/raid1/www/Hosts/bankrupt/TCR_Public/201011.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, October 11, 2020, Vol. 24, No. 284
Headlines
AMSR TRUST 2020-SFR4: DBRS Finalizes B(low) Rating on G-2 Certs
AMSR TRUST 2020-SFR5: DBRS Gives Prov. B(low) Rating on G Certs
AVERY POINT VI: Moody's Lowers Rating on Class F Notes to Caa1
BAIN CAPITAL 2019-1: Moody's Confirms Ba3 Rating on Class E Notes
BARCLAYS COMMERCIAL 2013-C6: Fitch Cuts Class F Certs to CCC
BATTALION CLO 18: S&P Assigns BB- (sf) Ratings on Class E Notes
BATTALION CLO 18: S&P Assigns Prelim BB-(sf) Rating to E Notes
BBCMS MORTGAGE 2020-BID: DBRS Gives Prov. BB Rating on HRR Certs
BBCMS MORTGAGE 2020-C8: Fitch to Rate 2 Tranches 'B-(EXP)sf'
BDS LTD 2020-FL6: DBRS Finalizes B(low) Rating on Class G Notes
BLACKROCK DLF IX 2019-G: DBRS Confirms B Rating on Class E Notes
BLACKROCK DLF IX 2019: DBRS Confirms B Rating on Class E Notes
BX COMMERCIAL 2020-VKNG: DBRS Finalizes B Rating on Class G Certs
CITIGROUP COMMERCIAL 2016-C3: Fitch Affirms B- Rating on 2 Tranches
CITIGROUP COMMERCIAL 2016-P6: Fitch Affirms B- Rating on F Certs
CITIGROUP MORTGAGE 2020-RP1: DBRS Finalizes B(high) on B-2 Certs
COLONNADE GLOBAL 2018-5: DBRS Confirms BB(high) on Tranche K
COLT 2020-RPL1: Fitch to Rate Class B-2 Debt 'B(EXP)'
COMM 2012-CCRE1: Moody's Lowers Rating on Class G Certs to 'Caa3'
COMM 2012-CCRE3: Moody's Lowers Rating on Class G Certs to 'C'
COMM 2013-GAM: DBRS Assigns BB Rating on Class F Certs
COMM MORTGAGE 2017-PANW: Fitch Affirms 'BB' Rating on Class E Certs
CONN'S RECEIVABLES 2020-A: Fitch to Rate Class C Notes 'B(EXP)sf'
CSMC TRUST 2020-RPL4: Fitch Gives B Rating on Class B-2 Notes
DBWF MORTGAGE 2015-LCM: DBRS Gives BB(low) Rating on 2 Tranches
DIAMETER CREDIT III: Moody's Gives Ba3 Rating on $24MM Cl. E Notes
DRYDEN 37: Moody's Confirms B3 Rating on Class FR Notes
FAIRSTONE FINANCIAL 2020-1: Moody's Gives (P)Ba3 Rating on D Notes
FIRSTKEY HOMES 2020-SFR2: DBRS Gives Prov. B(high) on 2 Tranches
GREAT LAKES 2014-1: Moody's Cuts Rating on Class F-R Notes to Caa1
GREAT LAKES 2015-1: Moody's Lowers Rating on F-R Notes to Caa1
GS MORTGAGE 2020-PJ4: DBRS Finalizes B Rating on Class B-5 Certs
HMH TRUST 2017-NSS: DBRS Assigns B(low) Rating on Class E Certs
HUDSON'S BAY 2015-HBS: DBRS Gives BB Rating on Class X-2-FL Certs
ICG US 2018-1: Moody's Confirms Ba3 Rating on $18MM Class D Notes
JAMESTOWN CLO IV: Moody's Lowers Rating on Class E Notes to Caa3
JAMESTOWN CLO V: Moody's Lowers Rating on Class F Notes to 'Ca'
JP MORGAN 2020-7: DBRS Finalizes B(low) Rating on 2 Tranches
JP MORGAN 2020-LTV2: DBRS Finalizes B Rating on 2 Tranches
KKR CLO 12: Moody's Confirms Ba3 Rating on Class E-R2 Notes
KKR CLO 16: Moody's Confirms Ba3 Rating on Class D-R Notes
KKR CLO 19: Moody's Confirms Ba3 Rating on Class D Notes
KKR CLO 22: Moody's Confirms Ba3 Rating on Class E Notes
KKR CLO 23: Moody's Confirms B3 Rating on Class F Notes
KKR CLO 24: Moody's Confirms Ba3 Rating on $23MM Class E Notes
KKR CLO 26: Moody's Confirms Ba3 Rating on Class E Notes
KVK CLO 2018-1: Moody's Lowers Rating on Class F Notes to Caa3
LAKE SHORE III: S&P Assigns Prelim BB-(sf) Rating to Class E Notes
MADISON PARK XXXIV: Fitch Affirms BB- Rating on Class E Notes
MORGAN STANLEY 2013-ALTM: DBRS Gives BB Rating on Class E Certs
MORGAN STANLEY 2013-C10: Fitch Cuts Rating on Class H Certs to CC
MORGAN STANLEY 2013-C11: Fitch Lowers Class F Certs to Csf
MORGAN STANLEY 2018-MP: DBRS Assigns BB Rating on Class E Certs
MUSKOKA 2018-1: DBRS Confirms BB Rating on Class D Notes
MUSKOKA 2019-1: DBRS Keeps B (High) on Class D Notes Under Review
NEWARK BSL: Moody's Confirms Ba3 Rating on Class D Notes
NRZ EXCESS 2018-PLS1: DBRS Rates Class D Notes 'BB', Trend Negative
NRZ EXCESS 2018-PLS2: DBRS Rates Class D Notes 'BB', Trend Negative
NRZ MSR-COLLATERALIZED 2019-FNT1: DBRS Rates 3 Tranches 'B(high)'
OCTAGON INVESTMENT 31: Moody's Confirms B3 Rating on Class F Notes
OZLM LTD XVII: Moody's Confirms Ba3 Rating on Class D Notes
OZLM LTD XVIII: Moody's Confirms B3 Rating on Class F Notes
PAWNEE EQUIPMENT 2020-1: DBRS Finalizes BB Rating on Class E Notes
RADNOR RE 2020-2: Moody's Rates Class B-1 Notes 'B3'
REPUBLIC FINANCE 2020-A: DBRS Gives Prov. BB Rating on Cl. D Notes
TCP DLF VIII 2018: DBRS Confirms B Rating on Class E Notes
TCP RAINIER: DBRS Confirms BB Rating on Class C Certs
TOWD POINT 2020-4: Fitch Gives 'B-(EXP)' Rating on Class B2 Notes
VENTURE 31: Moody's Confirms B3 Rating on Class F Notes
VENTURE CLO XIII: Moody's Lowers Rating on Class E-R Notes to 'B1'
VOYA CLO 2014-2: Moody's Lowers Rating on Cl. E-R Notes to Caa1
VOYA CLO 2014-3: Moody's Lowers Rating on Class E Notes to Caa3
VOYA CLO 2015-2: Moody's Confirms Ba3 Rating on Class E-R Notes
WELLS FARGO 2020-5: DBRS Gives Prov. B(low) Rating on B-4 Certs
WELLS FARGO 2020-5: Fitch to Rate Class B-5 Debt 'B+(EXP)'
WELLS FARGO 2020-5: Moody's Gives (P)Ba2 Rating on Cl. B-5 Debt
WFRBS COMMERCIAL 2012-C6: Fitch Affirms Bsf Rating on Cl. F Certs
WIND RIVER 2014-2: Moody's Lowers Rating on Class F-R Notes to Caa1
WIND RIVER 2014-3K: Moody's Cuts Rating on Class F Notes to Caa1
WIND RIVER 2015-1: Moody's Confirms Ba3 Rating on Class E-R Notes
WIND RIVER 2017-1: Moody's Confirms Ba3 Rating on Class E Notes
[*] Fitch Takes Action on Distressed Bonds in 7 U.S/ CMBS Deals
*********
AMSR TRUST 2020-SFR4: DBRS Finalizes B(low) Rating on G-2 Certs
---------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Single-Family Rental Pass-Through Certificates (the Certificates)
issued by AMSR 2020-SFR4 Trust (AMSR 2020-SFR4).
-- $320.0 million Class A at AAA (sf)
-- $91.7 million Class B at AA (high) (sf)
-- $47.0 million Class C at A (high) (sf)
-- $55.9 million Class D at A (low) (sf)
-- $31.3 million Class E-1 at BBB (high) (sf)
-- $62.6 million Class E-2 at BBB (low) (sf)
-- $57.1 million Class F at BB (low) (sf)
-- $39.2 million Class G-1 at B (high) (sf)
-- $55.9 million Class G-2 at B (low) (sf)
The AAA (sf) rating on the Class A Certificates reflects 61.2% of
credit enhancement provided by subordinated notes in the pool. The
AA (high) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), BBB
(low) (sf), BB (low) (sf), B (high) (sf), and B (low) (sf) ratings
reflect 50.0%, 44.3%, 37.5%, 33.7%, 26.1%, 19.2%, 14.4%, and 7.6%
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 4,037 rental properties. The properties are distributed across
11 states and 23 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 value, 51.6% of the portfolio is
concentrated in three states: Georgia (27.7%), Texas (12.1%), and
Arizona (11.8%). The average value is $221,697. The average age of
the properties is roughly 25 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 $760.7 million.
The Sponsor intends to satisfy its risk-retention obligations under
the U.S. Risk Retention Rules by Class H, which is 8.27% of the
initial total issuance balance, either directly or through a
majority-owned affiliate.
DBRS Morningstar finalized the provisional ratings for each class
of certificates by performing a quantitative and qualitative
collateral, structural, and legal analysis. This analysis uses DBRS
Morningstar's single-family rental subordination model and is based
on DBRS Morningstar's published criteria. DBRS Morningstar
developed property-level stresses for the analysis of single-family
rental assets. DBRS Morningstar finalized the provisional ratings
on each class based on the level of stresses each class can
withstand and whether such stresses are commensurate with the
applicable rating level. DBRS Morningstar's analysis includes
estimated base-case net cash flows (NCFs) by evaluating the gross
rent, concession, vacancy, operating expenses, and capital
expenditure data. The DBRS Morningstar NCF analysis resulted in a
minimum debt service coverage ratio of higher than 1.0 times (x).
Notes: All figures are in U.S. dollars unless otherwise noted.
AMSR TRUST 2020-SFR5: DBRS Gives Prov. B(low) Rating on G Certs
---------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following
Single-Family Rental Pass-Through Certificates (the Certificates)
to be issued by AMSR 2020-SFR5 Trust (AMSR 2020-SFR5).
-- $131.4 million Class A at AAA (sf)
-- $50.4 million Class B at AAA (sf)
-- $17.5 million Class C at AA (high) (sf)
-- $23.0 million Class D at A (high) (sf)
-- $40.5 million Class E-1 at BBB (high) (sf)
-- $21.9 million Class E-2 at BBB (low) (sf)
-- $48.2 million Class F at BB (low) (sf)
-- $43.8 million Class G at B (low) (sf)
The AAA (sf) rating on the Class A and B Certificates reflect
69.35% and 57.60% of credit enhancement, respectively, provided by
subordinated notes in the pool. The AA (high) (sf), A (high) (sf),
BBB (high) (sf), BBB (low) (sf), BB (low) (sf), and B (low) (sf)
ratings reflect 53.52%, 48.15%, 38.70%, 33.60%, 22.36% and 12.14%
of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The AMSR 2020-SFR5 certificates are supported by the income streams
and values from 2,226 rental properties. The properties are
distributed across 15 states and 44 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 BPO value, 63.4% of
the portfolio is concentrated in three states: Texas (24%), Georgia
(22.2%), and Florida (17.2%). The average value is $196,754. The
average age of the properties is roughly 31 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 $428.7 million.
The Sponsor intends to satisfy its risk-retention obligations under
the U.S. Risk Retention Rules by Class I, which is 8.1% of the
initial total issuance balance, either directly or through a
majority-owned affiliate.
DBRS Morningstar assigned the provisional ratings for each class of
certificates by performing a quantitative and qualitative
collateral, structural, and legal analysis. This analysis uses DBRS
Morningstar's single-family rental subordination model and is based
on DBRS Morningstar's published criteria. DBRS Morningstar
developed property-level stresses for the analysis of single-family
rental assets. DBRS Morningstar assigned the provisional ratings to
each class based on the level of stresses each class can withstand
and whether such stresses are commensurate with the applicable
rating level. DBRS Morningstar's analysis includes estimated
base-case NCFs by evaluating the gross rent, concession, vacancy,
operating expenses, and capital expenditure (capex) data. The DBRS
Morningstar NCF analysis resulted in a minimum DSCR of higher than
1.0 times (x).
Notes: All figures are in U.S. dollars unless otherwise noted.
AVERY POINT VI: Moody's Lowers Rating on Class F Notes to Caa1
--------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Avery Point VI CLO, Limited:
US$9,000,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2027 (the "Class F Notes"), Downgraded to Caa1 (sf); previously
on April 17, 2020 B3 (sf) Placed Under Review for Possible
Downgrade
The Class F Notes are referred to herein as the "Downgraded
Notes."
Moody's also confirmed the ratings on the following notes:
US$24,000,000 Class E-1 Senior Secured Deferrable Floating Rate
Notes due 2027 (the "Class E-1 Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
US$1,000,000 Class E-2 Senior Secured Deferrable Floating Rate
Notes due 2027 (the "Class E-2 Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
The Class E-1 and Class E-2 Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class E-1, Class E-2 Notes, and Class F Notes
issued by the CLO. The CLO, originally issued in June 2015 and
partially refinanced in September 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 August 2020.
RATINGS RATIONALE
The downgrade on the Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3335, compared to 2900
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 2999 reported in
the August 2020 trustee report [3]. 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
19.17%. Furthermore, Moody's calculated the total collateral par
balance, including recoveries from defaulted securities, at $482.3
million, or $17.7 million less than the deal's ramp-up target par
balance. Moody's noted that the OC test for the Class E-1 and Class
E-2 Notes was recently reported [4] as passing whereas the
reinvestment OC test was failing, which resulted in diverting
approximately $1.0 million of excess interest collections towards
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $477,499,761
Defaulted Securities: $15,453,115
Diversity Score: 81
Weighted Average Rating Factor (WARF): 3320
Weighted Average Life (WAL): 4.9 years
Weighted Average Spread (WAS): 3.49%
Weighted Average Coupon (WAC): 6.5%
Weighted Average Recovery Rate (WARR): 47.7%
Par haircut in OC tests and interest diversion test: 0.00%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
BAIN CAPITAL 2019-1: Moody's Confirms Ba3 Rating on Class E Notes
-----------------------------------------------------------------
Moody's Investors Service confirmed the rating on the following
notes issued by Bain Capital Credit CLO 2019-1, Limited:
US$23,500,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2032 (the "Class E Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class E Notes are referred to herein as the "Confirmed Notes."
This action concludes the review for downgrade initiated on April
17, 2020 on the Class E Notes issued by the CLO. The CLO, issued in
April 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
April 2024.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering 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
Confirmed Notes.
According to the trustee's August 2020 report [1], the Class E OC
test and the interest diversion test were both reported at 106.34%,
passing their respective trigger levels of 104.20% and 105.20%.
According to Moody's calculation, the weighted average rating
factor (WARF) is currently 3293, and, 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 17.67%.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $490,717,514.76
Defaulted Securities: $7,026,595.09
Diversity Score: 83
Weighted Average Rating Factor (WARF): 3293
Weighted Average Life (WAL): 6.0 years
Weighted Average Spread (WAS): 3.51%
Weighted Average Recovery Rate (WARR): 47.46%
Par haircut in OC tests and interest diversion test: 0.09%
Finally, Moody's notes that it also considered the information in
the September 2020 trustee report [2] which became available
immediately prior to the release of this announcement.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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 Rating:
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 this rating was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
August 2020.
BARCLAYS COMMERCIAL 2013-C6: Fitch Cuts Class F Certs to CCC
------------------------------------------------------------
Fitch Ratings has downgraded two classes and affirmed 11 classes of
Barclays Commercial Mortgage Securities LLC's UBS-Barclays
Commercial Mortgage Trust 2013-C6, commercial mortgage pass-through
certificates.
RATING ACTIONS
UBS-BB 2013-C6
Class A-3 90349GBE4; LT AAAsf Affirmed; previously at AAAsf
Class A-3FL 90349GAC9; LT AAAsf Affirmed; previously at AAAsf
Class A-3FX 90349GAA3; LT AAAsf Affirmed; previously at AAAsf
Class A-4 90349GBF1; LT AAAsf Affirmed; previously at AAAsf
Class A-S 90349GBH7; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 90349GBG9; LT AAAsf Affirmed; previously at AAAsf
Class B 90349GAN5; LT AA-sf Affirmed; previously at AA-sf
Class C 90349GAQ8; LT A-sf Affirmed; previously at A-sf
Class D 90349GAS4; LT BBB-sf Affirmed; previously at BBB-sf
Class E 90349GAU9; LT Bsf Downgrade; previously at BBsf
Class F 90349GAW5; LT CCCsf Downgrade; previously at Bsf
Class X-A 90349GAG0; LT AAAsf Affirmed; previously at AAAsf
Class X-B 90349GAJ4; LT A-sf Affirmed; previously at A-sf
KEY RATING DRIVERS
Increased Loss Expectations: Loss expectations have increased due
to recent transfers to special servicing and declining performance
of the Fitch Loans of Concern (FLOCs), primarily the result of the
slowdown in economic activity related to coronavirus. Fitch
identified 16 loans (31.6%) as FLOCs, which consists of seven
retail loans (21.3%), including the specially serviced Broward Mall
loan (8.3%), seven hotel loans (8.6%) and one mixed use loan
(1.8%).
Fitch Loans of Concern/Specially Serviced Loans: There are five
loans (13%) in special servicing. The largest specially serviced
loan is Broward Mall, which is a 1,037,728-sf regional mall located
in Plantation, FL. The property is shadow-anchored by a
former-Sears (closed in July 2018), Macy's, JC Penny and Dillard's,
all of which are on ground leases. Seritage is redeveloping the
former Sears site into a Game Time. The loan collateral includes
325,701 sf of inline space including tenants H&M, Victoria's
Secret, Express, Footaction, Finish Line and Hollister.
Additionally, there is a 55,823 sf 12-screen Regal Cinema that
opened in January 2014.
The loan transferred to the special servicer in June 2020 for
imminent default at the borrower's request and the servicer reports
that a consensual foreclosure is being discussed. Occupancy was
reported to be 89% as of YE 2019 compared to 94% at YE 2018 and 83%
at issuance. In addition to a base case loss, Fitch ran an
additional sensitivity scenario on the loan, which assumed a 50%
loss severity to the current balance to reflect the potential for
outsized losses given the possible foreclosure of the loan, the
recent bankruptcy announcement of Regal Cinema (Cineworld) and
negative impact to the property from the coronavirus pandemic.
The second largest specially serviced loan is the Doubletree Hotel
& Miami Airport Convention Center, which consists of a 334-room,
full-service hotel, 197,941-sf convention center, and 23,152sf of
retail shops, located in Miami, FL. The loan transferred to special
servicing in June 2020 for imminent default at the borrower's
request; the servicer is evaluating legal remedies after failed
forbearance negotiations. According to the trailing twelve-month
(TTM) June 2020 STR report, occupancy, ADR, and RevPAR for the
subject property was reported to be 57% (91% penetration rate),
$125.83 (99% penetration rate), and $72.15 (90% penetration rate),
respectively.
The largest FLOC in the pool is the Shoppes at River Crossing, a
727,963-sf shopping center, of which 527,963-sf is collateral,
located in Macon, Georgia. Built in 2008, the property is a
lifestyle center with a power center component. Fitch applied
additional coronavirus specific base case stresses in its analysis
as the property is expected to be impacted in the near term by the
coronavirus pandemic. The subject is anchored by Belk's (25% of
NRA) (ground lease) and Dillard's (not part of collateral). Other
major tenants include Dick's, Barnes & Noble, Jo-Ann Fabric and
DSW. The loan is on the servicer's watchlist due to the borrower
requesting coronavirus-related relief.
Defeasance/Improved Credit Enhancement Since Issuance: Credit
enhancement has improved since issuance from paydown and
defeasance. Sixteen loans (16.9%) are fully defeased, including the
fourth largest loan (6.1%). As of the September 2020 distribution
date, the pool's aggregate balance has been reduced by 12% to $1.1
billion from $1.3 billion at issuance. Interest shortfalls are
currently affecting non-rated class G. Ten loans (41.6% of the
pool) are full-term interest-only, one loan (0.8%) is fully
amortizing and the remaining 59 loans are amortizing.
Alternative Loss Considerations: In addition to the sensitivity
scenario performed on the Broward Mall, Fitch also applied a 15%
loss severity to the maturity balance of the Bayview Plaza loan
(4.6%), which is secured by the fee-simple (two retail buildings)
and leased-fee interests (two buildings ground leased by a
subsidiary and holding company of Louis Vuitton Moet Hennessey) in
a 244,626 sf regional mall located in Tumon, Guam. Occupancy has
declined to 80% as of year-end (YE) 2019 from 95% at issuance. The
additional sensitivity was applied due to the decline in occupancy
and the property's location in Guam, which will likely continue to
experience steep declines in travel and tourism due to the
pandemic.
Retail Concentration: Retail properties represent 49.3% of the
pool, with five retail loans in the top 10. Additionally, mixed-use
properties make up 16.6% of the pool, with three mixed-use loans in
the top 15. For 2012 vintage transactions, the average retail and
mixed-use exposures were 35.9% and 4.2%, respectively.
Coronavirus Exposure: There are nine loans (9.6%) secured by hotel
properties that have a weighted average NOI DSCR of 2.36x. The 20
loans (49.3%) secured by retail properties have a weighted average
NOI DSCR of 2.70x. The base case analysis applied additional
stresses to six of the hotel loans and 14 of the retail loans due
to their vulnerability to the coronavirus pandemic. These
additional stresses contributed to the downgrades to classes E and
F and revising the Outlook for classes B, C, D and E to Negative.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes B, C, D, E and
interest-only class X-B are primarily due to increased loss
expectations from the specially serviced loans as well as various
performance concerns resulting from the coronavirus pandemic.
Downgrades are possible should performance deteriorate further. The
Stable Rating Outlooks on classes A-3 through A-S (and
interest-only classes X-A) reflect increasing credit enhancement,
continued amortization and generally stable performance 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 paydown and/or defeasance.
While not considered likely in the near term, upgrades to classes
B, C and D are possible with significant improvement in credit
enhancement and/or defeasance. However, adverse selection,
increased concentrations or the underperformance of particular
loans may limit the potential for future upgrades. Upgrades to
classes E and F are considered unlikely unless there is significant
improvement or paydown and substantially higher recoveries than
expected on the specially serviced loans/assets. Classes would not
be upgraded above 'Asf' if there were a likelihood for interest
shortfalls.
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 senior A-3, A-3FL, A-4, A-SB classes along with
class A-S may occur should interest shortfalls occur or if the
probability of an outsized loss on Broward Mall loan becomes more
likely. A downgrade to classes B, C and D may occur should the
FLOCs performance fail to stabilize, additional loans transfer to
special servicing, or performance deteriorates for other loans in
the pool. Further downgrades to class E would occur should loss
expectations increase due to a continued decline in performance of
the FLOCs, an increase in specially serviced loans or the
disposition of a specially serviced loan at a higher than expected
loss. The Negative Rating Outlooks on classes B, C, D and E may be
revised back to stable if performance of the FLOCs improves and/or
properties vulnerable to the coronavirus pandemic eventually
stabilize. Class F could be further downgraded as losses are
realized.
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
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BATTALION CLO 18: S&P Assigns BB- (sf) Ratings on Class E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its ratings to Battalion CLO 18
Ltd./Battalion CLO 18 LLC's floating- and fixed-rate notes.
The note issuance is a CLO transaction backed by at least 90.0%
senior secured loans, cash, and eligible investments.
The ratings reflect S&P's view of:
-- 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; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
RATINGS ASSIGNED
Battalion CLO 18 Ltd./Battalion CLO 18 LLC
Class Rating Amount (mil. $)
A-1 AAA (sf) 236.00
A-2 AAA (sf) 20.00
B AA (sf) 48.00
C (deferrable) A (sf) 24.00
D-1 (deferrable) BBB+ (sf) 12.00
D-2 (deferrable) BBB+ (sf) 8.00
E (deferrable) BB- (sf) 14.00
Subordinated notes NR 36.60
NR--Not rated.
BATTALION CLO 18: S&P Assigns Prelim BB-(sf) Rating to E Notes
--------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Battalion
CLO 18 Ltd./Battalion CLO 18 LLC's floating- and fixed-rate notes.
The note issuance is a CLO transaction backed by at least 90.0%
senior secured loans, cash, and eligible investments.
The preliminary ratings are based on information as of Oct. 2,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The 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; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
PRELIMINARY RATINGS ASSIGNED
Battalion CLO 18 Ltd./Battalion CLO 18 LLC
Class Rating Amount (mil. $)
A-1 AAA (sf) 236.00
A-2 AAA (sf) 20.00
B AA (sf) 48.00
C (deferrable) A (sf) 24.00
D-1 (deferrable) BBB+ (sf) 12.00
D-2 (deferrable) BBB+ (sf) 8.00
E (deferrable) BB- (sf) 14.00
Subordinated notes NR 36.60
NR--Not rated.
BBCMS MORTGAGE 2020-BID: DBRS Gives Prov. BB Rating on HRR Certs
----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2020-BID to
be issued by BBCMS 2020-BID Mortgage Trust:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (high) (sf)
-- Class HRR at BB (sf)
-- Class X-CP at AAA (sf)
-- Class X-EXT at A (low) (sf)
All trends are Stable.
The Class X-CP and X-EXT Certificates are interest-only (IO)
classes whose balances are notional.
The BBCMS 2020-BID Mortgage Trust single-asset/single-borrower
transaction is collateralized by the borrower's fee-simple interest
in a Class A office building in the Upper East Side submarket of
Manhattan, New York. DBRS Morningstar takes a positive view on the
credit characteristics of the collateral, which has served as the
global headquarters and primary North American auction house for
Sotheby's for the last forty years.
The building benefits from the long-term tenancy of Sotheby's,
which executed a brand new 15-year NNN lease with three, 10-year
extension options concurrently with the closing of the mortgage
loan. In addition to having been at the property since 1980,
Sotheby's has also invested more than $50 million in its space in
2018 and 2019 alone. Furthermore, to the extent Sotheby's space
needs change, the property is ideally located to take advantage of
captive demand from a cluster of major medical office space users
including New York-Presbyterian/Weill Cornell Hospital and the
Hospital for Special Surgery.
The property benefits from a substantial floor value based on its
desirable location on the Upper East Side. The appraiser's
concluded land value was approximately $485 million or over $1,100
psf, which covers the entire whole loan balance inclusive of the
$60 million mezzanine loan and provides additional downside
protection.
The borrower is primarily using whole loan proceeds to refinance
existing debt on the property held by BNP Paribas, and is not
repatriating any equity to itself as a part of the transaction.
DBRS Morningstar views cash-neutral refinancings more favorably
than when the sponsor is withdrawing significant equity, which
results in reduced skin in the game.
The transaction also benefits an upfront interest reserve of
approximately $16.7 million, which was funded by the borrower at
close. The reserve represents approximately 12 months of debt
service on the mortgage loan assuming zero cash flow was available
from the property to pay debt service (based on the identical Libor
cap and floor strike rate of 0.25%).
The property is entirely leased to a single tenant, Sotheby's,
which executed a new 15-year NNN lease in conjunction with the
mortgage loan. In the event that Sotheby's were unable to meet its
obligations under the terms of the lease, the sponsor (also an
affiliate) would need to lease a significant amount of space. While
DBRS Morningstar believes this scenario is unlikely during the
five-year fully extended loan term, and medical offices provide a
logical downside hedge, we concluded that tenant improvement
allowances for the space were consistent with medical office
conversion.
Despite its long history and prominent position in the global
auction industry, Sotheby's raised significant doubt regarding its
ability to operate as a going concern in its 2019 annual report and
reported a loss of $71.2 million for YE2019. Furthermore, Sotheby's
reported an operating loss of $77.2 million for the six months
ended June 30, 2020, and like many other businesses, has
experienced disruptions in its operations attributable to the
ongoing Coronavirus Disease (COVID-19) pandemic. It was also
reported that, in response to the pandemic, the firm had furloughed
approximately 12% of its staff and reduced employee pay by 20% for
its remaining employees in the U.S. and the UK.
The mortgage loan is IO through the five-year fully extended term
and does not benefit from deleveraging through amortization.
Classes X-CP and X-EXT are (IO) certificates that reference a
single rated tranche. The IO rating generally mirrors the
lowest-rated applicable reference obligation tranche adjusted
upward by one notch if senior in the waterfall. The IO rating on
the Class X-EXT mirrors the rating of Class D, adjusted upward by
one notch because of its seniority in the waterfall to A (low)
(sf), based on its entitlement to certain "additional interest"
amounts attributable to the Class A, B, C, and D certificates.
Notes: All figures are in U.S. dollars unless otherwise noted.
BBCMS MORTGAGE 2020-C8: Fitch to Rate 2 Tranches 'B-(EXP)sf'
------------------------------------------------------------
Fitch Ratings has issued a presale report on BBCMS Mortgage Trust
2020-C8, commercial mortgage pass-through certificates, series
2020-C8.
RATING ACTIONS
BBCMS 2020-C8
Fitch expects to rate the transaction and assign Rating Outlooks as
follows:
-- $ 15,340,000 class A-1 'AAAsf'; Outlook Stable;
-- $ 92,700,000 class A-3 'AAAsf'; Outlook Stable;
-- $ 85,000,000a class A-4 'AAAsf'; Outlook Stable;
-- $ 266,500,000a class A-5 'AAAsf'; Outlook Stable;
-- $ 30,631,000 class A-SB 'AAAsf'; Outlook Stable;
-- $ 490,171,000b class X-A 'AAAsf'; Outlook Stable;
-- $ 125,169,000b class X-B 'A-sf'; Outlook Stable;
-- $ 64,772,000 class A-S 'AAAsf'; Outlook Stable;
-- $ 29,761,000 class B 'AA-sf'; Outlook Stable;
-- $ 30,636,000 class C 'A-sf'; Outlook Stable;
-- $ 34,136,000bc class X-D 'BBB-sf'; Outlook Stable;
-- $ 17,507,000bc class X-FG 'BB-sf'; Outlook Stable;
-- $ 7,877,000bc class X-H 'B-sf'; Outlook Stable;
-- $ 18,381,000c class D 'BBBsf'; Outlook Stable;
-- $ 15,755,000c class E 'BBB-sf'; Outlook Stable;
-- $ 8,753,000c class F 'BB+sf'; Outlook Stable.
-- $ 8,754,000c class G 'BB-sf'; Outlook Stable.
-- $ 7,877,000c class H 'B-sf'; Outlook Stable.
The following classes are not expected to be rated by Fitch:
-- $ 10,504,000cd J-RR Certificates
-- $ 14,880,660cd K-RR Interest.
(a) The initial certificate balances of class A-4 and A-5 are
unknown and expected to be $351,500,000 in the aggregate, subject
to a 5.0% variance. 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 $170,000,000, and the
expected class A-5 balance range is $181,500,000 to $351,500,000.
If the class balance of class A-5 is $351,500,000, the class A-4
certificates will not be issued. Fitch's certificate balances for
classes A-4 and A-5 are assumed at the midpoint for each class.
(b) Notional amount and interest only.
(c) Privately-placed and pursuant to Rule 144a.
(d) Eligible Horizontal Residual Interest.
The expected ratings are based on information provided by the
issuer as of Oct. 6, 2020.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 48 loans secured by 127
commercial properties having an aggregate principal balance of
$700,244,660 as of the cut-off date. The loans were contributed to
the trust by Starwood Mortgage Capital LLC, Barclays Capital Real
Estate Inc., Societe Generale Financial Corporation, Bank of
America, National Association and LMF Commercial, LLC.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 34.8% of the properties
by balance, cash flow analyses of 86.4% of the pool, and asset
summary reviews on 100% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus (which causes the COVID-19 disease) pandemic may have
an adverse impact on near-term revenue (i.e. bad debt expense, rent
relief) and operating expenses (i.e. sanitation costs) for some
properties in the pool. Delinquencies may occur in the coming
months as forbearance programs are put in place, although the
ultimate impact on credit losses will depend heavily on the
severity and duration of the negative economic impact of the
coronavirus pandemic, and to what degree fiscal interventions by
the U.S. federal government can mitigate the impact on consumers.
Per the offering documents, all the loans are current and are not
subject to any forbearance requests.
KEY RATING DRIVERS
Higher Fitch Leverage than Recent Transactions. Overall, the pool's
Fitch DSCR of 1.29x is lower than average when compared to the YTD
2020 average of 1.32x and slightly higher than the 2019 average of
1.26x. The pool's trust Fitch LTV of 101.9% is higher than YTD 2020
average of 99.1% but slightly lower than the 2019 average of
103.0%. Excluding credit opinion loans, the pool's WA DSCR and LTV
are 1.20x and 111.5%, respectively.
Credit Opinion Loans: Two loans representing 19.9% of the pool by
balance have credit characteristics consistent with
investment-grade obligations on a stand-alone basis. This is below
the YTD 2020 average of 26.4% and above the 2019 average of 14.2%.
One Manhattan West (10.0% of pool) received a stand-alone credit
opinion of 'BBB-sf', and MGM Grand & Mandalay Bay (9.9%) received a
stand-alone credit opinion of 'BBB+sf'.
High Office Exposure and Low Retail Exposure. Loans secured by
office properties represent 40.8% of the pool by balance. Five of
the top 10 loans are backed by office properties. The total office
concentration is higher than the 2019 average of 34.2% and in line
with the YTD 2020 average of 39.0%. Loans secured by retail
properties represent 16.9% of the pool by balance, lower than the
2019 average of 23.6% but higher than the YTD 2020 averages 15.5%.
Two of the top 10 loans are secured by retail properties including
ExchangeRight Net Leased Portfolio 38 (4.2% of the pool balance),
backed by a portfolio of geographically-diverse retail properties,
and Newpark Town Center (3.1%), a mixed-use property comprised of
office and anchored retail space.
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: A+sf / A-sf / BBB-sf / BB-sf / CCCsf / CCCsf
20% NCF Decline: BBB+sf / BBB-sf / BB+sf / CCCsf / CCCsf / CCCsf
30% NCF Decline: BBB+sf / BB+sf / CCCsf / 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 / AA+sf / Asf / BBB-sf / BBB-sf
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 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.
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.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties, and
enforcement mechanisms (RW&Es) that are disclosed in the offering
document and which relate to the underlying asset pool is available
by clicking the link to the Appendix. The appendix also contains a
comparison of these RW&Es to those Fitch considers typical for the
asset class as detailed in the Special Report titled
'Representations, Warranties and Enforcement Mechanisms in Global
Structured Finance Transactions'.
A description of the transaction's representations, warranties, and
enforcement mechanisms (RW&Es) that are disclosed in the offering
document and which relate to the underlying asset pool is available
by clicking the link to the Appendix. The appendix also contains a
comparison of these RW&Es to those Fitch considers typical for the
asset class as detailed in the special report titled
'Representations, Warranties and Enforcement Mechanisms in Global
Structured Finance Transactions.'
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BDS LTD 2020-FL6: DBRS Finalizes B(low) Rating on Class G Notes
---------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by BDS 2020-FL6 Ltd. (the Issuer):
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
DBRS Morningstar analyzed the pool to determine the ratings,
reflecting the long-term risk that the Issuer will default and fail
to satisfy its financial obligations in accordance with the terms
of the transaction. The mortgage loan cut-off date balance of
$489.4 million consists of the cut-off date balance of $440.9
million and the companion participation cut-off date balance of
$48.4 million. The holder of the future funding companion
participation has full responsibility to fund the future funding
companion participations. The collateral pool for the transaction
is static with no ramp-up period or reinvestment period; however,
the Issuer has the right to acquire fully funded future funding
participations subject to stated criteria during the replenishment
period, which ends on or about September 15, 2022 (subject to a
60-day extension for binding commitments entered during the
replenishment period).
The transaction has a sequential-pay structure. Interest can be
deferred for Classes C, D, E, F, and G, and interest deferral will
not result in an event of default. The collateral consists of 19
mortgage assets (including one whole loan and 18 funded pari passu
participations of whole loans) secured by 25 properties. Of the 25
properties, 24 are multifamily assets (97.6% of the mortgage asset
cut-off date balance) and one property is a manufactured housing
community (2.4% of the mortgage asset cut-off date balance). Two
loans (totaling 13.4% of the mortgage asset cut-off balance) are
secured by a portfolio of multiple properties that are
cross-collateralized and cross-defaulted. The loans are mostly
secured by cash flowing assets, most of which are in a period of
transition with plans to stabilize and improve the asset value.
All the loans in the pool have floating interest rates initial
indexed to Libor and are interest-only through their initial terms.
As such, DBRS Morningstar used the one-month Libor index, which was
the lower of DBRS Morningstar's stressed rates that corresponded to
the remaining fully extended term of the loans and the strike price
of the interest rate cap with the respective contractual loan
spread added, to determine a stressed interest rate over the loan
term.
When measuring the cut-off date balances against the DBRS
Morningstar As-Is Net Cash Flow, 15 loans, representing 77.2% of
the mortgage loan cut-off date balance, had a DBRS Morningstar
As-Is Debt Service Coverage Ratio (DSCR) below 1.00 times (x), a
threshold indicative of default risk. Additionally, in the DBRS
Morningstar Stabilized DSCR analysis, no loans were below 1.00x,
which indicates elevated refinance risk. The properties are often
transitioning with potential upside in cash flow; however, DBRS
Morningstar does not give full credit to the stabilization if there
are no holdbacks or if the other loan structural features are
insufficient to support such treatment. Furthermore, even if the
structure is acceptable, DBRS Morningstar generally does not assume
the assets will stabilize above market levels.
In some cases, loans included in the pool are several years
seasoned, and the original business plans have not materialized as
expected, significantly increasing the loans' risk profile. Given
the nature of the assets, DBRS Morningstar sampled a large portion
of the pool at 82.6% of the cut-off date balance. This sample size
is higher than the typical sample for traditional conduit
commercial mortgage-backed securities (CMBS) transactions. DBRS
Morningstar also performed physical site inspections, including
management meetings, for 16 of the 25 properties in the pool (72.6%
of the pool by allocated loan balance). The weighted average
remaining fully extended term is 57 months.
In some instances, DBRS Morningstar estimated stabilized cash flows
that are above the in-place cash flow. It is possible that the
sponsors will not successfully execute their business plans and
that the higher stabilized cash flow will not materialize during
the loan term, particularly with the ongoing Coronavirus Disease
(COVID-19) pandemic and its impact on the overall economy. A
sponsor's 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 achievable and the future funding amounts to be
sufficient to execute such plans.
With regard to the coronavirus, the magnitude and extent of
performance stress posed to global structured finance transactions
remains 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.
BLACKROCK DLF IX 2019-G: DBRS Confirms B Rating on Class E Notes
----------------------------------------------------------------
DBRS, Inc. confirmed its ratings of AAA (sf) on the Class A-1
Notes, AA (sf) on the Class A-2 Notes, A (sf) on the Class B Notes,
BBB (sf) on the Class C Notes, BB (sf) on the Class D Notes, B (sf)
on the Class E Notes (together, the Secured Notes), and BBB (low)
(sf) on the Combination Notes issued by BlackRock DLF IX 2019-G
CLO, LLC (the Issuer), pursuant to the Note Purchase and Security
Agreement (NPSA) dated as of October 16, 2019, among the Issuer;
U.S. Bank National Association (rated AA (high) with a Negative
trend by DBRS Morningstar) as the Collateral Agent, Custodian,
Document Custodian, Collateral Administrator, Information Agent,
and Note Agent; and the Purchasers referred to therein.
The ratings on the Class A-1 and A-2 Notes address the timely
payment of interest (excluding the interest payable at the
Post-Default Rate, as defined in the NPSA referred to above) and
the ultimate payment of principal on or before the Stated Maturity
of October 16, 2029. The ratings on the Class B, C, D, and E Notes
address the ultimate payment of interest (excluding the interest
payable at the Post-Default Rate, as defined in the NPSA referred
to above) and the ultimate payment of principal on or before the
Stated Maturity of October 16, 2029.
