangement Act (CCAA), which affected the
subject property and 49 others within the sponsor's 171-property
portfolio.
The subject property, which also secures a subordinate B note in
the amount of $1.0 million, held outside of the trust, has shown
cash flow declines since YE2015, with the most recently reported
debt service coverage ratio for YE2018 at 1.16 times (x) for the
whole loan and 1.15x for the A note. The occupancy declines driven
by soft market conditions in recent years were the source of cash
flow declines since issuance for both the subject and several other
properties owned by the sponsor and backing CMBS and other loans
included in the CCAA filing. The subject's relatively high
occupancy rate and above breakeven cash flow do suggest prospects
for resolution could be rosier than others; however, the servicer
has expressed tentative optimism regarding the potential sale of
the property since the loan's transfer to special servicing in
January 2020. Control of the property was recently transferred from
the court-appointed receiver to an independently appointed receiver
and the new receiver and the servicer is working to market the
property for sale. For further information on this loan, please see
the DBRS Viewpoint platform, for which information has been
provided, below.
At issuance, the trust was composed of 32 loans, with an original
trust balance of $224.0 million. As of the June 2020 remittance,
five loans remained in the trust, with a remaining balance of $25.2
million, representing a collateral reduction of 88.7% since
issuance because of loan repayment and scheduled loan amortization.
Outside of 1121 Centre Street NW loan, the remaining loans in the
pool are performing as expected, with healthy occupancy rates and
strong cash flow growth since issuance. Although the uncertainty
amid the Coronavirus Disease (COVID-19) pandemic suggests increased
risks in general for commercial real estate throughout Canada, the
remaining collateral properties are generally stable, with sponsors
generally incentivized to fund any short- to medium-term shortfalls
out of pocket as tenants may need relief or property cash flows are
otherwise disrupted. In addition, of the four remaining
non-specially serviced loans, three have some form of meaningful
recourse, representing 53.4% of the pool balance.
Notes: All figures are in Canadian dollars unless otherwise noted.
MFA 2020-NQM1: S&P Withdraws Prelim B (sf) Rating on B-2 Certs
--------------------------------------------------------------
S&P Global Ratings withdrew its preliminary ratings on MFA
2020-NQM1 Trust's mortgage pass through certificates.
S&P assigned its preliminary ratings to MFA 2020-NQM1 on March 5,
2020.
"Due to the outbreak of COVID-19 and the economic uncertainty that
followed, the transaction did not close. In our view, there is a
lack of sufficient timely information at this time to move forward
with assigning ratings," S&P said.
The proposed certificate issuance was a residential mortgage-backed
securities transaction backed by a mix of fixed- and
adjustable-rate loans secured by first liens primarily on one- to
four-family residential properties to both prime and nonprime
borrowers. The pool had 1,131 loans, which are primarily
nonqualified mortgage loans.
Global Ratings acknowledges a high degree of uncertainty about the
evolution of the coronavirus pandemic. The consensus among health
experts is that the pandemic may now be at, or near, its peak in
some regions but will remain a threat until a vaccine or effective
treatment is widely available, which may not occur until the second
half of 2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
PRELIMINARY RATINGS WITHDRAWN
MFA 2020-NQM1 Trust
Rating
Class To From
A-1 NR AAA (sf)
A-2 NR AA (sf)
A-3 NR A (sf)
M-1 NR BBB (sf)
B-1 NR BB (sf)
B-2 NR B (sf)
NR--Not rated.
MORGAN STANLEY 2012-C6: Moody's Cuts Ratings on 2 Tranches to B3
----------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on eight
classes, confirmed the ratings on two classes and downgraded the
ratings on three classes in Morgan Stanley Bank of America Merrill
Lynch Trust 2012-C6 as follows:
Cl. A-4, Affirmed Aaa (sf); previously on Aug 27, 2019 Affirmed Aaa
(sf)
Cl. A-S, Affirmed Aaa (sf); previously on Aug 27, 2019 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa1 (sf); previously on Aug 27, 2019 Affirmed Aa1
(sf)
Cl. C, Affirmed A1 (sf); previously on Aug 27, 2019 Affirmed A1
(sf)
Cl. D, Affirmed Baa1 (sf); previously on Aug 27, 2019 Affirmed Baa1
(sf)
Cl. E, Confirmed at Baa3 (sf); previously on Apr 17, 2020 Baa3 (sf)
Placed Under Review for Possible Downgrade
Cl. F, Confirmed at Ba2 (sf); previously on Apr 17, 2020 Ba2 (sf)
Placed Under Review for Possible Downgrade
Cl. G, Downgraded to B1 (sf); previously on Apr 17, 2020 Ba3 (sf)
Placed Under Review for Possible Downgrade
Cl. H, Downgraded to B3 (sf); previously on Apr 17, 2020 B2 (sf)
Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Aug 27, 2019 Affirmed
Aaa (sf)
Cl. X-B*, Affirmed Aa3 (sf); previously on Aug 27, 2019 Affirmed
Aa3 (sf)
Cl. X-C*, Downgraded to B3 (sf); previously on Apr 17, 2020 B2 (sf)
Placed Under Review for Possible Downgrade
Cl. PST**, Affirmed Aa2 (sf); previously on Aug 27, 2019 Affirmed
Aa2 (sf)
* Reflects interest-only classes
** Reflects exchangeable classes
RATINGS RATIONALE
The ratings on five P&I classes were affirmed and the ratings on
two P&I classes were confirmed due to 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,
being within acceptable ranges.
The ratings on two P&I classes were downgraded due to higher
anticipated losses and a decline in pool performance primarily
driven by the decline in performance of two of the three largest
loans in pool, Greenwood Mall (8.9% of the pool) and Cumberland
Mall (6.2% of the pool). Furthermore, eight loans representing 16%
of the pool were 30 or more days past due as of the June 2020
remittance date.
The ratings on two IO classes were affirmed based on the credit
quality of the referenced classes.
The rating on the exchangeable class, Cl. PST, was affirmed due to
the credit quality of the referenced exchangeable classes.
The rating on one IO Class, Class X-C, was downgraded due to a
decline in the credit quality of its referenced classes. The IO
Class references six P&I classes including Class J, 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 4.6% of the
current pooled balance, compared to 1.8% at Moody's last review.
Moody's base expected loss plus realized losses is now 2.7% of the
original pooled balance, compared to 1.1% 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 exchangeable
classes and interest-only classes were "Approach to Rating US and
Canadian Conduit/Fusion CMBS" published in May 2020.
DEAL PERFORMANCE
As of the June 2020 distribution date, the transaction's aggregate
certificate balance has decreased by 40% to $674 million from $1.12
billion at securitization. The certificates are collateralized by
44 mortgage loans ranging in size from less than 1% to 19% of the
pool, with the top ten loans (excluding defeasance) constituting
56% of the pool. Six loans, constituting 16% 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 12, compared to 13 at Moody's last review.
As of the June 2020 remittance report, loans representing 83% were
current or within their grace period on their debt service
payments, 1% were beyond their grace period but less than 30 days
delinquent and 13% were between 30 -- 59 days delinquent.
Eleven loans, constituting 15% of the pool, are on the master
servicer's watchlist, of which four loans, representing 9% of the
pool, indicate the borrower has requested relief in relation to
coronavirus impact on the property. 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.
Two loans, constituting 8.8% of the pool, are currently in special
servicing, both of which transferred to special servicing since
March 2020.
The largest specially serviced loan is the Cumberland Mall loan
($41.6 million -- 6.2% of the pool), which is secured by an
approximately 671,000 SF component of a 943,400 SF regional mall
located in Vineland, NJ. The property is anchored by Boscov's, BJ's
Wholesale, Home Depot, Burlington Coat Factory, Dick's Sporting
Goods, and a Regal Cinemas. Boscov's and BJ's Wholesale are not
part of the collateral and Home Depot is on a ground lease. As of
March 2020, the in-line space was 89% leased and the total mall was
91% leased. Comparable tenant in-line sales (less than 10,000 SF)
were $389 PSF in 2020, compared to $397 PSF in 2019 and $371 PSF in
2018. The loan transferred to special servicing in May 2020 as a
result of the borrower's request for relief due to the coronavirus
pandemic. The loan is last paid through its April 2020 and the
special servicer indicated short-term relief documents are
currently being drafted. The property's 2019 net operating income
(NOI) declined 7% year over year as a result of lower rental
revenues, however, it remained 9% above securitization levels. The
loan has amortized 20% since securitization and had a 2019 actual
NOI DSCR of 1.93X. Due to the mall's prior performance the loan has
been included in the conduit statistic s below and Moody's LTV and
stressed DSCR are 122% and 0.95X, respectively.
The second largest specially serviced loan is the 470 Broadway loan
($18 million -- 2.7% of the pool), which is secured by a 6,600 SF
retail building leased to Aldo Shoes through October 2023. The loan
transferred to special servicing in May 2020 for imminent default
due to COVID-19.
Moody's has also assumed a high default probability for one poorly
performing loan, constituting 1.0% of the pool, which is secured by
a retail property located in Brainerd, MN. The troubled loan has
already experienced a significant decline in 2019 net operating
income from securitization primarily due to the departure of the
former Herberger's space (83,000 SF). The servicer indicated Ashley
Home Stores had leased a portion of the space, however, the loan is
on the maser servicer's watchlist and is last paid through its
April 2020 payment date.
Moody's received full year 2018 and full or partial 2019 operating
results for 100% of the pool (excluding specially serviced and
defeased loans). Moody's weighted average conduit LTV is 100%,
compared to 89% at Moody's last review. Moody's conduit component
excludes loans with structured credit assessments, defeased and CTL
loans, and troubled loans. Moody's net cash flow reflects a
weighted average haircut of 25% 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 1.54X and 1.12X,
respectively, compared to 1.72X and 1.23X 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 two largest conduit loans represent 28% of the pool balance.
The largest loan is the 1880 Broadway/15 Central Park West Retail
loan ($125 million -- 19% of the pool), which is secured by an
84,240 square feet (SF), four-level (two levels below grade),
multi-tenant retail condominium located on the Upper West Side of
Manhattan. The property has 232 feet of frontage along the east
side of Broadway. The property has been 100% leased since
securitization. The largest tenants include Best Buy (54% of NRA;
lease expiration in January 2023) and Williams Sonoma (30% of NRA;
lease expiration in June 2029). The loan is current through its
June 2020 payment date. The loan is interest only for its entire
term and Moody's LTV and stressed DSCR are 109% and 0.79X,
respectively, compared to 94% and 0.92X at the last review.
The second largest conduit loan is the Greenwood Mall loan ($60
million -- 8.9% of the pool), which is secured by an approximately
575,000 SF component of an 851,500 SF super-regional mall located
in Bowling Green, Kentucky. The mall, owned by Brookfield
Properties, is anchored by a Dillard's, J.C. Penney, Belk, and a
10-screen Regal Cinema. Dillard's and Belk are not part of the
collateral. Sears (15% of net rentable area) was previously a
collateral anchor, however, they vacated in early 2019 and the
space remains vacant. As of March 2020, the in-line occupancy was
approximately 83%, compared to 96% in 2017. In-line sales for
comparable tenants decreased was $323 per square foot compared to
$338 PSF in 2019. After increasing annually since 2013, the
property's 2019 net operating income declined 9% from 2018 and 13%
from 2017 as a result of lower rental revenues. The loan is current
through its June 2020 payment date and despite the recent decline
in performance the year-end 2019 actual NOI DSCR was 2.45X. The
property is the only regional mall within a 50-mile radius. The
loan has amortized 5% since securitization and Moody's LTV and
stressed DSCR are 117% and 1.18X, respectively, compared to 97% and
1.31X at the last review.
MORGAN STANLEY 2013-C7: Moody's Lowers Class G Debt Rating to Caa3
------------------------------------------------------------------
Moody's Investors Service affirmed the ratings on nine classes and
downgraded the ratings on four classes in Morgan Stanley Bank of
America Merrill Lynch Trust 2013-C7, Commercial Mortgage
Pass-Through Certificates as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Nov 26, 2019 Affirmed Aaa
(sf)
Cl. A-4, Affirmed Aaa (sf); previously on Nov 26, 2019 Affirmed Aaa
(sf)
Cl. A-AB, Affirmed Aaa (sf); previously on Nov 26, 2019 Affirmed
Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Nov 26, 2019 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa3 (sf); previously on Nov 26, 2019 Affirmed Aa3
(sf)
Cl. C, Affirmed A3 (sf); previously on Nov 26, 2019 Affirmed A3
(sf)
Cl. D, Downgraded to Ba2 (sf); previously on Apr 17, 2020 Baa3 (sf)
Placed Under Review for Possible Downgrade
Cl. E, Downgraded to B1 (sf); previously on Apr 17, 2020 Ba2 (sf)
Placed Under Review for Possible Downgrade
Cl. F, Downgraded to B3 (sf); previously on Apr 17, 2020 B1 (sf)
Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Caa3 (sf); previously on Apr 17, 2020 Caa1
(sf) Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Nov 26, 2019 Affirmed
Aaa (sf)
Cl. X-B*, Affirmed A2 (sf); previously on Nov 26, 2019 Affirmed A2
(sf)
Cl. PST**, Affirmed Aa3 (sf); previously on Nov 26, 2019 Affirmed
Aa3 (sf)
* Reflects interest-only classes
** Reflects exchangeable classes
RATINGS RATIONALE
The ratings on six P&I classes were affirmed because the
transaction's key metrics, including Moody's loan-to-value (LTV)
ratio, Moody's stressed debt service coverage ratio (DSCR) and the
transaction's Herfindahl Index (Herf), are within acceptable
ranges.
The ratings on four P&I classes, Cl. D, CL E, Cl. F and Cl. G, were
downgraded due to higher anticipated losses due to a decline in
pool performance from the exposure to specially serviced loans.
Four loans, representing 16% of the pool are currently in special
servicing, of which two loans, Valley West Mall and 494 Broadway,
totaling of 6% of the pool transferred prior to 2020. The remaining
two specially serviced loans, including Solomon Pond Mall (9% of
the pool), transferred in May 2020 as a result of the coronavirus
outbreak.
The ratings on the IO classes, Cl. X-A and Cl. X-B, were affirmed
based on the credit quality of their referenced classes.
The rating on the exchangeable class, Cl. PST, was affirmed due to
the credit quality of the referenced exchangeable classes.
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 7.7% of the
current pooled balance, compared to 4.9% at Moody's last review.
Moody's base expected loss plus realized losses is now 5.9% of the
original pooled balance, compared to 3.9% 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 exchangeable
classes and interest-only classes were "Approach to Rating US and
Canadian Conduit/Fusion CMBS" published in May 2020.
DEAL PERFORMANCE
As of the June 15, 2019 distribution date, the transaction's
aggregate certificate balance has decreased by 26.5% to $1.02
billion from $1.39 billion at securitization. The certificates are
collateralized by 56 mortgage loans ranging in size from less than
1% to 16.1% of the pool, with the top ten loans (excluding
defeasance) constituting 60.3% of the pool. One loan, constituting
2.0% of the pool, has an investment-grade structured credit
assessment. Eight loans, constituting 6.3% 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 15, compared to 16 at Moody's last review.
As of the June 2020 remittance report, loans representing 84% were
current on their debt service payments, 13% were beyond their grace
period but less than 30 days delinquent and 13% were between 30 --
59 days delinquent and 3% were 60 or more delinquent.
Seventeen loans, constituting 32.8% of the pool, are on the master
servicer's watchlist, of which nine loans, representing 20% of the
pool, indicate the borrower has requested relief in relation to
coronavirus impact on the property. The watchlist includes loans
that meet certain portfolio review guidelines established as part
of the CRE Finance Council (CREFC) monthly reporting package. As
part of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues
that could affect performance.
One loan has been liquidated from the pool, resulting in a realized
loss of $2.7 million (for a loss severity of 17%). Four loans,
constituting 16.4% of the pool, are currently in special
servicing.
The largest specially serviced loan is the Solomon Pond Mall Loan
($93.7 million -- 9.1% of the pool), which is secured by a 399,000
SF component of a 885,000 SF regional mall located in Marlborough,
Massachusetts (approximately 27 miles west of Boston). The property
is operated by Simon Property Group, which is the primary sponsor
of the loan (a 54% stake). The property is anchored by Macy's, JC
Penney, and Sears, none of which are part of the loan collateral.
The largest collateral tenants are Regal Cinema (17% of the NRA;
lease expiration in April 2022) and Tilt Arcade (7% of the NRA;
lease expiration in January 2024). As of June 2019, the property
was 94% leased, with an in-line occupancy of 84%. The property's
financial performance generally improved from securitization
through 2017, however, the property's performance has declined
annually in 2018 and 2019 as a result of lower rental revenue. The
property's 2019 NOI was down 2.5% from 2018 NOI; 16% from 2017 NOI
and was 13% lower than at securitization. Despite the decline in
NOI, the property had a 2019 NOI DSCR of 1.83X and has amortized
nearly 15% since securitization. The loan transferred to special
servicing in June 2020 as the sponsor is searching for a
modification. Due the loans historical financial performance, the
loan has been included in the conduit statistics. The loan was last
paid through its April 2020 payment date. Moody's LTV and stressed
DSCR are 116% and 1.04X, respectively, compared to 106% and 1.05X
at the last review.
The second largest specially serviced loan is the Valley West Mall
($42.7 million -- 4.2% of the pool), which is secured by an 856,000
square foot (SF) enclosed regional mall located in West Des Moines,
Iowa. At securitization the mall was anchored by Von Maur, JC
Penney, and Younkers (all collateral tenants). However, Yonkers
(205,250 SF; 24% of the NRA) vacated in August 2018 and the space
remains vacant. Additionally, a new Von Maur is expected to open at
Jordan Creek Town Center, the dominant mall in the West Des Moines
submarket, in 2022. Performance at the Valley West Mall has
continually declined since securitization primarily due to
declining rental revenue and the decline accelerated since 2017.
The year-end 2019 NOI was 59% lower than in 2013. As of June 2019,
the property was 61% occupied, with an in-line occupancy of 60%.
The loan was transferred to special servicing in August 2019 due to
imminent default and Moody's anticipates a significant loss on this
loan.
The third largest specially serviced loan is the 494 Broadway Loan
($19.8 million -- 1.9% of the pool), which is secured by 13,000 SF
mixed-use, property located in the SoHo neighborhood of New York
City, New York. As of May 2019, the property was 100% leased to
four office and retail tenants. The largest tenant, Pandora
Ventures, renewed their lease in February 2018 at a significantly
lower rate than at securitization. As a result, the actual DSCR has
fallen to below 1.00X. The loan was transferred to special
servicing in July 2019. The borrower requested a loan modification
which was ultimately denied as the borrower refused to pay debt
service payments. The special servicer has filed for foreclosure
and appointed a receiver who has taken control of the property. Due
to COVID-19 pandemic, none of the tenants at the property were
paying rent and the receiver is working on lease modifications and
relief requests.
The remaining specially serviced loans are secured by a single
tenant retail property located in New York City.
Moody's has also assumed a high default probability for one poorly
performing loan, the Scripps Research Building loan ($30.9 million
-- 3.0% of the pool), which is secured by 112,000 SF single tenant
office property located in La Jolla, California. Currently, the
property is fully vacant as the former single tenant The Scripps
Research Institute, vacated the premises upon their lease
expiration in June 2019. The property manager plans to convert the
existing single tenant use into a multi-tenant building.
Moody's received full year 2018 operating results for 100% of the
pool, and full or partial year 2019 operating results for 83% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 102%, compared to 97% at Moody's
last review. Moody's conduit component excludes loans with
structured credit assessments, defeased and CTL loans, troubled
loans and two of the specially serviced loans (Valley West Mall and
494 Broadway). Moody's net cash flow (NCF) reflects a weighted
average haircut of 13.8% to the most recently available net
operating income (NOI). Moody's value reflects a weighted average
capitalization rate of 9.4%.
Moody's actual and stressed conduit DSCRs are 1.99X and 1.04X,
respectively, compared to 1.71X and 1.08X 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 loan with a structured credit assessment is the Sunvalley
Shopping Center Fee Loan ($20.4 million -- 2.0% of the pool), which
is secured by the leased fee interest associated with six parcels
of land totaling 68.4 acres located in Concord, California. The
parcels generate revenue through a ground lease to a 1.4 million SF
regional mall. Moody's structured credit assessment is aaa
(sca.pd), the same as at Moody's last review.
The top three conduit loans represent 34.5% of the pool balance.
The largest loan is the Chrysler East Building Loan ($165 million
-- 16.1% of the pool), which is secured by a 32-story, 745,000 SF
multi-tenant office building within the Grand Central office market
of New York, New York. The loan sponsor is Tishman Speyer
Properties. The property is part of the Chrysler Center, a
two-building interconnected complex that also includes the Chrysler
Building skyscraper. The collateral was 98% leased as of June 2019,
compared to 84% leased in December 2018. The largest tenants at the
property include Mintz, Levin, Cohn & Ferris, Viner Finance Inc,
and APG Asset Management, all of which have lease expirations in
December 2022 or later. The loan is interest only for its entire
term and Moody's LTV and stressed DSCR are 123% and 0.75X,
respectively, the same as at Moody's last review.
The second largest loan is the Millennium Boston Retail Loan ($95.0
million -- 9.3% of the pool), which is secured by nine commercial
condominium units contained within three buildings, totaling
282,000 SF of mixed-use space in the Midtown/Theater District area
of downtown Boston, Massachusetts. The properties were 100% leased
as of December 2019. The loan is benefitting from amortization,
having amortized nearly 12% since securitization. The loan is on
the Master Servicer's watchlist due to the borrower's request for
relief as a result of COVID-19. The property's largest tenants
include a two-level, 19-screen AMC Loews Theater and a second story
Sports Club/ LA - Boston health club. The loan is current on its
debt service payments through June 2020 and Moody's LTV and
stressed DSCR are 91% and 0.98X, respectively, compared to 81% and
1.07X at last review.
The third largest loan is the Amazon Fulfillment Center Loan ($40.8
million -- 4.0% of the pool), which is secured by one million SF
industrial warehouse and distribution center built-to-suit for
Amazon. Amazon leases the space under an absolute net lease
agreement expiring on September 30, 2026, which contains four
successive five-year extension options to renew. Due to the single
tenant exposure, Moody's utilized a lit/dark analysis. The loan is
interest only for its entire term and Moody's LTV and stressed DSCR
are 94% and 1.10X, respectively, compared to 97% and 1.07X at the
last review.
NEUBERGER BERMAN 37: S&P Rates Class E Notes 'BB- (sf)'
-------------------------------------------------------
S&P Global Ratings assigned its ratings to Neuberger Berman Loan
Advisers CLO 37 Ltd.'s floating-rate notes.
The note issuance is a CLO transaction backed by broadly syndicated
speculative-grade (rated 'BB+' and lower) senior secured term loans
that are governed by collateral quality tests. The notes are
managed by Neuberger Berman Loan Advisers II LLC.
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 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.
RATINGS ASSIGNED
Neuberger Berman Loan Advisers CLO 37 Ltd./Neuberger Berman Loan
Advisers CLO 37 LLC
Class Rating Amount (mil. $)
A-1 AAA (sf) 240.00
A-2 AAA (sf) 8.00
B AA (sf) 52.00
C (deferrable) A (sf) 24.00
D (deferrable) BBB- (sf) 22.00
E (deferrable) BB- (sf) 14.00
Subordinated notes NR 38.40
NR--Not rated.
NEW RESIDENTIAL 2020-NQM2: Fitch Rates Class B-2 Debt Bsf
---------------------------------------------------------
Fitch Ratings has assigned final ratings to New Residential
Mortgage Loan Trust 2020-NQM2 (NRMLT 2020-NQM2). The 'AAAsf' rating
for NRMLT 2020-NQM2 reflects the satisfactory operational review
conducted by Fitch of the originator, 100% loan-level due diligence
review with no material findings, a Tier 2 representation and
warranty framework and the transaction's structure.
RATING ACTIONS
NRMLT 2020-NQM2
Class A-1; LT AAAsf New Rating; previously at AAA(EXP)sf
Class A-2; LT AAsf New Rating; previously at AA(EXP)sf
Class A-3; LT Asf New Rating; previously at A(EXP)sf
Class M-1; LT BBBsf New Rating; previously at BBB(EXP)sf
Class B-1; LT BBsf New Rating; previously at BB(EXP)sf
Class B-2; LT Bsf New Rating; previously at B(EXP)sf
Class B-3; LT NRsf New Rating; previously at NR(EXP)sf
Class A-IO-S; LT NRsf New Rating; previously at NR(EXP)sf
Class P; LT NRsf New Rating; previously at NR(EXP)sf
Class XS-1; LT NRsf New Rating; previously at NR(EXP)sf
Class XS-2; LT NRsf New Rating; previously at NR(EXP)sf
TRANSACTION SUMMARY
The notes are supported by 257 loans with a balance of $159.9
million as of the June 1, 2020 cut-off date. This will be the
eighth Fitch-rated nonqualified mortgages (NQMs) transaction
consisting of loans solely originated by NewRez LLC (NewRez),
formerly known as New Penn Financial, LLC.
The notes are secured mainly by NQMs as defined by the
Ability-to-Repay (ATR) Rule. Approximately 79% of the loans in the
pool are designated as NQM, and the remaining 21% are investor
properties and, thus, not subject to the ATR Rule.
KEY RATING DRIVERS
Revised GDP due to COVID19 (Negative): Coronavirus 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 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 ratings
of 'BBBsf' and below.
Expanded Prime Credit Quality (Mixed): The collateral consists of
30-year FRM and five-year ARM fully amortizing loans, seasoned
approximately five months in aggregate. Nearly all of the loans
were originated through the originator's retail channels. The
borrowers in this pool have solid credit profiles (738 FICO) and
relatively low leverage (74.8% sLTV).
Payment Forbearance and Deferrals (Negative): A borrower requesting
COVID-19 relief will initially be placed on a three-month
forbearance plan. Following the forbearance plan period (plus any
extensions), the borrower will have an opportunity to make their
next monthly payment; however, if it is not made by the end of the
calendar month, New Rez will process a deferral. At that point, the
borrower's payment due date will be rolled forward one month, and
the loan will continue to be marked as current.
As of the cutoff date, 17.9% (by UPB) have received COVID-19
forbearance or deferral relief. Fitch treated all loans not
currently making a mortgage payment as 60-days delinquent (8.6%, or
19 loans). This resulted in a 'AAAsf' probability of default (PD)
of 98.08% for these loans, which increased Fitch's 'AAAsf' expected
loss by 243 bps. Borrowers who continued to make their mortgage
payments and were not deferred (24 loans, or 9.3%) were treated as
current in Fitch's analysis. Fitch believes the increased expected
losses from the delinquency penalties applied to all loans
currently not making a monthly payment, and available day-one
excess spread of 242 bps, will be sufficient to cover any related
losses to the rated notes.
Limited P&I Advancing: Primary and master servicing functions will
be performed by Shellpoint Mortgage Servicing (Shellpoint) and
Nationstar Mortgage LLC (Nationstar), rated 'RPS2-' and 'RMS2+',
respectively. If Nationstar is unable to advance, advances will be
made by the transaction's paying agent, U.S. Bank, N.A., rated
'A+'/Stable by Fitch. The servicer will be responsible for
advancing principal and interest (P&I) for 180 days of
delinquencies. For this reason, Fitch assumed a 180-day
stop-advance scenario in its loss severity calculation. However,
since the servicer will not be advancing for delinquent P&I
payments to the trust for loans receiving COVID-19 deferral relief,
Fitch assumed no advancing in its cash flow analysis.
The servicer will be advancing P&I as well as insurance and taxes
(PITI) for loans on a forbearance plan but will reimburse itself
for the PITI from general principal collections received the
following month. The servicer will not be advancing the missed P&I
payments related to deferrals. All missed payments for either
forbearance or deferral are added to the balance of the loan, and a
lump sum payment is due from the borrower when the loan is paid off
or at maturity. The servicer reimbursement of advanced amounts from
principal collections will result in a realized loss. To the extent
excess spread is insufficient to cover recouped advances,
subordinated principal can be used to pay timely interest to the
'AAAsf' and 'AAsf' classes. Fitch addressed this risk by applying
its liquidity stress described below and assumed no-advancing for
all rating categories in its cash flow assumptions while including
full servicer advancing in its loss severity calculation.
Sequential Payment Structure (Positive): The transaction is
expected to have a sequential-pay structure whereby the subordinate
classes do not receive principal until the senior classes are
repaid in full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to reallocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
Alternative Income Documentation (Negative): Fifty-one percent of
the pool was to borrowers underwritten using bank statements to
verify income (15% using 12 months of statements and 36% using 24
months). Roughly 35% were to borrowers underwritten to full
documentation. Fitch views the use of bank statements as a less
reliable method of calculating income than the traditional method
of two years of tax returns. Fitch applied approximately a 1.5x
penalty to its probability of default (PD) for these loans. This
adjustment assumes slightly less relative risk than a precrisis
"stated income" loan.
Investor Loans (Negative): Approximately 20% of the pool comprises
investment property loans, including 4% underwritten to a cash flow
ratio rather than the borrower's debt-to-income ratio. Investor
property loans exhibit higher PDs and higher loss severities (LS)
than owner-occupied homes. The borrowers of the investor properties
in the pool have strong credit profiles, with a WA FICO of 749 and
an original CLTV of 66.3% (loans underwritten to the cash flow
ratio have a WA FICO of 742 and an original CLTV of 62.0%). Fitch
increased the PD by approximately 2.0x for the cash flow ratio
loans (relative to a traditional income documentation investor
loan) to account for the increased risk.
Loan Concentration (Negative): RMBS transactions with a small
number of loans or those dominated by loans with very large
balances carry the risk that portfolio performance may be adversely
affected by a few assets that may underperform relative to the
statistically derived assumptions underlying their ratings. Fitch
applies a loan concentration penalty for pools with Weighted
Average Numbers (WANs) of less than 300. This pool has a loan count
of 257 and a WAN of 159, resulting in a 1.15x adjustment for loan
concentration. This resulted in a 287-bp increase in the expected
loss at the 'AAAsf' level.
Geographic Concentration (Negative): Approximately 41% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in the New York MSA
(27.9%), followed by the Los Angeles MSA (20.3%) and the San
Francisco MSA (6.8%). The top three MSAs account for 55% of the
pool. As a result, there was a 1.11x adjustment for geographic
concentration. This resulted in a 117-bp increase in the expected
loss at the 'AAAsf' level.
Low Operational Risk (Neutral): Operational risk is well controlled
for in this transaction. NewRez, a wholly owned subsidiary of New
Residential Investment Corp. (NRZ), contributed 100% of the loans
in the securitization pool. NewRez employs robust sourcing and
underwriting processes and is assessed by Fitch as an 'Average'
originator. Fitch believes NRZ has solid RMBS experience despite
its limited NQM issuance and is an 'Acceptable' aggregator. The
sponsor's retention of at least 5% of each class of bonds helps
ensure an alignment of interest between the issuer and investors.
R&W Framework (Negative): The seller is providing loan-level
representations (reps) and warranties (R&W) with respect to the
loans in the trust. The R&W framework for this transaction is
classified as a Tier 2 due to the lack of an automatic review for
loans other than those with ATR realized losses. While the seller,
NRZ Sponsor XVI LLC, is not rated by Fitch, its parent, NRZ, has an
internal credit opinion from the Agency. Through an agreement, NRZ
ensures that the seller will meet its obligations and remain
financially viable. Fitch increased its loss expectations 72 bps at
the 'AAAsf' rating category to account for the limitations of the
Tier 2 framework and the counterparty risk.
RATING SENSITIVITIES
Fitch's analysis incorporates a sensitivity analysis to demonstrate
how the ratings would react to steeper market value declines (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 may be considered, in the surveillance of the transaction.
Two sets of sensitivity analyses were conducted at the state and
national levels to assess the effect of higher MVDs for the subject
pool. Factors that could, individually or collectively, lead to a
negative rating action/downgrade: This defined stress 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 38.8% at 'AAAsf'. The
analysis indicates that there is some potential rating migration
with higher MVDs, compared with the model projection. Factors that
could, individually or collectively, lead to a positive rating
action/upgrade: This section provides insight into the
model-implied sensitivities the transaction faces when one
assumption is modified, while holding others equal. The modeling
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 added a
Coronavirus Sensitivity Analysis that that includes a prolonged
health crisis resulting in depressed consumer demand and a
protracted period of below-trend economic activity that delays any
meaningful recovery to beyond 2021. 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.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by AMC. The third-party due diligence described in Form
15E focused on three areas: a compliance review, a credit review,
and a valuation review, and was conducted on 100% of the loans in
the pool. Fitch considered this information in its analysis and
believes the overall results of the review generally reflected
strong underwriting controls.
Fitch received certifications indicating that the loan-level due
diligence was conducted in accordance with its published standards
for reviewing loans and in accordance with the independence
standards outlined in its 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).
NORTHWOODS CAPITAL XIV-B: Moody's Cuts Class F Notes to B3
----------------------------------------------------------
Moody's Investors Service downgraded the ratings on the following
notes issued by Northwoods Capital XIV-B, Limited:
US$27,500,000 Class E Junior Secured Deferrable Floating Rate Notes
Due 2031 (the "Class E Notes"), Downgraded to B1 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
US$6,000,000 Class F Junior Secured Deferrable Floating Rate Notes
Due 2031 (the "Class F Notes"), Downgraded to B3 (sf); previously
on April 17, 2020 B2 (sf) Placed Under Review for Possible
Downgrade
Moody's has also confirmed the rating on the following notes:
US$32,500,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes Due 2031 (the "Class D Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
These rating actions conclude the review for downgrade initiated on
April 17, 2020 on the Class D, Class E and Class F Notes issued by
the CLO. The CLO, issued in November 2018, is a managed cashflow
CLO. The notes are collateralized primarily by a portfolio of
broadly syndicated senior (BSL) secured corporate loans. The
transaction's reinvestment period will end in November 2023.
RATINGS RATIONALE
The downgrade on the Class E and Class F Notes reflects the risks
posed by credit deterioration and loss of collateral coverage
observed in the underlying CLO portfolio, which have been primarily
prompted by economic shocks stemming from the coronavirus pandemic.
Since the outbreak widened in March, the decline in corporate
credit has resulted in a significant number of downgrades, other
negative rating actions, or defaults on the assets collateralizing
the CLO. Consequently, the default risk of the CLO portfolio has
increased substantially, the credit enhancement available to the
CLO notes has eroded, exposure to Caa-rated assets has increased
significantly and expected losses (ELs) on certain notes have
increased materially.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the risk posed to, and
the expected losses on, the Class D Notes continue to be consistent
with the current rating on the notes after taking into account the
CLO's latest portfolio, its relevant structural features and its
actual over-collateralization (OC) levels. Consequently, Moody's
has confirmed the rating on the Classes D Notes.