The rating on the Combination Notes addresses the ultimate
repayment of the Combination Note Rated Principal Balance (which is
equal to the Commitment amount for the Combination Notes) on or
before the Stated Maturity of October 16, 2029. The Combination
Notes have no stated coupon. The Components of the Combination
Notes include portions of the Class A-2, B, C, D, and E Notes and
the Subordinated Notes (or equity) of the Issuer.
All interest and principal amounts paid on the Secured Notes and
any distributions made to the Subordinated Notes are the only
sources of payment for the Combination Notes. All payments made on
the Component Notes (whether interest, principal, or otherwise) to
the Combination Notes shall reduce the Combination Note Rated
Principal Balance. The Combination Notes shall remain outstanding
until the earlier of (1) the payment in full and redemption of each
Component and (2) the Stated Maturity of each Component.
The principal methodology used to rate the Secured Notes and
Combination Notes is "Rating CLOs and CDOs of Large Corporate
Credit," which can be found on dbrsmorningstar.com under
Methodologies & Criteria. DBRS Morningstar stressed the Combination
Notes by applying the BBB (low) stress scenario under the "Rating
CLOs and CDOs of Large Corporate Credit" methodology to the loans
securing the Component Notes.
The notes are collateralized primarily by a portfolio of U.S.
middle-market corporate loans. The Issuer will be managed by
BlackRock Capital Investment Advisors, LLC (BCIA), which is a
wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar
considers BCIA to be an acceptable collateralized loan obligation
(CLO) manager.
The ratings reflect the following:
(1) The NPSA dated as of October 16, 2019;
(2) The integrity of the transaction structure;
(3) DBRS Morningstar's assessment of the portfolio quality;
(4) Adequate credit enhancement to withstand projected
collateral loss rates under various cash flow stress
scenarios; and
(5) DBRS Morningstar's assessment of the origination,
servicing, and CLO management capabilities of BCIA.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio that DBRS Morningstar doesn't
already rate. Credit estimates are not ratings; rather, they
represent a model-driven default probability for each obligor that
help when rating a facility.
In conjunction with DBRS Morningstar's commentary, "Global
Macroeconomic Scenarios: September Update," published on September
10, 2020, DBRS Morningstar further considers additional adjustments
to assumptions for the collateralized loan obligation (CLO) asset
class that consider the moderate economic scenario outlined in the
commentary. The adjustments include a higher default assumption for
the weighted-average (WA) credit quality of the current collateral
obligation portfolio. To derive the higher default assumption, DBRS
Morningstar notches ratings for obligors in certain industries and
obligors at various rating levels based on their perceived exposure
to the adverse disruptions caused by the coronavirus. Considering a
higher default assumption would result in losses that exceed the
original default expectations for the affected classes of notes.
DBRS Morningstar may adjust the default expectations further if
there are changes in the duration or severity of the adverse
disruptions.
For CLOs, DBRS Morningstar ran an additional higher default
adjustment on the WA DBRS Morningstar Risk Score of the current
collateral obligation pool and then ran this adjusted modeling pool
through the DBRS Morningstar CLO Asset Model to generate a stressed
default rate. DBRS Morningstar then performed a cash flow model
analysis to determine the breakeven default rate for the rated
debt. The breakeven default rate is computed over nine combinations
of default timing and interest rate stresses. The breakeven default
rate must exceed the lifetime total default rate generated by the
DBRS Morningstar CLO Asset Model for the debt to achieve the
rating. The results of this adjustment indicate that the Secured
Notes and Combination Notes can withstand an additional higher
default stress commensurate with a moderate-scenario impact of the
coronavirus pandemic.
BLACKROCK DLF IX 2019: DBRS Confirms B Rating on Class E Notes
--------------------------------------------------------------
DBRS, Inc. confirmed its provisional ratings of AAA (sf) on the
Class A-1 Notes and BBB (low) (sf) on the Combination Notes to be
issued by BlackRock DLF IX 2019 CLO, LLC (BlackRock IX CLO or the
Issuer) as well as confirmed its ratings of AA (sf) on the Class
A-2 Notes, A (sf) on the Class B Notes, BBB (sf) on the Class C
Notes, BB (sf) on the Class D Notes, and B (sf) on the Class E
Notes (together, with the Class A-1 Notes, the Secured Notes)
issued by BlackRock IX CLO, pursuant to the Note Purchase and
Security Agreement (NPSA) dated as of August 30, 2019, among the
Issuer; U.S. Bank National Association (rated AA (high) with a
Negative trend by DBRS Morningstar) as the Collateral Agent,
Custodian, Document Custodian, Collateral Administrator,
Information Agent, and Note Agent; and the Purchasers referred to
therein.
The provisional rating on the Class A-1 Notes and the rating on the
Class A-2 Notes address the timely payment of interest (excluding
the additional interest payable at the Post-Default Rate, as
defined in the NPSA referred to above) and the ultimate payment of
principal on or before the Stated Maturity of August 30, 2029. The
ratings on the Class B, C, D, and E Notes address the ultimate
payment of interest (excluding the additional interest payable at
the Post-Default Rate, as defined in the NPSA referred to above)
and the ultimate payment of principal on or before the Stated
Maturity of August 30, 2029.
The provisional rating on the Combination Notes addresses the
ultimate repayment of the Combination Note Rated Principal Balance
(which is equal to the Commitment amount for the Combination Notes)
on or before the Stated Maturity of August 30, 2029. The
Combination Notes have no stated coupon. The Components of the
Combination Notes include portions of the Class A-2, B, C, D, and E
Notes and the Subordinated Notes (or equity) of the Issuer.
All interest and principal amounts paid on the Secured Notes and
any distributions made to the Subordinated Notes are the only
sources of payment for the Combination Notes. All payments made on
the Component Notes (whether interest, principal, or otherwise) to
the Combination Notes shall reduce the Combination Note Rated
Principal Balance. The Combination Notes shall remain outstanding
until the earlier of (1) the payment in full and redemption of each
Component and (2) the Stated Maturity of each Component.
As of the Closing Date and this confirmation date, DBRS
Morningstar's ratings on the Class A-1 Notes and Combination Notes
are provisional. The provisional ratings reflect the fact that the
effectiveness of the Class A-1 Notes and Combination Notes are
subject to certain conditions after the Closing Date, such as a
drawing order. DBRS Morningstar expects the Combination Notes to be
funded in tandem with, and in proportion to, each Underlying Class
but the Class A-1 Notes and Combination Notes to not become
effective until each of the Subordinated Notes and other Secured
Notes are funded in reverse-sequential order. The finalization of
the provisional ratings on the Class A-1 Notes and Combination
Notes will be subject to satisfaction of certain conditions, as
specified in the NPSA, including, but not limited to, the remaining
unfunded commitments of the Class A-2, B, C, D, and E Notes being
reduced to zero. The provisional ratings on the Class A-1 Notes and
Combination Notes may not be finalized if the other Secured Notes
fail to be fully drawn.
The principal methodology used to rate the Secured Notes and
Combination Notes is "Rating CLOs and CDOs of Large Corporate
Credit," which can be found on dbrsmorningstar.com under
Methodologies & Criteria. DBRS Morningstar stressed the Combination
Notes by applying the BBB (low) stress scenario under the "Rating
CLOs and CDOs of Large Corporate Credit" methodology to the loans
securing the Component Notes.
The Secured Notes and Combination Notes will be collateralized
primarily by a portfolio of U.S. middle-market corporate loans. The
Issuer will be managed by BlackRock Capital Investment Advisors,
LLC (BCIA), which is a wholly owned subsidiary of BlackRock, Inc.
DBRS Morningstar considers BCIA to be an acceptable collateralized
loan obligation (CLO) manager.
The ratings reflect the following:
(1) The NPSA dated as of August 30, 2019;
(2) The integrity of the transaction structure;
(3) DBRS Morningstar's assessment of the portfolio quality;
(4) Adequate credit enhancement to withstand projected
collateral loss rates under various cash flow stress
scenarios; and
(5) DBRS Morningstar's assessment of the origination,
servicing, and CLO management capabilities of BCIA.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio that DBRS Morningstar doesn't
already rate. Credit estimates are not ratings; rather, they
represent a model-driven default probability for each obligor that
help when rating a facility.
As the Coronavirus Disease (COVID-19) spread around the world,
certain countries imposed quarantines and lockdowns, including the
United States, which accounts for more than one fourth of confirmed
cases worldwide. The coronavirus pandemic has negatively affected
not only the economies of the nations most afflicted, but also the
overall global economy with diminished demand for goods and
services as well as disrupted supply chains. The effects of the
pandemic may result in deteriorated financial conditions for many
companies and obligors, some of which will experience the effects
of such negative economic trends more than others. At the same
time, governments and central banks in multiple regions, including
the United States and Europe, have taken significant measures to
mitigate the economic fallout from the coronavirus pandemic.
For CLOs, DBRS Morningstar ran an additional higher default stress
on the weighted-average (WA) DBRS Morningstar Risk Score of the
current collateral obligation pool and compared the stressed WA
Risk Score with the Maximum DBRS Morningstar Risk Scores allowed in
the Collateral Quality Matrix. DBRS Morningstar observed that the
Collateral Quality Matrix contained sufficient rows and columns
that would allow for higher stressed DBRS Morningstar Risk Scores
and therefore a higher default probability on the collateral pool,
while still remaining in compliance with the other Collateral
Quality Tests, such as WA Spread and Diversity Score. The results
of this stress indicate that the Secured Notes and Combination
Notes can withstand an additional higher default stress
commensurate with a moderate-scenario impact of the coronavirus.
While DBRS Morningstar expects no impact on the outstanding ratings
at this time, the coronavirus has affected the manager's ability to
originate assets in the current market to ramp up the underlying
collateral pool. The provisional rating on the Combination Notes
remains sensitive to timing of cash flows that could be negatively
affected from slower asset origination and ramp-up versus initial
projections because of the coronavirus. DBRS Morningstar will
continue to monitor the transaction for satisfaction of the ramp-up
conditions necessary to finalize the provisional ratings and will
take additional rating actions, if necessary.
BX COMMERCIAL 2020-VKNG: DBRS Finalizes B Rating on Class G Certs
-----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of Commercial Mortgage Pass-Through Certificates, Series
2020-VKNG issued by BX Commercial Mortgage Trust 2020-VKNG:
-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)
-- Class HRR at B (low) (sf)
All trends are Stable.
DBRS Morningstar discontinued and withdrew its ratings on the Class
X-CP and X-NCP interest-only (IO) certificates initially
contemplated in the offering documents, as they were removed from
this transaction.
BX Commercial Mortgage Trust 2020-VKNG is a
single-asset/single-borrower transaction that is collateralized by
the borrower's fee-simple interest in 67 industrial and logistics
properties totaling approximately 8.2 million square feet across
six states in the West Coast, Midwest, and mid-Atlantic regions of
the United States. The portfolio is primarily composed of last-mile
facilities in urban infill locations, with average clear heights of
21.6 feet and an average year built of 1992. The portfolio's
composition includes a percentage of light industrial and office
properties than other recently analyzed industrial portfolios.
The portfolio has a property with a Herfindahl score of 40.9 by
allocated loan amount, which is in line with other smaller
single-borrower industrial portfolios. The properties are across
six U.S. states in multiple regions, and the portfolio also
exhibits both tenant diversity and granularity. No tenant currently
accounts for more than 6.7% of in-place base rent, and no property
accounts for more than 2.1% of the portfolio's net operating
income.
Citi Real Estate Funding Inc. and Bank of America, N.A. originated
the two-year initial term (with three one-year extension options)
mortgage loan that pays estimated floating-rate interest of Libor
plus 2.000% on an IO basis through the initial maturity of the
loan, contingent upon final pricing.
The $645 million whole loan comprises a mortgage loan totaling $600
million and a mezzanine loan totaling $45 million. The mezzanine
loan is not securitized in this transaction and is held by
BlackRock or an affiliate.
The borrower amassed the portfolio in phases across seven
acquisitions dating from October 2019 to April 2020 for a total
acquisition cost of approximately $849.3 million (including
acquisition and defeasance costs). Whole loan proceeds will
recapitalize the borrower's interest in the portfolio, which was
unencumbered by secured debt.
The portfolio primarily consists of last-mile logistics properties
in infill locations within their respective markets, with a
portfolio weighted-average population density of 2.0 million people
within a 15-mile radius. Infill markets generally benefit from less
new supply because there is little available land, as competition
from higher value uses and restrictive zoning inhibit new
industrial development. Because required delivery times have
shortened for many online retailers and e-commerce companies, they
have begun leasing smaller warehouse and distribution spaces closer
to dense consumer bases.
The portfolio has been largely unaffected by the immediate-term
disruptions from the Coronavirus Disease (COVID-19) pandemic, with
collections averaging 97.2% over May (98.2%), June (98.2%), July
(95.7%), and August (97.0%). Furthermore, DBRS Morningstar believes
that industrial properties are among the best positioned to weather
any short- and medium-term market dislocations related to the
pandemic.
With regard to the coronavirus pandemic, 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, feeling more
immediate effects. DBRS Morningstar continues to monitor the
ongoing coronavirus pandemic and its impact on both the commercial
real estate sector and the global fixed income markets.
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.
The portfolio is heavily concentrated in the Minneapolis-St. Paul
metropolitan statistical area (MSA), which contributes
approximately 70.7% of the portfolio's net operating income. While
DBRS Morningstar generally has a favorable view on the Minneapolis
industrial market, the exposure poses some risk if that industrial
demand in the MSA weakens.
Leases representing approximately 66% of DBRS Morningstar's base
rent are scheduled to roll through the fully extended loan term.
The rollover is especially concentrated in 2022 and 2023, when
14.6% and 17.9% of the base rent is scheduled to expire,
respectively. Significant portfolio rollover typically indicates
future cash flow could be volatile, particularly if market rents or
occupancy rates have become less favorable.
The loan allows for pro rata paydowns for the first 30% of the
unpaid principal balance. The loan has a partial pro
rata/sequential-pay structure. We consider this structure to be
credit negative, particularly at the top of the capital stack.
Under a partial pro rata structure, deleveraging of the senior
notes through the release of individual properties occurs at a
slower pace as compared with a sequential-pay structure.
The borrower can also release individual properties with customary
requirements. However, the prepayment premium for releasing
individual assets is 105% of the allocated loan amount until the
outstanding principal balance has dropped to $420 million, and 110%
thereafter. DBRS Morningstar considers the release premium to be
weaker than a generally credit-neutral standard of 115%. DBRS
Morningstar applied a penalty to the transaction's capital
structure to account for the weak deleveraging premium.
The mortgage loan is IO through the five-year fully extended term
and does not benefit from deleveraging through amortization.
Notes: All figures are in U.S. dollars unless otherwise noted.
CITIGROUP COMMERCIAL 2016-C3: Fitch Affirms B- Rating on 2 Tranches
-------------------------------------------------------------------
Fitch Ratings has affirmed 16 classes of Citigroup Commercial
Mortgage Trust, commercial mortgage pass-through certificates,
series 2016-C3 (CGCMT 2016-C3). The Rating Outlooks remain Negative
on four classes.
RATING ACTIONS
CGCMT 2016-C3
Class A-1 17325GAA4; LT AAAsf Affirmed; previously at AAAsf
Class A-2 17325GAB2; LT AAAsf Affirmed; previously at AAAsf
Class A-3 17325GAC0; LT AAAsf Affirmed; previously at AAAsf
Class A-4 17325GAD8; LT AAAsf Affirmed; previously at AAAsf
Class A-AB 17325GAE6; LT AAAsf Affirmed; previously at AAAsf
Class A-S 17325GAF3; LT AAAsf Affirmed; previously at AAAsf
Class B 17325GAG1; LT AA-sf Affirmed; previously at AA-sf
Class C 17325GAH9; LT A-sf Affirmed; previously at A-sf
Class D 17325GAL0; LT BBB-sf Affirmed; previously at BBB-sf
Class E 17325GAN6; LT BB-sf Affirmed; previously at BB-sf
Class F 17325GAQ9; LT B-sf Affirmed; previously at B-sf
Class X-A 17325GAJ5; LT AAAsf Affirmed; previously at AAAsf
Class X-B 17325GAK2; LT AA-sf Affirmed; previously at AA-sf
Class X-D 17325GAU0; LT BBB-sf Affirmed; previously at BBB-sf
Class X-E 17325GAW6; LT BB-sf Affirmed; previously at BB-sf
Class X-F 17325GAY2; LT B-sf Affirmed; previously at B-sf
KEY RATING DRIVERS
Stable Overall Performance; Increased Loss Expectations Due to
Coronavirus Pandemic Concerns: While overall pool performance
remains stable, loss expectations have increased since Fitch's
prior rating action primarily due to additional stresses applied to
loans expected to be impacted in the near term from the coronavirus
pandemic. Twelve loans (19.7% of pool), including two (4.6%) in
special servicing, were designated Fitch Loans of Concern (FLOCs)
primarily due to exposure to the coronavirus pandemic in the near
term.
Specially Serviced Loans: The largest specially serviced loan is
the Lightstone Hotel Portfolio (3.6%), which is secured by a
139-key extended stay Home2 Suites in Tukwila, WA and a 125-key,
extended stay Home2 Suites in South Jordan, UT. The loan
transferred to special servicing in June 2020 for Imminent Monetary
Default at borrower's request as a result of the coronavirus
pandemic. The special servicer is in the process of reaching out to
the borrower to assess next steps. At YE 2019, portfolio occupancy
and servicer-reported NOI DSCR were 80% and 2.14x, respectively.
Fitch's request for recent STR reports remains outstanding.
Minimal Change to Credit Enhancement: There has been minimal change
to credit enhancement since issuance. As of the September 2020
distribution date, the pool's aggregate balance has been reduced by
3.1% to $732.8 million from $756.5 million at issuance. All
original 44 loans remain in the pool. Eleven loans (42.4%) are
full-term, interest-only, and seven loans (16.6%) have a
partial-term, interest-only component of which six have begun to
amortize. One loan (1.5%) is fully defeased.
Pool Concentration: The top 10 loans comprise 57.2% of the pool.
Loan maturities are concentrated in 2026 (88.9%). Four loans
(10.2%) mature in 2021 and one (0.9%) in 2025. Based on property
type, the largest concentrations are office at 36.8%, retail at
23.2% and hotel at 20.1%.
Regional Mall Exposure: The largest loan, Briarwood Mall (8.9%), is
secured by approximately 370,000 sf of a one million sf regional
mall located in Ann Arbor, MI, approximately 2.5 miles from the
University of Michigan. The mall is anchored by Macy's, JCPenney
and Von Maur, which are all non-collateral. A non-collateral Sears
closed at the end of 2018, and the space remains vacant. As of the
TTM ended July 2020, in-line sales were $543 psf ($357 psf
excluding Apple). As of June 2020, collateral occupancy was 85%. At
YE 2019, servicer-reported NOI DSCR was 3.03x.
Potomac Mills (4.8%) is secured by approximately 1.46 million sf of
a 1.84 million sf regional outlet mall in Woodbridge, VA along the
I-95 corridor between Washington D.C. and Richmond, VA. IKEA and
Burlington Coat Factory are non-collateral anchors and larger
collateral anchors include Costco Warehouse, JCPenney and an
18-screen AMC movie theatre. As of the TTM ended JuIy 2020, in-line
sales were $434 psf. At YE 2019, collateral occupancy was 95%, and
servicer-reported NOI DSCR was 4.49x. At issuance, this loan
received an investment-grade credit opinion of 'BBBsf' on a
stand-alone basis.
Exposure to Coronavirus Pandemic: Fitch expects significant
economic impact to certain hotels, retail, and multifamily
properties from the coronavirus pandemic due to the sudden
reductions in travel and tourism, temporary property closures and
lack of clarity at this time on the potential duration of the
impact. The pandemic has prompted the closure of several hotel
properties in gateway cities, as well as malls, entertainment
venues and individual stores. Ten loans (20.1%) are secured by
hotel properties. The weighted average NOI DSCR for all
non-defeased hotel loans is 1.99x. These hotel loans could sustain
a weighted average decline in NOI of 50% before DSCR falls below
1.00x.
Ten loans (23.2%) are secured by retail properties. The weighted
average NOI DSCR for all retail loans is 2.46x. These retail loans
could sustain a weighted average decline in NOI of 60% before DSCR
fall below 1.00x. Additional coronavirus specific base case
stresses were applied to all non-defeased hotel loans (18.6%) and
two retail loans (0.9%). These additional stresses contributed to
the Negative Outlooks on classes E, F, X-E and X-F.
RATING SENSITIVITIES
The Stable Outlooks on classes A-1 through D, X-A, X-B and X-D
reflect the overall stable performance of the pool and expected
continued amortization. The Negative Outlooks on classes E, F, X-E
and X-F reflect concerns with the FLOCs, primarily loans expected
to be impacted by exposure to the coronavirus pandemic in the near
term.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that lead to upgrades would include stable to improved
asset performance coupled with paydown and/or defeasance. Upgrades
of classes B and C would likely occur with significant improvement
in CE and/or defeasance; however increased concentrations, further
underperformance of FLOCs and decline in performance of loans
expected to be 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 of classes E and F are not likely due to performance
concerns with loans expected to be impacted by the coronavirus
pandemic in the near term but could occur if performance of the
FLOCs improves and/or if there is sufficient CE, which would likely
occur if the non-rated class is not eroded and the senior classes
pay-off.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Factors that lead to downgrades include an increase in pool level
losses from underperforming or specially serviced loans. Downgrades
of classes A-1 through C are not likely due to continued
amortization and overall stable performance of the pool. Downgrades
of classes D through F could occur if additional loans become
FLOCs, with further underperformance of the FLOCs and decline in
performance and lack of recovery of loans expected to be impacted
by the coronavirus pandemic in the near term.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, Fitch expects that a greater
percentage of classes could be assigned a Negative Outlook or those
with a Negative Outlook would be downgraded one or more
categories.
Deutsche Bank is the trustee for the transaction, and serves as the
backup advancing agent. Fitch's current Issuer Default rating for
Deutsche Bank is 'BBB'/'F2'. Fitch relies on the master servicer,
Midland Loan Services (PNC) (A+/F1), which is currently the primary
advancing agent, as a direct counterparty.
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
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CITIGROUP COMMERCIAL 2016-P6: Fitch Affirms B- Rating on F Certs
----------------------------------------------------------------
Fitch Ratings has affirmed 15 classes of Citigroup Commercial
Mortgage Trust, Commercial Mortgage Pass-Through Certificates,
Series 2016-P6 (CGCMT 2016-P6).
RATING ACTIONS
CGCMT 2016-P6
Class A-1 17291EAS0: LT AAAsf Affirmed; previously at AAAsf
Class A-2 17291EAT8: LT AAAsf Affirmed; previously at AAAsf
Class A-3 17291EAU5: LT AAAsf Affirmed; previously at AAAsf
Class A-4 17291EAV3: LT AAAsf Affirmed; previously at AAAsf
Class A-5 17291EAW1: LT AAAsf Affirmed; previously at AAAsf
Class A-AB 17291EAX9: LT AAAsf Affirmed; previously at AAAsf
Class A-S 17291EAY7: LT AAAsf Affirmed; previously at AAAsf
Class B 17291EAZ4: LT AA-sf Affirmed; previously at AA-sf
Class C 17291EBA8: LT A-sf Affirmed; previously at A-sf
Class D 17291EAA9: LT BBB-sf Affirmed; previously at BBB-sf
Class E 17291EAC5: LT BB-sf Affirmed; previously at BB-sf
Class F 17291EAE1: LT B-sf Affirmed; previously at B-sf
Class X-A 17291EBB6: LT AAAsf Affirmed; previously at AAAsf
Class X-B 17291EBC4: LT AA-sf Affirmed; previously at AA-sf
Class X-D 17291EAL5: LT BBB-sf Affirmed; previously at BBB-sf
KEY RATING DRIVERS
Increased Loss Expectations: Loss expectations have increased since
Fitch's last rating action, primarily due to the declining
performance of the nine Fitch Loans of Concern (FLOCs; 27.7% of
pool), which include four loans (21.2%) in the top 15 and two
specially serviced loans/assets (2.9%), both of which are more than
90 days delinquent.
Fitch Loans of Concern: The largest FLOC, 8 Times Square & 1460
Broadway (8.4%), is secured by a 214,341-sf mixed-use retail/office
property in Times Square, Manhattan. The collateral is fully
occupied by two tenants: WeWork (83.1% of NRA, 53.1% of GPR; August
2034 lease expiration), which occupies the entire office portion of
the property at below market rents, and Foot Locker (16.9% of NRA,
46.9% of GPR; August 2032 lease expiration), which occupies the
first-floor retail space. In November 2019, WeWork laid off 2,400
employees, or nearly 20% of its workforce. As of October 2020, both
WeWork and Foot Locker remain open for business. The
servicer-reported NOI DSCR increased to 1.93x at YE 2019 from 1.79x
at YE 2018.
The second largest FLOC, 681 Fifth Avenue (6.5%), is secured by a
17-story, 82,573-sf mixed-use building located on the southeast
corner of 54th Street and 5th Avenue in Midtown Manhattan. Large
tenants include Metropole Realty Advisors (9.2% of NRA; through
March 2029), Vera Bradley (7.1%; March 2026), Apex Bulk Carriers
(7.1%; March 2023) and Belstaff USA (7.1%; April 2022). Physical
occupancy decreased to 65.7% as of the June 2020 rent roll from
85.9% at YE 2018 after Tommy Hilfiger (27.3%) went dark in March
2019. Tommy Hilfiger is obligated to continue paying its rent
through its May 2023 lease expiration. Additionally, Tommy
Hilfiger's lease included a letter of credit security deposit for
$6.66 million ($296 psf). The servicer-reported NOI DSCR fell to
1.44x as of YE 2019 from 1.64x at YE 2018 primarily due to
increased real estate tax expenses. The subject is currently paying
abated real estate taxes as it is in year 12 of a 12-year
Industrial and Commercial Incentive Program (ICIP). The tax
abatement amortizes until the 2021/2022 fiscal year when the
borrower will pay full unabated taxes.
The third largest FLOC, 925 La Brea Avenue (3.3%), is secured by a
63,331-sf mixed-use office/retail property in West Hollywood, CA
that is fully leased to WeWork (75.1% of NRA; 80.4% of GPR; through
June 2029) and Burke Williams Spa (24.9% of NRA, 19.6% of GPR;
through August 2026). As of October 2020, WeWork is open for
business, but Burke Williams Spa remains temporarily closed due to
the ongoing coronavirus pandemic. The servicer-reported YE 2019 NOI
DSCR remained flat at 2.03x compared with 2.07x at YE 2018.
The fourth largest FLOC, Golden Cove Shopping Center (3.0%), is
secured by a 91,102-sf mixed-use property located in Rancho Palos
Verdes, CA. Collateral occupancy fell to 91.1% as of the July 2020
rent roll from 100% at YE 2018 following the departures of several
tenants, most notably Admiral Risty Restaurant (6.2% of NRA; 12.2%
of GPR as of the June 2019 rent roll) upon its August 2019 lease
expiration. The servicer-reported NOI DSCR also decreased to 1.11x
as of YE 2019 from 1.14x at YE 2018 and 1.36x at YE 2017 due to
increasing operating expenses. Per the July 2020 rent roll, all
in-place leases expire within the loan term, including 20% of NRA
within the next 12 months; however, the borrower is currently in
negotiations with several prospective tenants for the vacant
spaces.
The remaining five FLOCs outside of the top 15 include four loans
(5.0%) secured by lodging properties that have experienced
performance decline due to the ongoing coronavirus pandemic, two
(2.9%) of which are specially serviced and more than 90 days
delinquent. The remaining FLOC is secured by a portfolio of three
self-storage properties (1.6%) located in McKinney, TX and Memphis,
TN that has experienced cash flow decline due to declining rental
rates.
Minimal Change in Credit Enhancement: As of the September 2020
distribution date, the pool's aggregate principal balance has been
paid down by 2.6% to $890.1 million from $913.4 million at
issuance. Two loans (1.2% of current pool) are fully defeased. No
loans have paid off since issuance. There have been no realized
losses since issuance. Eleven loans (43.4%), including nine loans
in the top 15, are full-term interest-only and five loans (8.6%)
remain in their partial-interest-only periods (compared with 19
loans [28.4%] at issuance). The transaction is scheduled to pay
down by 8.8% of the original pool balance prior to maturity. Loan
maturities are concentrated in 2026 (77.9%), with 13.9% in 2021,
2.0% in 2023 and 6.3% in 2027. Cumulative interest shortfalls
totaling $103,204 are currently impacting the non-rated class H.
Alternative Loss Considerations: Fitch performed an additional
sensitivity scenario that assumed a potential outsized loss of 20%
on the current balance of the 681 Fifth Avenue loan, while also
factoring in the expected paydown of the transaction from defeased
loans. This additional sensitivity scenario contributed to the
Negative Rating Outlooks on classes E and F.
Coronavirus Exposure: Five loans (8.9%) are secured by hotel
properties. The WA NOI DSCR for the hotel loans is 2.43x; these
hotel loans could sustain a decline in NOI of 53.4% before NOI DSCR
falls below 1.0x. Eighteen loans (34.5%) are secured by retail
properties, including two regional malls (8.0%) and one regional
lifestyle center (2.5%) in the top 15. The WA NOI DSCR for the
retail loans is 2.01x; these retail loans could sustain a decline
in NOI of 47.3% before DSCR falls below 1.0x. Seven loans (4.9%)
are secured by multifamily properties. The WA NOI DSCR for the
multifamily loans is 2.16x; these multifamily loans could sustain a
decline in NOI of 51.4% before DSCR falls below 1.0x. Fitch applied
additional stresses to three hotel loans and three retail loans to
account for potential cash flow disruptions due to the coronavirus
pandemic; these additional stresses contributed to the Negative
Rating Outlooks on classes E and F.
One loan, Easton Town Center (2.5%), was granted forbearance for
the June 2020 through November 2020 payments. The borrowers for
three additional loans (7.6%) have submitted requests for
coronavirus relief that are currently being reviewed.
ADDITIONAL CONSIDERATIONS
Credit Opinion Loans: Two loans (6.6% of the pool) were given
investment-grade credit opinions at issuance; Potomac Mills (4.1%)
received an investment-grade credit opinion of 'BBBsf*' and Easton
Town Center (2.5%) received an investment-grade credit opinion of
'A+sf*'.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes E and F reflect the
potential for further downgrade due to concerns surrounding the
ultimate impact of the coronavirus pandemic and the performance
concerns associated with the FLOCs and specially serviced loans.
The Stable Rating Outlooks on classes A-1 through D and the
interest-only classes X-A, X-B and X-D reflect the increasing
credit enhancement, continued expected amortization and relatively
stable performance of most 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 of 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 consider these
factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration. Classes
would not be upgraded above 'Asf' if there is 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
further negative rating actions, including downgrades or additional
Negative Rating Outlook revisions.
CITIGROUP MORTGAGE 2020-RP1: DBRS Finalizes B(high) on B-2 Certs
----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the Mortgage-Backed
Notes, Series 2020-RP1 (the Notes) issued by Citigroup Mortgage
Loan Trust 2020-RP1 (the Trust) as follows:
-- $410.6 million Class A-1 at AAA (sf)
-- $410.6 million Class A-1-IO at AAA (sf)
-- $439.4 million Class A-2 at AA (high) (sf)
-- $439.4 million Class A-2-IO at AA (high) (sf)
-- $463.6 million Class A-3 at A (sf)
-- $463.6 million Class A-3-IO at A (sf)
-- $484.0 million Class A-4 at BBB (sf)
-- $484.0 million Class A-4-IO at BBB (sf)
-- $410.6 million Class A-5 at AAA (sf)
-- $439.4 million Class A-6 at AA (high) (sf)
-- $463.6 million Class A-7 at A (sf)
-- $484.0 million Class A-8 at BBB (sf)
-- $28.8 million Class M-1 at AA (high) (sf)
-- $28.8 million Class M-1-IO at AA (high) (sf)
-- $24.2 million Class M-2 at A (sf)
-- $24.2 million Class M-2-IO at A (sf)
-- $20.4 million Class M-3 at BBB (sf)
-- $20.4 million Class M-3-IO at BBB (sf)
-- $28.8 million Class M-4 at AA (high) (sf)
-- $24.2 million Class M-5 at A (sf)
-- $20.4 million Class M-6 at BBB (sf)
-- $11.3 million Class B-1 at BB (high) (sf)
-- $10.5 million Class B-2 at B (high) (sf)
Classes A-1-IO, A-2-IO, A-3-IO, A-4-IO, M-1-IO, M-2-IO, and M-3-IO
are interest-only notes. The class balances represent notional
amounts.
Classes A-2, A-3, A-4, A-5, M-4, M-5, M-6, A-6, A-7, A-8, A-2-IO,
A-3-IO, and A-4-IO are exchangeable notes. These classes can be
exchanged for combinations of initial exchangeable notes as
specified in the offering documents.
The AAA (sf) ratings on the Notes reflect 23.65% of credit
enhancement provided by subordinated certificates. The AA (high)
(sf), A (sf), BBB (sf), BB (high) (sf), and B (high) (sf) ratings
reflect 18.30%, 13.80%, 10.00%, 7.90%, and 5.95% of credit
enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The Trust is a securitization of a portfolio of seasoned performing
and reperforming first-lien residential mortgages funded by the
issuance of the Notes. The Notes are backed by 2,388 loans with a
total principal balance of $537,797,652 as of the Cut-Off Date
(August 31, 2020).
The loans are approximately 158 months seasoned. As of the Cut-Off
Date, 98.4% of the loans are current, including 0.9%
bankruptcy-performing loans. Approximately 82.7% and 97.6% of the
mortgage loans have been zero times 30 days delinquent for the past
24 months and 12 months, respectively, under the Mortgage Bankers
Association (MBA) delinquency method.
The portfolio contains 97.6% modified loans. The modifications
happened more than two years ago for 96.0% of the modified loans.
Within the pool, 1,403 mortgages have aggregate
non-interest-bearing deferred amounts of $72,597,352, which
comprise approximately 13.5% of the total principal balance.
There are seven loans (0.2% by balance) that are subject to the
Consumer Financial Protection Bureau Ability-to-Repay and Qualified
Mortgage rules. These loans are designated as Temporary Safe
Harbor. The remainder of the pool is exempt due to seasoning.
The Seller, Citigroup Global Markets Realty Corp. (CGMRC), acquired
the mortgage loans from Fannie Mae following the award of a bid in
connection with a competitive auction for the initial pool. The
Seller will then contribute the loans to the Trust through an
affiliate, Citigroup Mortgage Loan Trust Inc. (the Depositor). As
the Sponsor, CGMRC or one of its majority-owned affiliates will
acquire and retain a 5% eligible vertical interest in each class of
Notes (other than the Class R Notes) to satisfy the credit risk
retention requirements. The loans were originated and previously
serviced by various entities.
As of the Cut-Off Date, the loans are serviced by an interim
servicer. Such servicing will be transferred to Select Portfolio
Servicing, Inc. (SPS) on October 16, 2020. 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 in super lien states and in certain cases, taxes
and insurance as well as reasonable costs and expenses incurred in
the course of servicing and disposing of properties.
The transaction employs a sequential-pay cash flow structure.
Principal proceeds can be used to cover interest shortfalls on the
Notes, but such shortfalls on Class M-2 and more subordinate
principal and interest (P&I) bonds will not be paid from principal
proceeds until the more senior classes are retired.
The ratings reflect transactional strengths that include underlying
assets that demonstrate improving performance in the recent past,
lengthy seasoning, and a strong representations and warranties
(R&W) provider (CGMRC). Additionally, a comprehensive third-party
due diligence review was performed on the portfolio with respect to
regulatory compliance, servicing comments, data integrity, payment
histories, and title and tax review. Updated broker price opinions
were provided for 100% of the pool; however, reconciliations were
not performed on the updated values.
The lack of P&I advances on delinquent mortgages may increase the
possibility of periodic interest shortfalls to the Noteholders;
however, principal proceeds can be used to pay interest to the
Notes sequentially, and subordination levels are greater than
expected losses for the rated Notes, which may provide for timely
payment of interest to the rated Notes.
The transaction employs an R&W framework that includes certain
weaknesses such as knowledge qualifiers, a fraud representation
that is limited to the time period when the Seller owned the loans,
and carveouts for loans with known findings or unavailable
information. Mitigating factors include (1) a financially strong
R&W provider (CGMRC), (2) a comprehensive due diligence review, (3)
automatic or designated breach review triggers dependent on certain
conditions, and (4) significant loan seasoning and relatively clean
performance history in recent years.
CORONAVIRUS IMPACT - REPERFORMING LOANS (RPL)
The Coronavirus Disease (COVID-19) 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 rise in the coming months for many residential
mortgage-backed security (RMBS) asset classes, some meaningfully.
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 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: September Update,"
published on September 10, 2020), for the RPL asset class, DBRS
Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than it previously used.
DBRS Morningstar derives such MVD assumptions through a fundamental
home price approach based on the forecasted unemployment rates and
GDP growth outlined in the 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 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, 2020, 1.1% of the borrowers are on forbearance plans
because the borrowers reported financial hardship related to the
coronavirus. These forbearance plans allow temporary payment
holidays, followed by repayment once the forbearance period ends.
The interim servicer generally offered 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 a maximum
generally of six months. During the repayment period, the borrower
needs to make regular payments and additional amounts to catch up
on the missed payments. The interim servicer or the Servicer, as
applicable, would attempt to contact the borrowers before the
expiration of the forbearance period and evaluate the borrowers'
capacity to repay the missed amounts. As a result, the interim
servicer or Servicer may offer a repayment plan or other forms of
payment relief, such as deferrals of the unpaid P&I amounts,
forbearance extensions, or a loan modification, in addition to
pursuing other loss mitigation options.
For this transaction, DBRS Morningstar applied additional
assumptions to evaluate the impact of potential cash flow
disruptions on the rated tranches, stemming from (1) lower P&I
collections and (2) no servicing advances on delinquent P&I. These
assumptions include:
(1) Increasing delinquencies for the AAA (sf) and AA (high) (sf)
rating levels for the first 12 months,
(2) Increasing delinquencies for the A (sf) and below rating
levels for the first nine months,
(3) Applying no voluntary prepayments for the AAA (sf) and AA
(high) (sf) rating levels for the first 12 months, and
(4) Delaying the receipt of liquidation proceeds for the AAA (sf)
and AA (high) (sf) rating levels for the first 12 months.
The DBRS Morningstar ratings of AAA (sf) and AA (high) (sf) address
the timely payment of interest and full payment of principal by the
legal final maturity date in accordance with the terms and
conditions of the related notes. The DBRS Morningstar ratings of A
(sf), BBB (sf), BB (high) (sf), and B (high) (sf) address the
ultimate payment of interest and full payment of principal by the
legal final maturity date in accordance with the terms and
conditions of the related notes.
Notes: All figures are in U.S. dollars unless otherwise noted.
COLONNADE GLOBAL 2018-5: DBRS Confirms BB(high) on Tranche K
------------------------------------------------------------
DBRS Ratings Limited took the following rating actions on the 11
tranches of the unexecuted, unfunded financial guarantee in the
Colonnade Programme – Series Global 2018-5 (Colonnade Global
2018-5) portfolio:
-- USD514,740,000 Tranche A confirmed at AAA (sf)
-- USD9,240,000 Tranche B confirmed at AA (high) (sf)
-- USD3,180,000 Tranche C confirmed at AA (sf)
-- USD3,620,000 Tranche D confirmed at AA (low) (sf)
-- USD9,120,000 Tranche E downgraded to A (sf) from
A (high) (sf)
-- USD1,810,000 Tranche F confirmed at A (sf)
-- USD4,990,000 Tranche G confirmed at A (low) (sf)
-- USD9,310,000 Tranche H downgraded to BBB (sf) from
BBB (high) (sf)
-- USD2,120,000 Tranche I downgraded to BBB (low) (sf)
from BBB (sf)
-- USD3,060,000 Tranche J confirmed at BBB (low) (sf)
-- USD8,809,997 Tranche K confirmed at BB (high) (sf)
The transaction is a synthetic balance-sheet collateralized loan
obligation structured in the form of a financial guarantee (the
Guarantee). The tranches are collateralized by a portfolio of
corporate loans and credit facilities (the Guaranteed Portfolio)
originated by Barclays Bank PLC (Barclays or the Beneficiary). The
rated tranches are unfunded, and the senior guarantee remains
unexecuted. The junior guarantee was executed in December 2018 with
an initial balance of EUR 55 million and has a duration of eight
years.