Based on the Moody's calculation, the weighted average rating
factor (WARF) is currently 3343, compared to 2756 reported by the
trustee in March 2020[1]. Moody's calculation also showed the WARF
was failing the test level of 2878 reported in the June 2020
trustee report [2]by 465 points. Moody's noted that approximately
33% of the CLO's portfolio par was from obligors assigned a
negative outlook and approximately 5% from obligors whose ratings
are on review for possible downgrade. Additionally, based on
Moody's calculation, the proportion of obligors in the portfolio
with Moody's corporate family or other equivalent ratings of Caa1
or lower (adjusted for negative outlook or watchlist for downgrade)
was approximately 26% as of June 2020. Furthermore, Moody's
calculated the total par balance, including recoveries from
defaulted securities, at $488.7 million, or $11.3 million less than
the deal's ramp-up target par balance, and Moody's calculated the
over-collateralization (OC) ratios (excluding haircuts) for the
Class D Notes, Class E Notes, and Class F Notes as of June 2020 at
113.0%, 106.3%, and 104.9%, respectively.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $486.2 million, defaulted par of $5.8
million, a weighted average default probability of 27.26% (implying
a WARF of 3343), a weighted average recovery rate upon default of
46.37%, a diversity score of 65 and a weighted average spread of
3.78%. Moody's also analyzed the CLO by incorporating an
approximately $7.5 million par haircut in calculating the OC and
interest diversion test ratios. Finally, Moody's also considered in
its analysis the CLO manager's recent investment decisions and
trading strategies.
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 corporate assets.
The contraction in economic activity in the second quarter has been
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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
OAKTREE CLO 2020-1: S&P Rates Class E Notes 'BB (sf)'
-----------------------------------------------------
S&P Global Ratings assigned its ratings to Oaktree CLO 2020-1
Ltd./Oaktree CLO 2020-1 LLC's floating-rate notes.
The note issuance is a CLO securitization 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 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; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
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.
RATINGS ASSIGNED
Oaktree CLO 2020-1 Ltd./Oaktree CLO 2020-1 LLC
Class Rating Amount (mil. $)
A AAA (sf) 244.00
B AA (sf) 56.00
C (deferrable) A (sf) 26.00
D (deferrable) BBB (sf) 14.00
E (deferrable) BB (sf) 16.00
Subordinated notes NR 30.40
NR--Not rated.
OCEAN TRAILS VI: Moody's Cuts $16.5MMM Class E-R Notes to B1(sf)
----------------------------------------------------------------
Moody's Investors Service has downgraded the rating on the
following notes issued by Ocean Trails CLO VI:
US$16,500,000 Class E-R Deferrable Floating Rate Notes due 2028
(the "Class E-R Notes"), Downgraded to B1 (sf), previously on April
17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
Moody's has also confirmed the rating on the following notes:
US$17,000,000 Class D-R Deferrable Floating Rate Notes due 2028
(the "Class D-R Notes"), Confirmed at Baa3 (sf), previously on
April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D-R Notes and E-R Notes. The CLO, issued in
June 2016 and refinanced in July 2019 is a managed cashflow CLO.
The notes are collateralized primarily by a portfolio of broadly
syndicated senior secured corporate loans. The transaction's
reinvestment period will end in July 2020.
RATINGS RATIONALE
The downgrade on the Class E-R Notes reflects the risks posed by
credit deterioration and loss of collateral coverage observed in
the underlying CLO portfolio, which have been primarily prompted by
economic shocks stemming from the coronavirus pandemic. Since the
outbreak widened in March, the decline in corporate credit has
resulted in a significant number of downgrades, other negative
rating actions, or defaults on the assets collateralizing the CLO.
Consequently, the default risk of the CLO portfolio has increased
substantially and the credit enhancement available to the CLO notes
has eroded, exposure to Caa-rated assets has increased
significantly, and expected losses (ELs) on certain notes have
increased materially.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the risk posed to, and
the expected losses on the Class D-R Notes continue to be
consistent with the notes' current rating after taking into account
the CLO's latest portfolio, its relevant structural features, its
actual OC levels, and the level of credit enhancement available to
it from cash flows that would be diverted as a result of coverage
test failures. Consequently, Moody's has confirmed the rating on
the Classes D-R Notes.
Based on Moody's calculation, the weighted average rating factor
(WARF) was 3383 as of June 2020, or 13% worse compared to a WARF of
2991 reported by the trustee in March 2020 [1]. Moody's calculation
also showed the WARF was failing the test level of 3129 reported in
the June 2020 trustee report [2] by 254 points. Moody's noted that
approximately 28% of the CLO's portfolio par was from obligors
assigned a negative outlook, and 7% from obligors whose ratings are
on review for possible downgrade. Additionally, based on Moody's
calculation, the proportion of obligors in the portfolio with
Moody's corporate family or other equivalent ratings of Caa1 or
lower (adjusted for negative outlook or watchlist for downgrade)
was approximately 22% of the CLO par as of June 2020. Furthermore,
Moody's calculated the total collateral par balance, including
recoveries from defaulted securities, at $293.6 million, or
approximately $6.4 million less than the deal's ramp-up target par
balance, and Moody's calculated the over-collateralization (OC)
ratios (excluding haircuts) for the Class D-R Notes and Class E-R
Notes as of June 2020 at 113.9% and 107.0%, respectively. On the
April 2020 payment date, $1.14 million [3] had been diverted due to
one or more coverage test failures to pay down the senior notes.
According to the trustee report dated June 2020, the OC tests for
the Class C, Class D, and Class E Notes as well as the interest
diversion test are failing their respective triggers.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $286.7 million, defaulted par of
$12.2 million, a weighted average default probability of 24.22%
(implying a WARF of 3383, a weighted average recovery rate upon
default of 48.42%, a diversity score of 76 and a weighted average
spread of 3.44%. Moody's also analyzed the CLO by incorporating an
approximately $10.7 million par haircut in calculating the OC and
interest diversion test ratios. Moody's also considered in its
analysis the CLO manager's recent investment decisions and trading
strategies.
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 corporate assets. 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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
OCP CLO 2020-19: S&P Rates $16MM Class E Notes 'BB- (sf)'
---------------------------------------------------------
S&P Global Ratings assigned its ratings to OCP CLO 2020-19 Ltd.'s
fixed- and floating-rate notes.
The note issuance is a CLO transaction 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:
-- 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 evolution of the coronavirus pandemic. The consensus among
health experts is that the pandemic may now be at, or near, its
peak in some regions but will remain a threat until a vaccine or
effective treatment is widely available, which may not occur until
the second half of 2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
RATINGS ASSIGNED
OCP CLO 2020-19 Ltd.
Class Rating Amount (mil. $)
A-1 AAA (sf) 222.00
A-2 AAA (sf) 18.00
B AA (sf) 56.00
C (deferrable) A (sf) 24.00
D (deferrable) BBB (sf) 24.00
E (deferrable) BB- (sf) 16.00
Subordinated notes NR 35.50
NR--Not rated.
PALMER SQUARE 2020-3: Fitch Assigns BB-sf Rating on Class D Debt
----------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to Palmer
Square Loan Funding 2020-3, Ltd.
RATING ACTIONS
Palmer Square Loan Funding 2020-3, Ltd.
Class A-1; LT AAAsf; New Rating
Class A-2; LT AAsf; New Rating
Class B; LT Asf; New Rating
Class C; LT BBB-sf; New Rating
Class D; LT BB-sf; New Rating
Subordinated; LT NRsf; New Rating
TRANSACTION SUMMARY
Palmer Square Loan Funding 2020-3, Ltd. (the issuer) is an
arbitrage cash flow collateralized loan obligation (CLO) that will
be serviced by Palmer Square Capital Management LLC (Palmer
Square). Net proceeds from the issuance of the secured and
subordinated notes were used to purchase a static pool of primarily
first lien, senior secured leveraged loans totaling $350 million.
KEY RATING DRIVERS
Asset Credit Quality: The average credit quality of the actual
portfolio is 'B+'/'B', which is in line with that of recent CLOs.
Issuers rated in the 'B' rating category denote a highly
speculative credit quality; however, the notes benefit from
appropriate credit enhancement and standard U.S. CLO structural
features.
Asset Security: The actual portfolio consists of 99.0% first-lien
senior secured loans and has a weighted average recovery assumption
of 81.2%.
Portfolio Composition: The largest three industries comprise 44.8%
of the portfolio balance in aggregate, while the top five obligors
represent 4.1% of the portfolio balance in aggregate. The level of
diversity by industry, obligor and geographic concentrations is in
line with other recent U.S. CLOs.
Portfolio Management: The transaction does not have a reinvestment
period and discretionary sales are not permitted. Fitch's analysis
was based on the purchased portfolio factoring in the stress
scenarios described under "Coronavirus Causing Economic Shock",
with consideration given for a stressed scenario incorporating
potential maturity amendments on the underlying loans.
Cash Flow Analysis: Fitch used a customized proprietary cash flow
model to replicate the principal and interest waterfalls and assess
the effectiveness of various structural features of the
transaction. Each class of notes was able to withstand default
rates in excess of it respective rating hurdle.
Coronavirus Causing Economic Shock: Fitch has made assumptions
about the spread of the coronavirus and the economic impact of
related containment measures. As a base-case scenario, Fitch
assumes a global recession in first-half 2020 driven by sharp
economic contractions in major economies with a rapid spike in
unemployment, followed by a recovery that begins in third-quarter
2020 as the health crisis subsides. As a downside (sensitivity)
scenario provided in the Rating Sensitivities section, Fitch
considers a more severe and prolonged period of stress with a
halting recovery beginning in second-quarter 2021.
Fitch has applied additional stress scenarios to the purchased
portfolio that envisages negative rating migration as a result of
business disruptions from the coronavirus described. The first
scenario applies a one-notch downgrade, with a 'CCC-' floor, for
all assets in the purchased portfolio with a Negative Rating
Outlook. The total portfolio exposure to these assets is 17.0%. The
second scenario assumes a 5% increase in the purchased portfolio's
Fitch Portfolio Credit Model (PCM) rating default rates (RDR) for
all rating levels. Under both of these stresses, all classes of
notes can withstand default rates their respective PCM hurdle
rates.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
Upgrade scenarios are not applicable to the class A-1 notes, as
these notes are in the highest rating category of 'AAAsf'.
Variability in key model assumptions, such as increases in recovery
rates and decreases in default rates, could result in an upgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics; results under these sensitivity scenarios are 'AAAsf' for
class A-2 notes, between 'AA+sf' and 'AA-sf' for class B notes,
between 'AA+sf' and 'A+sf' for class C notes and between 'A+sf' and
'BBB+sf' for class D notes.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
Variability in key model assumptions, such as declines in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics; results under these sensitivity scenarios ranged between
'AAAsf' and 'A+sf' for class A-1 notes, between 'AAAsf' and 'BB+sf'
for class A-2 notes, between 'A+sf' and 'B+sf' for class B notes,
between 'BBB+sf' and a level below 'CCCsf' for class C notes, and
between 'BB+sf' and a level below 'CCCsf' for class D notes.
Fitch has added a sensitivity analysis that contemplates a more
severe and prolonged economic stress caused by a re-emergence of
infections in the major economies, before a halting recovery begins
in second-quarter 2021. Results under this sensitivity scenario are
'AAAsf' for class A-1 notes, between 'AA-sf' and 'A+sf' for class
A-2 notes, between 'BBB+sf' and 'BBBsf' for class B notes, 'BB+sf'
for class C notes and between 'B+sf' and 'B-sf' for class D notes.
PSMC TRUST 2020-2: Fitch to Rate Class B-5 Debt 'B(EXP)sf'
----------------------------------------------------------
Fitch Ratings expects to rate American International Group, Inc.'s
PSMC 2020-2 Trust.
PSMC 2020-2
- Class A-1; LT AAA(EXP)sf Expected Rating
- Class A-10; LT AAA(EXP)sf Expected Rating
- Class A-11; LT AAA(EXP)sf Expected Rating
- Class A-12; LT AAA(EXP)sf Expected Rating
- Class A-13; LT AAA(EXP)sf Expected Rating
- Class A-14; LT AAA(EXP)sf Expected Rating
- Class A-15; LT AAA(EXP)sf Expected Rating
- Class A-16; LT AAA(EXP)sf Expected Rating
- Class A-17; LT AAA(EXP)sf Expected Rating
- Class A-18; LT AAA(EXP)sf Expected Rating
- Class A-19; LT AAA(EXP)sf Expected Rating
- Class A-2; LT AAA(EXP)sf Expected Rating
- Class A-20; LT AAA(EXP)sf Expected Rating
- Class A-21; LT AAA(EXP)sf Expected Rating
- Class A-22; LT AAA(EXP)sf Expected Rating
- Class A-23; LT AAA(EXP)sf Expected Rating
- Class A-24; LT AAA(EXP)sf Expected Rating
- Class A-25; LT AAA(EXP)sf Expected Rating
- Class A-26 LT AAA(EXP)sf Expected Rating
- Class A-3; LT AAA(EXP)sf Expected Rating
- Class A-4; LT AAA(EXP)sf Expected Rating
- Class A-5; LT AAA(EXP)sf Expected Rating
- Class A-6; LT AAA(EXP)sf Expected Rating
- Class A-7; LT AAA(EXP)sf Expected Rating
- Class A-8 LT AAA(EXP)sf Expected Rating
- Class A-9; LT AAA(EXP)sf Expected Rating
- Class A-X1; LT AAA(EXP)sf Expected Rating
- Class A-X10; LT AAA(EXP)sf Expected Rating
- Class A-X11; LT AAA(EXP)sf Expected Rating
- Class A-X2; LT AAA(EXP)sf Expected Rating
- Class A-X3; LT AAA(EXP)sf Expected Rating
- Class A-X4; LT AAA(EXP)sf Expected Rating
- Class A-X5; LT AAA(EXP)sf Expected Rating
- Class A-X6; LT AAA(EXP)sf Expected Rating
- Class A-X7; LT AAA(EXP)sf Expected Rating
- Class A-X8; LT AAA(EXP)sf Expected Rating
- Class A-X9; LT AAA(EXP)sf Expected Rating
- Class B-1; LT AA(EXP)sf Expected Rating
- Class B-2; LT A+(EXP)sf Expected Rating
- Class B-3; LT BBB+(EXP)sf Expected Rating
- Class B-4; LT BB+(EXP)sf Expected Rating
- Class B-5; LT B(EXP)sf Expected Rating
- Class B-6; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 586 loans with a total balance of
approximately $423.82 million as of the cutoff date. The pool
consists of prime fixed-rate mortgages acquired by subsidiaries of
American International Group, Inc. from various mortgage
originators. Distributions of principal and interest and loss
allocations are based on a traditional senior-subordinate,
shifting-interest structure.
KEY RATING DRIVERS
Revised GDP Due to Coronavirus (Negative): The coronavirus outbreak
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 floor of 2.0 (the ERF
is a default variable in the U.S. RMBS loan loss model) was applied
to 'BBBsf' and below.
Expected Payment Deferrals 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 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
delinquencies and past-due payments following Hurricane Maria in
Puerto Rico.
Payment Forbearance (Mixed): As of the cutoff date, none of the
borrowers in the pool are on a coronavirus forbearance plan.
Additionally, any loan that enters a coronavirus forbearance plan
between the cutoff date and the settlement date will be removed
from the pool (at par) within 45 days of closing. For borrowers who
enter a coronavirus forbearance plan post-closing, the principal
and interest advancing party will advance delinquent P&I during the
forbearance period. If at the end of the forbearance period, the
borrower begins making payments, the advancing party will be
reimbursed from any catch-up payment amount.
If the borrower does not resume making payments, the loan will
likely become modified and the advancing party will be reimbursed
from principal collections on the overall pool. This will likely
result in writedowns to the most subordinate class, which will be
written back up as subsequent recoveries are realized. Fitch
increased its loss expectation to address the potential for
writedowns due to reimbursement of servicer advances, which is
based on its 25% payment deferral assumption over a three-month
forbearance period.
High-Quality Mortgage Pool (Positive): The pool consists of very
high-quality 30- and 20-year fixed-rate fully amortizing Safe
Harbor Qualified Mortgage loans to borrowers with strong credit
profiles, relatively low leverage and large liquid reserves. The
loans are seasoned an average of six months. The pool has a
weighted average original FICO score of 777, which is indicative of
very high credit-quality borrowers. Approximately 86.5% of the
loans have a borrower with an original FICO score above 750. In
addition, the original WA CLTV ratio of 69.7% represents
substantial borrower equity in the property and reduced default
risk.
Low Operational Risk (Neutral): Operational risk is well controlled
for in this transaction. AIG has strong operational practices and
is an 'Above Average' aggregator. The aggregator has experienced
senior management and staff, strong risk management and corporate
governance controls, and a robust due diligence process. Primary
and master servicing functions will be performed by Cenlar FSB and
Wells Fargo Bank, N.A., rated 'RPS2'/Stable and 'RMS1-'/Stable,
respectively. If the primary servicer does not advance delinquent
P&I, Wells Fargo Bank rated 'AA-/F1+' will be obligated to advance
such amounts to the trust.
Third-Party Due Diligence Results (Positive): Third-party due
diligence was performed on 100% of loans in the transaction by AMC
Diligence, LLC and Edge Mortgage Advisory Company, LLC, assessed as
'Acceptable - Tier 1' and 'Acceptable - Tier 3', respectively, by
Fitch. The results of the review identified no material exceptions.
Credit exceptions were supported by mitigating factors and
compliance exceptions were primarily TRID-related and cured with
subsequent documentation. Fitch applied a credit for the high
percentage of loan level due diligence, which reduced the 'AAAsf'
loss expectation by 19 bps.
Top-Tier Representation and Warranty Framework (Positive): The
loan-level representation, warranty and enforcement framework is
consistent with Tier I quality. Fitch reduced its loss expectations
by 17 bps at the 'AAAsf' rating category as a result of the Tier 1
framework and the 'A' Fitch-rated counterparty supporting the
repurchase obligations of the RW&E providers.
Straightforward Deal 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 (CE)
levels are not maintained.
CE Floor (Positive): To mitigate tail risk, which arises as the
pool seasons and fewer loans are outstanding, a subordination floor
of 1.25% of the original balance will be maintained for the
certificates. The floor is sufficient to protect against the 10
largest loans defaulting at Fitch's 'AAAsf' average loss severity
of 47.74%. Additionally, the stepdown tests do not allow principal
prepayments to subordinate bondholders in the first five years
following deal closing.