The ratings address the likelihood of a loss under the guarantee on
the respective tranche resulting from borrower defaults at the
legal final maturity date in December 2026. Borrower default events
are limited to failure to pay, bankruptcy, and restructuring. The
ratings assigned by DBRS Morningstar to each tranche are expected
to remain provisional until the senior guarantee is executed. The
ratings do not address counterparty risk or the likelihood of any
event of default or termination events under the agreement
occurring.
DBRS Morningstar has assessed the potential impact of the
Coronavirus Disease (COVID-19) pandemic on the transaction by
adjusting its collateral assumptions in line with the risk factors
in its commentary published on 18 May 2020 outlining how the
coronavirus crisis is likely to affect DBRS Morningstar-rated
structured credit transactions in Europe.
The rating actions follow a review of the transaction and are based
on the following analytical considerations:
-- Portfolio performance, in terms of cumulative defaults, and
compliance with portfolio profile tests under the replenishment
period as of the reporting date of September 2020;
-- Updated default rate, recovery rate, and expected loss
assumptions for the reference portfolio; and
-- Current available credit enhancement to the rated tranches and
capacity to withstand losses under stressed interest scenarios.
-- Current economic environment and an assessment of sustainable
performance, as a result of the Coronavirus Disease (COVID-19)
pandemic.
PORTFOLIO PERFORMANCE
The transaction is currently within its three-year replenishment
period during which time the Beneficiary can add new reference
obligations or increase the notional amount of existing reference
obligations provided that they meet eligibility criteria, portfolio
profile tests, and are made according to replenishment guidelines.
The replenishment period ends in December 2021.
The Guaranteed Portfolios of Colonnade Global 2018-5 currently
stands at USD 623 million, below the maximum Guaranteed Portfolio
notional amount of USD 624 million. The Guaranteed Portfolio is
fairly granular, composed mainly of revolving credit facilities,
bears a floating interest rate and is mainly unsecured. The
facilities are mainly drawn in the protection currency of the
Guarantee, which is U.S. dollars.
The composition of the Guaranteed Portfolio of Colonnade Global
2018-5 has deteriorated in terms of DBRS Morningstar Ratings with
an increased concentration in the BB rating range from the BBB
rating range a year ago, while it has remained stable in terms of
DBRS Morningstar Country Tiers since closing.
In terms of the DBRS Morningstar Industry concentrations and of
borrower group concentrations that are both prescribed by the
portfolio profile tests, the Guaranteed Portfolio is at the limits
prescribed by the Portfolio Profile Tests.
As of September 2020, there have been four loan defaults, which
occurred in July and August 2020. The cumulative outstanding
balance of the defaulted loans at the time of default represents
EUR 2.9 million or 5.2% of the Guarantee initial balance. The
cumulative loss to date is EUR 0.8 million or 1.4% of the Guarantee
initial balance. As of September 2020, the portfolio profile tests
allowing further replenishment of the Guaranteed Portfolio have all
been met.
PORTFOLIO ASSUMPTIONS AND KEY RATING DRIVERS
The transaction is subject to interest rate risk as the loans in
the Guaranteed Portfolio bear floating interest rates, which could
lead to higher losses under the Guarantee in an upward interest
scenario. In addition, up to 2% of the Guaranteed Portfolio amount
can be drawn in currencies (Minority Currencies) other than the
U.S. dollar, British pound sterling, euro, Canadian dollar, Swedish
krona, Norwegian krone, Danish krone, Australian dollar, Japanese
yen, and Swiss franc (Eligible Currencies). To mitigate the
interest rate risk, additional covenants on spread and the
weighted-average payment frequency of the portfolio are in place.
Based on its "Interest Rate Stresses for European Structured
Finance Transactions" methodology and incorporating these
covenants, DBRS Morningstar calculated a stressed interest rate
index at each rating level for the obligations denominated in
Eligible Currencies and Minority Currencies. For example, at the
AAA (sf) stress level, the stressed interest rate index for the
obligations denominated in Eligible Currencies is 4.6% down from
7.1% a year ago and the stressed interest rate index for the
obligations denominated in Minority Currencies is 22.9% down from
35.6% a year ago. The decrease is due to the general lowering
interest environment but as well as the decrease in the remaining
years of the Guarantee coverage time since closing.
DBRS Morningstar calculated the weighted-average recovery rate at
each rating level based on the worst-case concentrations in terms
of DBRS Morningstar Country Tier, security levels permissible under
the portfolio profile tests, borrower group, and DBRS Morningstar
Industry classification and adjusted its assumptions with the
projected loss on the guarantee under stressed interest rate
scenarios.
DBRS Morningstar used its CLO Asset Model to update its expected
default rates for the portfolio at each rating level.
To determine the credit risk of each underlying reference
obligation, DBRS Morningstar relied on either public ratings or a
mapping from Barclays' internal ratings models to DBRS Morningstar
ratings. The mapping was completed in accordance with DBRS
Morningstar's "Mapping Financial Institution Internal Ratings to
DBRS Morningstar Ratings for Global Structured Credit Transactions"
methodology.
DBRS Morningstar conducted a loan-by-loan analysis of the remaining
pool of receivables and has increased its base case PD assumption
and recovery rate assumptions to 13.0% and 55.2%, from 9.8% and
45.8% a year ago. The increase in the base case PD captures the
adjustments resulting from the coronavirus pandemic and DBRS
Morningstar's assessment that 2.0% and 24.3% of the outstanding
portfolio balance as of September 2020 belonged to industries
classified in mid-high and high-risk economic sectors,
respectively, which leads to a one- and two-notch-downgrade of the
borrower's DBRS Morningstar rating, respectively, as per the
commentaries mentioned above. The increase in the base case
recovery rate assumption results from the lower borrower's rating
assigned following the assessment of the economic sector's risk.
CREDIT ENHANCEMENT
The credit enhancement to each tranche consists of the
subordination of the junior tranches. Given that losses have been
recorded, the credit enhancement levels for each of the tranches
decreased since a year ago, as follows:
-- to 17.5% from 17.6% for the Tranche A
-- to 16.1% from 16.2% for the Tranche B
-- to 15.6% from 15.7% for the Tranche C
-- to 15.0% from 15.1% for the Tranche D
-- to 13.5% from 13.6% for the Tranche E
-- to 13.2% from 13.3% for the Tranche F
-- to 12.4% from 12.5% for the Tranche G
-- to 10.9% from 11.0% for the Tranche H
-- to 10.6% from 10.7% for the Tranche I
-- to 10.1% from 10.2% for the Tranche J
-- to 8.7% from 8.8% for the Tranche K
Currency risk is mitigated in this transactions. Although the
obligations in the Guaranteed Portfolio can be drawn in various
currencies, any negative impact from currency movements is overall
neutralized and therefore movements in the foreign exchange rate
should not have a negative impact on the rated tranches.
Notes: All figures are in U.S. dollars unless otherwise noted.
COLT 2020-RPL1: Fitch to Rate Class B-2 Debt 'B(EXP)'
-----------------------------------------------------
Fitch Ratings expects to rate COLT 2020-RPL1.
RATING ACTIONS
COLT 2020-RPL1
Class A-1; LT AAA(EXP)sf Expected Rating
Class A-1A; LT AAA(EXP)sf Expected Rating
Class A-1B; LT AAA(EXP)sf Expected Rating
Class A-2; LT AA(EXP)sf Expected Rating
Class M-1; LT A(EXP)sf Expected Rating
Class M-2; LT BBB(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 B-4; LT NR(EXP)sf Expected Rating
Class B-5; LT NR(EXP)sf Expected Rating
Class A-IO-S; LT NR(EXP)sf Expected Rating
Class XS; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch Ratings expects to rate residential mortgage-backed notes to
be issued by COLT 2020-RPL1 Trust. The transaction is expected to
close on Oct. 9, 2020. The notes are supported by one collateral
group that consists of 2,081 seasoned performing loans (SPLs) and
reperforming loans (RPLs) with a total balance of approximately
$433.0 million, which includes $77.5 million, or 17.9%, of the
aggregate pool balance in non-interest-bearing deferred principal
amounts, as of the cutoff date.
Distributions of 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
servicers will not be advancing delinquent monthly payments of
P&I.
KEY RATING DRIVERS
Revised GDP Due to Coronavirus (Negative): The coronavirus pandemic
and resulting containment efforts have resulted in revisions to
Fitch's GDP estimates for 2020. As of September, the agency's
baseline global economic outlook for U.S. GDP growth is currently a
4.6% 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 pandemic, 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.
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage loans, SPLs and RPLs. 95% of the
loans in the pool are current as of the cutoff date. While most
borrowers that were on a coronavirus-related relief plan have
completed the plan and started or resumed paying, a small portion
of borrowers remain on an active forbearance plan but 17.4% have
remained current. Of the pool, 40.8% of loans are current, but have
had recent delinquencies or incomplete pay strings within the past
two years. About 54% of the loans are seasoned over 24 months and
have been paying on time for the past 24 months, while 45% have
been paying on time for the past 36 months. Roughly 95% have been
modified.
Expected Payment Forbearance and Deferrals Related to Coronavirus
(Negative): The ongoing coronavirus pandemic 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 notes to pay timely interest to the 'AAAsf' and 'AAsf'
notes 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 (Positive): Operational risk is well
controlled for this transaction. Fitch has reviewed the Hudson
Americas L.P. (Hudson) mortgage acquisition platform and found it
to have sufficient risk controls while relying on third parties to
review loans prior to purchase. Primary servicing responsibilities
will be performed by Select Portfolio Servicing Inc., rated by
Fitch at 'RPS1-', which reduces Fitch's 'AAAsf' loss expectation by
218 basis points (bps). LSRMF Mortgage Holdings II's horizontal
risk retention of at least 5% of the market value of the notes
helps to ensure an alignment of interest between the issuer and
investors.
Adequate Servicing Fee (Neutral): Fitch assumed a stressed
servicing fee of 40 bps in its analysis while analyzing the
structure. The 40 bps was assumed as the required amount to attract
a successor servicer in a high-delinquency environment. The
stressed fee was covered by the stated aggregate servicing fee
within the transaction of 50 bps.
Due Diligence Review Results (Negative): Third-party due diligence
was performed by SitusAMC, an 'Acceptable — Tier 1' firm, on 100%
of the loans in the transaction pool. The results of the review
indicate moderate operational risk, with about 6.3% of the loans
assigned 'D' grades. The loans that are graded 'D' for missing
final U.S. Department of Housing and Urban Development (HUD)-1 or
estimated final HUD-1 documents that are subject to testing for
compliance with predatory lending regulations received loan-level
adjustments. Fitch adjusted its loss expectation at the 'AAAsf'
rating category by roughly 25 bps to account for this added risk.
Representation Framework (Negative): The loan-level representations
and warranties (R&Ws) are consistent with a Tier 2 framework. The
tier assessment is based primarily on a weak optional review
framework. Fitch increased its loss expectations by 183 bps at the
'AAAsf' rating category to account for both the limitations of the
R&W framework as well as the non-investment-grade counterparty risk
of the providers.
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 (LS) 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): A non-interest-bearing principal
forbearance amount totaling $77.5 million (17.9%) of the unpaid
principal balance (UPB) is outstanding on the loans. Fitch included
deferred amounts when calculating the borrower's loan-to-value
ratio (LTV) and sustainable LTV (sLTV) despite the lower payment
and amounts not being owed during the term of the loan. The
inclusion resulted in a higher probability of default (PD) 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 borrowers with more equity in the properties.
Potential Hurricane Exposure: Only 50 bps of the pool is in areas
that have been declared disaster areas by the Federal Emergency
Management Agency (FEMA). While the 95.1% current status of the
pool mitigates the odds of material damage to any properties, Fitch
assumed a 100% default on this portion, resulting in an increase to
losses of 25 bps.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper MVDs than assumed at the MSA level.
The implied rating sensitivities are only an indication of some of
the potential outcomes and do not consider other risk factors that
the transaction may become exposed to or that may be considered in
the surveillance of the transaction. Sensitivity analyses was
conducted at the state and national levels to assess the effect of
higher MVDs for the subject pool as well as lower MVDs, illustrated
by a gain in home prices.
Factors that could, individually or collectively, lead to 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 38.5% 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 rated 'AAAsf',
the analysis indicates there is potential positive rating migration
for all 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 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 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.
CRITERIA VARIATION
One variation was made to Fitch's "U.S. RMBS Rating Criteria."
Almost 55% of the loans had a tax and title search performed
outside of the six-month window that Fitch looks for in its
criteria. Given the minor amount of unpaid taxes and liens, as well
as the fact that all the searches were performed within one year,
Fitch deemed the dated searches immaterial to the rating and did
not make any adjustments.
COMM 2012-CCRE1: Moody's Lowers Rating on Class G Certs to 'Caa3'
-----------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on six classes
and downgraded the ratings on five classes in COMM 2012-CCRE1
Mortgage Trust, Commercial Pass-Through Certificates, Series
2012-CCRE1 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed Aaa
(sf)
Cl. A-M, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed Aaa
(sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed
Aaa (sf)
Cl. B, Affirmed Aa2 (sf); previously on Jun 29, 2020 Affirmed Aa2
(sf)
Cl. C, Affirmed A2 (sf); previously on Jun 29, 2020 Affirmed A2
(sf)
Cl. D, Downgraded to B1 (sf); previously on Jun 29, 2020 Downgraded
to Ba2 (sf) and Remained On Review for Possible Downgrade
Cl. E, Downgraded to B3 (sf); previously on Jun 29, 2020 Downgraded
to B1 (sf) and Remained On Review for Possible Downgrade
Cl. F, Downgraded to Caa1 (sf); previously on Jun 29, 2020
Downgraded to B2 (sf) and Remained On Review for Possible
Downgrade
Cl. G, Downgraded to Caa3 (sf); previously on Jun 29, 2020
Downgraded to Caa2 (sf) and Remained On Review for Possible
Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed
Aaa (sf)
Cl. X-B*, Downgraded to Caa1 (sf); previously on Jun 29, 2020
Downgraded to B3 (sf) and Remained On Review for Possible
Downgrade
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on the five 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 four P&I classes, Class D, Class E, Class F and
Class G, were downgraded due to higher anticipated losses driven
primarily by significant exposure to two regional malls, the
Crossgates Mall Loan (15.2% of the pool) sponsored by Pyramid
Management Group and RiverTown Crossings Mall Loan (6.9% of the
pool), sponsored by Brookfield Properties. Crossgates Mall and
RiverTown Crossings Mall, representing an aggregate 22% of the
pool, may face significant refinance risk in the next two years due
to the current retail environment.
The rating on the interest-only (IO) class, Class X-A, was affirmed
based on the credit quality of the referenced classes.
The rating on the IO class, Class X-B, was downgraded due to a
decline in the credit quality of its referenced classes.
The actions conclude the reviews for downgrade initiated on April
17, 2020 and June 29, 2020.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
commercial real estate from the current weak US economic activity
and a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the degree
of uncertainty around its forecasts is unusually high. Stress on
commercial real estate properties will be most directly stemming
from declines in hotel occupancies (particularly related to
conference or other group attendance) and declines in foot traffic
and sales for non-essential items at retail properties.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's rating action reflects a base expected loss of 6.9% of the
current pooled balance, compared to 6.4% at Moody's last review.
Moody's base expected loss plus realized losses is now 5.0% of the
original pooled balance, compared to 4.8% 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 September 2020, and "Moody's Approach to Rating
Large Loan and Single Asset/Single Borrower CMBS" published in
September 2020. The methodologies used in rating interest-only
classes were "Approach to Rating US and Canadian Conduit/Fusion
CMBS" published in September 2020, "Moody's Approach to Rating
Large Loan and Single Asset/Single Borrower CMBS" published in
September 2020, and "Moody's Approach to Rating Structured Finance
Interest-Only (IO) Securities" published in February 2019.
DEAL PERFORMANCE
As of the September 17, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 26% to $686.3
million from $932.8 million at securitization. The certificates are
collateralized by 41 mortgage loans ranging in size from less than
1% to 15.2% of the pool, with the top ten loans (excluding
defeasance) constituting 56.1% of the pool. Nine loans,
constituting 20.2% 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 13, the same as at Moody's last review.
As of the September 2020 remittance report, loans representing 76%
were current or within their grace period on their debt service
payments, 9% were beyond their grace period but less than 30 days
delinquent and 15% were more than 90 days delinquent.
Nine loans, constituting 12.9% of the pool, are on the master
servicer's watchlist. The watchlist includes loans that meet
certain portfolio review guidelines established as part of the CRE
Finance Council (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.
No loans have been liquidated from the pool and three loans,
constituting 23.8% of the pool, are currently in special servicing.
All the specially serviced loans transferred to special servicing
since March 2020.
The largest specially serviced loan is the Crossgates Mall Loan
($104.1 million -- 15.2% of the pool), which represents a
pari-passu portion of a $260.3 million mortgage loan. The loan is
secured by a two-story, 1.3 million square foot (SF) super regional
mall located in Albany, New York. The mall is anchored by Macy's
(non-collateral), J.C. Penney, Dick's Sporting Goods, Burlington
Coat Factory, Best Buy, and Regal Crossgates 18. A non-collateral
anchor, Lord & Taylor, is expected to close its store at the
property due to its recent filing for Chapter 11 bankruptcy
reorganization. As of June 2020, the total mall and collateral
occupancy was 96%. The in-line occupancy was 86% occupied compared
to 90% in 2019. The property performance had been stable through
year-end 2019 and the 2019 net operating income (NOI) was 2% higher
than securitization levels. The mall represents a dominant
super-regional mall with over 10 anchors and junior anchors and
benefits from its location at the junction of Interstate 87 and
Interstate 90. However, the loan was transferred to special
servicing in April 2020 as a result of the coronavirus outbreak and
is last paid through its March 2020 payment date. The property
re-opened from its temporary closure in July 2020, however, rent
collections have been impacted due to store closures and slowing
operations as a result of the coronavirus pandemic. A new appraisal
was completed in August 2020 which reduced the as-is value to
$281.0 million compared to $470.0 million at securitization and
resulted in an appraisal reduction of $6.9 million for the trust.
The special servicer has recently approved a deferral of debt
service payments for up to six months and repayment is expected to
begin in January 2021.
The second largest specially serviced loan is the Westgate Shopping
Center Loan ($40.4 million -- 5.9% of the pool), which is secured
by an approximately 470,700 SF of a 597,500 SF anchored retail
center located in Rocky River, Ohio. The property is anchored by
Target (non-collateral), Lowe's, Kohl's, Marshalls, Earth Fare, and
Petco. Lowe's and Kohl's own their own stores and pay ground rent.
Earth Fare (6% of NRA) previously filed for bankruptcy in February
2020 and went dark at the property in March 2020. The tenant has
since come out of bankruptcy and from the restructure, a new lease
has been approved for the same space. As of June 2020, the property
was 87% occupied excluding Earth Fare. The property's NOI has
decreased year-over-year since 2015 due to a decline in revenue and
increased expenses. The loan was transferred to special servicing
in July 2020 due to imminent payment default. The payments have
since been paid through September 2020 and the loan is expected to
be transferred back to the master servicer if it maintains a
current status.
The third largest specially serviced loan is the Stone Creek Towne
Center Loan ($18.8 million -- 2.7% of the pool), which is secured
by an approximately 142,800 SF retail center located in Colerain
Township, Ohio, approximately 12 miles north of downtown
Cincinnati. The property is shadow-anchored by a non-collateral
J.C. Penney (not currently on the store closure list) and a Meijer.
The three largest collateral tenants are Best Buy (21% of NRA), Bed
Bath & Beyond (18% of NRA), and Old Navy (11% of NRA). The
remaining tenants account for less than 5% of NRA. The loan was
transferred to special servicing in July 2020 due to imminent
payment default. The payments have since been paid through
September 2020 and is expected to be transferred back to the master
servicer if it maintains a current status.
Moody's has also assumed a high default probability for one poorly
performing loan, constituting 1.2% of the pool, and has estimated
an aggregate loss of $25.3 million (a 23% expected loss on average)
from these troubled loans and non-current specially serviced loans.
The troubled loan is the HIE San Luis Obispo Loan ($8.5 million --
1.2% of the pool), which is secured by a 100-room, limited-service
hotel located in San Luis Obispo, California. The property's 2019
NOI decreased by 28% compared to 2015 and 20% lower than in 2012.
The hotel began operating as a boutique hotel, The Kinney SLO, in
late 2018. It remains as part of Pacifica Hotels but is no longer
affiliated with IHG. The loan has been on the watchlist since July
2020 due to further impact to property performance from the
coronavirus outbreak.
Moody's received full year 2019 operating results for 100% of the
pool, and partial year 2020 operating results for 75% of the pool
(excluding specially serviced and defeased loans). Moody's weighted
average conduit LTV is 87%, the same as at Moody's last review.
Moody's conduit component excludes loans with structured credit
assessments, defeased and CTL loans, troubled loans and the
specially serviced loans greater than 30 days delinquent. Moody's
net cash flow (NCF) reflects a weighted average haircut of 15.8% to
the most recently available NOI. Moody's value reflects a weighted
average capitalization rate of 10.1%.
Moody's actual and stressed conduit DSCRs are 1.66X and 1.36X,
respectively, compared to 1.68X and 1.37X 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 18.9% of the pool balance.
The largest conduit loan is the Creekside Plaza Loan ($52.3 million
-- 7.6% of the pool), which is secured by an approximately 228,000
SF, Class A, three-building office complex located in San Leandro,
California. The collateral also includes an above-ground parking
structure. As of June 2020, the property was 100% occupied,
compared to 78% in 2019. The lease-up is due to the expansion and
space consolidation of Alameda County and Alameda Health Systems
with an expected rent start date in November 2020. The largest
tenant concentration is leased by various divisions of Alameda
County accounting for approximately 68% of net rentable area (NRA)
with varying lease expiration dates. After an initial five-year
interest-only period, the loan has amortized 5.0% since
securitization. Moody's LTV and stressed DSCR are 95% and 1.08X,
respectively, compared to 96% and 1.07X at the last review.
The second largest loan is the Rivertown Crossings Mall Loan ($47.6
million -- 6.9% of the pool), which represents a pari-passu portion
of a $132.7 million mortgage loan. The property was encumbered by a
$13.0 million mezzanine loan at securitization which amortizes on a
30-year schedule. The loan is secured by an approximately 635,800
SF portion of a 1.2 million SF regional mall located in Grandville,
Michigan. The property was built in 2000 and is anchored by Macy's,
Sears, Kohl's, J.C. Penney, Dick's Sporting Goods and Celebration
Cinemas. The sponsor purchased a vacant, former Younkers, anchor
box (150,081 SF) in 2019 for $4.4 million. The only collateral
anchors are Dick's Sporting Goods and Celebration Cinemas, and both
tenants have renewed their leases in early 2020 for an additional
five years. Excluding the former Younkers space, the total property
was 94% leased as of March 2020 and the in-line occupancy was 88%
occupied, compared to 87% in March 2019. For the TTM period ending
March 2020, reported comparable in-line sales (less than 10,000 SF)
was $361 PSF compared to $382 PSF for the year ending December
2019. The Celebration Cinemas has shown strong historical sales of
above $500,000 per screen. While property performance generally
improved through 2016 it has declined since then primarily due to
lower rental revenues. The property's 2019 NOI was 12% lower than
in 2018 but remained 3% higher than underwritten levels. The mall
re-opened in June 2020 after temporary closure from the coronavirus
outbreak. The loan has amortized 13.9% since securitization and has
an upcoming maturity in June 2021. The loan is current through its
September 2020 payment and its 2019 NOI DSCR was 1.82X, however,
the loan may face increased finance risk as a result of the retail
environment. Moody's LTV and stressed DSCR are 111% and 1.14X,
respectively, compared to 112% and 1.14X at the last review.
The third largest loan is the New Hope Commons Loan ($29.9 million
-- 4.4% of the pool), which is secured by an approximately 408,300
SF of a 467,100 SF power center located in Durham, North Carolina.
The largest tenant, Walmart (37% of NRA), had a lease expiration in
October 2020 and the second largest tenant, Best Buy (11% of NRA)
has a lease expiration in March 2022. A new tenant, Burlington Coat
Factory (8% of NRA), has backfilled the prior Buy Buy Baby's space
and the borrower expects the store opening to be delayed to April
2021 due to the coronavirus outbreak. As of June 2020, the property
was 100% occupied (including Burlington Coat Factory). The loan has
been on the watchlist since November 2019 due to the upcoming lease
expiration for Walmart and the servicer has since received the
tenant's five-year renewal option through October 2025. The loan is
current through its September 2020 payment and has amortized 14.4%
since securitization. Moody's LTV and stressed DSCR are 60% and
1.62X, respectively, compared to 61% and 1.61X at the last review.
COMM 2012-CCRE3: Moody's Lowers Rating on Class G Certs to 'C'
--------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on four classes
and downgraded the ratings on eight classes in COMM 2012-CCRE3
Mortgage Trust, Commercial Mortgage Pass-Through Certificates,
Series 2012-CCRE3 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed Aaa
(sf)
Cl. A-M, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed Aaa
(sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed
Aaa (sf)
Cl. B, Downgraded to A3 (sf); previously on Jun 29, 2020 Aa3 (sf)
Placed Under Review for Possible Downgrade
Cl. C, Downgraded to Baa3 (sf); previously on Jun 29, 2020 A3 (sf)
Placed Under Review for Possible Downgrade
Cl. D, Downgraded to B1 (sf); previously on Jun 29, 2020 Downgraded
to Baa3 (sf) and Remained On Review for Possible Downgrade
Cl. E, Downgraded to Caa2 (sf); previously on Jun 29, 2020
Downgraded to B1 (sf) and Remained On Review for Possible
Downgrade
Cl. F, Downgraded to Caa3 (sf); previously on Jun 29, 2020
Downgraded to B3 (sf) and Remained On Review for Possible
Downgrade
Cl. G, Downgraded to C (sf); previously on Jun 29, 2020 Downgraded
to Caa3 (sf) and Remained On Review for Possible Downgrade
Cl. PEZ**, Downgraded to A3 (sf); previously on Jun 29, 2020 Aa3
(sf) Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed
Aaa (sf)
Cl. X-B*, Downgraded to Caa2 (sf); previously on Jun 29, 2020
Downgraded to Caa1 (sf) and Remained On Review for Possible
Downgrade
* Reflects interest-only classes
** Reflects exchangeable classes
RATINGS RATIONALE
The ratings on three 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 six P&I classes were downgraded due to higher
anticipated losses from specially serviced loans, including three
regional malls: Solano Mall (11% of the pool), Crossgates Mall (10%
of the pool) and Emerald Square Mall (7% of the pool). The three
malls are all more than 90 days delinquent on their debt service
payments and are scheduled to mature in the next 20-23 months and
may face significant refinance risk.
The rating on one interest only (IO) class, Cl. X-A, was affirmed
based on the credit quality of the referenced classes.
The rating on one IO class, Cl. X-B, was downgraded due to a
decline in the credit quality of its referenced classes.
The rating on the exchangeable class was downgraded due to a
decline in the credit quality of its referenced exchangeable
classes.
This action concludes the reviews for downgrade initiated on April
17, 2020 and June 29, 2020.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
commercial real estate from the current weak US economic activity
and a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the degree
of uncertainty around its forecasts is unusually high. Stress on
commercial real estate properties will be most directly stemming
from declines in hotel occupancies (particularly related to
conference or other group attendance) and declines in foot traffic
and sales for non-essential items at retail properties.
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 11.3% of the
current pooled balance, compared to 9.6% at Moody's last review.
Moody's base expected loss plus realized losses is now 8.8% of the
original pooled balance, compared to 7.5% 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 September 2020 and
"Moody's Approach to Rating Large Loan and Single Asset/Single
Borrower CMBS" published in September 2020. The principal
methodology used in rating exchangeable classes was "Moody's
Approach to Rating Repackaged Securities" published in June 2020.
The methodologies used in rating interest-only classes were
"Approach to Rating US and Canadian Conduit/Fusion CMBS" published
in September 2020, "Moody's Approach to Rating Large Loan, and
"Moody's Approach to Rating Structured Finance Interest-Only (IO)
Securities" published in February 2019.
DEAL PERFORMANCE
As of the September 17, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 23% to $969 million
from $1.25 billion at securitization. The certificates are
collateralized by 39 mortgage loans ranging in size from less than
1% to 13% of the pool. Eleven loans, constituting 15% 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, the same as at Moody's last review.
Nine loans, constituting 20% of the pool, are on the master
servicer's watchlist. The watchlist includes loans that meet
certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of
Moody's ongoing monitoring of a transaction, the agency reviews the
watchlist to assess which loans have material issues that could
affect performance.
Six loans, constituting 28% of the pool, are currently in special
servicing. Four of the specially serviced loans, representing 27%
of the pool, have transferred to special servicing since March
2020.
The largest specially serviced loan is the Solano Mall Loan ($105.0
million -- 10.8% of the pool), which is secured by a 561,000 square
feet (SF) portion of 1.1 million SF super regional mall located in
Fairfield, California. The mall's non-collateral anchors include
Macy's, J.C. Penney, and Sears, however, Sears previously announced
plans to close its store in July 2020. The largest collateral
tenant is Edwards Cinemas (11.2% of NRA, lease expiration December
2024). Property performance has continued to decline from
securitization and the property's 2019 net operating income (NOI)
was 27% lower than securitization levels due to both lower total
revenues and increased operating expenses. Furthermore, several
major collateral tenants including Forever 21 (13% of NRA), 24 Hour
Fitness (5% of NRA) and Express (1% of NRA) have announced plans to
close their locations at the mall. The property was 94% leased as
of December 2019, compared to 98% leased as of December 2017,
however, the 2019 occupancy includes the tenants with plans to
vacate. The loan is interest only for its entire term and matures
in July 2022. The mall re-opened in late May 2020 after its
temporary closure, however, the loan transferred to special
servicing in June 2020 for imminent default as a result of the
coronavirus pandemic and is last paid through its March 2020
payment date. Foreclosure notice was filed on July 16, 2020, and a
receiver has been appointed.
The second largest specially serviced loan is the Crossgates Mall
Loans A-1A2 and A-1B2 ($94.2 million -- 9.7% of the pool) which
represents a pari-passu portion of a $261.7 million mortgage loan.
The loan is secured by a two-story, 1.3 million square foot (SF)
super regional mall located in Albany, New York. The mall is
anchored by Macy's (non-collateral), J.C. Penney, Dick's Sporting
Goods, Burlington Coat Factory, Best Buy and Regal Crossgates 18. A
non-collateral anchor, Lord & Taylor, is expected to close its
store at the property due to its recent filing for Chapter 11
bankruptcy reorganization. As of June 2020, the total mall and
collateral occupancy was 96%. The in-line occupancy was 86%
occupied compared to 90% in 2019. The property performance had been
stable through year-end 2019 and the 2019 NOI was 2% higher than
securitization levels. The mall represents a dominant
super-regional mall with over 10 anchors and junior anchors and
benefits from its location at the junction of Interstate 87 and
Interstate 90. However, the loan was transferred to special
servicing in April 2020 as a result of the coronavirus outbreak and
is last paid through its March 2020 payment date. The property
re-opened from its temporary closure in July 2020, however, rent
collections have been impacted due to store closures and slowing
operations as a result of the coronavirus pandemic. A new appraisal
was completed in August 2020 which reduced the as-is value to
$281.0 million compared to $470.0 million at securitization, which
resulted in an appraisal reduction of $6.9 million for the trust.
The third largest specially serviced loan is the Emerald Square
Mall Loan ($64.3 million - 6.6% of the pool), which is secured by a
564,501 SF portion of a 1,022,923 SF enclosed super-regional mall
in North Attleboro, Massachusetts. The mall is anchored by a
Macy's, Macy's Home, Sears, and J.C. Penney, of which only J.C.
Penney is collateral for the loan. While all anchors remain at the
property, property performance has declined since securitization
due to lower rental revenues. The reported 2019 revenues were $5
million lower than in 2012, leading to a decline in NOI of 26% for
the same period. As of December 2019, the property was 80% leased,
compared to 83% as of March 2018 and 90% at securitization. The
mall re-opened in June 2020 after closing temporarily during the
pandemic. The loan sponsor, Simon Property Group, recently
classified this mall under their "Other Properties." The loan has
amortized nearly 14% since securitization and is last paid through
its April 2020 payment date.
The remaining two specially serviced loans are secured by limited
service hotel properties in Georgia and in South Carolina that
transferred to special servicing in April 2019 and November 2019,
respectively, due to declining performance from securitization.
Moody's has also assumed a high default probability for one poorly
performing loan, constituting 4.9% of the pool, and has estimated
an aggregate loss of $94.5 million (a 30% expected loss on average)
from the specially serviced and troubled loans. The troubled loan
is 425 7th Street and 800 F Street Loan ($47.2 million - 4.9% of
the pool), which is secured by two mixed-use properties located in
Washington, DC. Property performance has declined due to the recent
departure of a large tenant at one of the properties and the 2019
actual DSCR was below 1.00X.
Moody's received full year 2019 operating results for 98% of the
pool, and partial year 2020 operating results for 93% of the pool
(excluding specially serviced and defeased loans). Moody's weighted
average conduit LTV is 99%, 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 (NCF) reflects a weighted
average haircut of 23% to the most recently available net operating
income (NOI). Moody's value reflects a weighted average
capitalization rate of 9.6%.
Moody's actual and stressed conduit DSCRs are 1.64X and 1.13X,
respectively, the same as 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 28% of the pool balance. The
largest loan is the 260 and 261 Madison Avenue Loan ($126.0 million
-- 13.0% of the pool), which is secured by two Class-B office
towers located in midtown Manhattan on Madison Avenue between East
36th and East 37th Street. The properties total approximately
840,000 SF of office space, 37,000 SF of retail space, and a 46,000
SF parking garage. This loan represents a pari-passu portion of a
$231.0 million first mortgage. As of December 2019, the properties
had a combined occupancy of 90.5%, compared to 87% as of December
2018 and 90% at securitization. The property faces upcoming lease
roll of 19% in 2021, which includes the largest tenant, McLaughlin
& Stern LLP (12.5% of net rentable area; 115,500 SF). The
property's NOI has declined in recent years due to increases in
operating expenses. The loan is interest only throughout its entire
term and Moody's LTV and stressed DSCR are 120% and 0.81X,
respectively, the same as at the last review.
The second largest loan is the Prince Building Loan ($75.0 million
-- 7.7% of the pool), which is secured by a pari-passu portion of a
$200.0 million first-mortgage loan. The loan is secured by the fee
interest in a 12-story retail and office building, totaling 355,000
SF and located in the SoHo neighborhood of Manhattan. The property
contains 69,346 SF of retail space and 285,257 SF of office space.
The property was built in 1897 and was acquired by the sponsor in
2003. The property's NOI has generally declined since
securitization due to slightly lower rental revenues and
significant increase in operating expenses. The property has
benefited from recent leasing and was 94% leased as of March 2020
compared to 91% at year-end 2019. Major office tenants at the
property include Group Nine Media, Inc. Zoc Doc and Equinox. The
loan is interest only throughout its entire term and Moody's LTV
and stressed DSCR are 116% and 0.81X, respectively, the same as at
the last review.
The third largest loan is the Midland Park Mall Loan ($72.3 million
-- 7.5% of the pool), which is secured by a 277,659 SF portion of a
629,405 SF regional mall located in Midland, Texas. The property's
non-collateral anchors are Dillard's and J.C. Penney. The property
also includes one vacant, former Sears, non-collateral anchor box.
The property is the dominant regional mall in the Midland-Odessa
metropolitan area and performance has continually improved since
securitization. The 2019 NOI was up over 50% from 2012 as a result
of significant increases in rental revenue. The collateral was 93%
leased as of December 2019, compared to 97% leased as of March
2018. The loan sponsor is Simon Property Group and the loan remains
current through its September 2020 payment date. The loan has
amortized 15% since securitization and Moody's LTV and stressed
DSCR are 74% and 1.47X, respectively, compared to 74% and 1.46X at
the last review.
COMM 2013-GAM: DBRS Assigns BB Rating on Class F Certs
------------------------------------------------------
DBRS, Inc. assigned ratings to the COMM 2013-GAM, Commercial
Mortgage Pass-Through Certificates issued by COMM 2013-GAM Mortgage
Trust as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class F at BB (sf)
All trends are Negative as the underlying collateral continues to
face performance challenges associated with the Coronavirus Disease
(COVID-19) global pandemic. Additionally, the mortgage loan secured
by the collateral is scheduled to mature in February 2021 and it is
uncertain at this time whether the sponsor will be able to
successfully secure take-out financing at maturity.
These certificates are currently also rated by DBRS Morningstar's
affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In
connection with the ongoing consolidation of DBRS Morningstar and
MCR, MCR previously announced that it had placed its outstanding
ratings of these certificates Under Review–Analytical Integration
Review and that MCR intended to withdraw its outstanding ratings;
such withdrawal will occur on or about October 13, 2020. In
accordance with MCR's engagement letter covering these
certificates, upon withdrawal of MCR's outstanding ratings, the
DBRS Morningstar ratings will become the successor ratings to the
withdrawn MCR ratings.
On March 1, 2020, DBRS Morningstar finalized its "North American
Single-Asset/Single-Borrower Ratings Methodology" (the NA SASB
Methodology), which presents the criteria for which ratings are
assigned to and/or monitored for North American
single-asset/single-borrower (NA SASB) transactions, large
concentrated pools, rake certificates, ground lease transactions,
and credit tenant lease transactions. For further information on
the NA SASB Methodology, please see the press release dated March
1, 2020, at www.dbrsmorningstar.com. On April 24, 2020, DBRS
Morningstar placed the ratings on its outstanding SASB transactions
secured by retail properties Under Review with Negative
Implications while MCR placed the ratings on its outstanding SASB
transactions secured by retail properties Under Review Negative as
the global shelter-in-place and mandatory retail closures related
to the coronavirus have contributed to retail bankruptcies and
anticipated vacancies in retail centers.
To assign ratings to this transaction, DBRS Morningstar considered
both the impact of the updated NA SASB Methodology and its
scenarios attributable to the ongoing coronavirus pandemic on the
ratings.
Because of the coronavirus' significant impact on retail
performance, DBRS Morningstar first considered the application of
the updated NA SASB Methodology in conjunction with the "North
American CMBS Surveillance Methodology" to arrive at a baseline
result, which incorporated qualitative assumptions, capitalization
rates, and loan-to-value (LTV) ratio sizing benchmark
quality/volatility adjustments and excluded any potential changes
in current or future expected asset performance resulting from the
coronavirus.
DBRS Morningstar then overlaid scenarios incorporating additional
reductions in net cash flow (NCF) to account for exposure to
bankrupt or closed tenants. This resulted in stressed collateral
value declines consistent with the projections in its "Global
Macroeconomic Scenarios: September Update" published on September
10, 2020, on top of the baseline result to determine the impact of
coronavirus-related changes in asset performance on the subject
transaction on a tranche-by-tranche basis. For more information on
these stress scenarios, please refer to the Coronavirus Impact
Analysis section of this document. The global macroeconomic
scenarios include a moderate decline of 15% for all commercial real
estate (CRE), which acts as an average for all CRE property types.
However, DBRS Morningstar expects a greater range of value decline
for retail properties, ranging from 10% to 45% based on the type of
tenant composition, exposure to bankrupt or challenged retailers,
asset sponsorship, and asset location. DBRS Morningstar expects
that lower-tier regional malls with in-line sales generally less
than $300 per square foot (psf) will be the most affected.
LOAN/PROPERTY OVERVIEW
The collateral for the loan is the fee-simple and leasehold
interest in the 1.7 million-square-foot (sf) Green Acres Mall
located in Valley Stream, New York, which is in Nassau County, just
east of the borough of Queens. The mall was originally built in
1956 and has been expanded and renovated many times with the last
major expansion occurring in 2007. The mall is owned and operated
by The Macerich Company (Macerich), which purchased the subject for
$506.7 million in 2013, contributing $181.7 million of cash equity.