Geographic Concentration (Neutral): The pool is geographically
diverse and, as a result, no geographic concentration penalty was
applied. Approximately 35% of the pool is located in California,
which is in line with other recent Fitch-rated transactions. The
top three metropolitan statistical areas account for 25.6% of the
pool. The largest MSA concentration is in the Los Angeles MSA
(9.5%), followed by the San Francisco MSA (8.2%) and the Seattle
MSA (7.9%).
Extraordinary Expense Treatment (Neutral): The trust provides for
expenses, including indemnification amounts 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
$300,000 per annum, which can be carried over each year, subject to
the cap until paid in full.
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 a
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 40.3% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Factors that could, individually or collectively, lead to a
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%. Excluding the senior class which is already 'AAAsf', the
analysis indicates there is potential positive rating migration for
all of the rated classes. Specifically, a 10% gain in home prices
would result in a full category upgrade for the rated class
excluding those being assigned ratings of 'AAAsf'.
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 added a Coronavirus Sensitivity Analysis that that
includes a prolonged health crisis resulting in depressed consumer
demand and a protracted period of below-trend economic activity
that delays any meaningful recovery to beyond 2021. 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
Fitch was provided with Form ABS Due Diligence-15E as prepared by
AMC Diligence, LLC and Edge Mortgage Advisory Company, LLC. The
third-party due diligence described in Form 15E focused on credit,
compliance and valuation. Fitch considered this information in its
analysis and it did not have an effect on Fitch's analysis or
conclusions. Fitch believes the overall results of the review
generally reflected strong underwriting controls.
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
PSMC 2020-2: Transaction Parties & Operational Risk: 4
The transaction has an ESG Relevance Score of 4 for Transaction
Parties & Operational Risk due to the operational risk that is well
controlled for including strong R&W framework, transaction due
diligence results, and 'Above Average' aggregator and 'Above
Average' master servicer, which resulted in a reduction in the
expected losses, and is relevant to the rating.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity(ies),
either due to their nature or the way in which they are being
managed by the entity(ies).
READY CAPITAL 2020-FL4: DBRS Gives Prov. B(low) Rating on G Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Ready Capital Mortgage Financing 2020-FL4,
LLC (the Issuer):
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable. Classes E, F, and G will be privately
placed.
The initial collateral consists of 56 floating-rate mortgages
secured by 63 mostly transitional real estate properties, with a
cut-off date pool balance of approximately $405.3 million,
excluding $147.5 million of outstanding future funding commitments.
Most properties are in a period of transition with plans to
stabilize and improve the asset value. Fifty-one of the mortgages
(representing 82.5% of the cut-off date pool balance) have future
funding participation that the Issuer may acquire with principal
repayment proceeds. During the Permitted Funded Companion
Participation Acquisition Period, the Issuer may acquire future
funding participation without being subject to rating agency
confirmation. Acquisitions of Permitted Funded Companion
Participations will be limited to a $65.0 million cumulative limit
on the aggregate amount of future funding that may be acquired into
the trust. The transaction will have a sequential-pay structure.
The pool consists of mostly transitional assets. Given the nature
of the assets, DBRS Morningstar determined a sample size,
representing 65.7% of the pool cut-off date balance. Physical site
inspections were also performed, some of which included management
meetings. DBRS Morningstar also notes that when DBRS Morningstar
analysts visit the markets, they may actually visit properties more
than once to follow the progress (or lack thereof) toward
stabilization. The servicer is also in constant contact with the
borrowers to track progress.
The loans are generally secured by traditional property types
(i.e., retail, multifamily, and office) with no loans secured by
hospitality properties. Additionally, only one of the multifamily
loans in the pool (MySuite Coliving Portfolio, representing 2.9% of
the cut-off date pool balance) is secured by a student housing
property. Loans secured by student housing properties often exhibit
higher cash flow volatility than traditional multifamily
properties.
Only six loans, representing a combined 5.6% of the initial pool
balance, are secured by properties located in an area with a DBRS
Morningstar Market Rank of 2 or lower. Areas with a DBRS
Morningstar Market Rank of 2 or lower are generally considered to
be tertiary or rural markets. Additionally, 13 loans, representing
30.9% of the initial pool balance, are secured by properties
located in areas with a DBRS Morningstar Market Rank of 6 or
higher. Areas with a DBRS Morningstar Market Rank of 6 or higher
are generally characterized as urbanized locations. These markets
benefit from lower default frequencies than less dense suburban,
tertiary, and rural markets. Areas with a DBRS Morningstar Market
Rank of 7 or 8 are especially densely urbanized and benefit from
significantly elevated liquidity. Eleven loans representing a
collective 28.8% of the initial pool balance are secured by
properties located in such areas.
The outstanding future funding amount of $147.5 million represents
a relatively high 36.4% of the initial pool balance. By contrast,
outstanding future funding represented 14.1% of the initial pool
balance for the recent MF1 2020-FL3, Ltd. (MF1 2020-FL3) commercial
real estate/collateralized loan obligation (CRE/CLO) transaction
and 9.5% of the initial pool balance for the recent Grand Avenue
CRE 2020-FL2 Ltd. (GACM 2020-FL2) CRE/CLO transaction. Outstanding
future funding commitments represented 31.6% of the initial pool
balance securitized by Ready Capital Mortgage Financing 2019-FL3.
Acquisitions of Permitted Funded Companion Participations will be
limited to a $65.0 million cumulative limit on the aggregate amount
of future funding that may be acquired into the trust. The
cumulative participation acquisition threshold of $65.0 million
represents 16.0% of the initial pool balance, which is generally
more in line with recent CRE/CLO securitizations. The significant
level of future funding associated with the trust is generally
reflected in the average DBRS Morningstar Business Plan Score of
2.53, which is greater than the average DBRS Morningstar Business
Plan Score of 1.94 for the MF1 2020-FL3 CRE/CLO transaction and the
average DBRS Morningstar Business Plan Score of 2.07 for the GACM
2020-FL2 CRE/CLO transaction.
Based on the initial pool balances, the overall Weighted-Average
(WA) DBRS Morningstar As-Is Debt Service Coverage Ratio (DSCR) of
0.56x and the WA Issuance Loan-to-Value Ratio (LTV), which includes
all future funding in the calculation, of 87.8% are reflective of
the highly transitional nature of the pool as well as the generally
high leverage financing. The assets are generally well-positioned
to stabilize, and any realized cash flow growth would help to
offset a rise in interest rates and improve the overall debt yield
of the loans. DBRS Morningstar associates its loss severity given
default (LGD) based on the assets' as-is LTV that does not assume
that the stabilization plan and cash flow growth will ever
materialize. The DBRS Morningstar As-Is DSCR at issuance does not
consider the sponsor's business plan, as the DBRS Morningstar,
As-Is Net Cash Flow (NCF) was generally based on the most recent
annualized period. The sponsor's business plan could have an
immediate impact on the underlying asset performance that the DBRS
Morningstar As-Is NCF is not accounting for.
The pool includes 14 loans, representing 20.2% of the initial pool
balance, that exhibited negative or $0 Issuer As-Is NCFs. In most
instances, the Issuer's As-Is NCF reflected the most recent
performance of the underlying collateral, indicating in these
instances that 14 loans in the pool are secured by properties with
negative or near-$0 cash flows upon securitization. Of the 14 loans
identified to have negative or near-$0 cash flows at issuance, nine
loans (representing 66.3% of the identified negative or near-$0
issuance cash flow loans) represent acquisition financings, which
generally required the respective sponsor(s) to contribute material
cash equity as a source of funding in conjunction with the mortgage
loans, resulting in a higher sponsor cost basis in the underlying
collateral. All 14 of the identified loans are structured with
upfront debt service reserves. When the DBRS Morningstar stressed
interest-only debt service at issuance was measured against the
upfront debt service reserve, upfront debt service reserves were
sufficient to cover anywhere from two months to almost 28 months of
scheduled debt service payments for the 14 identified loans.
DBRS Morningstar has analyzed the loans to a stabilized cash flow
that is, in some instances, above the current in-place cash flow.
There is a possibility that the sponsor will not execute its
business plans as expected and that the higher stabilized cash flow
will not materialize during the loan term. Failure to execute the
business plan could result in a term default or the inability to
refinance the fully funded loan balance. DBRS Morningstar made
relatively conservative stabilization assumptions and, in each
instance, considered the business plan to be rational and the
future funding amounts to be sufficient to execute such plans. In
addition, DBRS Morningstar analyzes LGD based on the As-Is LTV
assuming the loan is fully funded.
With regard to the Coronavirus Disease (COVID-19), the magnitude
and extent of performance stress posed to global structured finance
transactions remain highly uncertain. This considers the fiscal and
monetary policy measures and statutory law changes that have
already been implemented or will be implemented to soften the
impact of the crisis on global economies. Some regions,
jurisdictions, and asset classes are, however, affected more
immediately. Accordingly, DBRS Morningstar may apply additional
short-term stresses to its rating analysis, for example by
front-loading default expectations and/or assessing the liquidity
position of a structured finance transaction with more stressful
operational risk and/or cash flow timing considerations.
Notes: All figures are in U.S. dollars unless otherwise noted.
REALT 2014-1: Fitch Affirms B Rating on Class G Certs
-----------------------------------------------------
Fitch Ratings has affirmed seven classes of Real Estate Asset
Liquidity Trust's (REALT) commercial mortgage pass-through
certificates, series 2014-1. All currencies are denominated in
Canadian dollars.
Real Estate Asset Liquidity Trust 2014-1
- Class A 75585RLT0; LT AAAsf; Affirmed
- Class B 75585RLU7; LT AAsf; Affirmed
- Class C 75585RLV5; LT Asf; Affirmed
- Class D 75585RLW3; LT BBBsf; Affirmed
- Class E 75585RLX1; LT BBB-sf; Affirmed
- Class F 75585RLQ6; LT BBsf; Affirmed
- Class G 75585RLR4; LT Bsf; Affirmed
KEY RATING DRIVERS
Increased Loss Expectations: Overall loss expectations have
increased compared to issuance due to coronavirus related
performance concerns. As of the June 2020 distribution period,
there are a total of two loans (22.4%) on the servicer's watchlist
for requesting COVID 19 relief. One loan (15.0%) has been
designated as a Fitch Loan of Concern for 60-day delinquency
status. No loans have transferred to special servicing.
Increased Credit Enhancement: Affirmations are based on increased
c/e due to amortization, payoffs and defeasance. As of the June
2020 distribution period, the pool's aggregate balance has been
paid down by 59.2% to $114.5 million from $280.6 million at
issuance. Of the non-defeased collateral in the pool, ten loans
(88.4%) have some form of recourse to the sponsor. Since Fitch's
prior rating action in 2019, 12 loans have been disposed for $78.9
million. One loan (6.9%) has been defeased.
Exposure to Coronavirus: Seven loans (44.0%), which have a weighted
average NOI DSCR of 1.55x, are secured by retail properties.
Fitch's base case analysis applied additional stresses to five
retail loans (39.2%) given the significant declines in
property-level cash flow in the short term as a result of the
decrease in travel and tourism and property closures from the
coronavirus pandemic. There are no hotel loans in the pool.
Fitch Loan of Concern:
1015 Golf Links Road (15.0%) is a neighborhood center located in
Ancaster, ON. As of the June 2020 distribution period, the 1015
Golf Links Road loan was 60 Days delinquent. The borrower requested
COVID 19 relief and forbearance modification has been granted. The
loan will be interest only for three months with deferred principal
to be paid back over following six months. Additionally, Business
Depot (Staples) (NRA 26.2%) lease is scheduled to expire in
December 2020. Per the subject's August 2018 rent roll, Business
Depot was paying $18 psf in annual base rent. Fitch has inquired to
the master servicer regarding any potential lease renewal. Fitch
has not received a response. This loan is crossed collateralized
and cross defaulted with 320 Yonge Street (4.3%) and is full
recourse to the borrower and 50% recourse to the sponsor.
Additional Consideration
High Balance Concentration: The pool exhibits high concentration by
balance as the top 5 and top 10 loans represent 63% and 87%,
respectively. Five loans (34.6%) comprising $39.7 million in
outstanding principal balance are scheduled to mature between
August and September 2021.
RATING SENSITIVITIES
The Stable Outlooks on classes A and G reflect the overall stable
performance of the pool and expected continued amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that lead to upgrades would include stable to improved
asset performance coupled with pay down and/or defeasance. Upgrades
to classes B, C and D would likely occur with significant
improvement in credit enhancement and/or defeasance; however,
adverse selection and increased concentrations and further
underperformance of the FLOC or loans expected to be negatively
impacted by the coronavirus pandemic could cause this trend to
reverse. Upgrades to classes E and F would also take into account
these factors but would be limited based on sensitivity to
concentrations or the potential for future concentration. Classes
would not be upgraded above 'Asf' if there were likelihood for
interest shortfalls. An upgrade to class B is not likely until the
later years in a 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
CE to the class.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Factors that lead to downgrades include an increase in pool level
losses from underperforming or specially serviced loans. Downgrades
to the 'Asf', 'AAsf' and 'AAAsf' categories are not likely due to
the position in the capital structure but may occur at the 'AAsf'
and 'AAAsf' categories should interest shortfalls occur. Downgrades
to classes D and E would occur should overall pool losses increase
and/or one or more large loans have an outsized loss, which would
erode credit enhancement. Downgrades to classes, F and G would
occur should loss expectations increase due to an increase in
specially serviced loans and/or the loans vulnerable to the
coronavirus pandemic not stabilize.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
that a greater percentage of classes may be assigned a Negative
Rating Outlook or those with Negative Rating Outlooks will be
downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
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).
RESIDENTIAL MORTGAGE 2020-2: S&P Rates Class B-2 Notes 'B (sf)'
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Residential
Mortgage Loan Trust 2020-2's mortgage-backed notes.
The note issuance is an RMBS transaction backed by first-lien
fixed- and adjustable-rate amortizing (some with interest-only
periods) residential mortgage loans, along with four second-lien
loans, secured primarily by single-family residences, planned-unit
developments, two- to four-family residences and condominiums to
both prime and nonprime borrowers. The pool has 793 loans, which
are primarily nonqualified mortgage loans.
The preliminary ratings are based on information as of June 25,
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 pool's collateral composition;
-- The credit enhancement provided for this transaction;
-- The transaction's associated structural mechanics;
-- The transaction's representation and warranty framework;
-- The mortgage aggregator, Seer Capital Management L.P.; and
-- The impact the COVID-19 pandemic will likely have on the
performance of the mortgage borrowers in the pool and liquidity
available in the transaction.
S&P Global Ratings acknowledges a high degree of uncertainty about
the evolution of the coronavirus pandemic. The consensus among
health experts is that the pandemic may now be at, or near, its
peak in some regions, but will remain a threat until a vaccine or
effective treatment is widely available, which may not occur until
the second half of 2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
PRELIMINARY RATINGS ASSIGNED
Residential Mortgage Loan Trust 2020-2
Class Rating(i) Amount (mil. $)
A-1 AAA (sf) 246,227,000
A-2 AA (sf) 17,474,000
A-3 A (sf) 25,594,000
M-1 BBB- (sf) 24,534,000
B-1 BB (sf) 12,356,000
B-2 B (sf) 13,061,000
B-3 NR 13,768,443
XS NR Notional(ii)
A-IO-S NR Notional(ii)
R NR N/A
(i)The collateral and structural information in this report
reflects the term sheet dated June 23, 2020. The preliminary
ratings address the ultimate payment of interest and principal.
(ii)The notional amount equals the loans' aggregate stated
principal balance.
NR--Not rated.
N/A--Not applicable.
RMF BUYOUT 2020-2: DBRS Assigns Prov. BB Rating on Class M4 Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following
Asset-Backed Notes to be issued by RMF Buyout Issuance Trust
2020-2:
-- $269.3 million Class A at AAA (sf)
-- $21.7 million Class M1 at AA (sf)
-- $19.9 million Class M2 at A (sf)
-- $17.5 million Class M3 at BBB (sf)
-- $14.9 million Class M4 at BB (sf)
The AAA (sf) rating reflects 27.42% of credit enhancement. The AA
(sf), A (sf), BBB (sf), and BB (sf) ratings reflect 21.57%, 16.21%,
11.50%, and 7.48% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar did not
rate any other classes in this transaction.
Lenders typically offer reverse mortgage loans to people who are at
least 62 years old. Through reverse mortgage loans, borrowers have
access to home equity through a lump sum amount or a stream of
payments without periodically repaying principal or interest,
allowing the loan balance to accumulate over a period of time until
a maturity event occurs. Loan repayment is required (i) if the
borrower dies, (ii) if the borrower sells the related residence,
(iii) if the borrower no longer occupies the related residence for
a period (usually a year), (iv) if it is no longer the borrower's
primary residence, (v) if a tax or insurance default occurs, or
(vi) if the borrower fails to properly maintain the related
residence. In addition, borrowers must be current on any homeowners
association dues if applicable. Reverse mortgages are typically
nonrecourse; borrowers don't have to provide additional assets in
cases where the outstanding loan amount exceeds the property's
value (the crossover point). As a result, liquidation proceeds will
fall below the loan amount in cases where the outstanding balance
reaches the crossover point, contributing to higher loss severities
for these loans.
As of the April 30, 2020, cut-off date, the collateral has
approximately $371.1 million in unpaid principal balance (UPB) from
1,464 nonperforming home equity conversion mortgage reverse
mortgage loans secured by first liens typically on single-family
residential properties, condominiums, multifamily (two- to
four-family) properties, manufactured homes, and planned unit
developments. The loans were originated between May 2005 and
December 2019. Of the total loans, 743 have a fixed interest rate
(57.3% of the balance), with a 5.3% weighted-average coupon (WAC).
The remaining 721 loans have floating-rate interest (42.7% of the
balance) with a 3.2% current WAC, bringing the entire collateral
pool to a 4.4% WAC.
All the loans in this transaction are nonperforming (i.e.,
inactive) loans. There are 624 loans that are referred for
foreclosure (44.5% of the balance), 120 are in bankruptcy status
(9.6%), 242 are called due following recent maturity (16.7%), 193
are real estate owned (12.4%), and the remaining 285 (16.8%) are in
default. However, all these loans are insured by the United States
Department of Housing and Urban Development (HUD), which mitigates
losses vis-Ã -vis uninsured loans. Because the insurance
supplements the home value, the industry metric for this collateral
is not the loan-to-value ratio (LTV) but rather the
weighted-average (WA) effective LTV adjusted for HUD insurance,
which is 59.8% for these loans. To calculate the WA LTV, DBRS
Morningstar divides the UPB by the maximum claim amount and the
asset value.
The transaction uses a sequential structure. No subordinate note
shall receive any principal payments until the senior notes (Class
A notes) have been reduced to zero. This structure provides credit
enhancement in the form of subordinate classes and reduces the
effect of realized losses. These features increase the likelihood
that holders of the most senior class of notes will receive regular
distributions of interest and/or principal. All note classes have
available funds caps.
Notes: All figures are in U.S. dollars unless otherwise noted.
ROSSLYN PORTFOLIO 2017-ROSS: S&P Affirms B (sf) Rating on F Certs
-----------------------------------------------------------------
S&P Global Ratings affirmed its ratings on seven classes of
commercial mortgage pass-through certificates from Rosslyn
Portfolio Trust 2017-ROSS, a U.S. CMBS transaction. At the same
time, S&P withdrew its 'B- (sf)' rating on class X-CP from the same
transaction.
"We affirmed our ratings on the principal- and interest-paying
classes because the current rating levels were in line with the
model-indicated ratings," S&P said.
"We withdrew our rating on the class X-CP interest-only (IO)
certificates because, according to the transaction documents, after
the distribution date in May 2018, class X-CP's pass-through rate
is 0.0% and the class is currently not accruing interest nor
entitled to distributions," the rating agency said.
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions,
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
This is a stand-alone (single-borrower) transaction backed by a
$500.0 million floating-rate IO loan secured by a first lien on the
borrowers' fee simple interest in seven office properties
comprising 2.0 million sq. ft. and located in the Rosslyn submarket
of Arlington, Va. S&P's property-level analysis included a
reevaluation of the office properties that secure the mortgage loan
and considered the stable-to-increasing reported aggregate net
operating income (NOI) from 2017 through 2019, the May 2020 rent
rolls, the borrower's 2020 budgets, and third-party market data. In
addition, S&P considered that, while the portfolio's overall NOI
has increased in the past three years, overall occupancy declined
to 67.8% in 2019 from a reported 71.6% in 2017, which S&P
attributed mainly to the 175,299-sq.-ft. office property at 1400
Key Boulevard (1400). The reported occupancy at 1400 dropped to
27.9% in 2019 from 66.3% in 2017. It is S&P's understanding that
the sponsor plans to reposition 1400 and the 198,065-sq.-ft. office
property at 1401 Wilson Boulevard (1401), which has a reported
40.2% occupancy as of Dec. 31, 2019, for a mixed-use development.
Based on the May 2020 rent rolls, excluding 1400 and 1401, the
overall occupancy for the remaining five properties was 72.5%.
Further, based on third-party market data, the Rosslyn submarket
vacancy is expected to increase over the next couple years, and a
handful of tenants comprising approximately 16% of the portfolio's
net rentable area (NRA) have requested some form of COVID-19
relief. Coupled with the portfolio's lease rollover schedule with
leases comprising 19.4% of the NRA expiring through 2023 and the
portfolio's historical occupancy, S&P stressed the
servicer-reported 2019 NOI by increasing the overall vacancy rate
to 31.8% and applied a weighted average capitalization rate of 7.4%
to arrive at S&P's expected-case value for five of the seven
properties. S&P used adjusted market land values to arrive at its
expected-case values for 1400 and 1401. In aggregate, S&P's
expected-case value was the same as at issuance, and yielded an
overall S&P's loan-to-value ratio of 92.1% on the trust balance.
According to the June 15, 2020, trustee remittance report, the IO
mortgage loan has a trust and whole loan balance of $500.0 million,
the same as at issuance. The IO loan pays a per annum floating
interest rate of LIBOR plus a weighted average component spread of
2.20%. The three-year, floating-rate loan initially matured on June
10, 2020. The loan's maturity was recently extended to June 10,
2021, and has two, 12-month extension options remaining. In
addition, there is approximately $252.6 million in mezzanine
financing, of which approximately $31.6 million is unfunded junior
mezzanine. To date, the trust has not incurred any principal
losses.
The master servicer, Wells Fargo Bank N.A., reported an overall
debt service coverage of 1.80x on the trust balance for year-end
2019.
RATINGS AFFIRMED
Rosslyn Portfolio Trust 2017-ROSS
Commercial mortgage pass-through certificates
Class Rating
A AAA (sf)
B AA- (sf)
C A- (sf)
D BBB- (sf)
E BB- (sf)
F B (sf)
HRR B- (sf)
RATING WITHDRAWN
Rosslyn Portfolio Trust 2017-ROSS
Commercial mortgage pass-through certificates
Rating
Class To From
X-CP NR B- (sf)
NR--Not rated.
SLM STUDENT 2003-2: Fitch Affirms Bsf Rating on 5 Tranches
----------------------------------------------------------
Fitch Ratings has affirmed the ratings of all outstanding classes
of SLM Student Loan Trust 2003-2 and 2003-5. The Stable Rating
Outlook was maintained for all classes with the exception of Class
A-5 of SLM 2003-5. The Rating Outlook of that class was revised to
Negative from Stable.
RATING ACTIONS
SLM Student Loan Trust 2003-5
Class A-5 XS0168279080; LT AAAsf Affirmed; previously at AAAsf
Class A-6 78442GGT7; LT Bsf Affirmed; previously at Bsf
Class A-7 78442GGU4; LT Bsf Affirmed; previously at Bsf
Class A-8 78442GGV2; LT Bsf Affirmed; previously at Bsf
Class A-9 78442GGW0; LT Bsf Affirmed; previously at Bsf
Class B 78442GGX8; LT Bsf Affirmed; previously at Bsf
SLM Student Loan Trust 2003-2
Class A-6 78442GFT8; LT Bsf Affirmed; previously at Bsf
Class A-7 78442GFU5; LT Bsf Affirmed; previously at Bsf
Class A-8 78442GFV3; LT Bsf Affirmed; previously at Bsf
Class A-9 78442GFW1; LT Bsf Affirmed; previously at Bsf
Class B 78442GFX9; LT Bsf Affirmed; previously at Bsf
The class A-5 notes of SLM 2003-5 pass 'AAAsf' credit and maturity
stresses when assuming trailing 12-month (TTM) levels of deferment,
forbearance and income-based repayment (IBR), in line with Fitch's
Federal Family Education Loan Program (FFELP) criteria. However,
loans in forbearance comprise 23.65% of the pool as of the June 15,
2020 distribution date, beyond the assumed TTM forbearance level,
due to the coronavirus pandemic. Fitch believes prolonged higher
levels of forbearance and IBR compared with the TTM levels could
negatively impact timely cash flows available to the class A-5
notes, which is reflected by the Negative Outlook.
All outstanding classes of SLM 2003-2 and classes A-6 through B of
SLM 2003-5 do not pass Fitch's credit and maturity base case
stresses, as was the case during Fitch's prior review. The notes'
ratings are affirmed at 'Bsf', one category higher than their
current/last model-implied ratings of 'CCCsf'. The affirmations are
supported by qualitative factors such as Navient Corporation's
ability to call the notes upon reaching 10% pool factor and the
revolving credit agreement established by Navient, which allows the
servicer to purchase loans from the trusts. Because Navient has the
option but not the obligation to lend to the trust, Fitch does not
give quantitative credit to these agreements. However, they provide
qualitative comfort that Navient is committed to limiting
investors' exposure to maturity risk. Navient is rated 'BB-' with a
Negative Rating Outlook.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral comprises 100% FFELP
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' with a Stable Outlook.
Collateral Performance: Based on transaction-specific performance
to date, Fitch maintains a sustainable constant default rate (sCDR)
of 3.3% for SLM 2003-2 and 2.7% for SLM 2003-5. Fitch also
maintains a sustainable constant prepayment rate (sCPR; voluntary
and involuntary) of 10.0% for SLM 2003-2 and revises its sCPR to
9.0% for SLM 2003-5. The sCDR and sCPR for SLM 2003-5 translate
into a cumulative default rate of 17.25% under the base case
scenario and a 51.75% default rate under the 'AAAsf' credit stress
scenario. Fitch applies the standard default timing curve in its
credit stress cash flow analysis. For both transactions, the claim
reject rate is assumed to be 0.5% in the base case and 3.0% in the
'AAAsf' case. The TTM levels of deferment, forbearance and IBR
(prior to adjustment) are 3.67%, 13.95% and 30.53%, respectively,
for SLM 2003-2. As of the most recent distribution date of June 15,
2020, loans in forbearance stood at 26.13% and 23.65% for SLM
2003-2 and 2003-5, respectively. The TTM levels of deferment,
forbearance and IBR (prior to adjustment) are 3.09%, 12.06% and
26.63%, respectively, for SLM 2003-5. These levels are used as the
starting point in cash flow modeling for SLM 2003-5. Subsequent
declines or increases are modeled as per criteria. The borrower
benefits are assumed to be approximately 0.03% and 0.11% for SLM
2003-2 and SLM 2003-5, respectively, based on information provided
by the sponsor.
Basis and Interest Rate Risk: Basis risk for the transactions
arises from any rate and reset frequency mismatch between interest
rate indices for Special Allowance Payments (SAP) and the
securities. For SLM 2003-2, as of May 2020, approximately 86.95% of
the student loans are indexed to LIBOR, and 13.05% are indexed to
the 91-day T-Bill rate. For SLM 2003-5, as of May 2020,
approximately 86.66% of the student loans are indexed to LIBOR, and
13.34% are indexed to the 91-day T-Bill rate. The majority of the
tranches in SLM 2003-2 and SLM 2003-5 are indexed to three-month
LIBOR. In SLM 2003-5, there is one tranche indexed to three-month
Euribor, where there is a currency swap in place and the trusts pay
a spread over three-month LIBOR. Fitch applies its standard basis
and interest rate stresses to both transactions as per the
criteria.
Payment Structure: Credit enhancement (CE) is provided by excess
spread and, for the class A notes, subordination. As of May 2020,
the total parity ratios (including the reserve) are 98.38% (-1.64%)
and 100.49% (0.49% CE) for SLM 2003-2 and SLM 2003-5, respectively.
The senior parity ratios (including the reserve) are 115.00%
(13.05% CE) and 118.02% (15.27% CE) for SLM 2003-2 and SLM 2003-5,
respectively. Liquidity support is provided by a reserve account
currently sized at their floors of $2,005,060 and $2,251,218 for
SLM 2003-2 and SLM 2003-5, respectively. The trust will continue to
release excess cash as long as 100.00% reported total parity is
maintained. In the case of SLM 2003-2, excess cash is still being
released despite the reported total parity being below 100.00%.
This is because the total parity would be 100.00% if the auction
rate security principal allocated but not distributed and the
excess carried forward to the next distribution (principal due
minus aggregate principal to be paid) are included in the
calculation.
Operational Capabilities: Day-to-day servicing is provided by
Navient Solutions, LLC. Fitch believes Navient to be an acceptable
servicer, due to its extensive track record as the largest servicer
of FFELP loans. 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: 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, but personal incomes
remaining depressed through 2022. Fitch is revising the sCPR in
cash flow modeling for SLM 2003-5 to reflect this scenario by
assuming a decline in payment rates and an increase in defaults to
previous recessionary levels for two years, and then a return to
recent performance for the remainder of the life of the
transaction.
The risk of negative rating actions will increase under Fitch's
coronavirus downside scenario, which reflects a more severe and
prolonged period of stress with a halting recovery beginning in
2Q21. As a downside sensitivity reflecting this scenario, Fitch
increased the default rate, IBR and remaining term assumptions by
50%. The results are provided in the Rating Sensitivities section.
RATING SENSITIVITIES
'AAAsf' rated tranches of most FFELP securitizations will likely
move in tandem with the U.S. sovereign rating given the strong
linkage to the U.S. sovereign, by nature of the reinsurance
provided by the Department of Education. Aside from the U.S.
sovereign rating, defaults, basis risk and loan extension risk
account for the majority of the risk embedded in FFELP student loan
transactions. 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. Cash flow modeling was not conducted for
SLM 2003-2, reflecting performance since its last review and
current ratings. In general, 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 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 to positive rating
action. Factors that Could, Individually or Collectively, Lead to
Negative Rating Action/Downgrade: The ratings reflect the risk of
the senior notes missing their legal final maturity date under
Fitch's base case maturity scenario. If the margin by which these
classes miss their legal final maturity date increases, or does not
improve as the maturity date nears, the ratings may be downgraded
further. Additional defaults, increased basis spreads beyond
Fitch's published stresses, lower than expected payment speed or
loan term extension are factors that could lead to future rating
downgrades. This section provides insight into the model-implied
sensitivities SLM 2003-5 faces when one assumption is modified,
while holding others equal. The results should only be considered
as one potential outcome, as the transaction is exposed to multiple
dynamic risk factors and should not be used as an indicator of
possible future performance. SLM 2003-5 Current Model-Implied
Ratings: class A-5 'AAAsf'; class A-6 to A-9 'CCCsf'; class B
'CCCsf' Factors that Could, Individually or Collectively, Lead to
Positive Rating Action/Upgrade: No upgrade credit stress or
maturity stress sensitivity is provided for the class A-5 notes,
since they are already at their highest possible model-implied
rating. Credit Stress Sensitivity: --Default decrease 25%: class
A-6 to A-9 'CCCsf'; class B 'CCCsf'; --Basis spread decrease 0.25%:
class A-6 to A-9 'CCCsf'; class B 'CCCsf'. Maturity Stress
Sensitivity: --CPR increase 25%: class A-6 to A-9 'CCCsf'; class B
'CCCsf'; --IBR usage decrease 25%: class A-6 to A-9 'CCCsf'; class
B 'CCCsf'; --Remaining term decrease 25%: class A-6 to A-9 'BBBsf';
class B 'BBsf'. Factors that Could, Individually or Collectively,
Lead to Negative Rating Action/Downgrade: Credit Stress Rating
Sensitivity: --Default increase 25%: class A 'CCCsf'; class B
'CCCsf'; --Default increase 50%: class A 'CCCsf'; class B 'CCCsf';
--Basis spread increase 0.25%: class A 'CCCsf'; class B 'CCCsf';
--Basis spread increase 0.50%: class A 'CCCsf; class B 'CCCsf'.
Maturity Stress Rating Sensitivity: --CPR decrease 25%: class A
'CCCsf'; class B 'CCCsf'; --CPR decrease 50%: class A 'CCCsf';
class B 'CCCsf'; --IBR usage increase 25%: class A 'CCCsf'; class B
'CCCsf'; --IBR usage increase 50%: class A 'CCCsf; class B 'CCCsf';
--Remaining term increase 25%: class A 'CCCsf'; class B 'CCCsf';
--Remaining term increase 50%: class A 'CCCsf'; class B 'CCCsf'.
For the downside coronavirus sensitivity scenario, Fitch assumed a
50% increase in defaults, IBR and remaining term for the credit and
maturity stress, respectively. Under this scenario, there was no
impact on ratings for the credit stress. There was also no impact
on ratings for the maturity stresses.
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).
SUTHERLAND COMMERCIAL 2019-SBC8: DBRS Puts B Rating on G Certs
--------------------------------------------------------------
DBRS Limited placed all classes of the Commercial Mortgage
Pass-Through Certificates, Series 2019-SBC8 issued by Sutherland
Commercial Mortgage Trust 2019-SBC8 Under Review with Negative
Implications as follows:
-- Class A at AAA (sf), Under Review with Negative Implications
-- Class B at AA (sf), Under Review with Negative Implications
-- Class C at A (low) (sf), Under Review with Negative
Implications
-- Class D at BBB (low) (sf), Under Review with Negative
Implications
-- Class E at BB (high) (sf), Under Review with Negative
Implications
-- Class F at BB (sf), Under Review with Negative Implications
-- Class G at B (sf), Under Review with Negative Implications
There are no trends for these rating actions.
DBRS Morningstar took these rating actions as a result of concerns
surrounding the recent rise in the cumulative delinquency rate,
which was reported at 26.0% per the May 2020 remittance, an
increase from 3.2% in April 2020. DBRS Morningstar deems these
actions appropriate amid the uncertainty of the Coronavirus Disease
(COVID-19) pandemic and the potential impact on loan performance
and the resultant effect on future credit support.
The transaction is composed of individual fixed- and floating-rate
small balance loans secured by commercial and multifamily
properties with an average loan balance of approximately $240,000.
As of the May 2020 remittance, 1,064 of the original 1,223 loans
remain in the pool, with an aggregate principal balance of $253.9
million, representing a collateral reduction of 16.6% since
issuance. At issuance, the pool had a high concentration of
properties located across the states of New York (43.0% of the pool
balance), California (18.7% of the pool balance), and Massachusetts
(8.1% of the pool balance); however, the pool was otherwise
geographically diverse, with an average DBRS Morningstar Market
Rank of 4.9. By property type, the pool had concentrations of loans
secured by Mixed Use (41.0% of the pool balance), Multifamily
(27.7% of the pool balance), and Unanchored Retail (16.7% of the
pool balance) properties. The pool benefits from a high percentage
of well-located properties, in addition to loans that initially had
low leverage and were fully amortizing. However, DBRS Morningstar
received limited borrower and property-level information at
issuance, and considered the property quality to be Average-/Below
Average based on those properties sampled; this sample comprised
35.0% of the pool balance.