The eight-year, fixed-rate loan matures in February 2021, and as of
September 2020 had amortized by 16.0% with a balance of $272.6
million. In May 2020, as a result of the ongoing coronavirus
pandemic, the borrower requested that the loan be transferred to
special servicing to inquire about a potential forbearance;
however, on June 15, 2020, the borrower rescinded its request and
the loan was returned to the master servicer.
In addition to the two-story, super-regional mall, the collateral
also includes several multitenant and single-tenant outparcel
buildings including a Walmart, BJ's Wholesale Club, Best Buy,
Michaels, Raymour & Flanigan, PetSmart, Advantage Toyota, South
Shore Hyundai, and several restaurants. Major noncollateral
retailers at an additional multitenant outparcel building include
Dick's Sporting Goods, Aldi, HomeGoods, and Ulta. The mall itself
is anchored by traditional department stores such as Macy's (15.7%
of the net rentable area (NRA); 1.2% of base rent), Macy's Men's
and Furniture (7.3% of the NRA; 1.0% of base rent), and Sears (8.5%
of the NRA; 0.3% of base rent) with junior anchors including H&M,
Forever 21, and Old Navy. The property, similar to other malls
throughout the country, has been negatively affected by recent
national retailer closures including JCPenney (5.7% of the NRA;
3.2% of base rent), Century 21 (4.2% of the NRA; 4.7% of base
rent), Modell's Sports (1.8% of the NRA; 1.4% of base rent), and
Kohl's (6.8% of the NRA; 4.0% of base rent), which closed in April
2019 but continues to pay rent through its 2031 lease expiration.
JCPenney closed in summer 2020, and according to the borrower, it
is finalizing plans to backfill the space with multiple tenants
including an international retailer that is expected to assume the
majority of the space. The servicer did not provide further
information on potential lease terms or a move-in date.
As of May 2020, the collateral was reported to be 87.2% physically
occupied; however, given the recent closures, occupancy has likely
declined with DBRS Morningstar estimating the current occupancy
rate to be near 75.0%. The remaining mall anchors have not been
listed on any Macy's or Sears store closure lists to date, with
Macy's, Macy's Men's and Furniture, and Sears leases expiring in
August 2026, July 2024, and October 2023, respectively. Upcoming
rollover for the remaining junior anchors and outparcel tenants is
limited to Best Buy and PetSmart, which have lease expirations in
Q1 2022. Walmart and the two auto dealerships operate on ground
leases, which expire in August 2026 and 2042, respectively, with
Walmart maintaining two six-year extension options on its ground
lease.
DBRS Morningstar has not received an update regarding tenant rent
collections or sales figures for the collateral since the
coronavirus pandemic began; however, according to YE2019 sales
figures, tenant sales were relatively stable, although in-line
sales generally decreased year-over-year (YOY) across different
retail groups. In the report provided by the sponsor, apparel and
accessories tenants reported sales of $418 psf (-6.8% YOY), shoe
retailers reported sales of $610 psf (-5.5% YOY), restaurant
reported sales of $599 psf (-0.1% YOY), food court tenants reported
sales of $1,686 psf (2.9% YOY), and general retail tenants reported
sales of $755 psf (-3.3% YOY). Furthermore, stores occupying
greater than 10,000 sf, which includes collateral outparcel tenants
reported sales of $563 psf (-1.3% YOY), Macy's reported sales of
$194 psf (12.0% YOY), Macy's Men's and Furniture reported sales of
$148 psf (2.8% YOY), and Sears reported sales of $241 psf which
were flat YOY.
According to the trailing 12 months ending March 31, 2020
reporting, the loan had a debt service coverage ratio of 1.82 times
(x), down slightly from the YE2019 figure of 1.85x and above the
YE2018 figure of 1.71x. Although the loan has continued to exhibit
stable performance throughout the term, 2020 performance is
expected to decline given the recent increase in vacancy combined
with the ongoing significant negative impacts of the pandemic.
Declining performance is potentially problematic given the loan's
upcoming maturity in February 2021. The loan remains current, and
according to the servicer, the borrower has made no further
requests or inquiries regarding relief to date. DBRS Morningstar
believes the sponsor is invested in the collateral and provides
valuable experience; however, given the current state of the
economy and the ever-evolving retail landscape, it may be difficult
for Macerich to secure take-out financing at maturity. Macerich
owns three additional retail properties within the larger trade
area including Kings Plaza Shopping Center in Brooklyn, Queens
Center in Elmhurst, and The Shops at Atlas Park in Glendale, which
are all facing similar pressures as the subject.
DBRS Morningstar derived the NCF using the latest reported servicer
NCF with an adjustment, considering ongoing collateral performance
including tenant movement and sales performance. The resulting NCF
figure was $30.9 million and DBRS Morningstar applied a cap rate of
8.0%, which resulted in a pre-coronavirus DBRS Morningstar Value of
$386.7 million, a variance of -24.8% from the appraised value of
$514.0 million at issuance. The pre-coronavirus DBRS Morningstar
Value implies an LTV of 70.5% compared with the LTV of 53.0% on the
appraised value at issuance.
The cap rate DBRS Morningstar applied is at the middle end of the
range of DBRS Morningstar Cap Rate Ranges for retail properties,
reflecting the suburban location and market position of the asset
on Long Island.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 3.0%
to account for property quality and market fundamentals.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher
NCF declines, resulting in stressed collateral value declines
consistent with the projections in the "Global Macroeconomic
Scenarios: September Update"
(https://www.dbrsmorningstar.com/research/366542) to estimate the
impact of coronavirus-related changes in asset performance on a
tranche-by-tranche basis for the subject transaction. The scenarios
included deducting cash flow for bankrupt retailers and/or
increased vacancy expected at the asset to arrive at a coronavirus
DBRS Morningstar Value under the moderate scenario, a 15.0%
reduction from the pre-coronavirus DBRS Morningstar Value. Because
of the more permanent value impairment resulting from the lost
tenancy revenue stream, DBRS Morningstar's analysis considered this
value when assigning ratings.
Under the moderate scenario, the cumulative rated debt was
insulated from loss.
Class X-A is an interest-only (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 U.S. dollars unless otherwise noted.
COMM MORTGAGE 2017-PANW: Fitch Affirms 'BB' Rating on Class E Certs
-------------------------------------------------------------------
Fitch Ratings has affirmed five classes of COMM 2017-PANW Mortgage
Trust Commercial Mortgage Pass-Through Certificates.
RATING ACTIONS
COMM 2017-PANW
Class A 12595HAA6; LT AAAsf Affirmed; previously at AAAsf
Class B 12595HAC2; LT AA-sf Affirmed; previously at AA-sf
Class C 12595HAE8; LT A-sf Affirmed; previously at A-sf
Class D 12595HAG3; LT BBB-sf Affirmed; previously at BBB-sf
Class E 12595HAJ7; LT BBsf Affirmed; previously at BBsf
The certificates represent the beneficial interests in the $310
million, seven-year, fixed-rate, interest-only mortgage loan
securing the fee interest in The Campus @ 3333 Phase III, a
940,564-sf, four-building office campus located in Santa Clara, CA.
The certificates follow a sequential-pay structure.
KEY RATING DRIVERS
Stable Performance: Performance has been stable and in-line with
Fitch's expectations at issuance. Occupancy remains at 100%, with
net cash flow (NCF) debt service coverage ratio (DSCR) reporting at
3.28x for 2Q20 and 3.16x for year-end 2019, compared to 3.17x at
issuance.
Coronavirus Impact: Palo Alto Networks, Inc. (PANW) ceased having
full employees in the building in mid-March 2020, and remains
closed to most employees, according to the servicer. The tenant has
continued to pay rent and to maintain building systems with
facilities, security, and essential personnel onsite. Per servicer
updates, no re-entry date has been stated.
Fitch Leverage: The $310.0 million mortgage loan has a Fitch DSCR
and loan to value (LTV) of 1.12x and 79.3%, respectively, and debt
of $330psf.
Creditworthy Tenancy: The property is 100% leased to Palo Alto
Networks, Inc., which executed three separate, absolute NNN leases,
which expire in July 2028, 3.9 years beyond the loan maturity in
October 2024. PANW provides security platform solutions to
enterprises, service providers and government entities worldwide,
and the company reported 2018 revenue of $2.9 billion.
Asset Quality and Strong Location: Built in 2017, The Campus @ 3333
Phase III is an LEED Silver certified office complex located along
Tannery Way in Santa Clara, CA, in the heart of Silicon Valley.
PANW has invested over $80 million into outfitting the four
buildings. At issuance, Fitch assigned the property a collateral
quality grade of 'A-'. The transaction has received a Fitch
Environmental, Social and Governance (ESG) Relevance Score of '4'
for Waste and Hazardous Materials Management; Ecological Impact
given the LEED certification.
Institutional Sponsorship: The loan is sponsored by The California
State Teachers' Retirement System (CalSTRS) and Korea Post (KP).
CalSTRS is the third largest retirement plan in the U.S., KP is
owned by the Republic of Korea government (rated AA-/F1+/Stable;
country ceiling of AA+); as a government entity, KP is considered a
sovereign wealth fund.
Single-Tenant / Asset Exposure: The transaction is secured by a
single property and is, therefore, more susceptible to single-event
risk related to the market, sponsors, or tenant. All though the
property is currently leased to one tenant, PANW, the four-building
campus can easily be divided to accommodate multiple tenants.
Full-Term, Interest-Only Loan: The fixed-rate loan is interest only
for the entire seven-year loan term with a rate of 3.45%.
The transaction has an ESG Relevance Score of '4' for Waste and
Hazardous Materials Management; Ecological Impact due to
sustainable building practices including Green building certificate
credentials, which has a positive impact on the credit profile and
is relevant to the ratings in conjunction with other factors.
RATING SENSITIVITIES
The Rating Outlook for all classes remains Stable. No rating
actions are anticipated unless there are material changes in
property occupancy or cash flow. The property performance is
consistent with issuance.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade to classes B, C, D, and E may occur with
significant improved performance of the underlying asset,
significant amortization and/or defeasance.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A significant decline in asset occupancy;
-- A significant deterioration in property cash flow.
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
COMM 2017-PANW: Waste & Hazardous Materials Management; Ecological
Impacts: 4
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CONN'S RECEIVABLES 2020-A: Fitch to Rate Class C Notes 'B(EXP)sf'
-----------------------------------------------------------------
Fitch Ratings expects to assign ratings and Rating Outlooks to the
notes issued by Conn's Receivables Funding 2020-A, LLC, which
consists of notes backed by retail loans originated by Conn
Appliances, Inc. or Conn Credit Corporation, Inc. and serviced by
Conn Appliances, Inc.
RATING ACTIONS
Conns Receivables Funding 2020-A, LLC
Class A; LT BBB(EXP)sf Expected Rating
Class B; LT BB(EXP)sf Expected Rating
Class C; LT B(EXP)sf Expected Rating
The social and market disruption caused by the coronavirus and
related containment measures have negatively impacted the U.S.
economy. This scenario is captured under the derivation of Fitch's
base case default assumption of 30%, which is increased from 25% in
Conn's 2019-B. The sensitivity of the ratings to scenarios more
severe than currently expected is provided in the Rating
Sensitivities section below.
KEY RATING DRIVERS
Coronavirus Impact: The baseline (rating) scenario assumes an
initial activity bounce in 3Q20 followed by a slower recovery
trajectory from 4Q20 onward amid high unemployment rates and
further pullback in private-sector investment. The U.S. is expected
to suffer a hit to GDP growth through 2025. Under this scenario,
portfolio delinquencies and defaults are expected to increase
driven by continued high unemployment and loss of income from
containment measures. Fitch revised base-case default assumptions
higher to 30%, in part, to reflect expected weakening performance
stemming from challenging macro-economic conditions.
A downside (sensitivity) scenario is provided in Rating
Sensitivities.
Subprime Collateral Quality: The Conn's 2020-A receivables pool has
a weighted average (WA) FICO score of 609, and 10.4% of the loans
have scores below 550 or no score. Fitch applied a 2.2x, 1.5x and
1.2x stresses to the 30% default assumption at the 'BBBsf', 'BBsf'
and 'Bsf' levels, respectively. The default multiple reflects the
high absolute value of the historical defaults, the variability of
default performance in recent years and the high geographical
concentration of the portfolio.
Rating Cap at 'BBBsf': The rating cap reflects the subprime
credit-risk profile of the customer base, higher loan defaults in
recent years, the high concentration of receivables from Texas,
recent disruption in servicing contributing to increased defaults
in recent securitized vintages and servicing collection risk
(albeit reduced in recent years) due a portion of customers making
in-store payments.
Payment Structure — Sufficient Credit Enhancement (CE): Initial
hard CE totals 55.85%, 39.21% and 23.15% for class A, B and C
notes, respectively. Initial CE is sufficient to cover Fitch's
stressed cashflow assumptions for all classes.
Adequate Servicing Capabilities: Conn Appliances, Inc. has a long
track record as an originator, underwriter, and servicer. The
credit-risk profile of the entity is mitigated by the backup
servicing provided by Systems & Services Technologies, Inc. (SST),
which has committed to a servicing transition period of 30 days.
Fitch considers all parties to be adequate servicers for this pool
at the expected rating levels. Fitch evaluated the servicers'
business continuity plan as adequate to minimize disruptions in the
collection process during the pandemic.
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 upgrades. If the defaults are 20% less than the
projected base case default rate, the expected ratings for the
subordinate notes could be upgraded by up to one rating category.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Unanticipated increases in the frequency of defaults or chargeoffs
could produce loss levels higher than the base case, and would
likely result in declines of CE and remaining net loss coverage
levels available to the notes. Decreased CE may make certain
ratings on the notes susceptible to potential negative rating
actions, depending on the extent of the decline in coverage.
Fitch conducts sensitivity analysis by stressing a transaction's
initial base case default assumption by an additional 10% and 25%
and examining the rating implications. Additionally, Fitch conducts
an increase of 50%, which represents severe stress. These increases
of the base case default rate are intended to provide an indication
of the rating sensitivity of the notes to unexpected deterioration
of a trusts performance. A more prolonged disruption from the
pandemic is accounted for in the downside stress of the 50%
increase in the base case default rate and could result in
downgrades of up to one rating category for the class A notes and
downgrades into distressed rating categories for the subordinate
notes.
During the sensitivity analysis, Fitch examines the magnitude of
the multiplier compression by projecting the expected cash flows
and loss coverage levels over the life of investments under higher
than the initial base case default assumptions. Fitch models cash
flows with the revised default estimates while holding constant all
other modeling assumptions.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with third-party due diligence information from
Ernst & Young LLP. The third-party due diligence focused on
comparing certain information with respect to a sample of loans
from the statistical data file. Fitch considered this information
in its analysis, and the findings did not have an impact on its
analysis. A copy of the ABS Due Diligence Form-15E received by
Fitch in connection with this transaction may be obtained through
the link contained on 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.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties, and
enforcement mechanisms (RW&Es) that are disclosed in the offering
document and which relate to the underlying asset pool is available
by clicking the link to the Appendix. The appendix also contains a
comparison of these RW&Es to those Fitch considers typical for the
asset class as detailed in the Special Report titled
'Representations, Warranties and Enforcement Mechanisms in Global
Structured Finance Transactions'.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CSMC TRUST 2020-RPL4: Fitch Gives B Rating on Class B-2 Notes
-------------------------------------------------------------
Fitch Ratings has assigned ratings to the residential
mortgage-backed notes issued by CSMC 2020-RPL4 Trust.
RATING ACTIONS
CSMC 2020-RPL4
Class A-1; LT AAAsf New Rating; previously at AAA(EXP)sf
Class A-1A; LT AAAsf New Rating; previously at AAA(EXP)sf
Class A-1B; LT AAAsf New Rating; previously at AAA(EXP)sf
Class A-IO-S; LT NRsf New Rating; previously at NR(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 B-5; LT NRsf New Rating; previously at NR(EXP)sf
Class M-1; LT AAsf New Rating; previously at AA(EXP)sf
Class M-2; LT Asf New Rating; previously at A(EXP)sf
Class M-3; LT BBBsf New Rating; previously at BBB(EXP)sf
Class PT; 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 one collateral group that consists of
2,654 seasoned performing loans (SPLs) and re-performing loans
(RPLs) with a total balance of approximately $463.4 million, which
includes $21.9 million, or 4.7%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts, as of the cutoff
date.
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 servicers will not be advancing delinquent monthly
payments of P&I.
KEY RATING DRIVERS
Revised GDP Due to Coronavirus (Negative): The outbreak of the
coronavirus and the resulting containment efforts have resulted in
revisions to Fitch's GDP estimates for 2020. As of September,
Fitch's baseline global economic outlook for U.S. GDP is currently
a 4.6% decline for 2020, down from a 1.7% increase for 2019.
Fitch's downside scenario sees 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'
rated issues and below.
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage, seasoned performing and RPLs.
All the loans in the pool are current as of the cutoff date. While
most borrowers on a coronavirus-related relief plan have completed
the plan and resumed making payments, a small portion of borrowers
remain on an active forbearance plan but have remained current. Of
the pool, 31.3% of loans are current but have had recent
delinquencies or incomplete pay strings within the past two years.
Of the loans, 69% are seasoned over 24 months and have been paying
on time for the past 24 months, while 57% have been paying on time
for the past 36 months. Roughly 87% have been modified.
Expected Payment Forbearance and Deferrals Related to Coronavirus
(Negative): The outbreak of coronavirus and widespread containment
efforts in the U.S. has resulted 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. Credit Suisse is assessed by Fitch as an
'Average' aggregator specifically for acquiring seasoned and
distressed loans. Select Portfolio Servicing, Inc. (SPS) is the
named servicer for the transaction and is rated 'RPS1-' with a
Negative Rating Outlook. Fitch decreased its adjustments to the
'AAAsf' rating category by 135bps based primarily on the strong
rating for the servicer counterparty. Issuer retention of at least
5% of the bonds also helps ensure an alignment of interest between
the issuer and investor.
Adequate Servicing Fee (Neutral): Fitch assumed a stressed
servicing fee of 40bps in its analysis while analyzing the
structure. The 40bps was assumed as the required amount to attract
a successor servicer in a high delinquency environment. The higher
fee lowered the amount of excess interest available to protect
against realized losses resulting in higher initial credit
enhancement.
Due Diligence Review Results (Negative): A third-party due
diligence review was performed on approximately 100% of the loans
in the transaction pool. The review scope included a compliance
review that tested for adherence to applicable federal, state, and
local high-cost loan and/or anti-predatory laws. Due diligence was
performed by SitusAMC, which is an approved third-party review
(TPR) firm and is assessed by Fitch as 'Acceptable - Tier 1' and
Residential Real Estate Review.
The due diligence results indicate moderate compliance risk with
17.0% of loans receiving a final grade of 'C' or 'D'. While this
concentration of material exceptions is like other Fitch-rated RPL
RMBS, adjustments were applied only to loans missing of estimated
final HUD-1 documents that are subject to testing for compliance
with predatory lending regulations. These regulations are not
subject to statute of limitations like most compliance findings,
which ultimately exposes the trust to added assignee liability
risk. Fitch adjusted its loss expectation at the 'AAAsf' rating
category by less than 25bps to account for this added risk.
Representation Framework (Negative): The representation, warranty,
and enforcement (RW&E) framework for this transaction generally
contains all loan level representations listed in Fitch criteria
and is consistent with a Tier 2 framework. Fitch increased its loss
expectations by 138bps at the 'AAAsf' rating category to reflect
the RW&E framework combined with the non-investment-grade
counterparty risk of the rep provider.
No Servicer P&I Advances (Mixed): The servicer will not advance
delinquent monthly payments of P&I, which reduce 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 (LS)
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 amounts totaling $21.9 million (4.7%) of the UPB is
outstanding on the loans. Fitch included the deferred amounts when
calculating the borrower's loan-to-value ratio (LTV) and
sustainable LTV (sLTV), despite the lower payment and amounts not
being owed during the term of the loan. The inclusion resulted in a
higher probability of default (PD) 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 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 38.5% 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 rated 'AAAsf',
the analysis indicates there is potential positive rating migration
for all 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 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, which 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.
CRITERIA VARIATION
One variation was made to Fitch's "U.S. RMBS Rating Criteria."
Almost 33% of the loans had a tax and title search performed
outside of the six-month window that Fitch looks for in its
criteria. Given the minor amount of unpaid taxes and liens as well
as the fact that all the searches were performed within one year,
Fitch deemed the dated searches immaterial to the rating and did
not make any adjustments.
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 SitusAMC the third-party due diligence described in
Form 15E focused on a regulatory compliance review that covered
applicable federal, state, and local high-cost loan and/or
anti-predatory laws, as well as the Truth in Lending Act (TILA) and
Real Estate Settlement Procedures Act (RESPA). The scope was
consistent with Fitch criteria for due diligence on RPL RMBS.
Fitch considered this information in its analysis and, as a result,
Fitch made the following adjustment(s) to its analysis:
The regulatory compliance review indicated that 388 reviewed loans,
or approximately 14.6% of the total pool, were found to have a
material defect and, therefore, assigned a final grade of 'C' or
'D'.
Of the reviewed loans, 247, or approximately 10.2% of the total
pool, received a final grade of 'D' as the loan file did not have a
final HUD-1 for compliance testing purposes. The absence of a final
HUD-1 file does not allow the TPR firm to properly test for
compliance surrounding predatory lending in which statute of
limitations does not apply. These regulations may expose the trust
to potential assignee liability in the future and create added risk
for bond investors. Fitch also applied this adjustment to two
additional loans not graded 'C' or 'D' as one loan was tested with
alternate documentation that was not the final HUD1 and the other
did not receive a compliance review.
The remaining 139 loans with a final grade of 'C' or 'D' reflect
missing final HUD-1 files that are not subject to predatory
lending, missing state disclosures, and other missing documents
related to compliance testing. Fitch notes that these exceptions
are unlikely to add material risk to bondholders since the statute
of limitations on these issues have expired. No adjustment to loss
expectations were made for these 139 loans.
Fitch also applied outside the model adjustments on 51 loans that
had missing modification agreements. Each loan received a
three-month foreclosure timeline extension to represent a delay in
the event of liquidation as a result of these files not being
present.
Fitch adjusted its loss expectation at the 'AAAsf' by approximately
less than 25bps to reflect both missing final HUD-1 files and
modification agreements.
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.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties, and
enforcement mechanisms (RW&Es) that are disclosed in the offering
document and which relate to the underlying asset pool is available
by clicking the link to the Appendix. The appendix also contains a
comparison of these RW&Es to those Fitch considers typical for the
asset class as detailed in the Special Report titled
'Representations, Warranties and Enforcement Mechanisms in Global
Structured Finance Transactions'.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DBWF MORTGAGE 2015-LCM: DBRS Gives BB(low) Rating on 2 Tranches
---------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2015-LCM (the Certificates) issued by DBWF
2015-LCM Mortgage Trust as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (low) (sf)
-- Class F at BB (low) (sf)
All trends are Negative as the underlying collateral continues to
face performance challenges associated with the Coronavirus Disease
(COVID-19) global pandemic.
These certificates are currently also rated by DBRS Morningstar's
affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In
connection with the ongoing consolidation of DBRS Morningstar and
MCR, MCR previously announced that it had placed its outstanding
ratings of these certificates Under Review–Analytical Integration
Review and that MCR intended to withdraw its outstanding ratings;
such withdrawal will occur on or about October 14, 2020. In
accordance with MCR's engagement letter covering these
certificates, upon withdrawal of MCR's outstanding ratings, the
DBRS Morningstar ratings will become the successor
ratings to the withdrawn MCR ratings.
On March 1, 2020, DBRS Morningstar finalized its "North American
Single-Asset/Single-Borrower Ratings Methodology" (the NA SASB
Methodology), which presents the criteria for which ratings are
assigned to and/or monitored for North American
single-asset/single-borrower (NA SASB) transactions, large
concentrated pools, rake certificates, ground lease transactions,
and credit tenant lease transactions. On April 24, 2020, DBRS
Morningstar placed the ratings on its outstanding SASB transactions
secured by retail properties Under Review with Negative
Implications while MCR placed the ratings on its outstanding SASB
transactions secured by retail properties Under Review Negative as
the global shelter-in-place and mandatory retail closures related
to the coronavirus have contributed to retail bankruptcies and
anticipated vacancies in retail centers.
To assign ratings to this transaction, DBRS Morningstar considered
both the impact of the updated NA SASB Methodology and its
scenarios attributable to the ongoing coronavirus pandemic on the
ratings.
Because of the coronavirus' significant impact on retail
performance, DBRS Morningstar first considered the application of
the updated NA SASB Methodology in conjunction with the "North
American CMBS Surveillance Methodology" to arrive at a baseline
result, which incorporated qualitative assumptions, capitalization
rates, and loan-to-value (LTV) ratio sizing benchmark
quality/volatility adjustments and excluded any potential changes
in current or future expected asset performance resulting from the
coronavirus.
DBRS Morningstar then overlaid scenarios incorporating additional
reductions in net cash flow (NCF) to account for exposure to
bankrupt or closed tenants. This resulted in stressed collateral
value declines consistent with the projections in its "Global
Macroeconomic Scenarios: September Update" published on September
10, 2020, on top of the baseline result to determine the impact of
coronavirus-related changes in asset performance on the subject
transaction on a tranche-by-tranche basis. The global macroeconomic
scenarios include a moderate decline of 15% for all commercial real
estate (CRE), which acts as an average for all CRE property types.
However, DBRS Morningstar expects a greater range of value decline
for retail properties, ranging from 10% to 45% based on the type of
tenant composition, exposure to bankrupt or challenged retailers,
asset sponsorship, and asset location. DBRS Morningstar expects
that lower-tier regional malls with in-line sales generally less
than $300 per square foot (psf) will be the most affected.
LOAN/PROPERTY OVERVIEW
The collateral for the loan is the fee-simple and leasehold
interests in the 2.1 million sf Lakewood Center located in
Lakewood, California, within Los Angeles County. The mall was
originally constructed in 1951 and has been expanded and renovated
many times over the years with the last major expansion occurring
in 2009. The mall is owned and operated by The Macerich Company
(Macerich), which purchased the remaining 49% ownership interest in
the subject in 2014 for a total consideration of approximately $1.8
billion. The Certificates are backed by a $290.0 million loan
consisting of a $120.0 million senior note and two junior notes
each with a principal balance of $85.0 million. The three notes
have 11-year terms and amortize over 30-year terms with loan
maturity in June 2026. As part of the financing, but not part of
the trust collateral for this security, there is also a $120.0
million A-1 companion loan, which ranks pari passu with the senior
trust note and is securitized in the DBRS Morningstar-rated COMM
2015-CCRE24 Mortgage Trust transaction. The whole loan total
financing secured by the property totals $410.0 million, or $198
psf. Per the September 2020 remittance, the trust has amortized by
10.7% with a current trust balance of $268.1 million.
The fee-simple collateral interest totals 1.37 million sf, while
the remaining collateral is ground leased to major tenants. Anchor
tenants include Macy's (17.6% of net rentable area (NRA)), Costco
Wholesale (8.1% of NRA), JCPenney (7.9% of NRA), Target (7.7% of
NRA), and Home Depot (6.4% of NRA). Other major tenants include
Forever 21, Burlington Coat Factory, Nordstrom Rack, Best Buy,
Albertsons, and the 16-screen Pacific Theatres. Lakewood Center's
enclosed mall is primarily one story; however, attached anchors,
including Round 1 Bowling, encompass two stories. While JCPenney
filed for Chapter 11 bankruptcy in May 2020, the subject's location
was not on the list of initial store closures and was open for
business as of August 2020. In addition, 24 Hour Fitness (2.2% of
NRA) filed for Chapter 11 bankruptcy in June 2020 and planned to
permanently close over 100 locations; however, the subject location
was not listed in the published closing list as of September 2020.
Per a Yahoo Finance article dated September 2020, the Lakewood Mall
had been forced to close by the State of California mandates twice
throughout the coronavirus pandemic. The mall shut down for the
first time in March 2020 and later reopened in May 2020 before
closing again in July 2020. The mall's website advertises curb-side
pickup and limited in-person shopping, which is anticipated to
generate partial income for the tenants. Large stores such as Home
Depot, Costco Wholesale, Albertsons, Target, and others have
remained open with proper social distancing of customers.
Property performance had been stable as the occupancy rate remained
above 95.0% since issuance. Per the March 2020 rent roll, the
collateral was 95.4% occupied compared to the 98.4% occupancy rate
at issuance. DBRS Morningstar anticipates the occupancy rate to
likely decline in the near term as a result of the coronavirus
pandemic. The debt service coverage ratio (DSCR) for the subject
has also been steady over the past few years with a trailing
three-month ending March 2020 DSCR of 1.69 times (x), compared with
the YE2019 DSCR of 1.65x, YE2018 DSCR of 1.65x, and YE2017 DSCR of
1.62x. DBRS Morningstar has requested an update regarding tenant
rent collections or sales figures for the collateral since the
coronavirus pandemic. As of the September 2020 remittance date, the
loan is current and has shown no delinquencies or late payments.
DBRS Morningstar derived the NCF using the latest reported servicer
NCF with an adjustment, considering ongoing collateral performance
including tenant movement and sales performance. The resulting NCF
figure was $35.5 million and DBRS Morningstar applied a cap rate of
7.75%, which resulted in a pre-coronavirus DBRS Morningstar Value
of $457.7 million, a variance of -27.5% from the appraised value of
$631.0 million at issuance. The pre-coronavirus DBRS Morningstar
Value implies an LTV of 52.4% compared with the LTV of 65.1% on the
appraised value at issuance.
The cap rate DBRS Morningstar applied is at the middle end of the
range of DBRS Morningstar Cap Rate Ranges for retail properties,
reflecting the suburban location and market position of the asset.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 3.5%
to account for property quality, and market fundamentals.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher
NCF declines, resulting in stressed collateral value declines
consistent with the projections in the "Global Macroeconomic
Scenarios: September Update"
(https://www.dbrsmorningstar.com/research/366542) to estimate the
impact of coronavirus-related changes in asset performance on a
tranche-by-tranche basis for the subject transaction. The scenarios
included deducting cash flow for bankrupt retailers and increased
vacancy expected at the asset to arrive at a coronavirus DBRS
Morningstar Value under the moderate scenario, a 15.0% reduction
from the pre-coronavirus DBRS Morningstar Value. Because of the
more permanent value impairment resulting from the lost tenancy
revenue stream, DBRS Morningstar's analysis considered this value
when assigning ratings.
Under the moderate scenario, the cumulative rated debt was
insulated from loss.
Class X-A is an interest-only (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 U.S. dollars unless otherwise noted.
DIAMETER CREDIT III: Moody's Gives Ba3 Rating on $24MM Cl. E Notes
------------------------------------------------------------------
Moody's Investors Service assigned ratings to five classes of notes
issued by Diameter Credit Funding III, LTD.
Moody's rating action is as follows:
US$198,000,000 Class A Senior Secured Fixed Rate Notes due 2038
(the "Class A Notes"), Assigned Aaa (sf)
US$50,000,000 Class B Senior Secured Fixed Rate Notes due 2038 (the
"Class B Notes"), Assigned Aa3 (sf)
US$20,000,000 Class C Mezzanine Secured Deferrable Fixed Rate Notes
due 2038 (the "Class C Notes"), Assigned A3 (sf)
US$20,000,000 Class D Mezzanine Secured Deferrable Fixed Rate Notes
due 2038 (the "Class D Notes"), Assigned Baa3 (sf)
Up to US$24,000,000 Class E Junior Secured Deferrable Fixed Rate
Notes due 2038 (the "Class E Notes"), Assigned Ba3 (sf)*
The Class A Notes, the Class B Notes, the Class C Notes, the Class
D Notes, and the Class E Notes are referred to herein,
collectively, as the "Rated Notes."
*The Class E Notes will not be issued on the closing date. After
the closing date, at any time, the Issuer may issue the Class E
Notes in accordance with the terms of the governing documents.
RATINGS RATIONALE
The rationale for the ratings is based on its methodology and
considers all relevant risks, particularly those associated with
the CDO's portfolio and structure.
Diameter Credit Funding III is a managed cash flow CDO. The issued
notes will be collateralized primarily by corporate bonds and
loans. At least 30% of the portfolio must consist of senior secured
loans, senior secured notes, and eligible investments, up to 70% of
the portfolio may consist of second lien loans, unsecured loans,
bonds, subordinated bonds and unsecured bonds and up to 5% of the
portfolio may consist of letters of credit. The portfolio is
required to be at least 40% ramped as of the closing date.
Diameter Capital Partners LP will direct the selection, acquisition
and disposition of the assets on behalf of the Issuer and may
engage in trading activity, including discretionary trading, during
the transaction's five-year reinvestment period. Thereafter,
subject to certain restrictions, the Manager may reinvest
unscheduled principal payments and proceeds from sales of credit
risk assets. In addition to the Rated Notes, the Issuer issued
subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in August 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $400,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 3493
Weighted Average Coupon (WAC): 6.00%
Weighted Average Recovery Rate (WARR): 37.0%
Weighted Average Life (WAL): 11 years
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak U.S. economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
August 2020.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Notes is subject to uncertainty. The
performance of the Rated Notes is sensitive to the performance of
the underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the Rated Notes.
DRYDEN 37: Moody's Confirms B3 Rating on Class FR Notes
-------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by Dryden 37 Senior Loan Fund:
US$31,100,000 Class DR Mezzanine Secured Deferrable Floating Rate
Notes due 2031 (the "Class DR Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$25,650,000 Class ER Junior Secured Deferrable Floating Rate
Notes due 2031 (the "Class ER Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
US$8,750,000 Class FR Junior Secured Deferrable Floating Rate Notes
due 2031 (the "Class FR Notes"), Confirmed at B3 (sf); previously
on April 17, 2020 B3 (sf) Placed Under Review for Possible
Downgrade
The Class DR Notes, the Class ER Notes, and the Class FR Notes are
referred to herein, collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class DR Notes, the Class ER Notes, and the Class
FR Notes issued by the CLO. The CLO, originally issued in March
2015 and refinanced in December 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 January 2023.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the July 2020 trustee report [1], the weighted average
rating factor (WARF) was reported at 3227, compared to 2896
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2869 reported in the
July 2020 trustee report [3]. 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
16.93%. Nevertheless, Moody's noted that all the OC tests as well
as the interest diversion test were recently reported [4]as
passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $488,158,072
Defaulted Securities: $11,012,278
Diversity Score: 91
Weighted Average Rating Factor (WARF): 3205
Weighted Average Life (WAL): 5.8 years
Weighted Average Spread (WAS): 3.35%
Weighted Average Recovery Rate (WARR): 47.9%
Par haircut in OC tests and interest diversion test: 0.5%
Finally, Moody's notes that it also considered the information in
the August 2020 trustee report [5] which became available prior to
the release of this announcement.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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 and dependent Combination
Securities 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
August 2020.
FAIRSTONE FINANCIAL 2020-1: Moody's Gives (P)Ba3 Rating on D Notes
------------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to the
series 2020-1 notes to be issued by Fairstone Financial Issuance
Trust I (FFIT 2020-1). This is the second public consumer
loan-backed ABS transaction issued by Fairstone Financial Inc.
(Fairstone; B1). The notes will be backed by a pool of personal
loans primarily originated through Fairstone's branch network.
Fairstone is also the servicer and administrator of the
transaction.
The complete rating actions are as follows:
Issuer: Fairstone Financial Issuance Trust I, Series 2020-1 Notes
Series 2020-1 Class A Notes, Assigned (P)Aa2 (sf)
Series 2020-1 Class B Notes, Assigned (P)A2 (sf)
Series 2020-1 Class C Notes, Assigned (P)Ba1 (sf)
Series 2020-1 Class D Notes, Assigned (P)Ba3 (sf)
RATINGS RATIONALE
The ratings are based on the quality of the underlying collateral
and its expected performance, the strength of the capital
structure, and the experience and expertise of Fairstone as the
servicer.
Moody's cumulative net loss expectation for the FFIT 2020-1 pool is
19.0%. Moody's based its cumulative net loss expectation on an
analysis of the credit quality of the underlying collateral; the
historical performance of similar collateral, including
securitization performance and managed portfolio performance; the
reinvestment criteria stipulated in the transaction document during
the revolving period; the ability of Fairstone to perform the
servicing functions; and current expectations for the macroeconomic
environment during the life of the transaction.
At closing, the Class A notes, Class B notes, Class C notes and
Class D notes benefit from 37.50%, 26.00%, 16.00% and 10.00% of
hard credit enhancement, respectively. Hard credit enhancement for
the notes consists of a combination of non-declining
overcollateralization, a non-declining reserve account, and
subordination. The notes will also benefit from excess spread,
which is estimated by the issuer to be at least 22% per annum.
The transaction has an initial revolving period of three years
during which cash collections in the principal distribution account
will be used to purchase additional loans from Fairstone instead of
paying down the notes. An early amortization event can terminate
the revolving period and cause amortization of the notes before the
end of the revolving period. An early amortization would be
triggered by the following events: (a) the average loss ratio
exceeds the loss ratio trigger; (b) the FFIT 2020-1 note balance is
greater than zero at the end of the revolving period, (c) a pool
deficiency exists on three consecutive settlement dates, (d) the
cash reserve is less than the required amount for two consecutive
business days, (e) the pool concentration limits remain unsatisfied
for three consecutive settlement dates, (f) replacement backup
servicing agreement is not in place within 90 business days, (g)
failure to pay series principal and interest (h) insolvency of the
issuer, (i) series specific breach of rep and warranty, (j) failure
to observe or perform any material covenant or condition; or (k) a
servicer default occurs.
Operational risk exists in this transaction due to the
decentralized nature of the loan servicing obligations, the
reliance on Fairstone to continue to provide service and support to
its borrowers through its branch system, and the challenges
involved in transitioning servicing to a replacement servicer, if
required. These characteristics constrain the notes from achieving
the highest investment grade ratings at the time of deal closing.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
consumer assets from the current weak Canadian economic activity
and a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. Specifically, for
Canadian personal loan ABS, performance will weaken due to the
unprecedented spike in the unemployment rate, which may limit
borrowers' income and their ability to service debt. Furthermore,
borrower assistance programs to affected borrowers, such as payment
deferrals, may adversely impact scheduled cash flows to
bondholders. 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.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Consumer Loan-Backed ABS" published in July
2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the ratings of the notes if losses accumulate
below original expectations as a result of better composition of
the collateral type and risk level than the reinvestment criteria,
better than expected improvements in the economy, changes to
servicing practices that enhance collections or refinancing
opportunities that result in prepayments.
Down
Moody's could downgrade the ratings of the notes if pool losses
exceed expectations. Losses may increase, for example, due to
performance deterioration stemming from a downturn in the Canadian
economy, deficient servicing, errors on the part of transaction
parties, inadequate transaction governance and fraud.
FIRSTKEY HOMES 2020-SFR2: DBRS Gives Prov. B(high) on 2 Tranches
----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following
Single-Family Rental Pass-Through Certificates to be issued by
FirstKey Homes 2020-SFR2 Trust (FKH 2020-SFR2):
-- $1.1 billion Class A at AAA (sf)
-- $173.6 million Class B at AA (high) (sf)
-- $125.0 million Class C at A (high) (sf)
-- $194.4 million Class D at BBB (high) (sf)
-- $270.8 million Class E at BBB (low) (sf)
-- $111.1 million Class F1 at BB (high) (sf)
-- $69.4 million Class F2 at BB (sf)
-- $69.4 million Class F3 at BB (low) (sf)
-- $55.5 million Class G1 at B (high) (sf)
-- $55.5 million Class G2 at B (high) (sf)
The AAA (sf) rating on the Class A Certificates reflects 56.1% of
credit enhancement provided by subordinated notes in the pool. The
AA (high) (sf), A (high) (sf), BBB (high) (sf), BBB (low) (sf), BB
(high) (sf), BB (sf), BB (low) (sf), B (high) (sf), and B (high)
(sf) certificates reflect 49.2%, 44.2%, 36.4%, 25.6%, 21.1%, 18.3%,
15.6%, 13.3%, and 11.1% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The FKH 2020-SFR2 certificates are supported by the income streams
and values from 14,288 rental properties. The properties are
distributed across 15 states and 44 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 value, 53.5% of the
portfolio is concentrated in three states: Florida (26.0%), Texas
(15.1%), and Georgia (12.5%). The average value is $194,360. The
average age of the properties is roughly 37 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 $2,499.3 million.