The transaction is configured with a modified pro-rata pay
pass-through structure.
Notes: All figures are in U.S. dollars unless otherwise noted.
SYMPHONY CLO XX: Moody's Cuts Rating on Class E Notes to B1
-----------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Symphony CLO XX, Ltd.:
US$24,750,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2032 (the "Class D Notes"), Downgraded to Ba1 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$20,500,000 Class E Mezzanine Secured Deferrable Floating Rate
Notes due 2032 (the "Class E Notes"), Downgraded to B1 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D notes and Class E notes. The CLO, issued in
January 2019 is a managed cashflow CLO. The notes are
collateralized primarily by a portfolio of broadly syndicated
senior secured corporate loans. The transaction's reinvestment
period will end in January 2024.
RATINGS RATIONALE
The downgrades on the Class D and E notes reflect the risks posed
by credit deterioration observed in the underlying CLO portfolio,
which have been primarily prompted by economic shocks stemming from
the coronavirus pandemic. Since the outbreak widened in March, the
decline in corporate credit has resulted in a significant number of
downgrades, other negative rating actions, or defaults on the
assets collateralizing the CLO. Consequently, the default risk of
the CLO portfolio has increased substantially, exposure to
Caa-rated assets has increased significantly, and expected losses
on certain notes have increased materially.
Based on Moody's calculation as of 29 May, the weighted average
rating factor was 3407, or 22% worse than the WARF of 2801 reported
in the March 2020 trustee report [1]. Moody's calculation also
showed the WARF was failing the test level of 2803 reported in the
May 2020 trustee report [2] by 604 points. Both the rate and the
magnitude of the WARF deterioration are higher than the averages
Moody's has observed for other BSL CLOs. Moreover, the deteriorated
WARF combined with the remaining weighted average life covenant
implies that the portfolio could experience a relatively higher
volume of defaults between now and the deal's maturity in 2032.
Moody's also noted that approximately 29% of the CLO's par was from
obligors assigned a negative outlook and 5% from obligors whose
rating was on review for downgrade. Additionally, the proportion of
obligors in the portfolio with Moody's corporate family or other
equivalent rating of Caa1 or lower (adjusted for negative outlook
or watchlisting for downgrade) was approximately 18% of the CLO
par. The actions also reflect the basis risk resulting from the
mismatch of CLO's floating-rate assets and fixed rate notes.
Nonetheless, Moody's observes that the deal has outperformed other
BSL CLOs in preserving and increasing collateral coverage. Moody's
calculated the CLO's total collateral par balance, including
recoveries from defaulted securities, at $404 million, or $4
million more than the deal's ramp-up target par balance, which
provided increased collateral coverage for the rated notes. Moody's
calculated the over-collateralization (OC) ratios (excluding
haircuts) for the Class B, Class C, Class D and Class E notes as of
May 2020 at 133.78%, 125.18%, 116.27% and 109.79%, respectively.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $401.4 million, defaulted par of $3.5
million, a weighted average default probability of 28.55% (implying
a WARF of 3407), a weighted average recovery rate upon default of
48.33%, a diversity score of 67 and a weighted average spread of
3.34%. Moody's also analyzed the CLO by incorporating an
approximately $0.8 million par haircut in calculating the OC and
interest diversion test ratios. Moody's analyzed the current
combination of elevated portfolio default risk without meaningful
OC par haircuts as adversely impacting the CLO's allocation of
risks especially to the mezzanine notes. Moody's notes however that
because the CLO determines excess Caa haircuts based on Moody's
instrument ratings, downgrades on debt of obligors assigned
negative outlooks or whose ratings are on watchlist for downgrade
could result in additional OC haircuts. Moody's also considered the
CLO manager's recent investment decisions and trading strategies in
its analysis.
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 corporate assets. 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 of the rated notes is subject to uncertainty in the
performance of the related CLO's underlying portfolio, which in
turn depends on economic and credit conditions that may change. In
particular, the length and severity of the economic and credit
shock precipitated by the global coronavirus pandemic will have a
significant impact on the performance of the securities. The CLO
manager's investment decisions and management of the transaction
will also affect the performance of the rated securities.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
March 2019.
UBS-CITIGROUP 2011-C1: DBRS Lowers Class G Certs Rating to C
------------------------------------------------------------
DBRS Morningstar downgraded three classes of the Commercial
Mortgage Pass-Through Certificates, Series 2011-C1 (the
Certificates) issued by UBS-Citigroup Commercial Mortgage Trust,
Series 2011-C1, as follows:
-- Class E to BBB (low) (sf) from BBB (high) (sf)
-- Class F to CCC (sf) from BB (high) (sf)
-- Class G to C (sf) from B (high) (sf)
DBRS Morningstar also confirmed the ratings on the following
classes:
-- Class A-3 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
In addition, DBRS Morningstar changed the trend on Class E to
Negative from Stable. All other trends are Stable with the
exception of Class F and Class G, which are assigned ratings that
do not carry trends.
Furthermore, DBRS Morningstar discontinued and withdrew the rating
on the notional Class X-B as the Applicable Referenced Obligation,
Class G, was downgraded to C (sf) due to the projected losses upon
the resolution of the specially serviced loans.
The rating downgrades and trend change reflect DBRS Morningstar's
outlook for two large loans recently transferred to special
servicing in Poughkeepsie Galleria (Prospectus ID#2, 15.4% of the
pool) and Marriott Buffalo Niagara (Prospectus ID#9, 5.4% of the
pool). Although the transfer to special servicing for both loans
appears to be a direct result of the Coronavirus Disease (COVID-19)
pandemic and its effects on the overall economy, DBRS Morningstar
notes both collateral properties showed cash flow declines prior to
the pandemic, trends that had both loans on the DBRS Morningstar
Hotlist.
As of the May 2020 remittance, 25 of the original 32 loans remained
in the pool with an aggregate balance of $407.4 million,
representing a collateral reduction of 39.6% since issuance. In
addition, 10 loans, representing 43.2% of the pool, including the
six of the 15 largest loans in the pool, are fully defeased. As of
the May 2020 remittance, there were seven loans, representing 19.5%
of the pool balance, on the servicer's watchlist, six of which were
being monitored for performance-related issues. The two previously
mentioned loans were the only two loans in special servicing as of
the May 2020 remittance. Based on the year-end (YE) 2019 reporting,
the weighted-average (WA) debt service coverage ratio (DSCR) and
debt yield for the pool was 1.29 times (x) and 11.1%, respectively.
In addition to the increased risks in the special servicing
transfers for the two loans as noted above, DBRS Morningstar also
notes the subject pool is concentrated in hotel and retail
properties, which represent 32.1% and 19.9% of the pool,
respectively. These concentrations are noteworthy as these property
types have been most immediately and most deeply affected by the
effects of the economic impacts of the coronavirus pandemic.
The Poughkeepsie Galleria loan is secured by a regional mall
located in Poughkeepsie, New York. At issuance, the $154.9 million
senior loan (which was split into two pieces across the subject)
and the UBS 2012-C1 transaction (not rated by DBRS Morningstar) was
supplemented with a $21.0 million mezzanine loan for a whole-loan
amount of $175.9 million. The mall is anchored by a collateral
JCPenney and Regal Cinemas, as well as three non-collateral stores
in Macy's, Target, and Dick's Sporting Goods. The mall anchors also
include a non-collateral Sears, but the store was recently
announced for closure in February 2020 and is expected to hold
store closing sales once the mall fully reopens as
coronavirus-related restrictions are lifted. The loan was
transferred to the special servicer for imminent default in May
2020 as the borrower requested relief as a result of the
coronavirus pandemic. However, as previously noted, the loan was
showing signs of significantly increased risks from issuance well
before the start of the pandemic and has been on the DBRS
Morningstar Hotlist since July 2019. The senior loan most recently
reported a YE2019 DSCR of 0.88x, relative to the YE2018 and YE2017
DSCR figures of 1.05x and 1.19x, respectively, primarily due to
declining base rents. As of the November 2019 rent roll, occupancy
at the subject was reported at 86.3%; however, the average rental
rate of the collateral decreased to $15.83 per square foot (psf)
from $20.16 psf in September 2018. In addition to these trends,
DBRS Morningstar notes the loan sponsor, Pyramid Companies, has
been in the news recently for publicly confirming economic
difficulty amid the pandemic, with some outlets reporting a
bankruptcy filing could be made in the near term. Given the low
in-place cash flow, generally weak anchor mix, and tertiary
location for the property, DBRS Morningstar believes the likelihood
of a loss at the loan's ultimate resolution is high and as part of
this review, a loss severity of 42.1% was assumed, based on a
substantial haircut to the issuance valuation for the property.
The Marriott Buffalo Niagara loan transferred to special servicing
in May 2020, also for imminent monetary default related to the
borrower's coronavirus pandemic-related relief request. However,
the collateral property had been reporting falling cash flows for
several years prior to the start of the pandemic, with the Marriott
franchise agreement recently extended for a relatively short
three-year period through September 2022, just one year past the
scheduled 2021 loan maturity. Based on a March 2020 operating
statement provided by the servicer, the property reported a
trailing 12 months (T-12) occupancy, average daily rate (ADR), and
revenue per available room (RevPAR) of 63.5%, $113.77, and $72.27,
respectively. Comparatively, the property reported RevPAR for the
T-12 ending March 2018 and T-12 ending June 2017 of $80.29 and
$82.79, respectively. The servicer most recently reported a DSCR of
1.32x as of the T-12 September 2019 reporting, well below the DBRS
Morningstar Net Cash Flow figure derived at issuance of 2.26x. The
borrower has attribute performance declines since issuance due to
new supply in the market, and more recently, to the decline in
Canadian tourism amid the pandemic. Given the sustained cash flow
declines since issuance and the dubious outlook for improvement
opportunities in the near to medium term, DBRS Morningstar assumed
a significant loss for this loan at resolution as part of this
review, with a loss severity of 19.2%, based on a steep haircut to
the issuance value for the collateral property.
DBRS Morningstar materially deviated from its principal methodology
when determining the rating assigned to Class E as the quantitative
results suggest a lower rating. DBRS Morningstar considers a
material deviation from a methodology to exist when there may be a
substantial likelihood that a reasonable investor or other user of
the credit ratings would consider the material deviation to be a
significant factor in evaluating the ratings. The material
deviations is warranted given uncertain loan level event risk
associated with the loans on the servicer's watchlist and in
special servicing.
Class X-A is interest-only (IO) certificates that reference a
single rated tranche or multiple rated tranches. The IO rating
mirrors the lowest-rated applicable reference obligation tranche
adjusted upward by one notch if senior in the waterfall.
All ratings are subject to surveillance, which could result in
ratings being upgraded, downgraded, placed under review, confirmed,
or discontinued by DBRS Morningstar.
Notes: All figures are in U.S. dollars unless otherwise noted.
UNITED AUTO 2020-1: DBRS Assigns Prov. B Rating on Class F Notes
----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by United Auto Credit Securitization Trust
2020-1 (UACST 2020-1 or the Issuer):
-- $116,420,000 Class A Notes rated AAA (sf)
-- $32,780,000 Class B Notes rated AA (sf)
-- $32,780,000 Class C Notes rated A (sf)
-- $31,450,000 Class D Notes rated BBB (low) (sf)
-- $18,730,000 Class E Notes rated BB (sf)
-- $7,360,000 Class F Notes rated B (sf)
The provisional ratings are based on a review by DBRS Morningstar
of the following analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization
(OC), subordination, amounts held in the reserve fund, and excess
spread. Credit enhancement levels are sufficient to support the
DBRS Morningstar-projected cumulative net loss (CNL) assumption
under various stress scenarios.
-- DBRS Morningstar's projected CNL assumption includes an
assessment of how collateral performance could deteriorate because
of macroeconomic stresses related to the Coronavirus Disease
(COVID-19) pandemic.
-- The transaction assumptions include an increase to the expected
loss. This assumption is in conjunction with DBRS Morningstar's
commentary "Global Macroeconomic Scenarios: June Update" published
on June 1, 2020. DBRS Morningstar assumptions consider the moderate
macroeconomic scenario outlined in the commentary (the moderate
scenario serving as the primary anchor for current ratings ) in
addition to observed performance during the 2008–09 financial
crisis and the possible impact of the stimulus from the Coronavirus
Aid, Relief, and Economic Security (CARES) Act as well as other
factors The moderate scenario assumes some success in containment
within the second quarter and a gradual relaxation of restrictions,
enabling most economies to begin a gradual economic recovery in the
third quarter.
-- The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms under which
they have invested. For this transaction, the ratings address the
timely payment of interest on a monthly basis and principal by the
legal final maturity date.
(2) UACST 2020-1 provides for a Class C coverage multiple that is
slightly below the DBRS Morningstar range of multiples set forth in
the criteria for this asset class. DBRS Morningstar believes that
this is warranted, given the magnitude of expected loss, company
history, and structural features of the transaction.
(3) United Auto Credit Corporation's (UACC or the Company)
capabilities with regard to originations, underwriting, and
servicing and the existence of an experienced and capable backup
servicer.
(4) DBRS Morningstar has performed an operational risk review of
UACC and considers the entity an acceptable originator and servicer
of subprime automobile loan contracts with an acceptable backup
servicer.
(5) The Company's senior management team has considerable
experience and a successful track record within the auto finance
industry.
(6) UACC successfully consolidated its business into a centralized
servicing platform and consolidated originations into two regional
buying centers. The Company retained experienced managers and staff
at the servicing center and buying centers.
(7) UACC continues to evaluate and fine-tune its underwriting
standards as necessary. The Company has a risk management system
allowing centralized oversight of all underwriting and substantial
technology systems, which provide daily metrics on all
originations, servicing, and collections of loans.
(8) The credit quality of the collateral and performance of the
Company's auto loan portfolio.
(9) UACC originates collateral that generally has shorter terms,
higher down payments, lower book values, and higher borrower income
requirements than some other subprime auto loan originators.
(10) UACST 2020-1 provides for Class F Notes with an assigned
rating of B (sf). While DBRS Morningstar's Rating U.S. Retail Auto
Loan Securitizations methodology does not set forth a range of
multiples for this asset class for the B (sf) level, the analytical
approach for this rating level is consistent with that contemplated
by the methodology. The typical range of multiples applied in the
DBRS Morningstar stress analysis for a B (sf) rating is 1.00 times
(x) to 1.25x.
Notes: All figures are in U.S. dollars unless otherwise noted.
VISTA POINT 2020-1: DBRS Gives Prov. B(low) Rating on Cl. B-2 Certs
-------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following Mortgage
Pass-Through Certificates, Series 2020-1 (the Certificates) to be
issued by Vista Point Securitization Trust 2020-1 (VSTA 2020-1 or
the Trust):
-- $274.7 million Class A-1 at AAA (sf)
-- $32.7 million Class A-2 at AA (high) (sf)
-- $46.1 million Class A-3 at A (sf)
-- $21.7 million Class M-1 at BBB (sf)
-- $23.1 million Class B-1 at BB (sf)
-- $18.4 million Class B-2 at B (low) (sf)
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The AAA (sf) rating on the Class A-1 certificates reflects 37.45%
of credit enhancement provided by subordinate certificates. The AA
(high) (sf), A (sf), BBB (sf), BB (sf), and B (low) (sf) ratings
reflect 30.00%, 19.50%, 14.55%, 9.30%, and 5.10% of credit
enhancement, respectively.
This transaction is a securitization of a portfolio of fixed- and
adjustable-rate, prime, expanded prime and nonprime first-lien
residential mortgages funded by the issuance of the Mortgage
Pass-Through Certificates, Series 2020-1. The Certificates are
backed by 902 mortgage loans with a total principal balance of
$439,150,906 as of the Cut-Off Date (June 1, 2020).
This is the first securitization by the aggregator Vista Point
Mortgage, LLC (Vista Point). Vista Point acquired the mortgage
loans from several mortgage originators, including Hometown Equity
Mortgage, LLC doing business as theLender (39.8% by balance) and
Oaktree Funding Corp (Oaktree; 20.3%), and other originators each
comprising less than 10.0% of the mortgage loans by balance. DBRS
Morningstar conducted a review of Vista Point's residential
mortgage platform and believes the company is an acceptable
mortgage loan aggregator. DBRS Morningstar did not perform an
operational risk review of the originators. However, DBRS
Morningstar had a brief high-level conference call with the
management team of theLender, the largest originator by balance,
during which the team provided an overview of the origination
practices. Although new in non-QM origination, the management team
at theLender has been originating agency and other mortgage loans
for more than 18 years.
All acquired mortgage loans are underwritten and funded by the
originators on a delegated basis pursuant to either Vista Point
proprietary guidelines or approved originator underwriting
guidelines. The mortgages were acquired pursuant to Vista Point's
PrimePoint (noninvestor) and InvestPoint (investor) programs as
described in the report.
Although the noninvestor mortgage loans were generally originated
to satisfy the Consumer Financial Protection Bureau's (CFPB)
Ability-to-Repay (ATR) rules, they were made to borrowers who
generally do not qualify for agency, government, or private-label
nonagency prime jumbo products for various reasons. In accordance
with the QM/ATR rules, 51.0% of the loans are designated as non-QM.
Approximately 49.0% of the loans are made to investors for business
purposes including 46.3% of loans underwritten to property-level
cash flows. The business-purpose loans are not subject to the
QM/ATR rules.
The pool has a concentrated geographic composition with California
representing 66.6% of the pool. In addition, approximately 45.1% by
balance are loans backed by properties located in the top three
metropolitan statistical areas (MSAs), all of which are in Southern
California.
Vista Point is the Sponsor and the Servicing Administrator of the
transaction. The Sponsor, Depositor, and Servicing Administrator
are affiliates or the same entity.
Specialized Loan Servicing LLC (SLS) will service all loans within
the pool.