The Sponsor intends to satisfy its risk retention obligations under
the U.S. Risk Retention Rules by Class I, which is 8.33% of the
initial total issuance balance, either directly or through a
majority-owned affiliate.
DBRS Morningstar assigned the provisional ratings for each class of
certificates by performing a quantitative and qualitative
collateral, structural, and legal analysis. This analysis uses DBRS
Morningstar's single-family rental subordination model and is based
on DBRS Morningstar's published criteria. DBRS Morningstar
developed property-level stresses for the analysis of single-family
rental assets. DBRS Morningstar assigned the provisional ratings to
each class based on the level of stresses each class can withstand
and whether such stresses are commensurate with the applicable
rating level. DBRS Morningstar's analysis includes estimated
base-case net cash flows (NCFs) by evaluating the gross rent,
concession, vacancy, operating expenses, and capital expenditure
data. The DBRS Morningstar NCF analysis resulted in a minimum debt
service coverage ratio of higher than 1.0 times (x). (For more
details, see DBRS Morningstar's Analysis section in the presale
report.)
Notes: All figures are in U.S. dollars unless otherwise noted.
GREAT LAKES 2014-1: Moody's Cuts Rating on Class F-R Notes to Caa1
------------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Great Lakes CLO 2014-1, Ltd.:
US$10,500,000 Class F-R Deferrable Mezzanine Floating Rate Notes
due 2029 (the "Class F-R Notes"), Downgraded to Caa1 (sf);
previously on June 24, 2020 B3 (sf) Placed Under Review for
Possible Downgrade
The Class F-R Notes are referred to herein as the "Downgraded
Notes."
Moody's also confirmed the rating on the following notes:
US$28,500,000 Class E-R Deferrable Mezzanine Floating Rate Notes
due 2029 (the "Class E-R Notes"), Confirmed at Ba2 (sf); previously
on June 24, 2020 Ba2 (sf) Placed Under Review for Possible
Downgrade
The Class E-R Notes are referred to herein as the "Confirmed
Notes."
These actions conclude the review for downgrade initiated on June
24, 2020 on the Downgraded Notes and Confirmed Notes issued by the
CLO. The CLO, originally issued in April 2014 and refinanced in
October 2017, is a managed cashflow middle market CLO. The notes
are collateralized primarily by a portfolio of middle market senior
secured corporate loans and broadly syndicated senior secured
corporate loans. The transaction's reinvestment period will end in
October 2021.
RATINGS RATIONALE
The downgrade on the Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the July 2020 trustee report [1], the weighted average
rating factor (WARF) was reported at 3766, compared to 3807
reported in the February 2020 trustee report [2]. Moody's
calculation also showed the WARF was failing the test level of 3300
reported in the July 2020 trustee report [3]. Based on Moody's
calculation, the proportion of obligors in the portfolio with
credit estimates or Moody's corporate family rating of Caa1
equivalent or lower (adjusted for negative outlook or watchlist for
downgrade) was approximately 30.97% as of July 2020. Moody's noted
that the Class E OC test was recently reported as failing, which
could result in the diversion of a portion of excess interest and
principal collections to repay the senior notes at the next payment
date should the failure continues. Nevertheless, Moody's noted that
the OC tests for the Class B, Class C, and Class D Notes were
recently reported [4] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Paramount and principal proceeds balance: $353,303,326
Defaulted Securities: $35,347,924
Diversity Score: 40
Weighted Average Rating Factor (WARF): 4041
Weighted Average Life (WAL): 4.18 years
Weighted Average Spread (WAS): 4.67%
Weighted Average Recovery Rate (WARR): 49.35%
Par haircut in OC tests and interest diversion test: 0.45%
Finally, Moody's notes that it also considered the information in
the August 2020 trustee report [5] which became available
immediately prior to the release of this announcement.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
GREAT LAKES 2015-1: Moody's Lowers Rating on F-R Notes to Caa1
--------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Great Lakes CLO 2015-1, Ltd.:
US$9,800,000 Class F-R Deferrable Mezzanine Floating Rate Notes due
2030 (the "Class F-R Notes"), Downgraded to Caa1 (sf); previously
on June 24, 2020 B3 (sf) Placed Under Review for Possible
Downgrade
The Class F-R Notes are referred to herein as the "Downgraded
Notes."
This action concludes the review for downgrade initiated on June
24, 2020 on the Downgraded Notes issued by the CLO. The CLO,
originally issued in July 2015 and refinanced in January 2018, is a
managed cashflow middle market CLO. The notes are collateralized
primarily by a portfolio of middle market senior secured corporate
loans and broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in January 2022.
RATINGS RATIONALE
The downgrade on the Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3835, compared to 3739
reported in the February 2020 trustee report [2]. Moody's
calculation also showed the WARF was failing the test level of 3515
reported in the August 2020 trustee report [3]. Based on Moody's
calculation, the proportion of obligors in the portfolio with
credit estimates or Moody's corporate family rating of Caa1
equivalent or lower (adjusted for negative outlook or watchlist for
downgrade) was approximately 30.19% as of August 2020. Moody's
noted that the Class E OC test and the Reinvestment Diversion Test
were recently reported [4] as failing, which could result in the
repayment of the senior notes with excess interest and principal
collections or the reinvestment of excess interest in collateral at
the next payment date should the failures continue.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount and principal proceeds balance: $324,850,366
Defaulted Securities: $27,151,521
Diversity Score: 41
Weighted Average Rating Factor (WARF): 4028
Weighted Average Life (WAL): 4.25 years
Weighted Average Spread (WAS): 4.7%
Weighted Average Recovery Rate (WARR): 49.24%
Par haircut in OC tests and interest diversion test: 0%
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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 Rating:
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 this rating was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
August 2020.
GS MORTGAGE 2020-PJ4: DBRS Finalizes B Rating on Class B-5 Certs
----------------------------------------------------------------
DBRS, Inc. finalized the following provisional ratings on the
Mortgage Pass-Through Certificates, Series 2020-PJ4 (the
Certificates) issued by GS Mortgage-Backed Securities Trust
2020-PJ4 (GSMBS 2020-PJ4):
-- $394.7 million Class A-1 at AAA (sf)
-- $394.7 million Class A-2 at AAA (sf)
-- $45.3 million Class A-3 at AAA (sf)
-- $45.3 million Class A-4 at AAA (sf)
-- $296.0 million Class A-5 at AAA (sf)
-- $296.0 million Class A-6 at AAA (sf)
-- $98.7 million Class A-7 at AAA (sf)
-- $98.7 million Class A-8 at AAA (sf)
-- $440.0 million Class A-9 at AAA (sf)
-- $440.0 million Class A-10 at AAA (sf)
-- $440.0 million Class A-X-1 at AAA (sf)
-- $394.7 million Class A-X-2 at AAA (sf)
-- $45.3 million Class A-X-3 at AAA (sf)
-- $296.0 million Class A-X-5 at AAA (sf)
-- $98.7 million Class A-X-7 at AAA (sf)
-- $19.3 million Class B at BBB (sf)
-- $6.3 million Class B-1 at AA (sf)
-- $6.3 million Class B-1-A at AA (sf)
-- $6.3 million Class B-1-X at AA (sf)
-- $7.9 million Class B-2 at A (sf)
-- $7.9 million Class B-2-A at A (sf)
-- $7.9 million Class B-2-X at A (sf)
-- $5.1 million Class B-3 at BBB (sf)
-- $5.1 million Class B-3-A at BBB (sf)
-- $5.1 million Class B-3-X at BBB (sf)
-- $2.1 million Class B-4 at BB (sf)
-- $928.0 thousand Class B-5 at B (sf)
Classes A-X-1, A-X-2, A-X-3, A-X-5, A-X-7, 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-4, A-6, A-8, A-9, A-10, A-X-2, B-1, B-2, B,
B-3, and B-X are exchangeable certificates. These classes can be
exchanged for combinations of exchange certificates as specified in
the offering documents.
Classes A-1, A-2, A-5, A-6, A-7, and A-8 are super-senior
certificates. These classes benefit from additional protection from
the senior support certificates (Classes A-3 and A-4) with respect
to loss allocation.
The AAA (sf) ratings on the Certificates reflect 5.25% of credit
enhancement provided by subordinated certificates. The AA (sf), A
(sf), BBB (sf), BB (sf), and B (sf) ratings reflect 3.90%, 2.20%,
1.10%, 0.65%, and 0.45% 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 610 loans with a total principal
balance of $464,388,676 as of the Cut-Off Date (September 1,
2020).
The originators for the mortgage pool are United Shore Financial
Services, LLC (19.8%), loanDepot.com, LLC (loanDepot, 16.4%),
Guaranteed Rate, Inc (11.8%), and various other originators, each
comprising less than 10.0% of the mortgage loans. Goldman Sachs
Mortgage Company is the Sponsor and the Mortgage Loan Seller of the
transaction. For certain originators, the related loans were sold
to MAXEX Clearing LLC (15.5%) and were subsequently acquired by the
Mortgage Loan Seller.
NewRez LLC, doing business as Shellpoint Mortgage Servicing, will
service all mortgage 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, Securities Administrator, and
Custodian. U.S. Bank Trust National Association will serve as
Delaware Trustee. Pentalpha Surveillance LLC will serve as the
representations and warranties (R&W) File Reviewer.
The pool consists of fully amortizing fixed-rate mortgages with
original terms to maturity of primarily 30 years and a
weighted-average (WA) loan age of six months. Approximately 30.8%
of the pool are conforming, high-balance mortgage loans that were
underwritten using an automated underwriting system (AUS)
designated by Fannie Mae or Freddie Mac and were eligible for
purchase by such agencies. The remaining 69.2% of the pool are
traditional, nonagency, prime jumbo mortgage loans. Details on the
underwriting of conforming loans can be found in the Key
Probability of Default Drivers section of the related rating
report.
For this transaction, as permitted by the Coronavirus Aid, Relief,
and Economic Security Act, signed into law on March 27, 2020, 11
loans (1.7% of the pool) had been granted forbearance plans because
the borrowers reported financial hardship related to the
Coronavirus Disease (COVID-19) pandemic. These forbearance plans
allow temporary payment holidays, followed by repayment once the
forbearance period ends. As of the Cut-Off Date, all 11 loans
satisfied their forbearance plans and are current. Furthermore,
none of the loans in the pool are on active coronavirus forbearance
plans.
The transaction employs a senior-subordinate, shifting-interest
cash flow structure that is enhanced from a precrisis structure.
CORONAVIRUS DISEASE (COVID-19) 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 arise in the coming
months for many residential mortgage-backed securities (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 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: September Update,"
published on September 10, 2020), for the prime asset class DBRS
Morningstar assumes a combination of higher unemployment rates and
more conservative home price assumptions than what DBRS Morningstar
previously used. 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
pandemic 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 ratio (LTV) 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.
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 weaknesses that include their R&W
framework, borrowers on forbearance plans, entities lacking
financial strength or securitization history, and servicer’s
financial capability.
Notes: All figures are in U.S. dollars unless otherwise noted.
HMH TRUST 2017-NSS: DBRS Assigns B(low) Rating on Class E Certs
---------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2017-NSS (the Certificates) issued by HMH
Trust 2017-NSS as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at BBB (sf)
-- Class D at BB (sf)
-- Class E at B (low) (sf)
All trends are Negative because the underlying collateral continues
to face performance challenges associated with the Coronavirus
Disease (COVID-19) global pandemic.
These certificates are currently also rated by DBRS Morningstar's
affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In
connection with the ongoing consolidation of DBRS Morningstar and
MCR, MCR previously announced that it had placed its outstanding
ratings of these certificates Under Review–Analytical Integration
Review and that MCR intended to withdraw its outstanding ratings;
such withdrawal will occur on or about October 14, 2020. In
accordance with MCR's engagement letter covering these
certificates, upon withdrawal of MCR's outstanding ratings, the
DBRS Morningstar ratings will become the successor ratings to the
withdrawn MCR ratings.
On March 1, 2020, DBRS Morningstar finalized its "North American
Single-Asset/Single-Borrower Ratings Methodology" (the NA SASB
Methodology), which presents the criteria for which ratings are
assigned to and/or monitored for North American
single-asset/single-borrower (NA SASB) transactions, large
concentrated pools, rake certificates, ground lease transactions,
and credit tenant lease transactions. On March 27, 2020, DBRS
Morningstar placed the ratings on its outstanding SASB transactions
secured by hospitality properties Under Review with Negative
Implications while MCR placed the ratings on its outstanding SASB
transactions secured by hospitality properties Under Review
Negative as the global shelter-in-place and travel restrictions
related to the coronavirus have had an extreme impact on the
short-term performance of this asset class.
To assign ratings to this transaction, DBRS Morningstar considered
both the impact of the updated NA SASB Methodology and its
scenarios attributable to the ongoing coronavirus pandemic on the
ratings.
Because of the coronavirus' significant impact on hospitality
performance, DBRS Morningstar first considered the application of
the updated NA SASB Methodology in conjunction with the "North
American CMBS Surveillance Methodology" to arrive at a baseline
result, which incorporated qualitative assumptions, capitalization
rates, and loan-to-value (LTV) ratio sizing benchmark
quality/volatility adjustments and excluded any potential changes
in current or future expected asset performance resulting from the
coronavirus.
DBRS Morningstar then overlaid scenarios incorporating market value
declines (MVDs) consistent with the projections in its "Global
Macroeconomic Scenarios: September Update" published on September
10, 2020, on top of the baseline result to determine the impact of
coronavirus-related changes in asset performance on the subject
transaction on a tranche-by-tranche basis. For more information on
these scenarios, please refer to the Coronavirus Impact Analysis
section of this document. The global macroeconomic scenarios
include a moderate decline of 15% for all commercial real estate
(CRE), which acts as an average for all CRE property types.
However, DBRS Morningstar expects a higher stress for hospitality
properties, ranging from 25% to 45% based on the type of demand
segmentation and asset location, and expects corporate demand and
remote fly-to locations to be at the higher end of the value
decline.
LOAN/PROPERTY OVERVIEW
The Certificates are backed by a single five-year, fixed-rate
promissory note of $204.0 million at an interest-only payment of
4.50%. The note is secured by a first-lien mortgage on a portfolio
of loans comprising the fee-simple interest in one hotel and
leasehold interests in 21 hotels located in nine states in addition
to the furniture, fixtures, equipment and personal property used in
the operations of the hotels. The properties have solid brand
affiliation with either Hilton Worldwide Holdings Inc.; Hyatt
Hotels Corporation; Marriott International, Inc.; or Choice Hotel
International, Inc. flags on each hotel. All franchise agreements
expire subsequent to loan maturity. Loan payments commenced in
August 2017 with the assumed maturity date of July 2022.
The loan facilitated the refinancing of the hotel portfolio,
including paydown of the $150.0 million existing mortgage debt and
the $61.0 million existing bridge loan as well as funding of a
property improvement plan reserve of $13.7 million and other
closing costs. The sponsor invested $8.8 million of cash equity,
adding to a total of $125.4 million of cash equity in the
portfolio. The sponsor also obtained an additional $25.0 million of
mezzanine debt in the financing package, within the $26.0 million
limit on additional future mezzanine debt permitted in the loan
documents. The mezzanine debt is not included in this security
offering.
The sponsor and loan guarantor of the transaction is Jay H.
Shidler, an individual with control and majority ownership of the
borrower. Hersha Hospitality Management L.P. manages five
properties representing 44.4% of the initial allocated loan amount
(ALA); MHH Management, LLC manages 11 properties representing 39.9%
of the initial ALA; and Chartwell Hospitality, LLC manages six
properties representing 15.8% of the initial ALA.
Operating history prior to securitization showed that portfolio
average occupancy was in the low-70% range with modest steady
improvement in average daily rates (ADRs). The 2018 financial
statements showed a 12% increase in cash flow from the issuer's
underwritten figure while occupancy held steady at 73%. The 2019
operating statement analysis report cash flow indicated a 3%
decline from the issuer's figure, but with a stable occupancy of
73% and a slight decrease from 2018 in both ADR and occupancy.
As with most hotels in the United States and abroad, the
coronavirus pandemic has devastated the operating performance of
this portfolio. The loan transferred to special servicing on May 8,
2020, with a request for relief because of delinquency and imminent
default caused by the pandemic lockdown. The properties were
operating at an average occupancy of 10% to 15%. The special
servicer commentary as of August 7, 2020, stated that the borrower
was attempting to transfer control of the properties to the
mezzanine lender with the special servicer's involvement while also
seeking appointment of a receiver. An important consideration will
be maintenance of ground lease payments.
DBRS Morningstar reanalyzed the net cash flow (NCF) derived at
issuance for the subject rating action to confirm its consistency
with the "DBRS Morningstar North American Commercial Real Estate
Property Analysis Criteria." The resulting NCF figure was $19.9
million and DBRS Morningstar applied a cap rate of 11.6%, which
resulted in a DBRS Morningstar Value of $180.7 million, a variance
of 49.0% from the appraised value of $356.6 million at issuance.
The DBRS Morningstar Value implies an LTV of 112.9% compared with
the LTV of 57.0% on the appraised value at issuance.
The cap rate DBRS Morningstar applied is at the higher end of the
range of DBRS Morningstar Cap Rate Ranges for lodging properties,
reflecting concerns associated with the loan's leasehold structure
and sponsorship.
DBRS Morningstar made a negative adjustment for cash flow
volatility and a positive adjustment for market fundamentals;
however, the adjustments canceled each other out, resulting in no
adjustments to the final LTV sizing benchmarks used for this rating
analysis.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating MVDs
consistent with the projections in the "Global Macroeconomic
Scenarios: September Update"
(https://www.dbrsmorningstar.com/research/366542) to estimate the
impact of coronavirus-related changes in asset performance on a
tranche-by-tranche basis for the subject transaction. The scenarios
included subjecting the most recent appraised collateral value to
generalized CRE asset value decline projections with an assumption
of approximately 45% under the moderate scenario. In cases where
the rated debt exceeded the scenario value, DBRS Morningstar
assumed that a principal writedown had occurred to account for the
difference. Because of the reverse-sequential allocation of losses
in commercial mortgage-backed security (CMBS) transactions, DBRS
Morningstar's analysis considered the most subordinate certificate
first and, if a complete principal writedown of the certificate had
occurred during the scenario, DBRS Morningstar repeated the
analysis for the second-most subordinate certificate and so on
until the rated debt no longer exceeded the scenario value.
Under the moderate scenario, the cumulative rated debt was
insulated from loss.
Notes: All figures are in U.S. dollars unless otherwise noted.
HUDSON'S BAY 2015-HBS: DBRS Gives BB Rating on Class X-2-FL Certs
-----------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2015-HBS issued by Hudson's Bay Simon JV Trust
2015-HBS as follows:
-- Class A-FL at AAA (sf)
-- Class B-FL at AA (low) (sf)
-- Class C-FL at BBB (sf)
-- Class D-FL at BB (low) (sf)
-- Class E-FL at B (low) (sf)
-- Class X-2-FL at BB (sf)
-- Class A-7 at AAA (sf)
-- Class B-7 at AA (low) (sf)
-- Class C-7 at BBB (sf)
-- Class D-7 at BB (low) (sf)
-- Class E-7 at B (low) (sf)
-- Class X-A-7 at AAA (sf)
-- Class X-B-7 at AA (sf)
-- Class A-10 at AAA (sf)
-- Class B-10 at AA (low) (sf)
-- Class C-10 at BBB (sf)
-- Class D-10 at BB (low) (sf)
-- Class E-10 at B (low) (sf)
-- Class X-A-10 at AAA (sf)
-- Class X-B-10 at AA (sf)
DBRS Morningstar did not assign a rating to Class X-1-FL as the
class reached its stated and legal maturity in August 2016 and is
no longer receiving interest payments.
DBRS Morningstar has placed all classes Under Review with Negative
Implications, given the negative impact of the Coronavirus Disease
(COVID-19) on the underlying collateral. Additionally, the loan is
currently in special servicing as the servicer is pursuing
litigation against the Borrower. The current ratings assigned by
DBRS Morningstar do not carry trends.
These certificates are currently also rated by DBRS Morningstar's
affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In
connection with the ongoing consolidation of DBRS Morningstar and
MCR, MCR previously announced that it had placed its outstanding
ratings of these certificates Under Review–Analytical Integration
Review and that MCR intended to withdraw its outstanding ratings;
such withdrawal will occur on or about October 13, 2020. In
accordance with MCR's engagement letter covering these
certificates, upon withdrawal of MCR's outstanding ratings, the
DBRS Morningstar ratings will become the successor ratings to the
withdrawn MCR ratings.
On March 1, 2020, DBRS Morningstar finalized its "North American
Single-Asset/Single-Borrower Ratings Methodology" (the NA SASB
Methodology), which presents the criteria for which ratings are
assigned to and/or monitored for North American
single-asset/single-borrower (NA SASB) transactions, large
concentrated pools, rake certificates, ground lease transactions,
and credit tenant lease transactions. On April 24, 2020, DBRS
Morningstar placed the ratings on its outstanding SASB transactions
secured by retail properties Under Review with Negative
Implications while MCR placed the ratings on its outstanding SASB
transactions secured by retail properties Under Review Negative as
the global shelter-in-place and mandatory retail closures related
to the coronavirus have contributed to retail bankruptcies and
anticipated vacancies in retail centers.
To assign ratings to this transaction, DBRS Morningstar considered
both the impact of the updated NA SASB Methodology and its
scenarios attributable to the ongoing coronavirus pandemic on the
ratings.
Because of the coronavirus' significant impact on retail
performance, DBRS Morningstar first considered the application of
the updated NA SASB Methodology in conjunction with the "North
American CMBS Surveillance Methodology" to arrive at a baseline
result, which incorporated qualitative assumptions, capitalization
rates, and loan-to-value (LTV) ratio sizing benchmark
quality/volatility adjustments and excluded any potential changes
in current or future expected asset performance resulting from the
coronavirus.
DBRS Morningstar then overlaid scenarios incorporating additional
reductions in net cash flow (NCF) to account for exposure to
bankrupt or closed tenants. This resulted in stressed collateral
value declines consistent with the projections in its "Global
Macroeconomic Scenarios: September Update" published on September
10, 2020, on top of the baseline result to determine the impact of
coronavirus-related changes in asset performance on the subject
transaction on a tranche-by-tranche basis. For more information on
these stress scenarios, please refer to the Coronavirus Impact
Analysis section of this document. The global macroeconomic
scenarios include a moderate decline of 15% for all commercial real
estate (CRE), which acts as an average for all CRE property types.
However, DBRS Morningstar expects a greater range of value decline
for retail properties, ranging from 10% to 45% based on the type of
tenant composition, exposure to bankrupt or challenged retailers,
asset sponsorship, and asset location. DBRS Morningstar expects
that lower-tier regional malls with in-line sales generally less
than $300 per square foot will be the most affected.
LOAN/PROPERTY OVERVIEW
The transaction consists of an $846.2 million first-mortgage loan
secured by 34 cross-collateralized properties leased to 24 Lord &
Taylor stores and 10 Saks Fifth Avenue stores located across 15
states. The collateral properties represent 19 fee-simple ownership
interests (64.1% of the pool balance) and 15 leasehold interests
(35.9% of the pool balance), totaling 4.5 million square feet (sf).
Individual tenant storefronts are located in various malls and
freestanding locations with a concentration in New Jersey and New
York, totaling 15 stores across the two states. The loan includes a
$149.9 million floating-rate Component A that had a two-year
initial term and three one-year extension options and has now
passed its final maturity; a $371.2 million fixed-rate Component B
with a seven-year term; and a $324.9 million fixed-rate Component C
with a 10-year term.
The loan is sponsored by a joint venture between Hudson Bay Company
(HBC) and Simon Property Group (SPG). Whole loan proceeds of $846.2
million, SPG equity of $63.0 million, and implied equity of $609.5
million from the contribution of HBC's then-owned properties
financed the acquisition of the properties for $1.4 billion and
funded tenant improvements totaling $63.0 million. The portfolio is
100% leased to Lord & Taylor and Saks Fifth Avenue on two master
leases with 20-year initial terms and six five-year extension
options for each store. The operating leases are fully guaranteed
by HBC.
In 2019, HBC sold the Lord & Taylor brand to Le Tote, a
subscription-based online women's clothing rental business and sold
the flagship Lord & Taylor store on Fifth Avenue to WeWork for $850
million. In connection with the sale of the brand, HBC retained
ownership of the real estate and reportedly agreed to pay the Lord
& Taylor rent for three years; however, the collateral lease
obligations are fully guaranteed by the firm. In January 2020, HBC
ownership went private with the acquisition of minority
shareholders' interests.
In April 2020 the loan transferred to special servicing and
SitusAMC (Situs), the special servicer, discovered that the loan's
Operating Lease Guarantor was subject to a post-privatization
corporate restructuring that appears to have taken place in March
2020 without lender consent. In May 2020, the lender filed
litigation against the Borrower in federal court in an effort to
obtain documentation and knowledge regarding the activities
affecting the Operating Lease Guarantor. The lender has not been
able to obtain sufficient documentation and transparency to
accurately assess the Operating Lease Guarantor's current
creditworthiness. Situs alleges that HBC violated loan covenants
and related guarantees and that the entity that guaranteed the
rental payments no longer exists. Additionally, Situs asserts that
the financial strength of the Operating Lease Guarantor was a key
consideration in the funding and structure of the loan and that the
corporate restructuring has likely materially reduced the financial
strength and capabilities of the Operating Lease Guarantor.
The loan remains outstanding for the April 2020 and all subsequent
debt service payments and as of July 2020, Component A reached its
final maturity date after the third and final one-year extension
option matured. According to the servicer, HBC stated that it
intends to secure refinance capital to pay the loan in full;
however, Situs has also accelerated the loan and is prepared to
initiate foreclosure proceedings, if necessary. The current
financial condition of HBC is unknown, but the retailer is facing
the same pressures currently experienced by all department store
chains including a changing retail landscape, which has been
exacerbated by the current coronavirus pandemic. In August 2020,
the firm withdrew a potential $900 million bond offering to raise
capital after investors reportedly required a higher interest rate
than the firm was willing to pay.
At issuance the portfolio was valued at $1.4 billion; however,
updated appraisals commissioned by HBC in connection with
privatization plan produced an aggregate portfolio value of $1.235
billion, representing a decline of -11.8%. Furthermore, the
aggregate dark value for the portfolio was determined to be $723.4
million; although, the special servicer disputed these valuations
when they were disclosed in December 2019. As Lord & Taylor filed
for bankruptcy in August 2020 and all stores will be liquidated,
DBRS Morningstar analyzed the individual November 2019 appraisals,
calculating an aggregate go-dark value of $298.7 million for the
Lord & Taylor stores. Combined with the aggregate as is value of
the Saks Fifth Avenue stores of $540.3 million, the total portfolio
value totals $839.0 million (LTV of 100.9%); however, DBRS
Morningstar opines that the true value of the collateral is likely
lower today.
DBRS Morningstar derived the NCF using the latest reported servicer
NCF with an adjustment, considering the unknown financial condition
of the Sponsor and Operating Lease Guarantor in addition to the
current retail landscape. The resulting NCF figure was $101.1
million and DBRS Morningstar applied a cap rate of 9.5%, which
resulted in a pre-coronavirus DBRS Morningstar Value of $1.06
billion, a variance of -24.1% from the appraised value of $1.4
billion at issuance. The pre-coronavirus DBRS Morningstar Value
implies an LTV of 79.6% compared with the LTV of 60.4% on the
appraised value at issuance.
The cap rate DBRS Morningstar applied is at the higher end of the
range of DBRS Morningstar Cap Rate Ranges for anchored retail
properties, reflecting the current unknown financial condition of
the Sponsor and Operating Lease Guarantor in addition to the
uncertain strategy to backfill the 24 Lord & Taylor stores securing
the loan.
DBRS Morningstar made no qualitative adjustments to the final LTV
sizing benchmarks used for this rating analysis.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher
NCF declines, resulting in stressed collateral value declines
consistent with the projections in the "Global Macroeconomic
Scenarios: September Update"
(https://www.dbrsmorningstar.com/research/366542) to estimate the
impact of coronavirus-related changes in asset performance on a
tranche-by-tranche basis for the subject transaction. The scenarios
included deducting cash flow for Operating Lease Guarantor
concerns, bankrupt retailers, and increased vacancy expected across
the portfolio to arrive at a coronavirus DBRS Morningstar Value
under the moderate scenario, a 25% reduction from the
pre-coronavirus DBRS Morningstar Value. Because of the more
permanent value impairment resulting from the lost tenancy revenue
stream, DBRS Morningstar's analysis considered this value when
assigning ratings.
Under the moderate scenario, the cumulative rated debt was
insulated from loss.
Classes X-2-FL, X-A-7, X-B-7, X-A-10, and X-B-10 are 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.
Notes: All figures are in U.S. dollars unless otherwise noted.
ICG US 2018-1: Moody's Confirms Ba3 Rating on $18MM Class D Notes
-----------------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by ICG US CLO 2018-1, Ltd.:
US$22,000,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2031 (the "Class C Notes"), Confirmed at Baa3 (sf); previously
on April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$18,000,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2031 (the "Class D Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class C Notes and the Class D Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class C and D Notes issued by the CLO. The CLO,
originally issued in March 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 on April 2023.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
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 ratings on the Confirmed Notes.
According to the August 2020 [1] trustee report, the weighted
average rating factor (WARF) was reported at 3404, compared to 2957
reported in the March 2020 trustee report [2]. 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 21.59%. Nevertheless, Moody's noted that the OC
tests for all Notes, as well as the interest diversion test were
recently reported according to the August 2020 trustee report [3],
as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $388,454,996
Defaulted Securities: $12,247,129
Diversity Score: 72
Weighted Average Rating Factor (WARF): 3360
Weighted Average Life (WAL): 6.06 years
Weighted Average Spread (WAS): 3.79%
Weighted Average Recovery Rate (WARR): 46.85%
Par haircut in OC tests and interest diversion test: 1.3%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
JAMESTOWN CLO IV: Moody's Lowers Rating on Class E Notes to Caa3
----------------------------------------------------------------
Moody's Investors Service upgraded the ratings on the following
notes issued by Jamestown CLO IV Ltd.:
US$26,400,000 Class B-R Senior Secured Deferrable Floating Rate
Notes Due 2026 (the "Class B-R Notes"), Upgraded to Aaa (sf);
previously on November 14, 2018 Upgraded to Aa1 (sf)
US$36,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes Due 2026 (the "Class C-R Notes"), Upgraded to A3 (sf);
previously on November 14, 2018 Upgraded to Baa1 (sf)
The Class B-R Notes and Class C-R Notes are referred to herein as
the "Upgraded Notes."
Moody's also downgraded the ratings on the following notes:
US$33,600,000 Class D Senior Secured Deferrable Floating Rate Notes
Due 2026 (the "Class D Notes"), Downgraded to B1 (sf); previously
on June 3, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
US$5,400,000 Class E Senior Secured Deferrable Floating Rate Notes
Due 2026 (current outstanding balance of $5,586,539.83) (the "Class
E Notes"), Downgraded to Caa3 (sf); previously on June 3, 2020 Caa2
(sf) Placed Under Review for Possible Downgrade
The Class D Notes and Class E Notes are referred to herein as the
"Downgraded Notes."
These actions conclude the reviews for downgrade initiated on June
3, 2020 on the Class D Notes and Class E Notes issued by the CLO.
The CLO, originally issued in June 2014 and partially refinanced in
November 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 July 2018.
RATINGS RATIONALE
The upgrade actions are primarily a result of deleveraging of the
senior notes, and an increase in the transaction's
over-collateralization (OC) ratios over the last twelve months.
Since September 2019, the Class A-1A-R, Class A-1B-R, and Class
A-1C-R notes have been paid down by approximately 66.5% or $80.9
million. Based on the September 2020 trustee report [1], the OC
ratios for the Class B-R and Class C-R notes are reported at
154.60% and 123.16%, respectively, versus September 2019 levels [2]
of 140.22% and 120.65%, respectively.
The downgrades on the Downgraded 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 2020, 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 some CLO notes has declined,
and expected losses (ELs) on certain notes have increased. Moody's
also notes that the amortization of the portfolio reduces the
interest collections available to pay the notes. The end of the
reinvestment period in July 2018 also limits the deal's ability to
reposition the portfolio or benefit from a recovery if the current
condition of lower economic activity extends over a long period.
According to the September 2020 trustee report [3], the weighted
average rating factor (WARF) was reported at 3581, compared to 3260
reported in the March 2020 trustee report [4]. Moody's also noted
that the WARF was failing the test level of 2328 reported in the
September 2020 trustee report [5]. 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
24.6%. Furthermore, Moody's calculated the OC ratios for the Class
D Notes and Class E Notes at 106.32% and 103.58%. Moody's noted
that the OC test for the Class D Notes was recently reported as
failing [6], which has resulted in deferral of current interest
payments to the Class E 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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $219,297,826
Defaulted Securities: $12,099,514
Diversity Score: 44
Weighted Average Rating Factor (WARF): 3476
Weighted Average Life (WAL): 3.4 years
Weighted Average Spread (WAS): 3.26%
Weighted Average Recovery Rate (WARR): 47.57%
Par haircut in OC tests and interest diversion test: 2.78%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
JAMESTOWN CLO V: Moody's Lowers Rating on Class F Notes to 'Ca'
---------------------------------------------------------------
Moody's Investors Service downgraded the ratings on the following
notes issued by Jamestown CLO V Ltd.:
US$21,000,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2027 (the "Class D Notes"), Downgraded to Ba1 (sf); previously
on June 3, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$20,000,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2027 (the "Class E Notes"), Downgraded to Caa1 (sf); previously
on June 3, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
US$8,000,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2027 (current outstanding balance of $8,299,425) (the "Class F
Notes"), Downgraded to Ca (sf); previously on June 3, 2020 Caa3
(sf) Placed Under Review for Possible Downgrade
The Class D Notes, the Class E Notes, and the Class F Notes are
referred to herein, collectively, as the "Downgraded Notes."
These actions conclude the reviews for downgrade initiated on June
3, 2020 on the Class D Notes, Class E Notes, and Class F Notes
issued by the CLO. The CLO, originally issued in December 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 January 2019.
RATINGS RATIONALE
The downgrades on the Downgraded 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 2020, 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 some CLO notes has declined,
and expected losses (ELs) on certain notes have increased. Moody's
also notes that the amortization of the portfolio reduces the
interest collections available to pay the notes. The end of the
reinvestment period in January 2019 also limits the deal's ability
to reposition the portfolio or benefit from a recovery if the
current condition of lower economc activity extends over a long
period.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3381, compared to 3045
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2470 reported in the
September 2020 trustee report [3]. 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
20.85%. Furthermore, Moody's calculated the over-collateralization
(OC) ratios for the Class D Notes, Class E Notes, and Class F Notes
at 113.46%, 103.09%, and 99.32%. Moody's noted that the OC test for
the Class E Notes was recently reported as failing [4], which has
resulted in deferral of current interest payments to the Class F
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $221,927,377
Defaulted Securities: $9,230,829
Diversity Score: 53
Weighted Average Rating Factor (WARF): 3317
Weighted Average Life (WAL): 3.56 years
Weighted Average Spread (WAS): 3.13%
Weighted Average Recovery Rate (WARR): 47.91%
Par haircut in OC tests and interest diversion test: 2.45%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
JP MORGAN 2020-7: DBRS Finalizes B(low) Rating on 2 Tranches
------------------------------------------------------------
DBRS, Inc. finalized the following provisional ratings on the
Mortgage Pass-Through Certificates, Series 2020-7 (the
Certificates) issued by J.P. Morgan Mortgage Trust 2020-7:
-- $601.3 million Class A-1 at AAA (sf)
-- $562.9 million Class A-2 at AAA (sf)
-- $498.5 million Class A-3 at AAA (sf)
-- $498.5 million Class A-3-A at AAA (sf)
-- $498.5 million Class A-3-X at AAA (sf)
-- $373.9 million Class A-4 at AAA (sf)
-- $373.9 million Class A-4-A at AAA (sf)
-- $373.9 million Class A-4-X at AAA (sf)
-- $124.6 million Class A-5 at AAA (sf)
-- $124.6 million Class A-5-A at AAA (sf)
-- $124.6 million Class A-5-B at AAA (sf)
-- $124.6 million Class A-5-X-1 at AAA (sf)
-- $124.6 million Class A-5-X-2 at AAA (sf)
-- $298.4 million Class A-6 at AAA (sf)
-- $298.4 million Class A-6-A at AAA (sf)
-- $298.4 million Class A-6-X at AAA (sf)
-- $200.1 million Class A-7 at AAA (sf)
-- $200.1 million Class A-7-A at AAA (sf)
-- $200.1 million Class A-7-X at AAA (sf)
-- $75.5 million Class A-8 at AAA (sf)
-- $75.5 million Class A-8-A at AAA (sf)
-- $75.5 million Class A-8-X at AAA (sf)
-- $62.3 million Class A-9 at AAA (sf)
-- $62.3 million Class A-9-A at AAA (sf)
-- $62.3 million Class A-9-B at AAA (sf)
-- $62.3 million Class A-9-X-1 at AAA (sf)
-- $62.3 million Class A-9-X-2 at AAA (sf)
-- $62.3 million Class A-10 at AAA (sf)
-- $62.3 million Class A-10-A at AAA (sf)
-- $62.3 million Class A-10-B at AAA (sf)
-- $62.3 million Class A-10-X-1 at AAA (sf)
-- $62.3 million Class A-10-X-2 at AAA (sf)
-- $64.3 million Class A-11 at AAA (sf)
-- $64.3 million Class A-11-X at AAA (sf)
-- $64.3 million Class A-11-A at AAA (sf)
-- $64.3 million Class A-11-AI at AAA (sf)
-- $64.3 million Class A-11-B at AAA (sf)
-- $64.3 million Class A-11-BI at AAA (sf)
-- $64.3 million Class A-12 at AAA (sf)
-- $64.3 million Class A-13 at AAA (sf)
-- $38.4 million Class A-14 at AAA (sf)
-- $38.4 million Class A-15 at AAA (sf)
-- $532.5 million Class A-16 at AAA (sf)
-- $68.7 million Class A-17 at AAA (sf)
-- $601.3 million Class A-X-1 at AAA (sf)
-- $601.3 million Class A-X-2 at AAA (sf)
-- $64.3 million Class A-X-3 at AAA (sf)
-- $38.4 million Class A-X-4 at AAA (sf)
-- $14.7 million Class B-1 at AA (sf)
-- $14.7 million Class B-1-A at AA (sf)
-- $14.7 million Class B-1-X at AA (sf)
-- $9.0 million Class B-2 at A (sf)
-- $9.0 million Class B-2-A at A (sf)
-- $9.0 million Class B-2-X at A (sf)
-- $6.4 million Class B-3 at BBB (sf)
-- $6.4 million Class B-3-A at BBB (sf)
-- $6.4 million Class B-3-X at BBB (sf)
-- $3.2 million Class B-4 at BB (sf)
-- $2.2 million Class B-5 at B (low) (sf)
-- $30.1 million Class B-X at BBB (sf)
-- $2.2 million Class B-5-Y at B (low) (sf)
Classes A-3-X, A-4-X, A-5-X-1, A-5-X-2, A-6-X, A-7-X, A-8-X,
A-9-X-1, A-9-X-2, A-10-X-1, A-10-X-2, 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-B, A-5-X-1, A-5-X-2, A-6, A-7, A-7-A, A-7-X, A-8, A-9, A-9-A,
A-10, A-10-A, 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. DBRS Morningstar does not rate Classes
B-6-Y and B-6-Z.
Classes A-2, A-3, A-3-A, A-4, A-4-A, A-5, A-5-A, A-5-B, A-6, A-6-A,
A-7, A-7-A, A-8, A-8-A, A-9, A-9-A, A-9-B, A-10, A-10-A, A-10-B,
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 (low) (sf) ratings reflect 3.70%,
2.30%, 1.30%, 0.80%, and 0.45% 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 782 loans with a total principal
balance of $639,640,632 as of the Cut-Off Date (September 1,
2020).
The pool consists of fully amortizing fixed-rate mortgages (FRMs)
with original terms to maturity of primarily 30 years.
Approximately 4.3% of the loans in the pool are conforming mortgage
loans predominantly originated by United Shore Financial Services,
LLC doing business as United Wholesale Mortgage and Shore Mortgage
(United Shore) 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 of the
related rating report.
The originators for the aggregate mortgage pool are United Shore
(27.2%), First Republic Bank (First Republic; 18.1%), and various
other originators, each comprising less than 10% of the pool. Also,
approximately 5.2% and 2.5% of the loans by balance were acquired
by the Seller from MaxEx Clearing LLC and Oceanview Dispositions,
LLC, respectively. The mortgage loans will be serviced or
subserviced by Shellpoint Mortgage Servicing (SMS; 47.5%), Cenlar
FSB (Cenlar; 26.6%), First Republic (18.1%), and various other
servicers/subservicers, each comprising less than 10%. For
Cenlar-subserviced loans, the Servicers are United Shore and
loanDepot. For USAA Federal Savings Bank-subserviced loans, the
Servicer is Nationstar Mortgage LLC (Nationstar).
Servicing will be transferred from SMS to JPMorgan Chase Bank, N.A.
(JPMCB; rated AA with a Stable trend by DBRS Morningstar) on the
servicing transfer date (November 1, 2020, or a later date) as
determined by the Issuing Entity and JPMCB. For this transaction,
the servicing fee payable for mortgage loans serviced by JPMCB,
loanDepot, SMS and United Shore 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 rise 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: September Update,"
published on September 10, 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 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 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 (MSAs) may
experience additional stress from extended lockdown periods and the
slowdown of the economy.
The ratings reflect transactional strengths that include
high-quality credit attributes, well-qualified borrowers, a
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-LTV2: DBRS Finalizes B Rating on 2 Tranches
----------------------------------------------------------
DBRS, Inc. finalized the following provisional ratings on the
Mortgage Pass-Through Certificates, Series 2020-LTV2 (the
Certificates) issued by J.P. Morgan Mortgage Trust 2020-LTV2:
-- $345.3 million Class A-1 at AAA (sf)
-- $304.7 million Class A-2 at AAA (sf)
-- $226.3 million Class A-3 at AAA (sf)
-- $226.3 million Class A-3-A at AAA (sf)
-- $226.3 million Class A-3-X at AAA (sf)
-- $169.7 million Class A-4 at AAA (sf)
-- $169.7 million Class A-4-A at AAA (sf)
-- $169.7 million Class A-4-X at AAA (sf)
-- $56.6 million Class A-5 at AAA (sf)
-- $56.6 million Class A-5-A at AAA (sf)
-- $56.6 million Class A-5-B at AAA (sf)
-- $56.6 million Class A-5-X-1 at AAA (sf)
-- $56.6 million Class A-5-X-2 at AAA (sf)
-- $146.8 million Class A-6 at AAA (sf)
-- $146.8 million Class A-6-A at AAA (sf)
-- $146.8 million Class A-6-X at AAA (sf)
-- $79.5 million Class A-7 at AAA (sf)
-- $79.5 million Class A-7-A at AAA (sf)
-- $79.5 million Class A-7-X at AAA (sf)
-- $23.0 million Class A-8 at AAA (sf)
-- $23.0 million Class A-8-A at AAA (sf)
-- $23.0 million Class A-8-X at AAA (sf)
-- $28.3 million Class A-9 at AAA (sf)
-- $28.3 million Class A-9-A at AAA (sf)
-- $28.3 million Class A-9-B at AAA (sf)
-- $28.3 million Class A-9-X-1 at AAA (sf)
-- $28.3 million Class A-9-X-2 at AAA (sf)
-- $28.3 million Class A-10 at AAA (sf)
-- $28.3 million Class A-10-A at AAA (sf)
-- $28.3 million Class A-10-B at AAA (sf)
-- $28.3 million Class A-10-X-1 at AAA (sf)
-- $28.3 million Class A-10-X-2 at AAA (sf)
-- $78.3 million Class A-11 at AAA (sf)
-- $78.3 million Class A-11-X at AAA (sf)
-- $78.3 million Class A-11-A at AAA (sf)
-- $78.3 million Class A-11-AI at AAA (sf)
-- $78.3 million Class A-11-B at AAA (sf)
-- $78.3 million Class A-11-BI at AAA (sf)
-- $78.3 million Class A-12 at AAA (sf)
-- $78.3 million Class A-13 at AAA (sf)
-- $40.6 million Class A-14 at AAA (sf)
-- $40.6 million Class A-15 at AAA (sf)
-- $256.5 million Class A-16 at AAA (sf)
-- $88.8 million Class A-17 at AAA (sf)
-- $345.3 million Class A-X-1 at AAA (sf)
-- $345.3 million Class A-X-2 at AAA (sf)
-- $78.3 million Class A-X-3 at AAA (sf)
-- $40.6 million Class A-X-4 at AAA (sf)
-- $12.0 million Class B-1 at AA (sf)
-- $12.0 million Class B-1-A at AA (sf)
-- $12.0 million Class B-1-X at AA (sf)
-- $17.7 million Class B-2 at A (sf)
-- $17.7 million Class B-2-A at A (sf)
-- $17.7 million Class B-2-X at A (sf)
-- $11.2 million Class B-3 at BBB (sf)
-- $11.2 million Class B-3-A at BBB (sf)
-- $11.2 million Class B-3-X at BBB (sf)
-- $7.9 million Class B-4 at BB (sf)
-- $3.3 million Class B-5 at B (sf)
-- $40.8 million Class B-X at BBB (sf)
-- $3.3 million Class B-5-Y at B (sf)
Classes A-3-X, A-4-X, A-5-X-1, A-5-X-2, A-6-X, A-7-X, A-8-X,
A-9-X-1, A-9-X-2, A-10-X-1, A-10-X-2, 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-B, A-5-X-1, A-5-X-2, A-6, A-7, A-7-A, A-7-X, A-8, A-9, A-9-A,
A-10, A-10-A, 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. DBRS Morningstar does not rate Classes
B-6-Y and B-6-Z.
Classes A-2, A-3, A-3-A, A-4, A-4-A, A-5, A-5-A, A-5-B, A-6, A-6-A,
A-7, A-7-A, A-8, A-8-A, A-9, A-9-A, A-9-B, A-10, A-10-A, A-10-B,
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 15.00% of credit
enhancement provided by subordinated certificates. The AA (sf), A
(sf), BBB (sf), BB (sf), and B (sf) ratings reflect 12.05%, 7.70%,
4.95%, 3.00%, and 2.20% 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 587 loans with a total principal
balance of $406,244,792 as of the Cut-Off Date (September 1,
2020).
Compared with other post-crisis prime pools, this portfolio
consists of higher loan-to-value (LTV), first-lien, fully
amortizing fixed-rate mortgages (with original terms to maturity of
up to 30 years. The weighted-average (WA) original combined LTV
(OCLTV) for the portfolio is 87.7% and a great portion of the pool
(85.9%) comprises loans with current CLTV ratios greater than
80.0%. The high LTV attribute of this portfolio is mitigated by
certain strengths, such as high FICO score, low debt-to-income
ratio, robust income and reserves, as well as other strengths
detailed in the Key Probability of Default Drivers section of the
related report.
The mortgage loans were originated by United Shore Financial
Services, LLC (73,3%), JPMorgan Chase Bank, N.A.(JPMCB; 7.1%), and
various other originators, each comprising less than 5.0% of the
mortgage loans.
The mortgage loans will be serviced or subserviced by Cenlar FSB
(72.9%) and NewRez doing business as Shellpoint Mortgage Servicing
(SMS; 19.7%). Servicing will be transferred from SMS to JPMCB
(rated AA with a Stable trend by DBRS Morningstar) on the servicing
transfer date (November 1, 2020, or a later date) as determined by
the issuing entity and JPMCB. For this transaction, the servicing
fee payable for the mortgage loans 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 Mortgage LLC 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 the 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 rise 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: September Update,"
published on September 10, 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 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 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 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.
The ratings reflect transactional strengths that include
high-quality credit attributes, well-qualified borrowers, a
satisfactory third-party due-diligence review, structural
enhancements, and 100% current loans.
This transaction employs a R&W framework that contains certain
weaknesses, such as materiality factors, some R&W providers that
may experience financial stress that could result in the inability
to fulfill repurchase obligations, knowledge qualifiers, and sunset
provisions that allow for certain R&Ws to expire three years after
the Closing Date. DBRS Morningstar believes the framework is
limiting compared with traditional lifetime R&W standards in
certain DBRS Morningstar-rated securitizations. To capture the
perceived weaknesses in the R&W framework, DBRS Morningstar
adjusted the originator scores for the originators downward, which
resulted in higher loss expectations.
Notes: All figures are in U.S. dollars unless otherwise noted.
KKR CLO 12: Moody's Confirms Ba3 Rating on Class E-R2 Notes
-----------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by KKR CLO 12 Ltd.:
US$19,500,000 Class C-R2 Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class C-R2 Notes"), Confirmed at A2 (sf);
previously on June 3, 2020 A2 (sf) Placed Under Review for Possible
Downgrade
US$25,700,000 Class D-R2 Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class D-R2 Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$22,000,000 Class E-R2 Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class E-R2 Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
The Class C-R2 Notes, the Class D-R2 Notes, and the Class E-R2
Notes are referred to herein, collectively, as the "Confirmed
Notes."
This action concludes the review for downgrade initiated on April
17, 2020 on the Class D-R2 and Class E-R2 Notes and on June 3, 2020
on the Class C-R2 Notes issued by the CLO. The CLO, originally
issued in August 2015 and refinanced in August 2017 and 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 on
October 2022.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
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 ratings on the Confirmed Notes.
According to the August trustee report [1], the weighted average
rating factor (WARF) was reported at 3451, compared to 2947
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 3037 reported in
the August 2020 trustee report [3]. 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
24.7%. Nevertheless, Moody's noted that the OC tests for as well as
the interest diversion test were recently reported [4] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $394,828,087
Defaulted Securities: $4,015,372
Diversity Score: 72
Weighted Average Rating Factor (WARF): 3478
Weighted Average Life (WAL): 5.68 years
Weighted Average Spread (WAS): 3.51%
Weighted Average Recovery Rate (WARR): 48.5%
Par haircut in OC tests and interest diversion test: 2.2%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
KKR CLO 16: Moody's Confirms Ba3 Rating on Class D-R Notes
----------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by KKR CLO 16 Ltd.:
US$47,100,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2029 (the "Class C-R Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$29,600,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2029 (the "Class D-R Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
The Class C-R Notes and the Class D-R Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class C-R Notes and Class D-R Notes issued by the
CLO. The CLO, originally issued in December 2016 and 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
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3418 compared to 2945
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 2974 reported in
the August 2020 trustee report [3]. 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
23.33%. Nevertheless, Moody's noted that all the OC tests as well
as the interest diversion test were recently reported [4] as
passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $686,187,010
Defaulted Securities: $7,343,474
Diversity Score: 72
Weighted Average Rating Factor (WARF): 3393
Weighted Average Life (WAL): 4.7 years
Weighted Average Spread (WAS): 3.46%
Weighted Average Recovery Rate (WARR): 48.39%
Par haircut in OC tests and interest diversion test: 1.598%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
KKR CLO 19: Moody's Confirms Ba3 Rating on Class D Notes
--------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by KKR CLO 19 Ltd.:
US$21,062,500 Class B-1 Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class B-1 Notes"), Confirmed at A2 (sf);
previously on June 3, 2020 A2 (sf) Placed Under Review for Possible
Downgrade
US$6,500,000 Class B-2 Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class B-2 Notes"), Confirmed at A2 (sf);
previously on June 3, 2020 A2 (sf) Placed Under Review for Possible
Downgrade
US$32,812,500 Class C Senior Secured Deferrable Floating Rate Notes
due 2030 (the "Class C Notes"), Confirmed at Baa3 (sf); previously
on April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$23,625,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2030 (the "Class D Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class B-1 Notes, the Class B-2 Notes, the Class C Notes, and
the Class D Notes are referred to herein, collectively, as the
"Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class C Notes and the Class D Notes and on June 3,
2020 on the Class B-1 Notes and the Class B-2 Notes issued by the
CLO. The CLO, issued in November 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 October 2022.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the July 2020 trustee report [1], the weighted average
rating factor (WARF) was reported at 3552 compared to 2968 reported
in the February 2020 trustee report [2]. Moody's also noted that
the WARF was failing the test level of 2996 reported in the July
2020 trustee report [3]. 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
26.64%. Nevertheless, Moody's noted that all the OC tests as well
as the interest diversion test were recently reported [4] as
passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $519,719,354
Defaulted Securities: $2,694,953
Diversity Score: 71
Weighted Average Rating Factor (WARF): 3549
Weighted Average Life (WAL): 5.64 years
Weighted Average Spread (WAS): 3.49%
Weighted Average Recovery Rate (WARR): 48.41%
Par haircut in OC tests and interest diversion test: 2.04%
Finally, Moody's notes that it also considered the information in
the August 2020 trustee report [5] which became available prior to
the release of this announcement.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
KKR CLO 22: Moody's Confirms Ba3 Rating on Class E Notes
--------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by KKR CLO 22 Ltd.:
US$36,000,000 Class D Senior 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
US$33,000,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2031 (the "Class E Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class D Notes and the Class E Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D Notes and Class E Notes issued by the CLO.
The CLO issued in June 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 July 2023.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3392 compared to 2917
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 2993 reported in
the August 2020 trustee report [3]. 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
24.0%. Nevertheless, Moody's noted that all the OC tests as well as
the interest diversion test were recently reported [4] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $598,479,153
Defaulted Securities: $1,015,707
Diversity Score: 69
Weighted Average Rating Factor (WARF): 3419
Weighted Average Life (WAL): 5.77 years
Weighted Average Spread (WAS): 3.47%
Weighted Average Recovery Rate (WARR): 48.41%
Par haircut in OC tests and interest diversion test: 1.95%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
KKR CLO 23: Moody's Confirms B3 Rating on Class F Notes
-------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by KKR CLO 23 Ltd.:
US$32,500,000 Class D Senior 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
US$28,750,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2031 (the "Class E Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
US$7,250,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2031 (the "Class F Notes"), Confirmed at B3 (sf); previously on
April 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade
The Class D Notes, the Class E Notes, and the Class F Notes are
referred to herein, collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D Notes, the Class E Notes, and the Class F
Notes. The CLO, issued 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
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the July 2020 trustee report [1], the weighted average
rating factor (WARF) was reported at 3550 compared to 2886 reported
in the February 2020 trustee report [2]. Moody's also noted that
the WARF was failing the test level of 2958 reported in the July
2020 trustee report [3]. 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
27.74%. Nevertheless, Moody's noted that all the OC tests as well
as the interest diversion test were recently reported [4] as
passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $496,182,487
Defaulted Securities: $2,367,378
Diversity Score: 66
Weighted Average Rating Factor (WARF): 3532
Weighted Average Life (WAL): 5.73 years
Weighted Average Spread (WAS): 3.46%
Weighted Average Recovery Rate (WARR): 48.34%
Par haircut in OC tests and interest diversion test: 1.81%
Finally, Moody's notes that it also considered the information in
the August 2020 trustee report [5] which became available prior to
the release of this announcement.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
KKR CLO 24: Moody's Confirms Ba3 Rating on $23MM Class E Notes
--------------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by KKR CLO 24 Ltd.:
US$19,600,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2032 (the "Class C Notes"), Confirmed at A2 (sf); previously on
June 3, 2020 A2 (sf) Placed Under Review for Possible Downgrade
US$23,200,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2032 (the "Class D Notes"), Confirmed at Baa3 (sf); previously
on April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$23,000,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2032 (the "Class E Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class C Notes, Class D Notes, and Class E Notes are referred to
herein, collectively, as the "Confirmed Notes."
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D and Class E Notes, and on June 3, 2020 on
the Class C Notes issued by the CLO. The CLO, issued in March 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 April
2024.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current ratings 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 ratings on the Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3443 compared to 2915
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 2950 reported in
the August 2020 trustee report [3]. 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
26.4%. Nevertheless, Moody's noted that all the OC tests as well as
the interest diversion test were recently reported [4] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $397,797,723
Defaulted Securities: $251,740
Diversity Score: 68
Weighted Average Rating Factor (WARF): 3466
Weighted Average Life (WAL): 5.8 years
Weighted Average Spread (WAS): 3.46%
Weighted Average Recovery Rate (WARR): 48.41%
Par haircut in OC tests and interest diversion test: 1.83%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
KKR CLO 26: Moody's Confirms Ba3 Rating on Class E Notes
--------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by KKR CLO 26 Ltd.:
US$30,000,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2032 (the "Class D Notes"), Confirmed at Baa3 (sf); previously
on April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$29,700,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2032 (the "Class E Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class D Notes and the Class E Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D Notes and Class E Notes issued by the CLO.
The CLO issued in August 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 2024.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3429 compared to 2878
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 2999 reported in
the August 2020 trustee report [3]. 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
23.57%. Nevertheless, Moody's noted that all the OC tests as well
as the interest diversion test were recently reported [4] as
passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $500,098,213
Defaulted Securities: $0
Diversity Score: 67
Weighted Average Rating Factor (WARF): 3463
Weighted Average Life (WAL): 5.85 years
Weighted Average Spread (WAS): 3.43%
Weighted Average Recovery Rate (WARR): 48.76%
Par haircut in OC tests and interest diversion test: 1.34%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
KVK CLO 2018-1: Moody's Lowers Rating on Class F Notes to Caa3
--------------------------------------------------------------
Moody's Investors Service downgraded the ratings on the following
notes issued by KVK CLO 2018-1 Ltd.:
US$28,500,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2029 (the "Class E Notes"), Downgraded to B1 (sf), previously
on June 3, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
US$12,000,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2029 (the "Class F Notes"), Downgraded to Caa3 (sf), previously
on June 3, 2020 Caa1 (sf) Placed Under Review for Possible
Downgrade
The Class E Notes and the Class F Notes are referred to herein as
the "Downgraded Notes."
Moody's also confirmed the rating on the following notes:
US$36,500,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2029 (the "Class D Notes"), Confirmed at Baa3 (sf), previously
on June 3, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
The Class D Notes are referred to herein as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on June
3, 2020 on the Class D Notes, the Class E Notes, and the Class F
Notes issued by the CLO. The CLO, originally issued in May 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 May 2020.
RATINGS RATIONALE
The downgrades on the Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3255 compared to 2781
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2986 reported in the
September 2020 trustee report. 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
18.05%. Nevertheless, Moody's noted that all the CLO's OC tests, as
well as the interest diversion test were recently reported [3] as
passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $556,142,681
Defaulted Securities: $11,353,293
Diversity Score: 74
Weighted Average Rating Factor (WARF): 3286
Weighted Average Life (WAL): 4.61 years
Weighted Average Spread (WAS): 3.43%
Weighted Average Recovery Rate (WARR): 47.93%
Par haircut in OC tests and interest diversion test: 1.30%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
LAKE SHORE III: S&P Assigns Prelim BB-(sf) Rating to Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Lake Shore
MM CLO III LLC's floating-rate notes.
The note issuance is a CLO securitization backed by primarily
middle-market speculative-grade (rated 'BB+' and lower) senior
secured term loans that are governed by collateral quality tests.
The preliminary ratings are based on information as of Oct. 2,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The 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.
PRELIMINARY RATINGS ASSIGNED
Lake Shore MM CLO III LLC
Class Rating Amount
(mil. $)
A AAA (sf) 182.00
B AA (sf) 42.20
C (deferrable) A (sf) 24.50
D (deferrable) BBB- (sf) 17.75
E (deferrable) BB- (sf) 18.00
Subordinated notes NR 29.50
NR--Not rated.
MADISON PARK XXXIV: Fitch Affirms BB- Rating on Class E Notes
-------------------------------------------------------------
Fitch Ratings has affirmed the class A-1, A-2 (the class A notes)
and E notes from Madison Park Funding XXXIV, Ltd. (Madison Park
Funding 34). In addition, the Rating Outlook remains Stable on the
class A notes and Fitch has also assigned a Stable Rating Outlook
to class E notes, removing the class from Rating Watch Negative
(RWN). The class E notes were previously placed on RWN in April.
RATING ACTIONS
Madison Park Funding XXXIV, Ltd.
Class A-1 55819GAA7; LT AAAsf Affirmed; previously at AAAsf
Class A-2 55819GAC3; LT AAAsf Affirmed; previously at AAAsf
Class E 55820HAA2; LT BB-sf Affirmed; previously at BB-sf
TRANSACTION SUMMARY
Madison Park Funding 34 is an arbitrage CLO managed by Credit
Suisse Asset Management, LLC. The CLO closed in April 2019. The
transaction is still within its reinvestment period, which is
scheduled to end in April 2024.
KEY RATING DRIVERS
The affirmations reflect the sufficient credit enhancement (CE)
levels available to the notes and are supported by the overall
results of Fitch's cash flow analysis based on the portfolio
provided in the September 2020 trustee report. Approximately 9.6%
of the portfolio was downgraded since April 2020, which was
slightly offset by 4.1% of portfolio upgrades in the same period.
Average portfolio exposure to assets considered 'CCC' and below
(excluding defaults) increased to 20.1% from 13.0%, and the Fitch
weighted average rating factor (WARF) increased to 39.0 from 38.2.
Coronavirus Impact Analysis
Fitch conducted a coronavirus baseline sensitivity scenario which
applies a one notch downgrade for issuers with a Negative Outlook
(floor at CCC-), regardless of sector. Assets with a Fitch-derived
rating with a Negative Outlook totaled 36.6%. As a result, Fitch
WARF increased to 42.2 under the coronavirus baseline sensitivity
scenario. The results of this sensitivity analysis were considered
in determining Rating Outlooks on the CLO notes.
Cash Flow Analysis
Fitch used a proprietary cash flow model to replicate the principal
and interest waterfalls, as well as the various structural features
of the transaction. This transaction was modeled under the stable,
down, and rising interest-rate scenarios and the front-, mid- and
back-loaded default timing scenarios as outlined in Fitch's
criteria.
When conducting a cash flow analysis, Fitch's model first projects
the portfolio scheduled amortization proceeds and any prepayments
for each reporting period of the transaction life, assuming no
defaults (and assuming no voluntary terminations, when applicable).
In each rating stress scenario, such scheduled amortization
proceeds and prepayments are then reduced by a scale factor
equivalent to the overall percentage of loans that are not assumed
to default (or to be voluntary terminated, when applicable). This
adjustment avoids running out of performing collateral due to
amortization and ensures all the defaults projected to occur in
each rating stress are realized in a manner consistent with Fitch's
published default timing curve.
The rated notes were able to pass their current rating stresses
with positive cushions in all scenarios under standard assumptions.
Model-implied ratings (MIRs) of the class A-1 and A-2 notes were at
their current rating levels and MIR of the class E notes was two
notches higher than their current rating level. However, Fitch did
not upgrade the class E notes considering the ongoing economic
disruption caused by the coronavirus pandemic and the transaction
remaining in its reinvestment period until April 2024.
Fitch removed the class E notes from RWN and assigned them a Stable
Outlook as a result of the coronavirus baseline sensitivity
scenario. The Stable Outlooks on the class A-1, A-2 and E notes
demonstrate the notes' resilience with positive breakeven cushions
at their current rating levels in this sensitivity scenario under
stable interest rate assumptions.
RATING SENSITIVITIES
Fitch conducted rating sensitivity analysis on the closing date of
each CLO, incorporating increased levels of defaults and reduced
levels of recovery rates, among other sensitivities, as defined in
its CLOs and Corporate CDOs Rating Criteria.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean default rate across all ratings and a
25% increase of the recovery rate at all rating levels, would
potentially lead to an upgrade of five notches for the class E
notes based on model-implied ratings. An upgrade scenario would not
be applicable to the class A-1 and A-2 notes, as these notes are in
the highest rating category of 'AAAsf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate across all ratings, and a
25% decrease of the recovery rate at all rating levels, would
potentially lead to a downgrade of one notch for the class A-1 and
A-2 notes and more than one category below for the class E notes
based on model-implied ratings.
Downgrades may occur if realized and projected losses in the
respective portfolios are higher than those assumed at closing in
the Fitch Stressed Portfolio and that are not offset by the
increase in CLO notes' CE levels.
Coronavirus Downside Scenario Impact:
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 halting recovery begins
in 2Q21. The downside sensitivity incorporates the following
stresses: applying a one-notch downgrade to all Fitch-derived
ratings in the 'B' rating category; applying a 70% recovery rate
multiplier to all assets from issuers in the eight industries
identified as being most exposed to negative performance resulting
from business disruptions from the coronavirus (Group 1 countries
only); and applying a 85% recovery rate multiplier to all other
assets. This sensitivity is not used to derive its rating actions.
In such a scenario, the model-implied ratings are one notch below
the current ratings of the class A-1 and A-2 notes, and more than
one category below for the class E notes.
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.
MORGAN STANLEY 2013-ALTM: DBRS Gives BB Rating on Class E Certs
---------------------------------------------------------------
DBRS Limited assigned ratings to the Commercial Mortgage
Pass-Through Certificates, Series 2013-ALTM (the Certificates)
issued by Morgan Stanley Capital I Trust 2013-ALTM as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
DBRS Morningstar has also placed all classes Under Review with
Negative Implications, given the negative impact of the Coronavirus
Disease (COVID-19) on the underlying collateral.
These certificates are currently also rated by DBRS Morningstar's
affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In
connection with the ongoing consolidation of DBRS Morningstar and
MCR, MCR previously announced that it had placed its outstanding
ratings of these certificates Under Review–Analytical Integration
Review and that MCR intended to withdraw its outstanding ratings;
such withdrawal will occur on or about October 13, 2020. In
accordance with MCR's engagement letter covering these
certificates, upon withdrawal of MCR's outstanding ratings, the
DBRS Morningstar ratings will become the successor ratings to the
withdrawn MCR ratings.
On March 1, 2020, DBRS Morningstar finalized its "North American
Single-Asset/Single-Borrower Ratings Methodology" (the NA SASB
Methodology), which presents the criteria for which ratings are
assigned to and/or monitored for North American
single-asset/single-borrower (NA SASB) transactions, large
concentrated pools, rake certificates, ground lease transactions,
and credit tenant lease transactions. For further information on
the NA SASB Methodology, please see the press release dated March
1, 2020, at www.dbrsmorningstar.com. On April 24, 2020, DBRS
Morningstar placed the ratings on its outstanding SASB transactions
secured by retail properties Under Review with Negative
Implications while MCR placed the ratings on its outstanding SASB
transactions secured by retail properties Under Review Negative as
the global shelter-in-place and mandatory retail closures related
to the coronavirus have contributed to retail bankruptcies and
anticipated vacancies in retail centers.
To assign ratings to this transaction, DBRS Morningstar considered
both the impact of the updated NA SASB Methodology and its
scenarios attributable to the ongoing coronavirus pandemic on the
ratings.
Because of the coronavirus' significant impact on retail
performance, DBRS Morningstar first considered the application of
the updated NA SASB Methodology in conjunction with the "North
American CMBS Surveillance Methodology" to arrive at a baseline
result, which incorporated qualitative assumptions, capitalization
rates, and loan-to-value (LTV) ratio sizing benchmark
quality/volatility adjustments and excluded any potential changes
in current or future expected asset performance resulting from the
coronavirus.
DBRS Morningstar then overlaid scenarios incorporating additional
reductions in net cash flow (NCF) to account for exposure to
bankrupt or closed tenants. This resulted in stressed collateral
value declines consistent with the projections in its "Global
Macroeconomic Scenarios: September Update" published on September
10, 2020, on top of the baseline result to determine the impact of
coronavirus-related changes in asset performance on the subject
transaction on a tranche-by-tranche basis. The global macroeconomic
scenarios include a moderate decline of 15% for all commercial real
estate (CRE), which acts as an average for all CRE property types.
However, DBRS Morningstar expects a greater range of value decline
for retail properties, ranging from 10% to 45% based on the type of
tenant composition, exposure to bankrupt or challenged retailers,
asset sponsorship, and asset location. DBRS Morningstar expects
that lower-tier regional malls with in-line sales generally less
than $300 per square foot (psf) will be the most affected.
LOAN/PROPERTY OVERVIEW
The Certificates are backed by a $160.0 million first-mortgage loan
secured by the fee-simple interest in the Altamonte Mall in
Orlando. The 12-year, fixed-rate loan is interest only (IO) for the
first five years then amortizes on a 30-year schedule for the
remainder of the loan term. As of the September 2020 remittance,
the loan balance has amortized down to $152.6 million. The loan is
scheduled to mature in February 2025 and is not subject to
subordinate debt or mezzanine financing.
The Altamonte Mall is a two-storey, enclosed, super-regional mall
with a total of 1.61 million sf built in 1974 and renovated and
expanded from 2003 through 2006. The collateral for the loan totals
641,199 sf and is anchored by JCPenney, representing 24.7% of net
rentable area (NRA) with a lease expiry in January 2024 (not
identified for closure in bankruptcy reorganization plan), and AMC
Theatre, representing 11.6% of NRA with a lease expiry in June
2023), with approximately 403,471 sf of in-line and outparcel
space. There are also three noncollateral anchor spaces for
Dillard's, Macy's, and a Sears that closed in 2018, with
redevelopment plans for the space underway.
The property is the dominant mall in north Orlando and caters to
local shoppers while its competitors generally serve the tourist
market. DBRS Morningstar notes that the Altamonte Springs market
was in a mature stage of development with little available land for
future development and the June 2020 site inspection reported no
new construction underway in the nearby area. At loan origination,
the mall collateral space was 2.8% vacant and in-line store sales
(excluding the Apple store) averaged $448 psf. Total in-line store
sales in 2019 were $399 psf, down from $481 psf in 2018, largely
because the Apple store underwent renovations for part of 2019,
which resulted in overall lower sales figures. Excluding the Apple
store, total in-line tenant sales in 2019 were $332 psf, down from
$349 psf in 2018. Although the parent companies for both anchor
tenants have struggled in 2020, both JCPenney and the AMC Theatre
remain in occupancy. As of May 2020, the collateral was 96.5%
occupied.
The loan is sponsored by a joint venture between the New York State
Common Retirement Fund and Brookfield Property Partners L.P.
(Brookfield), which assumed the loan following Brookfield's
takeover of General Growth Properties Inc. in July 2018. Brookfield
also manages the property.
In mid-March 2020 in response to the coronavirus pandemic, malls
and small shops were closed statewide. The subject mall closed in
March 2020 and reopened in May 2020 with restricted hours and
safety precautions in place. The borrower has communicated with the
servicer regarding forbearance, loan modification, and extension
terms, but the parties have not executed an agreement.
The loan has remained current throughout the pandemic and mall
performance has been stable since loan origination. Principal and
interest payments are being remitted and no delinquencies have been
sustained. As of YE2019, the collateral reported cash flow of $16.2
million, which represents a debt service coverage ratio (DSCR) of
1.82 times (x), a slight increase from the YE2018 cash flow and
DSCR of $15.8 million and 1.79x, respectively.
DBRS Morningstar derived the NCF using the latest reported servicer
NCF with an adjustment, considering ongoing collateral performance
including tenant movement and sales performance. The resulting NCF
figure was $15.8 million and DBRS Morningstar applied a cap rate of
8.0%, which resulted in a pre-coronavirus DBRS Morningstar Value of
$197.9 million, a variance of 28.0% from the appraised value of
$275.0 million at issuance. The pre-coronavirus DBRS Morningstar
Value implies an LTV of 77.1% compared with the LTV of 55.5% on the
appraised value at issuance.
The cap rate DBRS Morningstar applied is at the middle end of the
range of DBRS Morningstar Cap Rate Ranges for regional mall
properties, reflecting its above-average collateral quality and
location in a mature retail submarket.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling 3.0%
to account for cash flow volatility, property quality, and market
fundamentals.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher
NCF declines, resulting in stressed collateral value declines
consistent with the projections in the "Global Macroeconomic
Scenarios: September Update"
(https://www.dbrsmorningstar.com/research/366542) to estimate the
impact of coronavirus-related changes in asset performance on a
tranche-by-tranche basis for the subject transaction. The scenarios
included deducting cash flow for bankrupt retailers and/or
increased vacancy expected at the asset to arrive at a coronavirus
DBRS Morningstar Value under the moderate scenario, a 15% reduction
from the pre-coronavirus DBRS Morningstar Value. Because of the
more permanent value impairment resulting from the lost tenancy
revenue stream, DBRS Morningstar's analysis considered this value
when assigning ratings.
Under the moderate scenario, the cumulative rated debt was
insulated from loss.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had higher variances from the ratings assigned to all classes to
the results of its LTV sizing benchmarks. The variation is
warranted due to going concerns with the impact of the coronavirus
pandemic on the collateral assets and, as a result, DBRS
Morningstar placed these classes Under Review with Negative
Implications.
Class X-A 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 U.S. dollars unless otherwise noted.
MORGAN STANLEY 2013-C10: Fitch Cuts Rating on Class H Certs to CC
-----------------------------------------------------------------
Fitch Ratings has downgraded seven and affirmed nine classes of
Morgan Stanley Bank of America Merrill Lynch Trust, commercial
mortgage pass-through certificates, series 2013-C10 (MSBAM
2013-C10).
RATING ACTIONS
MSBAM 2013-C10
Class A-3 61762MBV2; LT AAAsf Affirmed; previously at AAAsf
Class A-3FL 61762MAW1; LT AAAsf Affirmed; previously at AAAsf
Class A-3FX 61762MAY7; LT AAAsf Affirmed; previously at AAAsf
Class A-4 61762MBW0; LT AAAsf Affirmed; previously at AAAsf
Class A-5 61762MCC3; LT AAAsf Affirmed; previously at AAAsf
Class A-S 61762MBY6; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 61762MBU4; LT AAAsf Affirmed; previously at AAAsf
Class B 61762MBZ3; LT AA-sf Affirmed; previously at AA-sf
Class C 61762MCB5; LT BBBsf Downgrade; previously at A-sf
Class D 61762MBC4; LT BBsf Downgrade; previously at BBB-sf
Class E 61762MBE0; LT Bsf Downgrade; previously at BBB-sf
Class F 61762MBG5; LT CCCsf Downgrade; previously at BB+sf
Class G 61762MBJ9; LT CCCsf Downgrade; previously at BB-sf
Class H 61762MBL4; LT CCsf Downgrade; previously at Bsf
Class PST 61762MCA7; LT BBBsf Downgrade; previously at A-sf
Class X-A 61762MBX8; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades and Negative Outlook
revisions reflect increased loss expectations due to the declining
performance of the Fitch Loans of Concern (FLOCs) and the recent
loan transfers to special servicing. Fitch designated 24 loans
(49.4% of pool) as FLOCs, including six specially serviced loans
(26.7%), all of which transferred since June 2020. Fitch previously
modeled a 25% loss on both of the specially serviced regional mall
loans (Westfield Citrus Park and Mall at Tuttle Crossing) at the
prior rating action in March 2020; however, this has now been
increased to approximately 50% due to their recent transfer to
special servicing. The increase in modeled losses on these two
loans is driving the downgrades to classes C, D, E, F, G, H and PST
and the Negative Outlooks on classes A-S, B, C, D, E and PST.
Specially Serviced Loans: The largest loan, Westfield Citrus Park
(10%), is secured by a 493,344-sf portion of a 1.0 million-sf
regional mall located in Tampa, FL. The loan, which transferred to
special servicing in July 2020 due to imminent default, is 90+ day
delinquent. The loan is sponsored by a joint venture between
Westfield/Unibail-Rodamco and O'Connor Capital Partners.
Discussions on a proposed loan modification are reportedly in
progress, while the special servicer is dual-tracking foreclosure.
Non-collateral anchors at the property include Dillard's, Macy's
and JCPenney. The largest collateral tenant, Regal Cinemas (17.9%
of NRA; 18.8% of base rents), has recently announced their plans to
suspend all of their U.S. operations due to the impact of the
coronavirus pandemic. Theater sales at the property declined to
$292,100 per screen in 2019 from $365,400 per screen in 2017 and
$407,050 per screen in 2016. Comparable in-line tenant sales were
$379 psf in 2019, compared to $377 psf in 2016 and $393 psf in
2015.
The second largest loan, Milford Plaza Fee (8.7%), is secured by
the leased fee interest in a 19,982-sf land parcel below the Row
NYC Hotel (formerly Milford Plaza), a 1,331 key full-service hotel
located on the east side of Eighth Avenue between West 44th and
West 45th Street in Manhattan. The loan transferred to special
servicing in June 2020 due to imminent default and is 90+ days
delinquent. The ground lessee defaulted on the ground rent in April
2020. The lender is dual-tracking foreclosure with workout
discussions.
The Hotel Oceana Santa Monica loan (3.1%), which is secured by a
70-room luxury boutique hotel located in Santa Monica, CA,
transferred to special servicing in June 2020 due to the borrower's
request for coronavirus relief. The property benefits from a strong
beach-side location with high barriers to entry. Pre-pandemic, the
hotel had been undergoing stabilization as it was offline for
renovations between November 2018 and July 2019. As of TTM June
2020, the property's occupancy, ADR and RevPAR were 16.9%, $572 and
$215, respectively, compared to 86.2%, $458 and $395 in 2017
pre-renovations.
The Summerhill Square loan (2.3%), which is secured by a 125,862-sf
retail property located in East Brunswick, NJ, transferred to
special servicing in June 2020 due to payment default. Property
performance began to deteriorate following the loss of former
anchor, Toys 'R Us, in June 2018. Although a new lease with Rock N
Air (51.5% of NRA), which is an affiliate of the sponsor, was
executed in August 2019 for the former Toys 'R Us space, the tenant
has not paid any rent to date due to concessions. The impact of the
coronavirus has exacerbated the existing cash flow issues at the
property as the majority of the in-place tenants were not paying
rent per the latest rent roll provided to Fitch as of April 2020.
The fourth largest tenant, Pier 1 Imports (6.8% of NRA), has also
announced plans to close at the property.
The Mall at Tuttle Crossing loan (2.2%), which is secured by a
377,693-sf portion of a 1.12 million-sf regional mall located in
Dublin, OH, transferred to special servicing in July 2020 for
imminent default. The sponsor, Simon Property Group, has announced
their plans to agree to a deed-in-lieu of foreclosure.
Non-collateral anchors include JCPenney and Scene 75. The third
largest collateral tenant, Victoria's Secret (3.2% of NRA), has
announced in June 2020 their plans to close at the property.
Comparable in-line tenant sales were $299 psf in 2019, down from
$324 in 2018, $337 psf in 2017 and $365 psf in 2016.
The LA Sky Boutique Hotel loan (0.4%), which is secured by a
28-room, independently-owned, boutique hotel located in Los
Angeles, CA, transferred to special servicing in June 2020 due to
payment default. Per the servicer, the sponsor and the special
servicer are discussing a possible short-term loan modification. As
of YTD June 2020, occupancy, ADR and RevPAR were 39.5%, $97 and
$38, respectively, compared to 82.5%, $142 and $117 at YE 2019.
Non-Specially Serviced Fitch Loans of Concern: The two
non-specially serviced FLOCs in the top 15 include Southdale Center
(7.1%) and La Frontera Village (3.7%). Southdale Center, which is
secured by a 672,027-sf portion of a 1.02 million-sf regional mall
located in Edina, MN, had already been experiencing occupancy and
cash flow declines pre-pandemic. Collateral occupancy declined to
57.4% as of June 2020, compared to 56% at YE 2019 and 77.3% at YE
2017, largely due to the loss of Herberger's (22.6% of NRA) in
August 2018. The non-collateral JC Penney closed in June 2017,
which leaves only one remaining anchor (Macy's) open at the mall.
Additionally, the third largest collateral tenant, H&M (2.9%), is
currently on month-to-month terms following its January 2020 lease
expiration; however, a lease renewal is reportedly in progress.
Comparable in-line sales were $557 psf ($333 psf excluding Apple)
in 2019, compared to $573 psf ($378 psf) in 2018 and $531 psf ($366
psf) in 2017.
La Frontera Village, which is secured by a 534,566-sf retail
property located in Round Rock, TX, was flagged for near-term lease
rollover concern, with 2.1% of the NRA scheduled to expire in 2020
(across three tenants), 27.4% in 2021 (16 tenants), 19.1% in 2022
(9 tenants) and 4.5% in 2023 (6 tenants), as of the June 2020 rent
roll.
The remaining FLOCs outside of the top 15 include two office
properties (1.9%), which have upcoming lease rollover concerns and
lower occupancy due to vacating tenants at lease expiration; 10
hotel properties (7.3%) and four retail properties (2.7%) where
performance has been impacted by the coronavirus.