Wells Fargo Bank, N.A. (Wells Fargo; rated AA with a Negative trend
by DBRS Morningstar) will act as the Master Servicer. U.S. Bank
National Association (rated AA (high) with a Stable trend by DBRS
Morningstar) will serve as Trustee, Securities Administrator,
Certificate Registrar, and Custodian.
The Sponsor, directly or indirectly through a majority-owned
affiliate, will retain an eligible horizontal residual interest in
at least 5% of the Certificates (including the Class B-3 and XS
Certificates) issued by the Trust to satisfy the credit
risk-retention requirements under Section 15G of the Securities
Exchange Act of 1934 and the regulations promulgated thereunder.
On or after the earlier of (1) the three-year anniversary of the
Closing Date or (2) the date when the aggregate stated principal
balance of the mortgage loans is reduced to 30% of the Cut-Off Date
balance, the Controlling Holder has the option to purchase all
outstanding certificates at a price equal to the outstanding class
balance plus accrued and unpaid interest, including any cap
carryover amounts (optional redemption). The Controlling Holder, as
of the Closing Date, will be an affiliate of the Sponsor with at
least 50% common ownership with the Sponsor. After such purchase,
the Controlling Holder then has the option to complete a qualified
liquidation, which requires (1) a complete liquidation of assets
within the Trust and (2) proceeds to be distributed to the
appropriate holders of regular or residual interests.
On any date following the date on which the aggregate stated
principal balance of the mortgage loans is less than or equal to
10% of the Cut-Off Date balance, the Servicing Administrator will
have the option to terminate the transaction by purchasing all of
the mortgage loans and any real estate owned (REO) property from
the issuer at a price equal to the sum of the aggregate stated
principal balance of the mortgage loans (other than any REO
property) plus accrued interest thereon, the lesser of the fair
market value of any REO property and the stated principal balance
of the related loan, and any outstanding and unreimbursed advances,
accrued and unpaid fees, and expenses that are payable or
reimbursable to the transaction parties (optional termination). An
optional termination is conducted as a qualified liquidation.
The Servicer will fund advances of delinquent principal and
interest (P&I advances) on any mortgage until such loan becomes 90
days delinquent under the Mortgage Bankers Association (MBA)
method. The Servicer is also obligated to make advances in respect
of taxes, insurance premiums, and reasonable costs incurred during
servicing and disposal of properties. However, the Servicer will
not be required to make P&I advances for any mortgage loan under a
forbearance plan during the related forbearance period. That said,
the Servicer will continue to make P&I advances at the end of the
forbearance period to the extent the related mortgagor fails to
make required payments then due and remains less than 90 days
delinquent.
The Sponsor will also have the option, but not the obligation, to
repurchase any mortgage loan that becomes 90 or more days MBA
Delinquent or, if a loan is under forbearance plan related to the
impact of the Coronavirus Disease (COVID-19), on any date from and
after the date on which the loan becomes more than 90 days MBA
Delinquent following the end of the forbearance period or any REO
property acquired; provided that the aggregate principal balance of
such mortgage loans and REO properties repurchased by the Sponsor
may not exceed 10.0% of the total loan balance as of the Cut-Off
Date.
This transaction employs a sequential-pay cash flow structure
across the entire capital stack. Each class does not receive
principal payments until the more senior classes, if applicable,
have been paid off. Also, for each class of certificates, the
principal will be paid to the most senior bonds outstanding to pay
any unpaid current interest or interest shortfalls before any
payments are applied as principal on the bonds. Additionally,
excess spread can be used to cover realized losses and prior period
bond write down amounts first before being allocated to unpaid cap
carryover amounts to Class A-1 down to Class B-2.
The coronavirus pandemic and the resulting isolation measures have
caused an economic contraction, leading to sharp increases in
unemployment rates and income reductions for many consumers. DBRS
Morningstar anticipates that delinquencies may arise in the coming
months for many residential mortgage-backed securities (RMBS) asset
classes, some meaningfully.
The non-QM sector is a traditional RMBS asset class that consists
of securitizations backed by pools of residential home loans that
may fall outside of the CFPB's ATR rules, which became effective on
January 10, 2014. Non-QM loans encompass the entire credit
spectrum. They range from high-FICO, high-income borrowers who opt
for interest-only (IO) or higher debt-to-income (DTI) ratio
mortgages, to near-prime debtors who have had certain derogatory
pay histories but were cured more than two years ago, to nonprime
borrowers whose credit events were only recently cleared, among
others. In addition, some originators offer alternative
documentation or bank statement underwriting to self-employed
borrowers in lieu of verifying income with W-2s or tax returns.
Finally, foreign nationals and real estate investor programs, while
not necessarily non-QM in nature, are often included in non-QM
pools.
As a result of the coronavirus, DBRS Morningstar expects increased
delinquencies and loans on forbearance plans, slower voluntary
prepayment rates, and a potential near-term decline in the values
of the mortgaged properties. Such deteriorations may adversely
affect borrowers' ability to make monthly payments, refinance their
loans, or sell properties in an amount sufficient to repay the
outstanding balance of their loans.
In connection with the economic stress assumed under its moderate
scenario, (see "Global Macroeconomic Scenarios: June Update,"
published on June 1, 2020), for the non-QM asset class, DBRS
Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than what it previously
used. Such MVD assumptions are derived through a fundamental home
price approach based on the forecast unemployment rates and GDP
growth outlined in the aforementioned moderate scenario. In
addition, for pools with loans on forbearance plans, DBRS
Morningstar may assume higher loss expectations above and beyond
the coronavirus assumptions. Such assumptions translate to higher
expected losses on the collateral pool and correspondingly higher
credit enhancement.
In the non-QM asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes loans originated to (1) borrowers
with recent credit events, (2) self-employed borrowers, or (3)
higher loan-to-value ratio (LTV) borrowers may be more sensitive to
economic hardships resulting from higher unemployment rates and
lower incomes. Borrowers with prior credit events have exhibited
difficulties in fulfilling payment obligations in the past and may
revert to spotty payment patterns in the near term. Self-employed
borrowers are potentially exposed to more volatile income sources,
which could lead to reduced cash flows generated from their
businesses. Higher LTV borrowers, with lower equity in their
properties, generally have fewer refinance opportunities and
therefore slower prepayments. In addition, certain pools with
elevated geographic concentrations in densely populated urban
metropolitan statistical areas may experience additional stress
from extended lockdown periods and the slowdown of the economy.
In addition, for this transaction, as permitted by the Coronavirus
Aid, Relief, and Economic Security (CARES) Act, signed into law on
March 27, approximately 2.1% of the borrowers are on forbearance
plans because the borrowers reported financial hardship related to
coronavirus. These forbearance plans allow temporary payment
holidays, followed by repayment once the forbearance period ends.
SLS, in collaboration with Vista Point, is generally offering
borrowers a three-month payment forbearance plan. Beginning in
month four, the borrower can repay all of the missed mortgage
payments at once or opt to go on a repayment plan to catch up on
missed payments for several, typically six, months. During the
repayment period, the borrower needs to make regular payments and
additional amounts to catch up on the missed payments.
DBRS Morningstar had a conference call with Vista Point regarding
its approach to the forbearance loans and understood that Vista
Point, in collaboration with the Servicer, developed and recently
implemented a review process to evaluate borrowers' requests for
payment relief. As a part of the review, a borrower must submit a
completed mortgage assistance application, which includes detailed
financial information, income documents, and hardship related
documentation. The process helps to ensure borrowers who genuinely
need payment relief may receive such relief and those who can make
payments but use the payment relief to conserve cash may not. SLS
would attempt to contact borrowers before the expiration of the
forbearance period and evaluate their capacity to repay the missed
amounts. As a result, SLS, in collaboration with Vista Point, may
offer a repayment plan or other forms of payment relief, such as
deferral of the unpaid principal and interest amounts or a loan
modification, in addition to pursuing other loss mitigation
options.
For the loans, DBRS Morningstar applied additional assumptions to
evaluate the impact of potential cash flow disruptions on the rated
tranches, stemming from (1) lower principal and interest
collections and (2) limited servicing advances on delinquent P&I.
These assumptions include:
-- Increasing delinquencies on the AAA (sf) and AA (high) (sf)
rating levels for the first 12 months,
-- Increasing delinquencies on the A (sf) and below rating levels
for the first nine months.
-- Assuming no voluntary prepayments for the first 12 months for
the AAA (sf) and AA (high) (sf) rating levels.
-- Delaying the receipt of liquidation proceeds during the first
12 months for the AAA (sf) and AA (high) (sf) rating levels.
VISTA POINT 2020-1: S&P Assigns Prelim B (sf) Rating on B-2 Certs
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Vista Point
Securitization Trust 2020-1's mortgage pass-through certificates.
The certificate issuance is an RMBS securitization backed by
first-lien, fixed- and adjustable-rate, fully amortizing
residential mortgage loans (some with interest-only periods)
generally secured by single-family residential properties,
planned-unit developments, condominiums, and two- to four-family
residential properties to prime and nonprime borrowers. The loans
are primarily nonqualified mortgage loans.
The preliminary ratings are based on information as of June 19,
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 pool's collateral composition;
-- The transaction's credit enhancement;
-- The transaction's associated structural mechanics;
-- The transaction's representation and warranty framework;
-- The transaction's geographic concentration;
-- The mortgage aggregator, Vista Point Mortgage LLC; and
-- The impact that the economic stress brought on by the COVID-19
virus 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 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.
PRELIMINARY RATINGS ASSIGNED
Vista Point Securitization Trust 2020-1
Class Rating (i) Amount ($)
A-1 AAA (sf) 274,688,000
A-2 AA (sf) 32,717,000
A-3 A (sf) 46,111,000
M-1 BBB (sf) 21,738,000
B-1 BB (sf) 23,055,000
B-2 B (sf) 18,445,000
B-3 NR 22,396,906
A-IO-S NR Notional(ii)
XS NR Notional(ii)
R NR N/A
(i)The preliminary ratings address the ultimate payment of interest
and principal. They do not address payment of the cap carryover
amounts.
(ii)The notional amount will equal the aggregate stated principal
balance of the mortgage loans as of the first day of the related
due period.
NR--Not rated.
N/A--Not applicable.
VNDO 2013-PENN: S&P Affirms BB- (sf) Rating on Class E Certs
------------------------------------------------------------
S&P Global Ratings affirmed its ratings on six classes of
commercial mortgage pass-through certificates from VNDO 2013-PENN
Mortgage Trust, a U.S. CMBS transaction.
S&P affirmed its ratings on classes A, B, C, D, and E. Although the
model-indicated ratings were lower than the classes' current rating
levels, the affirmations reflect S&P's qualitative analysis, which
considered the underlying collateral's quality, stable submarket
fundamentals, and the long-term leases that are currently in place
for the two largest tenants at the property, Macy's (B+/Outlook
Negative) and AMC Networks. S&P also considered the market value
decline that would be needed before these classes experience
losses.
At the same time, S&P affirmed its rating on the class X-A
interest-only (IO) certificates based on its criteria for rating IO
securities, in which the rating on the IO securities would not be
higher than that of the lowest-rated reference class. Class X-A's
notional balance references the balance of the class A
certificates.
This is a stand-alone (single borrower) transaction backed by a
fixed-rate IO mortgage loan secured by a 1.1 million-sq.-ft. office
property in Midtown Manhattan. As of the June 2020 trustee
remittance report, the collateral pool balance was $450.0 million,
unchanged from issuance. The mortgage loan matures in December
2020. There is no additional debt and the trust has not incurred
any principal losses. The master servicer, Wells Fargo Bank N.A.,
reported a debt service coverage (DSC) of 2.24x for the year-end
2019, and occupancy was 94.67% according to the Dec. 31, 2019, rent
roll.
S&P's property-level analysis included a reevaluation of the office
property that secures the mortgage loan in the trust, and
considered the stable servicer-reported net operating income and
occupancy for the past three years (2017 through 2019). The rating
agency noted that the top two tenants at the property, Macy's and
AMC Networks (56.9% and 29.7% of the net rentable area,
respectively), both have long-term leases until 2035 and 2027,
respectively. S&P derived its sustainable in-place net cash flow,
which is slightly down from the last review, and divided it by a
capitalization rate of 7.0% (up from the previously used 6.75%) to
determine our expected-case value. This yielded an overall S&P
Global Ratings' loan-to-value ratio of 86.0% on the trust balance.
S&P increased its vacancy assumption as well as its capitalization
rate to reflect the risk surrounding Macy's lease. While Macy's is
responsible for the rent due under their lease until 2035, the
company's recent downgrade by S&P to 'B+', and Macy's plan to
physically vacate the property and sublet their spaces, resulted in
changing S&P's vacancy assumptions and capitalization rate. The
concerns noted above are somewhat mitigated by media reports noting
that Apple (AA+/Stable) is expected to sublet about 220,000 sq. ft.
of Macy's space. S&P's analysis also considers the staggered lease
expiration of the underlying tenants and strong sponsorship from
Vornado Realty L.P. to aid in the expected lease-up period.
However, if the property fails to maintain its operational
performance level, S&P may revise its sustainable net cash flow and
value."
The rating agency acknowledges a high degree of uncertainty about
the evolution of the coronavirus pandemic. The consensus among
health experts is that the pandemic may now be at, or near, its
peak in some regions but will remain a threat until a vaccine or
effective treatment is widely available, which may not occur until
the second half of 2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
RATINGS AFFIRMED
VNDO 2013-PENN Mortgage Trust
Commercial mortgage pass-through certificates
Class Rating
A AAA (sf)
B AA- (sf)
C A- (sf)
D BBB- (sf)
E BB- (sf)
X-A AAA (sf)
VOYA CLO 2020-1: S&P Rates Class E Notes 'BB- (sf)'
---------------------------------------------------
S&P Global Ratings assigned its ratings to Voya CLO 2020-1 Ltd.'s
floating- and fixed-rate notes.
The note issuance is a CLO transaction backed by broadly syndicated
speculative-grade (rated 'BB+' and lower) senior secured term loans
that are governed by collateral quality tests. The notes are
managed by Voya Alternative Asset Management LLC, a Voya Investment
Management company.
The ratings reflect:
-- The diversified collateral pool.
-- 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.
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021. S&P is using this assumption in assessing the economic and
credit implications associated with the pandemic (see S&P's
research here: www.spglobal.com/ratings). As the situation evolves,
the rating agency will update its assumptions and estimates
accordingly.
RATINGS ASSIGNED
Voya CLO 2020-1 Ltd./Voya CLO 2020-1 LLC
Class Rating Amount (mil. $)
A AAA (sf) 185.00
B-1 AA (sf) 34.00
B-2 AA (sf) 7.00
C A (sf) 17.00
D BBB- (sf) 17.00
E BB- (sf) 9.75
Subordinated notes NR 28.80
NR--Not rated.
WELLS FARGO 2017-C39: Fitch Affirms Class G-RR Certs at B-sf
------------------------------------------------------------
Fitch Ratings has affirmed 15 classes of Wells Fargo Commercial
Mortgage Trust 2017-C39 commercial mortgage pass-through
certificates. Fitch also revised the Rating Outlook to Negative
from Stable on classes F-RR and G-RR.
WFCM 2017-C39
- Class A-1 95000XAA5; LT AAAsf; Affirmed
- Class A-2 95000XAB3; LT AAAsf; Affirmed
- Class A-3 95000XAC1; LT AAAsf; Affirmed
- Class A-5 95000XAF4; LT AAAsf; Affirmed
- Class A-SB 95000XAD9; LT AAAsf; Affirmed
- Class B 95000XAK3; LT AA-sf; Affirmed
- Class C 95000XAL1; LT A-sf; Affirmed
- Class D 95000XAM9; LT BBB+sf; Affirmed
- Class E-RR 95000XAP2; LT BBB-sf; Affirmed
- Class F-RR 95000XAR8; LT BB-sf; Affirmed
- Class G-RR 95000XAT4; LT B-sf; Affirmed
- Class X-A 95000XAH0; LT AAAsf; Affirmed
- Class X-B 95000XAJ6; LT A-sf; Affirmed
KEY RATING DRIVERS
Relatively Stable Performance/Increased Loss Expectations: Although
overall pool performance remains generally stable; loss
expectations have increased due to Fitch Loans of Concern.
Twenty-six loans (34.4%) , including two specially serviced loans
(3%), are considered FLOCs primarily due to 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. Crowne Plaza JFK (1.8%) transferred to special servicing
in June 2020 due to imminent default. The loan is secured by a
330-room full-service hotel located in Queens, NY. The hotel has
operated under a contract with Delta to exclusively house all crews
that pass-through JFK, which accounted for approximately 20% of the
total revenue. Hilton Garden Inn Chicago/North Loop (1.2%)
transferred to special servicing in April 2020 due to imminent
default. The loan is secured by a 191- key, full-service hotel
located in Chicago's North Loop neighborhood. Both specially
serviced loans are over 60 days delinquent.
The largest FLOC, Lakeside Shopping Center (5.2% of the pool), is
secured by a 1,211,349-sf regional mall located in Metairie,
Louisiana. Collateral anchors include Dillard's (24.1%; lease
expires Dec. 31, 2029), Macy's (18.9%; lease expires Jan. 31, 2029)
and JC Penney (16.8% lease expires Nov. 30, 2022). JC Penney is
expected to close as this location was included on the retailer's
recent store closing list. As of April 2020, the property is 98.5%
occupied and is expected to decline to approximately 81.7% after JC
Penney vacates.
The second largest FLOC, Columbia Park Shopping Center (4.5% of the
pool), is secured by a 345,703-sf retail center located in North
Bergen, NJ. The largest tenant, Empire 12 Cineplex (20.2% NRA)
vacated in September 2019 prior to its April 30, 2029 lease
expiration. As a result, occupancy was a reported 71.7% as of March
2020, down from 100% at YE 2018. Fitch requested status leasing
status update on vacant space but did not receive a response.
The third largest FLOC, Starwood Capital Hotel Portfolio (3.6% of
the pool), is secured by a portfolio of 65 hotels in 17 states
offering a range of amenities, spanning the limited service, full
service and extended stay varieties. As of YE 2019, servicer
reported occupancy and DSCR were 73.7% and 2.73x respectively
compared to 75% and 2.98x at YE 2018. An additional stress was
applied to this loan to address the declines in performance related
to the coronavirus pandemic.
The fourth largest FLOC,The Crown Plaza Dallas (2.4% of the pool),
is secured by a 292-room full service hotel located in downtown
Dallas, Texas. As of YE 2018, servicer reported occupancy and DSCR
were 73.7% and 2.73x respectively. Fitch requested full year 2019
financials. An additional stress was applied to this loan to
address the declines in performance related to the coronavirus
pandemic.
The remaining 20 FLOCs (15.8%) are outside the top 15; 16 loans
(13.3%) received an additional stress to address the expected
declines in performance related to the coronavirus pandemic. The
remaining four (2.5%) were flagged as FLOCs due to declining
performance as of YE 2019 compared to the prior year.
Minimal Change in Credit Enhancement: As of the June 2020
distribution date, the pool's aggregate principal balance has paid
down by $12.3 million (1.1%) to $1.12 billion from $1.13 billion at
issuance. No loans are defeased. Fourteen loans, representing 49.9%
of the pool, are full-term interest-only. Twenty-six loans,
representing 33.5% of the pool, were structured with a partial
interest-only component; 13 loans (13%) have begun to amortize.
Based on the scheduled balance at maturity, the pool will pay down
by only 7.1%
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 length of the impact. The pandemic prompted the
closure of several hotel properties in gateway cities as well as
malls, entertainment venues and individual stores.
Twenty-two loans (30% of the pool) are secured by retail
properties, and 14 loans (16.1% of the pool) are secured by hotel
properties. The hotel loans have a weighted average debt service
coverage ratio of 2.24x. On average, the hotel loans can sustain an
average decline of 53.6% before the NOI DSCR would fall below 1.0x.
On average, the retail loans have a WADSCR of 2.27x and would
sustain a 51.1% decline in NOI before the DSCR would fall below
1.0x. Fitch applied additional stresses to hotel, retail and
multifamily loans to account for potential cash flow disruptions
due to the coronavirus pandemic. Additional stresses were applied
to 13 hotel loans (15.8%) and eight retail loans (6.7%) across the
pool, and these stresses contributed to the Negative Outlook
revision for classes F-RR and G-RR.
Pool Concentrations: Loans backed by office properties represent
36.5% of the pool, including seven loans (31.2%) in the top 15.
Three loans (14.3%) are secured by office properties located in New
York City. Loans backed by retail properties represent 30% of the
pool, including four loans (15.9%) in the top 15. There are two
regional malls: Lakeside Shopping Center (5.2%) and Del Amo Fashion
Center (2.7%) in Torrance, CA, which has exposure to non-collateral
anchor tenants Macy's and Sears and collateral anchors JCPenney,
Nordstrom and Dick's Sporting Goods. Loans backed by hotel
properties represent 16.1% of the pool, including two loans (6%) in
the top 15.
Investment-Grade Credit Opinion Loans: Four of the top 15 loans
(16.9%) at issuance were assigned standalone investment grade
credit opinions at Issuance; 225 & 233 Park Avenue South (6.2%),
245 Park Avenue (4%), Two Independence Square (4%) and Del Amo
Fashion Center (2.7%) received investment grade standalone credit
opinions of 'BBB-sf*', 'BBB-sf*', 'A-sf*' and 'BBBsf*',
respectively.
Pari Passu: 16 loans (52.2% of pool) are pari passu, including 11
loans (44.4%) in the top 15.
RATING SENSITIVITIES
The Negative Outlooks on classes F-RR and G-RR reflect performance
concerns with hotel and retail properties due to decline in travel
and commerce as a result of the coronavirus pandemic. The Stable
Outlooks on classes A-1 through D reflect the increasing CE,
defeasance, continued amortization and overall stable performance
of the majority of the pool.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that could lead to upgrades include stable to improved
performance coupled with pay down and/or defeasance. Upgrades to
classes B & 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 impacted 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 to classes E-RR, F-RR and 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:
Factors that could 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, AS-B, A-4, A-5 and A-S
classes, along with class B are not expected given the position in
the capital structure, but may occur if these classes incur
interest shortfalls. 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, F-RR
and G-RR (classes F-RR and G-RR currently have Negative Outlooks)
would occur as losses materialize or if property performance,
specifically of the FLOCs, fail to stabilize in a prolonged
economic slowdown.
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).
WESTLAKE AUTOMOBILE 2020-2: S&P Rates Class E Notes 'BB+ (sf)'
--------------------------------------------------------------
S&P Global Ratings assigned its ratings to Westlake Automobile
Receivables Trust 2020-2's asset-backed notes.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The ratings reflect S&P's view of:
-- The availability of approximately 49.30%, 43.47%, 35.45%,
28.96%, and 24.52% credit support for the class A, B, C, D, and E
notes, respectively, based on stressed cash flow scenarios
(including excess spread). These provide approximately 3.10x,
2.65x, 2.25x, 1.80x, and 1.52x, respectively, of S&P's
14.75%-15.25% expected cumulative net loss range.
-- The transaction's ability to make timely interest and principal
payments under stressed cash flow modeling scenarios appropriate
for the assigned ratings.
-- S&P's expectation that under a moderate ('BBB') stress
scenario, all else being equal and for the transaction's life, its
'AAA (sf)', 'AA (sf)', 'A+ (sf)', 'BBB+ (sf)', and 'BB+ (sf)'
ratings on the class A, B, C, D, and E notes, respectively, are
consistent with the tolerance outlined in its credit stability
criteria.
-- The collateral characteristics of the securitized pool of
subprime automobile loans.
-- The originator/servicer's long history in the
subprime/specialty auto finance business.
-- S&P's analysis of approximately 15 years (2006-2020) of static
pool data on the company's lending programs.
-- The transaction's payment, credit enhancement, and legal
structures.
-- S&P's estimate that, if there were to be a disruption event,
the reserve account alone, without reference to excess spread,
could cover approximately two months of fees and note interest.
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The consensus among health experts is
that the pandemic may now be at, or near, its peak in some regions,
but will remain a threat until a vaccine or effective treatment is
widely available, which may not occur until the second half of
2021. S&P is using this assumption in assessing the economic and
credit implications associated with the pandemic. As the situation
evolves, it will update its assumptions and estimates accordingly.
RATINGS ASSIGNED
Westlake Automobile Receivables Trust 2020-2
Class Rating Amount (mil. $)
A-1 A-1+ (sf) 192.00
A-2-A AAA (sf) 460.48
A-2-B AAA (sf) 50.00
B AA (sf) 98.64
C A+ (sf) 122.55
D BBB+ (sf) 101.63
E BB+ (sf) 74.70
WFRBS COMMERCIAL 2014-C23: Fitch Lowers Class X-D Certs to CCC
--------------------------------------------------------------
Fitch Ratings has downgraded four and affirmed nine classes of
WFRBS Commercial Mortgage Trust 2014-C23 commercial mortgage
pass-through certificates. Fitch has also revised the Rating
Outlook on class D to Negative from Stable.
RATING ACTIONS
WFRBS 2014-C23
Class A-4 92939HAX3; LT AAAsf Affirmed; previously at AAAsf
Class A-5 92939HAY1; LT AAAsf Affirmed; previously at AAAsf
Class A-S 92939HBA2; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 92939HAZ8; LT AAAsf Affirmed; previously at AAAsf
Class B 92939HBB0; LT AA-sf Affirmed; previously at AA-sf
Class C 92939HBC8; LT A-sf Affirmed; previously at A-sf
Class D 92939HAJ4; LT BBB-sf Affirmed; previously at BBB-sf
Class E 92939HAL9; LT Bsf Downgrade; previously at BBsf
Class F 92939HAN5; LT CCCsf Downgrade; previously at B-sf
Class PEX 92939HBD6; LT A-sf Affirmed; previously at A-sf
Class X-A 92939HBE4; LT AAAsf Affirmed; previously at AAAsf
Class X-C 92939HAA3; LT Bsf Downgrade; previously at BBsf
Class X-D 92939HAC9; LT CCCsf Downgrade; previously at B-sf
KEY RATING DRIVERS
Increasing Loss Expectations/Fitch Loans of Concern: Loss
expectations have increased primarily due to an increasing number
of Fitch Loans of Concern (FLOCs). Nine loans (29.9% of the pool)
are considered FLOCs primarily due to declining performance,
failure to meet the coronavirus NOI DSCR tolerance thresholds,
and/or significant upcoming lease rollover. Two loans (4.0% of the
pool) recently transferred to special servicing, including the
sixth largest loan.
The largest specially serviced loan, 677 Broadway (3.1% of the
pool) transferred to special servicing in May 2020 due to imminent
default after two tenants vacated upon lease expiration and the
largest tenant indicated it will downsize its space by 9,990 square
feet (sf). The loan is currently 30 days delinquent.
The second largest specially serviced loan, Hampton Inn & Suites
Lenox (0.9% of the pool), recently transferred to special servicing
due to imminent default. The loan is secured by a 79-key limited
service hotel located in Lenox, MA. As of YE 2019, occupancy had
improved to 69.4% from 60.4% at YE 2018 and 64.3% at YE 2017. NOI
DSCR also improved to 1.67x as of YE 2019 from 1.30x at YE 2018,
but remained below 1.77x at YE 2017. Per the special servicer, the
borrower and special servicer are working on a potential
modification and dual tracking foreclosure. The loan is currently
60 days delinquent.
Outside of the specially serviced loans, the largest FLOC,
Crossings at Corona (8.6% of the pool), is secured by an 834,075-sf
retail property located in Corona, CA. The property is anchored by
Kohl's and a non-collateral Target. The property has suffered
declining performance due to multiple tenants vacating upon lease
expiration. The loan also fails to meet the coronavirus NOI DSCR
tolerance thresholds. Fitch applied additional stresses to the loan
to account for the expected declines in performance.
The second largest FLOC, DC Metro Portfolio (7.2% of the pool), is
secured by 15 cross-collateralized mixed-use properties located
throughout Washington DC. Property occupancy declined to 75.7% as
of YE 2019 from 84.5% at YE 2018 and 80.3% at YE 2017. The declines
in occupancy are primarily related to multiple tenants vacating
upon lease expiration.
The third largest FLOC, Slatten Ranch (3.0% of the pool), is
secured by an 118,250-sf retail center located in Antioch, CA. The
property is anchored by a Bed Bath & Beyond and a non-collateral
Target and Hobby Lobby. The property has suffered declining
performance and also has exposure to tenants which have recently
announced store closures. The loan also failed to meet the
coronavirus NOI DSCR tolerance threshold. Additional stresses were
applied to the loan to account for the expected declines in
performance.
The fourth largest FLOC, Culver City Portfolio (2.7% of the pool),
is secured by a 93,977-sf office portfolio located in Culver City,
CA. The property has significant upcoming lease rollover of 35%
between 2020 and 2021, which includes the top tenant the Tennis
Channel, whose short-term lease expired in February 2020.
The fifth largest FLOC, Courtyard Marriott Orlando (1.8% of the
pool), is secured by a 200-key limited service hotel located in
Orlando, FL. The property is currently undergoing a property
improvement plan (PIP), which has significantly impacted
performance. As of YE 2019, NOI DSCR was reported at -0.14x from
1.95x at YE 2018. The declines in performance are a result of the
ongoing PIP. Per the master servicer, the PIP was completed in
April 2020 and the hotel was closed for approximately two months
during the coronavirus pandemic. The loan also fails to meet the
coronavirus NOI DSCR tolerance thresholds; therefore, additional
stresses were applied to the loan to adjust for further expected
declines in performance.
The sixth largest FLOC, the Shoppes at Starwood (1.7% of the pool),
is secured by a 55,385-sf unanchored retail center located in
Frisco, TX. There is approximately 32% of the net rentable are
(NRA) rolling between 2020 and 2021, including the top tenant Judge
Fite Company (10.3%). While the loan does meet the coronavirus NOI
DSCR tolerance thresholds, additional stresses were applied to
address the significant upcoming rollover.
The remaining FLOC represents less than 1% of the pool balance.
Fitch will continue to monitor the loan for further updates.
Increasing Credit Enhancement: As of the June 2020 remittance, the
pool's aggregate principal balance has been reduced by 11.3% to
$834.7 million from $940.8 million at issuance. Since Fitch's last
rating action, five loans (previously 3.5% of the pool) paid off in
full either ahead of or at their respective maturities. The
disposition resulted in the reduction of the class A-3 certificates
to zero and the class A-4 certificates by $12 million. Eleven loans
(5.1% of the pool) are defeased. Twenty-three loans (46.3% of the
pool) have partial interest only payments, all of which are now
amortizing. Seven loans (17.9% of the pool) have interest only
payments, including the largest loan in the pool Bank of America
Tower (13% of the pool). The remaining loans are amortizing.
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 length of the impact. The pandemic has prompted
the closure of several hotel properties in gateway cities as well
as malls, entertainment venues and individual stores.
Six loans (7.4% of the pool) are secured by hotel loans and sixteen
loans (23.1% of the pool) are secured by retail properties. The
hotel loans have a weighted average (WA) DSCR of 1.38x; however,
excluding the Courtyard by Marriott Orlando loan, which currently
has an NOI DSCR below 1.0x, the WADSCR is 1.85x. On average,
excluding the Courtyard by Marriott Orlando loan, the hotel loans
can sustain an average decline of 41.7% before the NOI DSCR would
fall below 1.0x.
On average, the retail loans have a WADSCR of 1.67x and would
sustain a 34.1% decline in NOI before the DSCR would fall below
1.0x. Fitch applied additional stresses to hotel, retail and
multifamily loans to account for potential cash flow disruptions
due to the coronavirus pandemic. These additional stresses
contributed to the downgrades of classes E and F and the Negative
Outlook revision on class D.
Upcoming Maturities: One loan (1.1% of the pool) has an upcoming
maturity in September 2021; the remainder of the pool has scheduled
maturities in 2024.
RATING SENSITIVITIES
The downgrades of classes E, X-C, F and X-D and Negative Outlook
revision on classes D, reflect performance concerns with the FLOCs,
the hotel and retail properties, given the decline in travel and
commerce as a result of the coronavirus pandemic.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that could lead to upgrades would include stable to
improved asset performance, coupled with additional paydown and/or
defeasance. Upgrades to the 'A-sf' and 'AA-sf' rated classes are
not expected but would likely occur with significant improvement in
CE and/or defeasance and/or the stabilization to the properties
impacted from the coronavirus pandemic. Upgrades of the 'BBB-sf'
and below-rated classes are 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 of interest shortfalls. An upgrade
to the 'Bsf' and 'CCCsf' rated classes is not likely unless the
performance of the remaining pool stabilizes and the senior classes
pay off.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Downgrades to the 'AAAsf' rated classes are not likely due to the
position in the capital structure and the high CE. Downgrades to
classes D, E, X-C, X-D and F are possible should loans susceptible
to the coronavirus pandemic not stabilize. The Rating Outlooks on
classes D, X-C and E may be revised back to Stable if performance
of the FLOCs improves and/or properties vulnerable to the
coronavirus stabilize once the pandemic is over. Classes rated
'CCCsf' are expected to be downgraded as losses are realized. 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, classes with Negative Rating Outlooks will
be downgraded one or more categories.
[*] S&P Takes Various Actions on 89 Classes From 61 U.S. RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 89 classes from 61 U.S.
RMBS transactions issued between 2002 and 2007. The review yielded
54 downgrades, 33 affirmations, and two withdrawals.
ANALYTICAL CONSIDERATIONS
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. Our 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, we will update our assumptions
and estimates accordingly," S&P said.
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 the COVID-19 pandemic;
-- Collateral performance and/or delinquency trends;
-- Historical interest shortfalls and/or missed interest
payments;
-- Available subordination and/or overcollateralization; and
-- Erosion of or increases in credit support.
RATING ACTIONS
"The rating changes reflect our opinion regarding the associated
transaction-specific collateral performance and/or structural
characteristics, and/or reflect the application of specific
criteria applicable to these classes. Please see the ratings list
below for the specific rationales associated with each of the
classes with rating transitions," S&P said.
"The affirmations reflect our opinion that our projected credit
support and collateral performance on these classes has remained
relatively consistent with our prior projections," the rating
agency said.
S&P lowered its ratings on 25 classes from 18 transactions after
assessing the impact of missed interest payments on the classes.
The rating agency 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 missed interest payments resulting from
credit or liquidity erosion. In applying the criteria, S&P looked
to see if these classes received additional compensation beyond the
imputed interest due as direct economic compensation for the delay
in interest payments, which these classes did. Additionally, these
classes have a delayed reimbursement provision. The downgrades are
based on our cash flow projections used in determining the
likelihood that the missed interest payments would be reimbursed
under various scenarios.
S&P withdrew its ratings on classes VII-X and VIII-X from Credit
Suisse First Boston Mortgage Securities Corp.'s series 2003-23,
which are interest-only (IO) classes whose notional amounts are
determined based on the principal balances of classes VII-A-1 and
VIII-A-1, respectively, from the same transaction. The rating
actions on these classes reflect the application of S&P's IO
criteria, which provides that the rating agency will maintain the
current rating on an IO class until the ratings on all of the
classes that the IO security references in the determination of its
notional balance are either lowered to below 'AA- (sf)' or have
been retired; at which time S&P will withdraw these IO ratings. S&P
withdrew its ratings on these classes, as class VII-A-1 and
VIII-A-1 were paid in full in March 2020, subsequently resulting in
the notional amount of the IO classes being reduced to zero.
A list of Affected Ratings can be viewed at:
https://bit.ly/2V6ZVxV
*********
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