Increased Credit Enhancement: Credit enhancement has increased
since issuance due to one loan paydown, scheduled amortization and
defeasance. Seven loans (14.5%) are fully defeased. As of the
September 2020 distribution date, the pool's aggregate principal
balance has been paid down by 14.8% to $1.27 billion from $1.49
billion at issuance. Six loans (21.2%) are full-term, interest-only
and the remaining 61 loans (78.8%) are amortizing. Scheduled loan
maturities include 65 loans (96.1%) in 2023 and two loans (3.9%) in
2028. Interest shortfalls are currently impacting the non-rated
class.
Coronavirus Exposure: Twenty-five loans (40.5%) are secured by
retail properties. These retail loans have a weighted average (WA)
NOI DSCR of 1.84x and can sustain a 39.7% decline in NOI before the
WA NOI DSCR falls below 1.0x. Twelve loans (10.8%) are secured by
hotel properties. These hotel loans have a WA NOI DSCR of 2.18x and
can sustain a 53% decline in NOI before the WA NOI DSCR falls below
1.0x. Fitch applied additional coronavirus-related stresses to
seven retail loans (15.8%) and 10 hotel loans (10%) due to cash
flow disruption caused by the coronavirus pandemic; this analysis
contributed to the Outlook revisions to Negative from Stable on
classes A-S through D and the continued Negative Outlook on classes
E and F.
RATING SENSITIVITIES
The Negative Outlooks on classes A-S through E reflect the
potential for further downgrades due to concerns surrounding the
ultimate impact of the coronavirus pandemic and the performance
concerns associated with the FLOCs. The Stable Outlooks on classes
A-3 through A-SB reflect sufficient credit enhancement relative to
expected losses and expected continued amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
An upgrade of class B would only occur with significant improvement
in credit enhancement and/or defeasance but is not likely unless
the FLOCs stabilize. Upgrades to classes C and PST are also not
likely until the FLOCs stabilize, but would be limited based on
sensitivity to loan concentrations. Classes would not be upgraded
above 'Asf' if there is 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. Upgrades to the 'CCsf' and
'CCCsf' categories are unlikely absent significant performance
improvement on the FLOCs and substantially higher recoveries than
expected on the specially serviced loans.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that could lead to downgrades include an
increase in pool level losses from underperforming or specially
serviced loans. Downgrades of the super-senior A-3, A-3FL, A-4,
A-5, A-SB and X-A classes are not considered likely due to the
position in the capital structure, but may occur should interest
shortfalls affect these classes. Downgrades of classes A-S and B is
possible should all of the loans susceptible to the coronavirus
pandemic suffer losses, the probability of an outsized loss on
Westfield Citrus Park and/or the Mall at Tuttle Crossing becomes
more likely or if interest shortfalls occur. Downgrades to classes
C, PST, D and E are possible should expected losses for the pool
increase significantly, performance of the FLOCs continue to
decline, additional loans transfer to special servicing and/or
loans susceptible to the coronavirus pandemic not stabilize.
Further downgrades to the 'CCCsf' and 'CCsf' categories would occur
as losses are realized and/or become more certain.
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
further negative rating actions, including downgrades or additional
Negative Outlook revisions.
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
MSBAM 2013-C10 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to the exposure to the sustained structural
shift in secular preferences affecting consumer trends, occupancy
trends, etc. which, in combination with other factors, affect the
ratings. The underperformance of three regional mall loans, two of
which are in special servicing, contributed to the downgrades to
classes C, D, E, F, G, H and PST and the Negative Outlooks on
classes A-S, B, C, D, E and PST.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
MORGAN STANLEY 2013-C11: Fitch Lowers Class F Certs to Csf
----------------------------------------------------------
Fitch Ratings has downgraded seven and affirmed five classes of
Morgan Stanley Bank of America Merrill Lynch Trust commercial
mortgage pass-through certificates, series 2013-C11.
RATING ACTIONS
MSBAM 2013-C11
Class A-3 61762TAD8; LT AAAsf Affirmed; previously at AAAsf
Class A-4 61762TAE6; LT AAAsf Affirmed; previously at AAAsf
Class A-AB 61762TAC0; LT AAAsf Affirmed; previously at AAAsf
Class A-S 61762TAG1; LT Asf Downgrade; previously at AAAsf
Class B 61762TAH9; LT BBsf Downgrade; previously at AA-sf
Class C 61762TAK2; LT Bsf Downgrade; previously at A-sf
Class D 61762TAN6; LT CCCsf Downgrade; previously at BBsf
Class E 61762TAQ9; LT CCCsf Downgrade; previously at Bsf
Class F 61762TAS5; LT Csf Downgrade; previously at CCCsf
Class G 61762TAU0; LT Dsf Affirmed; previously at Dsf
Class PST 61762TAJ5; LT Bsf Downgrade; previously at A-sf
Class X-A 61762TAF3; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Increase in Loss Expectations: The downgrades of classes A-S, B, C,
D, E, F, and PST and the Negative Outlooks are based on the rising
loss expectations, recent transfers to special servicing, and the
declining performance of the Fitch Loans of Concern (FLOCs),
primarily the result of the slowdown in economic activity related
to coronavirus. Since June 2020, four loans (39.8%) have
transferred to special servicing. Eight loans (56.4%) have been
designated as FLOCs including the specially serviced loans. Three
loans (40.0%) are secured by regional malls, two of which (31.5%)
are in special servicing. Fitch previously modeled 25% losses on
both the Westfield Countryside and the Mall at Tuttle Crossing at
the previous review in October 2019. However, this has now been
increased to approximately 50% due to their recent transfers to
special servicing. The increase in modeled losses on these two
loans is driving the downgrades to classes A-S, B, C, D, E, F, and
PST and the Negative Outlooks on classes A-3, A-4, A-AB, X-A, A-S,
B, C, and PST.
Specially Serviced Loans: The largest loan in the pool, Westfield
Countryside (16.5%), is a regional mall located in Clearwater, FL.
The loan transferred to special servicing in June 2020 due to
imminent monetary default. The servicer is in negotiations with the
borrower and the loan is 90+ days delinquent. The mall is owned by
a joint venture between Westfield and O'Connor Capital Partners
where the partnership's commitment to the asset is uncertain. The
mall faces competition with three regional malls within a 15-mile
radius, including one which shares the same sponsor. The mall is
anchored by Macy's, Dillard's, and JC Penney. Sears, a
non-collateral anchor, closed in July 2018 after downsizing its
space to accommodate a 37,000-sf Whole Foods. Per the June 2020
rent roll, total mall occupancy was 85% and collateral occupancy
was 88%. Prior to the pandemic in-line sales trends have been
trending downward with YE 2019 sales reporting at $367 psf compared
to $383 at YE 2018 and $396 at issuance.
The Mall at Tuttle Crossing loan (2.2%), which is secured by a
377,693-sf portion of a 1.12 million-sf regional mall located in
Dublin, OH, transferred to special servicing in July 2020 and is
currently undergoing foreclosure proceedings following the sponsor,
Simon Property Group, disclosing in August 2020 plans to return the
collateral to the lender. The non-collateral anchors include
JCPenney and Scene 75. The third largest collateral tenant,
Victoria's Secret (3.2% of NRA), announced in June 2020 plans to
close at the subject. Comparable in-line tenant sales were $299 psf
in 2019, compared to $324 in 2018, $337 psf in 2017 and $365 psf in
2016.
The Marriott Chicago River North Hotel (7.9%) is a 523-key extended
stay property consisting of two hotels (Springhill Suites and
Residence Inn). The loan transferred to special servicing in July
2020 for payment default. The borrower has requested servicer
approval for a paycheck protection program loan and is in the
process of submitting a "comprehensive workout proposal." As of the
September remittance, the loan is 90+ days delinquent.
Hampton Inn - Katy, TX (0.4%) is a 69-key limited service hotel
that transferred to special servicing in June 2020 for payment
default. The servicer is dual tracking workout negotiations with
the borrower and a note sale.
Fitch Loans of Concern: Four loans (16.6%) are non-specially
serviced FLOCs.
Southdale Center (8.5%) is a 1.2 million sf mall in Edina, MN in
the Minneapolis-St. Paul metro area and a FLOC. Herberger's (an
affiliate of Bon-Ton and collateral anchor) closed in August 2018
as part of Bon-Ton's bankruptcy proceedings. JC Penney, a
non-collateral anchor, closed in June 2017, leaving only one anchor
(Macy's) open at the mall. Per the June 2020 rent roll, total mall
occupancy was 67% and collateral occupancy was 54%. Despite the
dark anchor spaces, the borrower has undertaken an extensive
redevelopment plan at the property. The former JC Penney box has
been demolished and a 120,000 sf Life Time Fitness and
approximately 35,000 sf of office space was completed in late 2019.
Additional development on outparcels includes a 146-key Homewood
Suites by Hilton that opened in September 2018; a four-story
Restoration Hardware showroom; a 3,800 sf Shake Shack; and a
three-building, 232-unit multifamily property that opened in July
2015.
Other FLOCs include Bridgewater Campus (6.8%), a mixed-use property
in Bridgewater, NJ where Insmed Incorporated (12.7% NRA) vacated at
the November 2019 lease expiration reducing occupancy to 87%;
Autumn Sunrise Apartments (0.7%), an apartment complex in Houston
with an additional cash flow stress due to the negative impact of
the coronavirus; and First Trust Portfolio (0.6%), a retail
property in San Marcos, TX where the largest tenant departed at
their May 2020 lease expiration.
Coronavirus Exposure: The pool contains seven loans (20.8%) secured
by hotels with a weighted-average NOI debt service coverage ratio
(DSCR) of 2.28x. Retail properties account for 42.6% of the pool
balance and have weighted average NOI DSCR of 1.66x. Cash flow
disruptions continue as a result of property and consumer
restrictions due to the spread of the coronavirus. Fitch's base
case analysis applied an additional NOI stress to seven hotel and
two retail loans due to their vulnerability to the coronavirus
pandemic. These additional stresses contributed to the downgrades
of classes A-S, B, C, D, E, F, and PST and the Outlook revision to
Negative on classes A-3, A-4, A-AB, X-A, and A-S. In addition, an
ESG relevance score of '4' for Social Impacts was applied as a
result of exposure to a sustained structural shift in secular
preferences affecting consumer trends, occupancy trends, and more,
which, in combination with other factors, affects the ratings.
Minimal Change to Credit Enhancement (CE): As of the September 2020
distribution date, the pool's aggregate principal balance has paid
down by 32.1% to $581.3 million from $856.3 million at issuance.
Interest shortfalls are currently affecting classes E, G, and J.
Five loans (12.1%) have been defeased. Of the current pool, 23
loans (47.7%) are partial interest-only, all of which have begun
amortizing.
RATING SENSITIVITIES
The Negative Outlooks on classes A-3, A-4, A-AB, X-A, A-S, B, C,
and PST reflect the potential for a near-term rating change should
the performance of the specially serviced loans deteriorate. It
also reflects concerns with hotel and retail properties due to
decline in travel and commerce as a result of the pandemic.
Factors that could, individually or collectively, lead to positive
rating action/upgrade would include stable to improved asset
performance coupled with paydown and/or defeasance.
An upgrade of class A-S would only occur with significant
improvement in CE and/or defeasance but would be limited should the
deal be susceptible to a concentration whereby the underperformance
of the specially serviced loans could cause this trend to reverse.
Classes would not be upgraded above 'Asf' if there is a likelihood
for interest shortfalls. An upgrade to classes B, C, and PST is not
likely until the later years in a transaction and only if the
performance of the remaining pool is stable and/or if there is
sufficient CE, which would likely occur when the 'CCCsf' or below
classes are not eroded and the senior classes payoff. Classes D, E
and F are unlikely to be upgraded absent significant performance
improvement on the FLOCs and substantially higher recoveries than
expected on the specially serviced loans/assets. While three loans
in the top four remain in special servicing, upgrades are extremely
unlikely. The return of Marriott Chicago River North Hotel to the
master servicer would reduce loss expectations for this loan, but
as Westfield Countryside and the Mall at Tuttle Crossing are both
in special servicing, and the Mall at Tuttle Crossing is expected
to become REO, upgrades are extremely unlikely unless these loans
are liquidated from the trust with minimal losses.
Factors that could, individually or collectively, lead to negative
rating action/downgrade include an increase in pool level losses
from underperforming or specially serviced loans.
Downgrades to the senior classes, A-3, A-4, A-AB, X-A, and A-S may
occur should interest shortfalls occur or if the probability of an
outsized loss on Westfield Countryside and/or the Mall at Tuttle
Crossing becomes more likely. Downgrades to classes B, C and PST
would occur should overall pool losses increase, the certainty of
an outsized loss increase, or if additional loans were to transfer
to special servicing. Downgrades to classes D, E and F would occur
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, 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.
Deutsche Bank is the trustee for the transaction, and serves as the
backup advancing agent. Fitch's Issuer Default Rating for Deutsche
Bank is currently 'BBB'/'F2'/Outlook Negative. Fitch relies on the
master servicer, Wells Fargo Bank, N.A., a division of Wells Fargo
& Company (A+/F1/ Negative), which is currently the primary
advancing agent, as counterparty. Fitch provided ratings
confirmation on Jan. 24, 2018.
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
MSBAM 2013-C11 has an ESG Relevance Score of 4 for Exposure to
Social Impacts due to the exposure to the sustained structural
shift in secular preferences affecting consumer trends, occupancy
trends, etc. which, in combination with other factors, affect the
ratings. The underperformance of three regional mall loans, two of
which are in special servicing, contributed to the downgrade of
classes A-S, B, C, PST, D, E, and F and the Negative Outlooks on
classes A-3, A-4, A-AB, A-S, X-A, B, C, and PST.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
MORGAN STANLEY 2018-MP: DBRS Assigns BB Rating on Class E Certs
---------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2018-MP issued by Morgan Stanley Capital I
Trust 2018-MP as follows:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (sf)
DBRS Morningstar has also placed all classes Under Review with
Negative Implications, given the negative impact of the Coronavirus
Disease (COVID-19) on the underlying collateral.
These certificates are currently also rated by DBRS Morningstar's
affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In
connection with the ongoing consolidation of DBRS Morningstar and
MCR, MCR previously announced that it had placed its outstanding
ratings of these certificates Under Review–Analytical Integration
Review and that MCR intended to withdraw its outstanding ratings;
such withdrawal will occur on or about October 13, 2020. In
accordance with MCR's engagement letter covering these
certificates, upon withdrawal of MCR's outstanding ratings, the
DBRS Morningstar ratings will become the successor ratings to the
withdrawn MCR ratings.
On March 1, 2020, DBRS Morningstar finalized its "North American
Single-Asset/Single-Borrower Ratings Methodology" (the NA SASB
Methodology), which presents the criteria for which ratings are
assigned to and/or monitored for North American
single-asset/single-borrower (NA SASB) transactions, large
concentrated pools, rake certificates, ground lease transactions,
and credit tenant lease transactions. On April 24, 2020, DBRS
Morningstar placed the ratings on its outstanding SASB transactions
secured by retail properties Under Review with Negative
Implications while MCR placed the ratings on its outstanding SASB
transactions secured by retail properties Under Review Negative as
the global shelter-in-place and mandatory retail closures related
to the coronavirus have contributed to retail bankruptcies and
anticipated vacancies in retail centers.
To assign ratings to this transaction, DBRS Morningstar considered
both the impact of the updated NA SASB Methodology and its
scenarios attributable to the ongoing coronavirus pandemic on the
ratings.
Because of the coronavirus' significant impact on retail
performance, DBRS Morningstar first considered the application of
the updated NA SASB Methodology in conjunction with the "North
American CMBS Surveillance Methodology" to arrive at a baseline
result, which incorporated qualitative assumptions, capitalization
rates, and loan-to-value (LTV) ratio sizing benchmark
quality/volatility adjustments and excluded any potential changes
in current or future expected asset performance resulting from the
coronavirus.
DBRS Morningstar then overlaid scenarios incorporating additional
reductions in net cash flow (NCF) to account for exposure to
bankrupt or closed tenants. This resulted in stressed collateral
value declines consistent with the projections in its "Global
Macroeconomic Scenarios: September Update" published on September
10, 2020, on top of the baseline result to determine the impact of
coronavirus-related changes in asset performance on the subject
transaction on a tranche-by-tranche basis. For more information on
these stress scenarios, please refer to the Coronavirus Impact
Analysis section of this document. The global macroeconomic
scenarios include a moderate decline of 15% for all commercial real
estate (CRE), which acts as an average for all CRE property types.
However, DBRS Morningstar expects a greater range of value decline
for retail properties, ranging from 10% to 45% based on the type of
tenant composition, exposure to bankrupt or challenged retailers,
asset sponsorship, and asset location. DBRS Morningstar expects
that lower-tier regional malls with in-line sales generally less
than $300 per square foot (psf) will be the most affected.
LOAN/PROPERTY OVERVIEW
The loan is secured by the fee simple and leasehold interest in the
Millennium Partners Portfolio, a portfolio of eight retail and
office condominiums located across dense urban locations including
Manhattan, New York; Boston; Miami; San Francisco; and Washington,
D.C. The collateral consists of approximately 1.5 million square
feet (sf) of space. Most improvements were built between 1992 and
2016, except for the 735-773 Market Street building, which was
constructed in 1907 and is part of the Four Seasons San Francisco
Retail property, and the Lincoln West property, which was built in
1963. Parking garages are included as part of the trust collateral
for the commercial units at the Four Seasons Miami; Ritz-Carlton
Washington, D.C.; and Ritz-Carlton Georgetown Retail. All of the
properties are part of larger, high-end, mixed-use projects located
in central business district locations. The collateral is typically
the first seven floors of a much larger hotel or multifamily
development.
The portfolio is leased to a variety of tenants ranging from
entertainment, apparel, fitness, advertising, and financial
services. Equinox Fitness is currently the largest tenant,
representing 26.0% of the collateral net rentable area (NRA) the
portfolio with recent executions of four leases that extend through
June 2039. The next largest tenant is Loews Theater, which occupies
space in two properties, representing 14.3% of the collateral NRA
with leases extending to November 2028 and 2032. The remaining
tenants are granular with no other tenant occupying more than 9.0%
of collateral NRA. In total, the top 10 tenants comprise 70.1% of
the collateral NRA and 67.5% of the DBRS Morningstar base rent.
Furthermore, the top 10 tenants correspond to 15 separate leases
spread across all of the properties. The portfolio has moderate
rollover risk as 40.8% of tenants have leases scheduled to expire
during the 10-year loan team; however, no one year represents more
than 15.0% of the collateral NRA.
The subject whole loan consists of a $710.0 million first-mortgage
and a mezzanine loan in the amount of $280.2 million, which is held
outside of the trust. Of the first mortgage amount, $225.9 million
consists of nonpooled pari passu notes that were contributed to
other transactions. The trust amount includes $175.0 million of
senior debt and $289.3 million of subordinate debt. Whole loan
proceeds along with the mezzanine loan were used to refinance
$968.1 million of existing debt, cover $15.3 million of defeasance
costs, and cover $8.1 million in closing costs. The underlying loan
is interest only throughout its 10-year term. All of the collateral
properties, except for Millennium Tower Boston Retail, which had
not yet been developed, were previously securitized in the MSC
2014-MP transaction.
Sponsorship is provided by Millennium Partners, a Manhattan-based
real estate development and management established in 2009.
Millennium Partners places a focus on operating and developing
luxury, mixed-use properties in gateway cities across the United
States. At issuance, the sponsor's portfolio was valued at over
$2.2 billion and included more than 3,200 condominium units, 10
luxury hotels, 1.4 million sf of office space, 0.9 million sf of
retail space, five movie theaters, and five health clubs.
Performance Update
The portfolio has considerable tenant exposure to movie theaters
and fitness clubs, which accounts for 40.3% of the collateral NRA.
Both movie theater and gym operators have been heavily affected by
the closures mandated by state and local governments amid the
coronavirus pandemic. The subject portfolio's two largest tenants
as previously mentioned are Equinox Fitness (26.0% of collateral
NRA; 20% of gross potential rent (GPR)), a luxury gym and health
club operator, and Loews Theatre (14.3% of collateral NRA and 6.2%
of GPR), a movie theater chain owned by AMC Entertainment Holdings,
Inc. (AMC). In recent news articles, AMC has publicly reported
concerns surrounding its operations amid the pandemic with
statements noting severe cash flow impairments as all locations
were closed beginning in March 2020. As of September 2020, AMC was
able to reopen some locations across the country, but both
locations in this transaction remain closed. In addition, Equinox
Fitness’ debt was recently downgraded stemming from concerns over
cash flow, with the company's corporate family rating also
downgraded in May 2020. All but approximately 25 of the company's
300-plus locations in the United States, Great Britain, and Canada
remained closed as of June 2020. As of September 2020, Equinox
Fitness has reopened all clubs in the U.S. outside of California.
Other noteworthy tenants include Century 21 (4.0% of the collateral
NRA), a department store chain that is closing all of its stores
following a bankruptcy filing. The servicer reported that four
small tenants, collectively representing 1.0% of the collateral
NRA, have closed permanently.
Both Equinox Fitness and AMC have received lease modifications
because of the pandemic. Equinox Fitness was able to defer all of
its April 2020 rent, 37.5% of its rent from May through August, and
25% of its rent from September through December. All deferred rent
is to be repaid over a 24-month term starting on January 1, 2021.
For AMC, which has only paid two months of rent since March, the
lease modification allows AMC to pay a percentage of rent from
August through December 2020 with a minimum of 20% of the base
rent. Any unpaid rent will be deferred and must be repaid between
February and December 2021. The servicer reported that smaller
tenants within the portfolio have received or are expected to
receive rent deferrals during the pandemic shutdown. These tenants
represent approximately 13% of the total NRA.
DBRS Morningstar reanalyzed the NCF derived at issuance for the
subject rating action to confirm its consistency with the "DBRS
Morningstar North American Commercial Real Estate Property Analysis
Criteria." The resulting NCF figure was $55.9 million and DBRS
Morningstar applied a cap rate of 6.79%, which resulted in a
pre-coronavirus DBRS Morningstar Value of $822.7 million, a
variance of 43.7% from the appraised value of $1.46 billion at
issuance. The pre-coronavirus DBRS Morningstar Value implies a
secured debt LTV and an all-in LTV of 101.5% and 141.6%, compared
with the 48.6% and 67.8% on the appraised value at issuance,
respectively.
The cap rate DBRS Morningstar applied is at the lower end of the
range of DBRS Morningstar Cap Rate Ranges for retail properties,
reflecting the subjects' urban locations and property quality.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 6.0%
to account for cash flow volatility, property quality, and market
fundamentals.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher
NCF declines, resulting in stressed collateral value consistent
with the projections in the "Global Macroeconomic Scenarios:
September Update" (https://www.dbrsmorningstar.com/research/366542)
to estimate the impact of coronavirus-related changes in asset
performance on a tranche-by-tranche basis for the subject
transaction. The scenarios included deducting cash flow for
bankrupt retailers and increased vacancy expected at the asset to
arrive at a coronavirus DBRS Morningstar Value under the moderate
scenario, a 15.0% reduction from the pre-coronavirus DBRS
Morningstar Value. Because of the more permanent value impairment
resulting from the lost tenancy revenue stream, DBRS Morningstar's
analysis considered this value when assigning ratings.
Under the moderate scenario, the cumulative rated debt through
Class E exceeded the value under the Coronavirus Impact Analysis
and therefore DBRS Morningstar presumes that the economic stress
from the coronavirus had affected the Class.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had higher variances from the ratings assigned to Classes A, B, C,
D, and E to the results of its LTV sizing benchmarks. The variation
is warranted due to going-concerns with the impact of the
coronavirus on the collateral assets and as a result, DBRS
Morningstar placed these classes Under Review with Negative
Implications.
Notes: All figures are in U.S. dollars unless otherwise noted.
MUSKOKA 2018-1: DBRS Confirms BB Rating on Class D Notes
--------------------------------------------------------
DBRS, Inc. confirmed its provisional ratings on the Tranche A
Amount at AAA (sf), the Tranche B Amount at A (high) (sf), and the
Tranche C Amount at BBB (sf) (collectively, the Tranche Amounts)
issued by Manitoulin USD Limited (Manitoulin). With this rating
action, DBRS Morningstar removed the Under Review with Negative
Implications status on the Tranche B Amount and Tranche C Amount.
Together, the Tranche A Amount, Tranche B Amount, and Tranche C
Amount make up the rated Tranche Amounts of two unexecuted,
unfunded financial guarantees (the Financial Guarantees) with
respect to a portfolio of primarily U.S. and Canadian senior
secured or senior unsecured loans originated or managed by Bank of
Montreal (BMO; rated AA with a Stable trend by DBRS Morningstar)
and issued by Manitoulin.
The Ratings are:
The Ratings are:
Debt Rated Action Rating
---------- ------ ------
Tranche A Amount Provis.-Confirmed AAA(sf)
Muskoka Series 2018-1
Class B Guarantee Linked Notes Confirmed A(high)(sf)
Tranche B Amount Provis.-Confirmed A(high)(sf)
Muskoka Series 2018-1
Class C Guarantee Linked Notes Confirmed BBB(sf)
Tranche C Amount Provis.-Confirmed BBB (sf)
Muskoka Series 2018-1
Class D Guarantee Linked Notes Confirmed BB(sf)
The provisional ratings on the Tranche Amounts address the
likelihood of a reduction to the respective Tranche Amounts caused
by a Tranche Loss Balance on each respective tranche resulting from
defaults and losses within the guaranteed portfolio during the
period from the Effective Date until the Scheduled Termination Date
(as defined in the Financial Guarantees).
DBRS Morningstar's ratings are expected to remain provisional until
the underlying agreements are executed. BMO may have no intention
of executing the Financial Guarantees. DBRS Morningstar will
maintain and monitor the provisional ratings throughout the life of
the transaction or while it continues to receive performance
information.
DBRS Morningstar also confirmed its ratings on Manitoulin's Muskoka
Series 2018-1 Class B Guarantee Linked Notes (the Class B Notes) at
A (high) (sf), the Muskoka Series 2018-1 Class C Guarantee Linked
Notes (the Class C Notes) at BBB (sf), and the Muskoka Series
2018-1 Class D Guarantee Linked Notes (the Class D Notes; together
with the Class B Notes and Class C Notes, the Notes) at BB (sf).
With this rating action, DBRS Morningstar removed the Under Review
with Negative Implications status on the Notes. Manitoulin issued
the Notes referencing the executed Junior Loan Portfolio Financial
Guarantee (the Junior Financial Guarantee) dated as of September
27, 2018, between Manitoulin as Guarantor and BMO as Beneficiary
with respect to a portfolio of primarily U.S. and Canadian senior
secured and senior unsecured loans.
The ratings on the Notes address the timely payment of interest and
ultimate payment of principal on or before the Scheduled
Termination Date (as defined in the Junior Financial Guarantee).
The payment of the interest due to the Notes is subject to the
Beneficiary's ability to pay the Guarantee Fee Amount (as defined
in the Junior Financial Guarantee).
DBRS Morningstar took these rating actions as a result of improving
credit quality of the underlying credit portfolio, since placing
the ratings on certain Tranche Amounts and Notes Under Review with
Negative Implications on June 26, 2020.
To assess portfolio credit quality for each corporate obligor in
the portfolio, DBRS Morningstar relies on its ratings and public
ratings from other rating agencies, or DBRS Morningstar may provide
a credit estimate, internal assessment, or ratings mapping of the
Beneficiary's internal ratings model. Credit estimates, internal
assessments, and ratings mappings are not ratings; rather, they
represent an abbreviated analysis, including model-driven or
statistical components of default probability for each obligor used
to assign a rating to the facility that is sufficient to assess
portfolio credit quality.
On the Effective Date, Manitoulin used the proceeds of the issuance
of the Notes to make a deposit into the Cash Deposit Accounts with
the Cash Deposit Bank (as defined in the Junior Financial
Guarantee). DBRS Morningstar may review the ratings on the Notes if
the Cash Deposit Bank is downgraded below certain thresholds as
defined in the transaction documents.
As the Coronavirus Disease (COVID-19) spread around the world,
certain countries imposed quarantines and lockdowns, including the
United States, which accounts for over one quarter of confirmed
cases worldwide. The coronavirus pandemic has adversely affected
not only the economies of the nations most afflicted with the
coronavirus, but also the overall global economy with diminished
demand for goods and services as well as disrupted supply chains.
This may result in deteriorated financial conditions for many
companies and obligors, some of which will experience the effects
of such negative economic trends more than others. At the same
time, governments and central banks in multiple regions, including
the United States and Europe, have taken significant measures to
mitigate the economic fallout from the coronavirus pandemic.
In conjunction with DBRS Morningstar's commentary "Global
Macroeconomic Scenarios: Implications for Credit Ratings" published
on April 16, 2020, and updated in its "Global Macroeconomic
Scenarios: June Update" commentary on June 1, 2020, and "Global
Macroeconomic Scenarios: September Update" on September 10, 2020,
DBRS Morningstar further considers additional adjustments to
assumptions for the collateralized loan obligation (CLO) asset
class that consider the moderate economic scenario outlined in the
commentaries. The adjustments include a higher default assumption
for the weighted-average (WA) credit quality of the current
collateral obligation portfolio. To derive the higher default
assumption, DBRS Morningstar notches ratings for obligors in
certain industries and obligors at various rating levels based on
their perceived exposure to the adverse disruptions caused by the
coronavirus pandemic. Considering a higher default assumption would
result in losses that exceed the original default expectations for
the affected classes of notes. DBRS Morningstar may adjust the
default expectations further if the duration or severity of the
adverse disruptions caused by the coronavirus change.
DBRS Morningstar ran an additional higher default adjustment on the
WA DBRS Morningstar Risk Score of the current collateral obligation
pool with the maximum covenanted tenor, and this stressed modeling
pool was run through the Monte Carlo simulation component of DBRS
Morningstar's CLO Asset Model to generate a stressed default rate.
DBRS Morningstar considered the results of this additional default
adjustment for the above rating actions.
Notes: All figures are in U.S. dollars unless otherwise noted.
MUSKOKA 2019-1: DBRS Keeps B (High) on Class D Notes Under Review
-----------------------------------------------------------------
DBRS, Inc. maintained the Under Review with Negative Implications
status on the AAA (sf), A (low) (sf), and BB (high) (sf)
provisional ratings on the Tranche A Amount, the Tranche B Amount,
and the Tranche C Amount, respectively (collectively, the Tranche
Amounts), of two unexecuted, unfunded financial guarantees (the
Financial Guarantees) with respect to a portfolio of primarily U.S.
and Canadian senior secured or senior unsecured loans originated or
managed by Bank of Montreal (BMO; rated AA with a Stable trend by
DBRS Morningstar) and issued by Manitoulin USD Ltd., Muskoka 2019-1
(Manitoulin).
The Ratings are:
Manitoulin USD Ltd., Muskoka 2019-1
Debt Rated Action Rating
---------- ------ ------
Tranche A Amount Provis.-UR-Neg. AAA(sf)
Muskoka Series 2019-1
Class B Guarantee Linked Notes UR-Neg. A(low)(sf)
Tranche B Amount Provis.-UR-Neg. A(low)(sf)
Muskoka Series 2019-1 Class C
Guarantee Linked Notes UR-Neg. BB(high)(sf)
Tranche C Amount Provis.-UR-Neg. BB(high)(sf)
Muskoka Series 2019-1 Class D
Guarantee Linked Notes UR-Neg. B(high)(sf)
* UR - Under Review
The provisional ratings on the Tranche Amounts address the
likelihood of a reduction to the respective Tranche Amounts caused
by a Tranche Loss Balance on each respective tranche, resulting
from defaults and losses within the guaranteed portfolio during the
period from the Effective Date until the Scheduled Termination Date
(as defined in the Financial Guarantees).
DBRS Morningstar's ratings are expected to remain provisional until
the underlying agreements are executed. BMO may have no intention
of executing the Financial Guarantees. DBRS Morningstar will
maintain and monitor the provisional ratings throughout the life of
the transaction or while it continues to receive performance
information.
DBRS Morningstar also maintained the Under Review with Negative
Implications status on its ratings on the Muskoka Series 2019-1
Class B Guarantee Linked Notes (the Class B Notes) at A (low) (sf),
the Muskoka Series 2019-1 Class C Guarantee Linked Notes (the Class
C Notes) at BB (high) (sf), and the Muskoka Series 2019-1 Class D
Guarantee Linked Notes (the Class D Notes, together with the Class
B Notes and Class C Notes, the Notes) at B (high) (sf). Manitoulin
issued the Notes referencing the executed Junior Loan Portfolio
Financial Guarantee (the Junior Financial Guarantee) dated as of
January 30, 2019, between Manitoulin as Guarantor and BMO as
Beneficiary with respect to a portfolio of primarily U.S. and
Canadian senior secured and senior unsecured loans.
The ratings on the Notes address the timely payment of interest and
ultimate payment of principal on or before the Scheduled
Termination Date (as defined in the Junior Financial Guarantee).
The payment of the interest due to the Notes is subject to the
Beneficiary's ability to pay the Guarantee Fee Amount (as defined
in the Junior Financial Guarantee).
DBRS Morningstar took these rating actions as a result of
deteriorating credit quality of the underlying credit portfolio. In
the last few months, DBRS Morningstar observed that the weighted
average risk score increased. DBRS Morningstar deems these actions
appropriate amid the uncertainty of the Coronavirus Disease
(COVID-19) pandemic and the potential impact on the credit quality
and performance of the underlying portfolio.
To assess portfolio credit quality for each corporate obligor in
the portfolio, DBRS Morningstar relies on its ratings and public
ratings from other rating agencies, or DBRS Morningstar may provide
a credit estimate, internal assessment, or ratings mapping of the
Beneficiary's internal ratings model. Credit estimates, internal
assessments, and ratings mappings are not ratings; rather, they
represent an abbreviated analysis, including model-driven or
statistical components of default probability for each obligor used
to assign a rating to the facility that is sufficient to assess
portfolio credit quality.
On the Effective Date, Manitoulin used the proceeds of the issuance
of the Notes to make a deposit into the Cash Deposit Accounts with
the Cash Deposit Bank (as defined in the Junior Financial
Guarantee). DBRS Morningstar may review the ratings on the Notes if
the Cash Deposit Bank is downgraded below certain thresholds as
defined in the transaction documents.
As the Coronavirus Disease (COVID-19) spread around the world,
certain countries imposed quarantines and lockdowns, including the
United States, which accounts for over one quarter of confirmed
cases worldwide. The coronavirus pandemic has adversely affected
not only the economies of the nations most afflicted with the
coronavirus, but also the overall global economy with diminished
demand for goods and services as well as disrupted supply chains.
This may result in deteriorated financial conditions for many
companies and obligors, some of which will experience the effects
of such negative economic trends more than others. At the same
time, governments and central banks in multiple regions, including
the United States and Europe, have taken significant measures to
mitigate the economic fallout from the coronavirus pandemic.
In conjunction with DBRS Morningstar's commentary "Global
Macroeconomic Scenarios: Implications for Credit Ratings" published
on April 16, 2020, and updated in its "Global Macroeconomic
Scenarios: June Update" commentary on June 1, 2020, and "Global
Macroeconomic Scenarios: September Update" on September 10, 2020,
DBRS Morningstar further considers additional adjustments to
assumptions for the collateralized loan obligation (CLO) asset
class that consider the moderate economic scenario outlined in the
commentaries. The adjustments include a higher default assumption
for the weighted-average (WA) credit quality of the current
collateral obligation portfolio. To derive the higher default
assumption, DBRS Morningstar notches ratings for obligors in
certain industries and obligors at various rating levels based on
their perceived exposure to the adverse disruptions caused by the
coronavirus pandemic. Considering a higher default assumption would
result in losses that exceed the original default expectations for
the affected classes of notes. DBRS Morningstar may adjust the
default expectations further if the duration or severity of the
adverse disruptions caused by the coronavirus change.
DBRS Morningstar ran an additional higher default adjustment on the
WA DBRS Morningstar Risk Score of the current collateral obligation
pool with the maximum covenanted tenor, and this stressed modeling
pool was run through the Monte Carlo simulation component of DBRS
Morningstar's CLO Asset Model to generate a stressed default rate.
DBRS Morningstar considered the results of this additional default
adjustment for the above rating actions.
Notes: All figures are in U.S. dollars unless otherwise noted.
NEWARK BSL: Moody's Confirms Ba3 Rating on Class D Notes
--------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by Newark BSL CLO 2, Ltd.:
US$30,000,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2030 (the "Class C Notes"), Confirmed at Baa3 (sf); previously
on June 3, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$20,000,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2030 (the "Class D Notes"), Confirmed at Ba3 (sf); previously
on June 3, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class C Notes and the Class D Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on June
3, 2020 on the Class C Notes and the Class D Notes issued by the
CLO. The CLO, originally issued in July 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 July 2022.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3096, compared to 2788
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2417 reported in the
August 2020 trustee report [3]. 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
15.8%. Nevertheless, Moody's noted that the OC tests for the Class
CD Notes and the Class D Notes, as well as the interest diversion
test were recently reported [4] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $495,720,136
Defaulted Securities: $5,477,963
Diversity Score: 87
Weighted Average Rating Factor (WARF): 3109
Weighted Average Life (WAL): 5.75 years
Weighted Average Spread (WAS): 3.32%
Weighted Average Coupon (WAC): 4.85%
Weighted Average Recovery Rate (WARR): 48.23%
Par haircut in OC tests and interest diversion test: 0.85%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
NRZ EXCESS 2018-PLS1: DBRS Rates Class D Notes 'BB', Trend Negative
-------------------------------------------------------------------
DBRS, Inc. assigned ratings to the following NRZ Excess Spread
Collateralized Notes, Series 2018-PLS1 (the Notes) issued jointly
by HLSS Holdings, LLC and HLS MSR-EBO Acquisition LLC. The trend on
the ratings is Negative.
The ratings of the Notes reflect the guarantee provided by New
Residential Investment Corp. (NRZ or the Company) and the ultimate
recourse to NRZ, as well as the expected recovery on the Notes due
to the Notes benefiting from a first priority, perfected security
interest on specific pools of mortgage servicing rights (MSRs).
The ratings on the Notes are financial institution ratings, not
structured finance (sf) ratings.
The Ratings are:
Debt Rated Action Rating Trend
HLSS Holdings LLC
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class A New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class B New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class C New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class D New Rating BB Neg
HLSS MSR-EBO Acquisition LLC
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class A New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class B New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class C New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, Class D New Rating BB Neg
These Notes are currently also rated by DBRS' affiliated rating
agency, Morningstar Credit Ratings, LLC (MCR). In connection with
the ongoing consolidation of DBRS Morningstar and MCR, MCR
previously announced that it had placed its outstanding ratings of
these Notes Under Review–Analytical Integration Review and that
MCR intended to withdraw its outstanding ratings; such withdrawal
will occur on or about September 30, 2020. In accordance with
MCR’s engagement letter covering these Notes, upon withdrawal of
MCR's outstanding ratings, the DBRS Morningstar ratings will become
the successor ratings to the withdrawn MCR ratings.
On June 30, 2020, DBRS Morningstar provided notification on
methodology decisions for the U.S. MSR asset class. Following the
notification period that closed on July 31, 2020, new engagements
in this asset class would be rated and monitored by DBRS
Morningstar using a combination of the following methodologies
(collectively, the Applicable MSR Methodologies):
(1) "Global Methodology for Rating Non-Bank Financial
Institutions"
(2) "Legal Criteria for U.S. Structured Finance"
(3) "Rating U.S. Structured Finance Transactions"
In analyzing the NRZ Excess Spread-Collateralized Notes, Series
2018-PLS1 transaction, DBRS Morningstar applied the "Global
Methodology for Rating Non-Bank Financial Institutions" to assess
the corporate credit risk of the MSR servicer (or guarantor) who
guarantees the full repayment of principal and interest to
noteholders at maturity. This methodology also provides the basis
for assessing the limitations on the MSR ratings from the
servicer's financial institutions rating (Issuer Rating).
"Legal Criteria for U.S. Structured Finance," which, specifically
in the True Sale and Non-Consolidation sections, considers the
legal separation (or the lack of as in this transaction) of the MSR
assets from the servicer. It further discusses limitations on the
security ratings where a potential linkage is recognized to a
counterparty (servicer).
The "Rating U.S Structured Finance Transactions" methodology
recognizes that collections of mortgage servicing fees are
generally senior to other security obligations in the cash flow
waterfall, and considers the potential linkage to the MSR servicer
(or guarantor). This methodology was not used in the analysis of
NRZ Excess Spread-Collateralized Notes, Series 2018-PLS1, as the
ratings assigned are not structured finance (sf) ratings.
ANALYTICAL FRAMEWORK
For transactions where the MSR noteholders must rely on cash flow
from the servicer, either under direct obligations or through a
corporate guarantee, the Long-Term Issuer Rating is the starting
point in the rating analysis. Given the guarantee from and the
ultimate recourse to NRZ in this transaction, DBRS Morningstar's
rating analysis for the Notes starts with the B (high) Long-Term
Issuer Rating of NRZ issued by DBRS Morningstar
(https://www.dbrsmorningstar.com/research/367513/dbrs-morningstar-assigns-b-high-lt-issuer-rating-to-new-residential-investment-corp-trend-neg),
and reflecting the negative trend of NRZ.
For ratings of certain classes in NRZ Excess Spread Collateralized
Notes, Series 2018-PLS1, the Long-Term Issuer Rating may then be
notched upward due to the secured nature of the Notes. The number
of notches of uplift is a function of DBRS Morningstar's expected
recovery for noteholders from the liquidation of the MSR assets
upon the occurrence of a credit event and the priority claim on
those liquidation proceeds to the more senior class of notes. In
other words, DBRS Morningstar gives considerations to the level of
seniority and overcollateralization of each class of MSR notes when
assigning the uplift from the Issuer Rating. See "DBRS Global
Methodology for Rating Non-Bank Financial Institutions", Exhibit 5.
Determining Recovery Amounts and Assigning Notch Uplift.
The ratings of the Notes also consider the legal structure of the
issuance including the first priority perfected security interest
on the Aggregate Excess Servicing Fees (ESF) assets. However, the
lack of bankruptcy remoteness given the absence of a true-sale or
safe harbor opinion in legally separating the MSR assets from NRZ
constrains the rating uplift for certain classes of Notes and
prevents DBRS Morningstar from analyzing this transaction as a
structured finance securitization.
KEY CREDIT CONSIDERATIONS
Credit Profile of the Servicer and Operational Risk
When cash flows to MSR noteholders have linkage to the servicer,
the credit risk profile of the servicer is a key consideration,
along with the collateral valuation. DBRS Morningstar performed an
operational risk review to assess the quality of the servicer’s
operations and its ability to comply with servicing standards.
Collateral Valuation
Through qualitative analysis, DBRS Morningstar assessed the
reasonableness of the third-party estimate of the collateral value.
DBRS Morningstar RMBS analysts reviewed the valuation agent's logic
or analytical approach employed to derive the net present value
(NPV) of the MSR and ESF cash flows, as well as the critical
assumptions used as inputs to the valuation cash flow model. The
key inputs used in the valuation of MSRs by the valuation agent
include the contractual gross servicing fee; ancillary income (late
fees, float and escrows); remaining mortgage portfolio maturity;
interest rates; involuntary and voluntary mortgage prepayment
speeds; the cost of servicing the mortgage loans; and the discount
rate applied to the cash flows to derive the NPV of the MSRs.
DBRS Morningstar expects the collateral valuation to be performed
by an independent third party and to be updated frequently given
the impact interest rate movements may have on prepayments (there
are no restrictions or penalties when prepaying Agency mortgage
loans) and related MSR values. DBRS Morningstar expects collateral
valuation reports to be provided on a periodic basis and monitors
changes in collateral valuations, noteholder credit enhancement
and, as applicable, compliance with covenants and advance rates, as
well as other important aspects of the transaction agreements.
When estimating recovery values, DBRS applied a haircut to the MSR
fair market valuation. In general, a facility with lower advance
rates will create more overcollateralization for noteholders,
potentially generating higher DBRS recovery rates, which may
translate into a greater uplift (e.g., more notches) from the
Long-Term Issuer Rating.
On June 30, 2020, there was $256.9 million of note principal
outstanding across the four classes of notes. The Notes are
collateralized by the aggregate excess servicing fees and by any
float and any real estate (REO) owned fees received by the Issuers
under their agreements with the servicers relating to such MSRs on
a certain pool of private-label residential mortgages. On June 30,
2020, the fair value of the MSR assets as set by the third-party
Valuation Agent was $574.5 million. This resulted in a sound level
of overcollateralization and an LTV for the transaction of 44.7%.
DBRS Morningstar's recovery analysis for the Notes assumes that an
Event of Default has occurred and that the Sequential Pay Trigger
Event is in effect resulting in principal payment on the notes to
be paid sequentially to the most senior class of notes then
outstanding until the notes are repaid in full. Three scenarios
were developed by DBRS Morningstar that included haircuts to the
June 30, 2020, fair values of the MSR collateral, with ranges from
40% to 60%. A uniformed distribution of these scenarios was
assumed. The results of these scenarios were then averaged to
determine a final expected recovery for each class of the Notes.
The recoveries led to uplift of four notches from the Long-Term
Issuer Rating for the three most senior classes of the Notes, and a
two notch uplift for the Class D Notes. DBRS Morningstar also
conducted a sensitivity analysis to the distribution of weightings
of the three scenarios and found no material impact to the notching
uplift.
Covenants
Transactions with linkage to the servicer typically contain
covenants that require the servicer to cure any borrowing base
deficiencies. This covenant is intended to mitigate the impact of
any sudden and steep increases in prepayment speeds on MSR
collateral valuations where the noteholders become
undercollateralized.
There are often other covenants that are tied to the financial
condition of the servicer that, when breached, may cause an early
amortization of the notes or a servicing transfer unless the breach
is cured within the specified resolution period. Typically, the
covenants require the servicer to maintain compliance with Agency
liquidity, debt ratio and tangible net worth requirements.
The Negative trend on the Notes reflects that of NRZ, which
considers the heightened uncertainty as to the future credit
performance of the Company's residential mortgage loans given the
Coronavirus Disease (COVID-19) induced recession. While forbearance
levels have declined steadily since May 2020, DBRS Morningstar
continues to be concerned that performance could deteriorate should
U.S. labor markets remain challenged while government support
programs and stimulus expire.
RATING DRIVERS
Given that the ratings of the Notes are inherently linked to the
Long-Term Issuer Rating of NRZ, should NRZ's Long-Term Issuer
Rating be downgraded, the rating of the Notes would be downgraded.
Additional material financial losses as a result of the challenging
operating environment would lead to the ratings being downgraded.
Weakening of the Company's liquidity position or an increase in the
composition of funding from short-term funding facilities would
lead to the ratings being downgraded. A material reduction in the
cushion to covenants, including minimum tangible net worth and
leverage, would also result in the ratings being downgraded.
Additionally, a decline in the expected recovery on the Notes from
the MSR assets would result in the rating uplift from the Long-Term
Issuer Rating to narrow.
Given the Negative trend an upgrade of the ratings is unlikely. The
trend on the ratings could be moved to Stable should the Company
continue to make progress in strengthening its funding and
liquidity position while also stabilizing its financial
performance. An improvement in the expected recovery from the MSR
assets for the Class D Notes would lead to a wider uplift of the
rating of the Class D Notes from the Long-Term Issuer Rating of
NRZ.
Notes: All figures are in U.S. dollars unless otherwise noted.
NRZ EXCESS 2018-PLS2: DBRS Rates Class D Notes 'BB', Trend Negative
-------------------------------------------------------------------
DBRS, Inc. assigned ratings to the following NRZ Excess Spread
Collateralized Notes, Series 2018-PLS2 (the Notes) issued jointly
by HLSS Holdings, LLC and HLS MSR-EBO Acquisition LLC. The trend on
the ratings is Negative.
The ratings of the Notes reflect the guarantee provided by New
Residential Investment Corp. (NRZ or the Company) and the ultimate
recourse to NRZ, as well as the expected recovery on the Notes due
to the Notes benefiting from a first priority, perfected security
interest on specific pools of mortgage servicing rights (MSRs).
The ratings on the Notes are financial institution ratings, not
structured finance (sf) ratings.
The Ratings are:
Debt Rated Action Rating Trend
HLSS Holdings LLC
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class A New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class B New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class C New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class D New Rating BB Neg
HLSS MSR-EBO Acquisition LLC
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class A New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class B New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class C New Rating BBB(low) Neg
NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, Class D New Rating BB Neg
These Notes are currently also rated by DBRS' affiliated rating
agency, Morningstar Credit Ratings, LLC (MCR). In connection with
the ongoing consolidation of DBRS Morningstar and MCR, MCR
previously announced that it had placed its outstanding ratings of
these Notes Under Review–Analytical Integration Review and that
MCR intended to withdraw its outstanding ratings; such withdrawal
will occur on or about September 30, 2020. In accordance with
MCR’s engagement letter covering these Notes, upon withdrawal of
MCR’s outstanding ratings, the DBRS Morningstar ratings will
become the successor ratings to the withdrawn MCR ratings.
On June 30, 2020, DBRS Morningstar provided notification on
methodology decisions for the U.S. MSR asset class. Following the
notification period that closed on July 31, 2020, new engagements
in this asset class would be rated and monitored by DBRS
Morningstar using a combination of the following methodologies
(collectively, the Applicable MSR Methodologies):
(1) "Global Methodology for Rating Non-Bank Financial
Institutions"
(2) "Legal Criteria for U.S. Structured Finance"
(3) "Rating U.S. Structured Finance Transactions"
In analyzing the NRZ Excess Spread-Collateralized Notes, Series
2018-PLS2 transaction, DBRS Morningstar applied the "Global
Methodology for Rating Non-Bank Financial Institutions" to assess
the corporate credit risk of the MSR servicer (or guarantor) who
guarantees the full repayment of principal and interest to
noteholders at maturity. This methodology also provides the basis
for assessing the limitations on the MSR ratings from the
servicer's financial institutions rating (Issuer Rating).
"Legal Criteria for U.S. Structured Finance," which, specifically
in the True Sale and Non-Consolidation sections, considers the
legal separation (or the lack of as in this transaction) of the MSR
assets from the servicer. It further discusses limitations on the
security ratings where a potential linkage is recognized to a
counterparty (servicer).
The "Rating U.S Structured Finance Transactions" methodology
recognizes that collections of mortgage servicing fees are
generally senior to other security obligations in the cash flow
waterfall, and considers the potential linkage to the MSR servicer
(or guarantor). This methodology was not used in the analysis of
NRZ Excess Spread-Collateralized Notes, Series 2018-PLS2, as the
ratings assigned are not structured finance (sf) ratings.
ANALYTICAL FRAMEWORK
For transactions where the MSR noteholders must rely on cash flow
from the servicer, either under direct obligations or through a
corporate guarantee, the Long-Term Issuer Rating is the starting
point in the rating analysis. Given the guarantee from and the
ultimate recourse to NRZ in this transaction, DBRS Morningstar's
rating analysis for the Notes starts with the B (high) Long-Term
Issuer Rating of NRZ issued by DBRS Morningstar
(https://www.dbrsmorningstar.com/research/367513/dbrs-morningstar-assigns-b-high-lt-issuer-rating-to-new-residential-investment-corp-trend-neg),
and reflecting the negative trend of NRZ.
For ratings of certain classes in NRZ Excess Spread Collateralized
Notes, Series 2018-PLS2, the Long-Term Issuer Rating may then be
notched upward due to the secured nature of the Notes. The number
of notches of uplift is a function of DBRS Morningstar’s expected
recovery for noteholders from the liquidation of the MSR assets
upon the occurrence of a credit event and the priority claim on
those liquidation proceeds to the more senior class of notes. In
other words, DBRS Morningstar gives considerations to the level of
seniority and overcollateralization of each class of MSR notes when
assigning the uplift from the Issuer Rating. See “DBRS Global
Methodology for Rating Non-Bank Financial Institutions”, Exhibit
5. Determining Recovery Amounts and Assigning Notch Uplift.
The ratings of the Notes also consider the legal structure of the
issuance including the first priority perfected security interest
on the Aggregate Excess Servicing Fees (ESF) assets. However, the
lack of bankruptcy remoteness given the absence of a true-sale or
safe harbor opinion in legally separating the MSR assets from NRZ
constrains the rating uplift for certain classes of Notes and
prevents DBRS Morningstar from analyzing this transaction as a
structured finance securitization.
KEY CREDIT CONSIDERATIONS
Credit Profile of the Servicer and Operational Risk
When cash flows to MSR noteholders have linkage to the servicer,
the credit risk profile of the servicer is a key consideration,
along with the collateral valuation. DBRS Morningstar performed an
operational risk review to assess the quality of the servicer’s
operations and its ability to comply with servicing standards.
Collateral Valuation
Through qualitative analysis, DBRS Morningstar assessed the
reasonableness of the third-party estimate of the collateral value.
DBRS Morningstar RMBS analysts reviewed the valuation agent’s
logic or analytical approach employed to derive the net present
value (NPV) of the MSR and ESF cash flows, as well as the critical
assumptions used as inputs to the valuation cash flow model. The
key inputs used in the valuation of MSRs by the valuation agent
include the contractual gross servicing fee; ancillary income (late
fees, float and escrows); remaining mortgage portfolio maturity;
interest rates; involuntary and voluntary mortgage prepayment
speeds; the cost of servicing the mortgage loans; and the discount
rate applied to the cash flows to derive the NPV of the MSRs.
DBRS Morningstar expects the collateral valuation to be performed
by an independent third party and to be updated frequently given
the impact interest rate movements may have on prepayments (there
are no restrictions or penalties when prepaying Agency mortgage
loans) and related MSR values. DBRS Morningstar expects collateral
valuation reports to be provided on a periodic basis and monitors
changes in collateral valuations, noteholder credit enhancement
and, as applicable, compliance with covenants and advance rates, as
well as other important aspects of the transaction agreements.
When estimating recovery values, DBRS applied a haircut to the MSR
fair market valuation. In general, a facility with lower advance
rates will create more overcollateralization for noteholders,
potentially generating higher DBRS recovery rates, which may
translate into a greater uplift (e.g., more notches) from the
Long-Term Issuer Rating.
On June 30, 2020, there was $232.5 million of note principal
outstanding across the four classes of notes. The Notes are
collateralized by the aggregate excess servicing fees and by any
float and any real estate (REO) owned fees received by the Issuers
under their agreements with the servicers relating to such MSRs on
a certain pool of private-label residential mortgages. On June 30,
2020, the fair value of the MSR assets as set by the third-party
Valuation Agent was $466.7 million. This resulted in a sound level
of overcollateralization and an LTV for the transaction of 49.8%.
DBRS Morningstar's recovery analysis for the Notes assumes that an
Event of Default has occurred and that the Sequential Pay Trigger
Event is in effect resulting in principal payment on the notes to
be paid sequentially to the most senior class of notes then
outstanding until the notes are repaid in full. Three scenarios
were developed by DBRS Morningstar that included haircuts to the
June 30, 2020, fair values of the MSR collateral, with ranges from
40% to 60%. A uniformed distribution of these scenarios was
assumed. The results of these scenarios were then averaged to
determine a final expected recovery for each class of the Notes.
The recoveries led to uplift of four notches from the Long-Term
Issuer Rating for the three most senior classes of the Notes, and a
two notch uplift for the Class D Notes. DBRS Morningstar also
conducted a sensitivity analysis to the distribution of weightings
of the three scenarios and found no material impact to the notching
uplift.
Covenants
Transactions with linkage to the servicer typically contain
covenants that require the servicer to cure any borrowing base
deficiencies. This covenant is intended to mitigate the impact of
any sudden and steep increases in prepayment speeds on MSR
collateral valuations where the noteholders become
undercollateralized.
There are often other covenants that are tied to the financial
condition of the servicer that, when breached, may cause an early
amortization of the notes or a servicing transfer unless the breach
is cured within the specified resolution period. Typically, the
covenants require the servicer to maintain compliance with Agency
liquidity, debt ratio and tangible net worth requirements.
The Negative trend on the Notes reflects that of NRZ, which
considers the heightened uncertainty as to the future credit
performance of the Company's residential mortgage loans given the
Coronavirus Disease (COVID-19) induced recession. While forbearance
levels have declined steadily since May 2020, DBRS Morningstar
continues to be concerned that performance could deteriorate should
U.S. labor markets remain challenged while government support
programs and stimulus expire.
RATING DRIVERS
Given that the ratings of the Notes are inherently linked to the
Long-Term Issuer Rating of NRZ, should NRZ's Long-Term Issuer
Rating be downgraded, the rating of the Notes would be downgraded.
Additional material financial losses as a result of the challenging
operating environment would lead to the ratings being downgraded.
Weakening of the Company's liquidity position or an increase in the
composition of funding from short-term funding facilities would
lead to the ratings being downgraded. A material reduction in the
cushion to covenants, including minimum tangible net worth and
leverage, would also result in the ratings being downgraded.
Additionally, a decline in the expected recovery on the Notes from
the MSR assets would result in the rating uplift from the Long-Term
Issuer Rating to narrow.
Given the Negative trend an upgrade of the ratings is unlikely. The
trend on the ratings could be moved to Stable should the Company
continue to make progress in strengthening its funding and
liquidity position while also stabilizing its financial
performance. An improvement in the expected recovery from the MSR
assets for the Class D Notes would lead to a wider uplift of the
rating of the Class D Notes from the Long-Term Issuer Rating of
NRZ.
Notes: All figures are in U.S. dollars unless otherwise noted.
NRZ MSR-COLLATERALIZED 2019-FNT1: DBRS Rates 3 Tranches 'B(high)'
-----------------------------------------------------------------
DBRS, Inc. assigned ratings to the following NRZ MSR-Collateralized
Notes, Series 2018-FNT1 and NRZ MSR-Collateralized Notes, Series
2018-FNT2 (the Notes) issued jointly by New Residential Mortgage
LLC and MSR WAC LLC . The trend on the ratings is Negative.
The ratings of the Notes reflect the guarantee provided by New
Residential Investment Corp. (NRZ or the Company) and the ultimate
recourse to NRZ, as well as the expected recovery on the Notes due
to the Notes benefiting from a first priority, perfected security
interest on specific pools of mortgage servicing rights (MSRs).
The ratings on the Notes are financial institution ratings, not
structured finance (sf) ratings.
The Ratings are:
Debt Rated Action Rating Trend
MSR WAC LLC
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class A New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class B New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class C New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class D New Rating BB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class E New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class F New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class G New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class A New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class B New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class C New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class D New Rating BB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class E New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class F New Rating B(high) Neg
New Residential Mortgage LLC
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class A New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class B New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class C New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class D New Rating BB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class E New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class F New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT1, Class G New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class A New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class B New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class C New Rating BBB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class D New Rating BB(low) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class E New Rating B(high) Neg
NRZ MSR-Collateralized Notes
Series 2018-FNT2, Class F New Rating B(high) Neg
These Notes are currently also rated by our affiliated rating
agency, Morningstar Credit Ratings, LLC (MCR). In connection with
the ongoing consolidation of DBRS Morningstar and MCR, MCR
previously announced that it had placed its outstanding ratings of
these Notes Under Review–Analytical Integration Review and that
MCR intended to withdraw its outstanding ratings; such withdrawal
will occur on or about September 30, 2020. In accordance with MCR's
engagement letter covering these Notes, upon withdrawal of MCR's
outstanding ratings, the DBRS Morningstar ratings will become the
successor ratings to the withdrawn MCR ratings.
On June 30, 2020, DBRS Morningstar provided notification on
methodology decisions for the U.S. MSR asset class. Following the
notification period that closed on July 31, 2020, new engagements
in this asset class would be rated and monitored by DBRS
Morningstar using a combination of the following methodologies
(collectively, the Applicable MSR Methodologies):
(1) "Global Methodology for Rating Non-Bank Financial
Institutions"
(2) "Legal Criteria for U.S. Structured Finance"
(3) "Rating U.S. Structured Finance Transactions"
In analyzing the NRZ MSR-Collateralized Notes, Series 2018-FNT1 and
NRZ MSR-Collateralized Notes, Series 2018-FNT2 transaction, DBRS
Morningstar applied the "Global Methodology for Rating Non-Bank
Financial Institutions" to assess the corporate credit risk of the
MSR servicer (or guarantor) who guarantees the full repayment of
principal and interest to noteholders at maturity. This methodology
also provides the basis for assessing the limitations on the MSR
ratings from the servicer's financial institutions rating (Issuer
Rating).
"Legal Criteria for U.S. Structured Finance," which, specifically
in the True Sale and Non-Consolidation sections, considers the
legal separation (or the lack of as in this transaction) of the MSR
assets from the servicer. It further discusses limitations on the
security ratings where a potential linkage is recognized to a
counterparty (servicer).
The "Rating U.S Structured Finance Transactions" methodology
recognizes that collections of mortgage servicing fees are
generally senior to other security obligations in the cash flow
waterfall, and considers the potential linkage to the MSR servicer
(or guarantor). This methodology was not used in the analysis of
NRZ MSR-Collateralized Notes, Series 2018-FNT1 and NRZ
MSR-Collateralized Notes, Series 2018-FNT2, as the ratings assigned
are not structured finance (sf) ratings.
ANALYTICAL FRAMEWORK
For transactions where the MSR noteholders must rely on cash flow
from the servicer, either under direct obligations or through a
corporate guarantee, the Long-Term Issuer Rating is the starting
point in the rating analysis. Given the guarantee from and the
ultimate recourse to NRZ in this transaction, DBRS Morningstar's
rating analysis for the Notes starts with the B (high) Long-Term
Issuer Rating of NRZ issued by DBRS Morningstar
(https://www.dbrsmorningstar.com/research/367513/dbrs-morningstar-assigns-b-high-lt-issuer-rating-to-new-residential-investment-corp-trend-neg),
and reflecting the negative trend of NRZ.
For ratings of certain classes in NRZ MSR-Collateralized Notes,
Series 2018-FNT1 and NRZ MSR-Collateralized Notes, Series
2018-FNT2, the Long-Term Issuer Rating may then be notched upward
due to the secured nature of the Notes. The number of notches of
uplift is a function of DBRS Morningstar's expected recovery for
noteholders from the liquidation of the MSR assets upon the
occurrence of a credit event and the priority claim on those
liquidation proceeds to the more senior class of notes. In other
words, DBRS Morningstar gives considerations to the level of
seniority and overcollateralization of each class of MSR notes when
assigning the uplift from the Issuer Rating. See "DBRS Global
Methodology for Rating Non-Bank Financial Institutions", Exhibit 5.
Determining Recovery Amounts and Assigning Notch Uplift.
The ratings of the Notes also consider the legal structure of the
issuance including the first priority perfected security interest
on the Aggregate Excess Servicing Fees (ESF) assets. However, the
lack of bankruptcy remoteness given the absence of a true-sale or
safe harbor opinion in legally separating the MSR assets from NRZ
constrains the rating uplift for certain classes of Notes and
prevents DBRS Morningstar from analyzing this transaction as a
structured finance securitization.
KEY CREDIT CONSIDERATIONS
Credit Profile of the Servicer and Operational Risk
When cash flows to MSR noteholders have linkage to the servicer,
the credit risk profile of the servicer is a key consideration,
along with the collateral valuation. DBRS Morningstar performed an
operational risk review to assess the quality of the servicer’s
operations and its ability to comply with servicing standards.
Acknowledgment Agreement Review
DBRS Morningstar reviewed the Acknowledgment Agreement (AA) and
considered the terms of the AA as it relates to each party, its
legal enforceability, the circumstances under which the Agency can
extinguish the secured party's lien on the MSR and the specific
rights given to the secured party for the benefit of the
noteholders, including, but not limited to, whether the Agency
permits (1) the secured party to initiate the transfer of servicing
to a successor servicer if the current servicer defaults, (2) the
servicing transfer to occur without full assumption of
representations and warranties by the successor servicer and (3) a
servicer termination by the Agency with or without cause.
Collateral Valuation
Through qualitative analysis, DBRS Morningstar assessed the
reasonableness of the third-party estimate of the collateral value.
DBRS Morningstar RMBS analysts reviewed the valuation agent’s
logic or analytical approach employed to derive the net present
value (NPV) of the MSR and ESF cash flows, as well as the critical
assumptions used as inputs to the valuation cash flow model. The
key inputs used in the valuation of MSRs by the valuation agent
include the contractual gross servicing fee; ancillary income (late
fees, float and escrows); remaining mortgage portfolio maturity;
interest rates; involuntary and voluntary mortgage prepayment
speeds; the cost of servicing the mortgage loans; and the discount
rate applied to the cash flows to derive the NPV of the MSRs.
DBRS Morningstar expects the collateral valuation to be performed
by an independent third party and to be updated frequently given
the impact interest rate movements may have on prepayments (there
are no restrictions or penalties when prepaying Agency mortgage
loans) and related MSR values. DBRS Morningstar expects collateral
valuation reports to be provided on a periodic basis and monitors
changes in collateral valuations, noteholder credit enhancement
and, as applicable, compliance with covenants and advance rates, as
well as other important aspects of the transaction agreements.
When estimating recovery values, DBRS applied a haircut to the MSR
fair market valuation. In general, a facility with lower advance
rates will create more overcollateralization for noteholders,
potentially generating higher DBRS recovery rates, which may
translate into a greater uplift (e.g., more notches) from the
Long-Term Issuer Rating.
On June 30, 2020, there was $720.7 million of note principal
outstanding across the four classes of notes. The Notes are
collateralized by the aggregate excess servicing fees and by any
float and any real estate (REO) owned fees received by the Issuers
under their agreements with the servicers relating to such MSRs on
a certain pool of private-label residential mortgages. On June 30,
2020, the fair value of the MSR assets as set by the third-party
Valuation Agent was $970.0 million. This resulted in a sound level
of overcollateralization and an LTV for the transaction of 74.3%.
DBRS Morningstar's recovery analysis for the Notes assumes that an
Event of Default has occurred and that the Sequential Pay Trigger
Event is in effect resulting in principal payment on the notes to
be paid sequentially to the most senior class of notes then
outstanding until the notes are repaid in full. Three scenarios
were developed by DBRS Morningstar that included haircuts to the
June 30, 2020, fair values of the MSR collateral, with ranges from
40% to 60%. A uniformed distribution of these scenarios was
assumed. The results of these scenarios were then averaged to
determine a final expected recovery for each class of the Notes.
The recoveries led to uplift of four notches from the Long-Term
Issuer Rating for the three most senior classes of the Notes, a one
notch uplift for the Class D Notes, and no rating uplift for the
Class E, F, and G Notes. DBRS Morningstar also conducted a
sensitivity analysis to the distribution of weightings of the three
scenarios and found no material impact to the notching uplift.
Covenants
Transactions with linkage to the servicer typically contain
covenants that require the servicer to cure any borrowing base
deficiencies. This covenant is intended to mitigate the impact of
any sudden and steep increases in prepayment speeds on MSR
collateral valuations where the noteholders become
undercollateralized.
There are often other covenants that are tied to the financial
condition of the servicer that, when breached, may cause an early
amortization of the notes or a servicing transfer unless the breach
is cured within the specified resolution period. Typically, the
covenants require the servicer to maintain compliance with Agency
liquidity, debt ratio and tangible net worth requirements.
The Negative trend on the Notes reflects that of NRZ, which
considers the heightened uncertainty as to the future credit
performance of the Company's residential mortgage loans given the
Coronavirus Disease (COVID-19) induced recession. While forbearance
levels have declined steadily since May 2020, DBRS Morningstar
continues to be concerned that performance could deteriorate should
U.S. labor markets remain challenged while government support
programs and stimulus expire.
RATING DRIVERS
Given that the ratings of the Notes are inherently linked to the
Long-Term Issuer Rating of NRZ, should NRZ's Long-Term Issuer
Rating be downgraded, the rating of the Notes would be downgraded.
Additional material financial losses as a result of the challenging
operating environment would lead to the ratings being downgraded.
Weakening of the Company's liquidity position or an increase in the
composition of funding from short-term funding facilities would
lead to the ratings being downgraded. A material reduction in the
cushion to covenants, including minimum tangible net worth and
leverage, would also result in the ratings being downgraded.
Additionally, a decline in the expected recovery on the Notes from
the MSR assets would result in the rating uplift from the Long-Term
Issuer Rating to narrow.
Given the Negative trend an upgrade of the ratings is unlikely. The
trend on the ratings could be moved to Stable should the Company
continue to make progress in strengthening its funding and
liquidity position while also stabilizing its financial
performance. An improvement in the expected recovery from the MSR
assets for the lower class notes would lead to a wider uplift of
the ratings of the lower class notes from the Long-Term Issuer
Rating of NRZ.
Notes: All figures are in U.S. dollars unless otherwise noted.
OCTAGON INVESTMENT 31: Moody's Confirms B3 Rating on Class F Notes
------------------------------------------------------------------
Moody's Investors Service has assigned a rating to one class of CLO
refinancing notes (the "Refinancing Notes") issued by Octagon
Investment Partners 31, Ltd.
Moody's rating action is as follows:
US$13,200,000 Class B-2R Senior Secured Fixed Rate Notes due 2030
(the "Class B-2R Notes), Assigned Aa2 (sf)
Moody's has also confirmed the ratings on the following outstanding
notes issued by the Issuer:
US$31,350,000 Class D Secured Deferrable Floating Rate Notes due
2030 (the "Class D Notes"), Confirmed at Baa3 (sf); previously on
April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$22,000,000 Class E Secured Deferrable Floating Rate Notes due
2030 (the "Class E Notes"), Confirmed at Ba3 (sf); previously on
April 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
US$11,000,000 Class F Secured Deferrable Floating Rate Notes due
2030 (the "Class F Notes"), Confirmed at B3 (sf); previously on
April 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade
The Class D Notes, Class E Notes, and the Class F Notes are
referred to herein, collectively, as the "Confirmed Notes."
The confirmations conclude the reviews for downgrade initiated on
April 17, 2020 on the Class D Notes, the Class E Notes, and the
Class F Notes issued by the Issuer.
RATINGS RATIONALE
The rationale for the rating is based on its methodology and
considers all relevant risks particularly those associated with the
CLO's portfolio and structure.
The Issuer is a managed cash flow collateralized loan obligation
(CLO). The issued notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. At least 90%
of the portfolio must consist of senior secured loans and eligible
investments, and up to 10% of the portfolio may consist of second
lien loans and unsecured loans.
Octagon Credit Investors, LLC will continue to direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's remaining 1.75-year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
The Issuer has issued the Refinancing Notes on October 5, 2020 in
connection with the refinancing of one class of secured notes
originally issued on June 29, 2017. On the Refinancing Date, the
Issuer used proceeds from the issuance of the Refinancing Notes to
redeem in full the Refinanced Original Notes. On the Original
Closing Date, the issuer also issued six other classes of secured
notes and one class of subordinated notes that remains
outstanding.
In addition, Moody's has confirmed the ratings on the Confirmed
Notes. Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 2891, compared to 2678
reported in the March 2020 trustee report [2]. Moody's notes that
the WARF was failing the test level of 2757 reported in the
September 2020 trustee report [3]. 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
11.6% as of August 2020. Nevertheless, Moody's noted that all the
OC tests, as well as the interest diversion test were recently
reported [4] as passing.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in August 2020.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. For modeling
purposes, Moody's used the following base-case assumptions:
Performing par and principal proceeds balance: $535,803,556
Defaulted par: $8,285,586
Diversity Score: 78
Weighted Average Rating Factor (WARF): 2890
Weighted Average Spread (WAS): 3.49%
Weighted Average Recovery Rate (WARR): 46.94%
Weighted Average Life (WAL): 5.91 years
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure and some improvement in WARF as
the US economy gradually recovers in the second half of the year
and corporate credit conditions generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak U.S. economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
August 2020.
Factors That Would Lead to an Upgrade or a Downgrade of the
Ratings:
The performance of the Refinancing Notes is subject to uncertainty.
The performance of the Refinancing Notes is sensitive to the
performance of the underlying portfolio, which in turn depends on
economic and credit conditions that may change. The Manager's
investment decisions and management of the transaction will also
affect the performance of the Refinancing Notes.
OZLM LTD XVII: Moody's Confirms Ba3 Rating on Class D Notes
-----------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by OZLM XVII, Ltd.:
US$30,000,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2030 (the "Class C Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$25,000,000 Class D Junior Secured Deferrable Floating Rate Notes
due 2030 (the "Class D Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class C Notes and the Class D Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class C Notes and the Class D Notes issued by the
CLO. The CLO, issued 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 July 2022.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3225, compared to 2829
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2858 reported in the
August 2020 trustee report. 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
22.35%. Nevertheless, Moody's noted that the OC tests for the Class
C Notes and the Class D Notes, as well as the interest diversion
test were recently reported [3] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $482,336,925
Defaulted Securities: $16,694,331
Diversity Score: 73
Weighted Average Rating Factor (WARF): 3280
Weighted Average Life (WAL): 5.81 years
Weighted Average Spread (WAS): 3.41%
Weighted Average Recovery Rate (WARR): 47.1%
Par haircut in OC tests and interest diversion test: 1.545%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
OZLM LTD XVIII: Moody's Confirms B3 Rating on Class F Notes
-----------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by OZLM XVIII, Ltd.:
US$30,000,000 Class D Senior 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
US$21,250,000 Class E Secured Deferrable Floating Rate Notes due
2031 (the "Class E Notes"), Confirmed at Ba3 (sf); previously on
April 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
US$10,000,000 Class F Secured Deferrable Floating Rate Notes due
2031 (the "Class F Notes"), Confirmed at B3 (sf); previously on
April 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade
The Class D Notes, the Class E Notes, and the Class F Notes are
referred to herein, collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D, E, and F Notes issued by the CLO. The CLO,
originally issued 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 will end on April 2023.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 [1] trustee report, the weighted
average rating factor (WARF) was reported at 3268, compared to 2828
reported in the March 2020 trustee report [2]. 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 22.34%. Nevertheless, Moody's noted that the OC
tests for all Notes, as well as the interest diversion test were
recently reported according to the August 2020 trustee report [3],
as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $488,050,961
Defaulted Securities: $10,985,795
Diversity Score: 73
Weighted Average Rating Factor (WARF): 3305
Weighted Average Life (WAL): 5.84 years
Weighted Average Spread (WAS): 3.41%
Weighted Average Recovery Rate (WARR): 47.32%
Par haircut in OC tests and interest diversion test: 1.3%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
PAWNEE EQUIPMENT 2020-1: DBRS Finalizes BB Rating on Class E Notes
------------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes (the Notes) issued by Pawnee Equipment Receivables
(Series 2020-1) LLC (the Issuer):
-- $154,220,000 Class A Notes at AAA (sf)
-- $7,930,000 Class B Notes at AA (sf)
-- $6,950,000 Class C Notes at A (sf)
-- $8,220,000 Class D Notes at BBB (sf)
-- $6,165,000 Class E Notes at BB (sf)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
-- Transaction capital structure, proposed ratings, and
sufficiency of available credit enhancement, which includes
overcollateralization, subordination, and amounts held in the
reserve account to support the DBRS Morningstar-projected
cumulative net loss (CNL) assumption under various stressed cash
flow scenarios.
-- The respective coverage multiples of the expected CNL, adjusted
for the effect of the Coronavirus Disease (COVID-19), which are
afforded to each class of Notes by the available credit
enhancement. Under various stressed cash flow scenarios, credit
enhancement can withstand the expected loss using DBRS Morningstar
multiples of 5.55 times (x) with respect to the Class A Notes and
4.55x, 3.65x, 2.60x, and 1.90x with respect to the Class B, C, D,
and E Notes, respectively. DBRS Morningstar assumes an expected
base-case CNL of 3.95% for this transaction.
-- The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
coronavirus outbreak, available in its commentary "Global
Macroeconomic Scenarios: September Update," published on September
10, 2020. DBRS Morningstar initially published macroeconomic
scenarios on April 16, 2020, which were last updated on September
10, 2020, and are reflected in DBRS Morningstar's rating analysis.
-- DBRS Morningstar adjusted its expected CNL assumption for the
transaction in consideration of its moderate scenario outlined in
the commentary, with the moderate scenario serving as the primary
anchor for current ratings. The moderate scenario remains
predicated on a more rapid return of confidence and a steady
recovery heading into 2021. This moderate scenario primarily
considers two economic measures: declining GDP growth and increased
unemployment levels for the year. For commercial asset classes, the
GDP growth rate is intended to provide the basis for a measurement
of performance expectations.
-- The capabilities of Pawnee Leasing Corporation (Pawnee or the
Company) with regard to originations, underwriting, and servicing.
DBRS Morningstar performed an operational review of Pawnee and
considers the entity to be an acceptable originator and servicer of
equipment-backed lease and loan contracts. In addition, Vervent
will be the Backup Servicer for this transaction. DBRS Morningstar
reviewed Vervent and believes that the entity is an acceptable
backup servicer.
-- The Asset Pool does not contain any significant concentrations
of obligors, brokers, or geographies and consists of a diversified
mix of the equipment types similar to those included in other
small-ticket lease and loan securitizations rated by DBRS
Morningstar.
-- The transaction does not have a prefunding period.
-- The Company focuses on small-ticket financing ($250,000 cap for
prime credits and lower for nearprime and nonprime credits). No
nonprime credits are included in the collateral for the Notes;
however, 19.47% of the collateral consists of B+ credits (i.e.,
weighted-average nonzero guarantor Beacon Score of 699 as of the
Statistical Calculation Date compared with a score of 740 for A
credits as of the same date). Payment by automated clearing house
is in place for 91.61% of B+ credit contracts compared with about
81.31% for A credit contracts. In addition, as of the Statistical
Calculation Date, personal guarantees supported close to 100% of B+
collateral in the Statistical Asset Pool compared with
approximately 83.45% of A credits.
-- 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 Pawnee; and that the Indenture
Trustee, Deutsche Bank Trust Company Americas, has a valid
first-priority security interest in the assets. DBRS Morningstar
also reviews the transaction terms for consistency with its "Legal
Criteria for U.S. Structured Finance."
Notes: All figures are in U.S. dollars unless otherwise noted.
RADNOR RE 2020-2: Moody's Rates Class B-1 Notes 'B3'
----------------------------------------------------
Moody's Investors Service assigned definitive ratings to five
classes of mortgage insurance credit risk transfer notes issued by
Radnor Re 2020-2 Ltd.
Radnor Re 2020-2 Ltd. is the fifth transaction issued under the
Radnor Re program, which transfers to the capital markets the
credit risk of private mortgage insurance (MI) policies issued by
Essent Guaranty (Essent, the ceding insurer) on a portfolio of
residential mortgage loans. The notes are exposed to the risk of
claims payments on the MI policies, and depending on the notes'
priority, may incur principal and interest losses when the ceding
insurer makes claims payments on the MI policies.
On the closing date, Radnor Re 2020-2 Ltd. (the issuer) and the
ceding insurer will enter into a reinsurance agreement providing
excess of loss reinsurance on mortgage insurance policies issued by
the ceding insurer on a portfolio of residential mortgage loans.
Proceeds from the sale of the notes will be deposited into the
reinsurance trust account for the benefit of the ceding insurer and
as security for the issuer's obligations to the ceding insurer
under the reinsurance agreement. The funds in the reinsurance trust
account will also be available to pay noteholders, following the
termination of the trust and payment of amounts due to the ceding
insurer. Funds in the reinsurance trust account will be used to
purchase eligible investments and will be subject to the terms of
the reinsurance trust agreement.
Following the instruction of the ceding insurer, the trustee will
liquidate assets in the reinsurance trust account to (1) make
principal payments to the notes as the insurance coverage in the
reference pool reduces due to loan amortization or policy
termination, and (2) reimburse the ceding insurer whenever it pays
MI claims after the Class B-2H and Class B-3H coverage levels are
written off. While income earned on eligible investments is used to
pay interest on the notes, the ceding insurer is responsible for
covering any difference between the investment income and interest
accrued on the notes' coverage levels.
The complete rating actions are as follows:
Issuer: Radnor Re 2020-2 Ltd.
Cl. M-1A, Definitive Rating Assigned Ba1 (sf)
Cl. M-1B, Definitive Rating Assigned Ba2 (sf)
Cl. M-1C, Definitive Rating Assigned Ba3 (sf)
Cl. M-2, Definitive Rating Assigned B2 (sf)
Cl. B-1, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expects this insured pool's aggregate exposed principal
balance to incur 2.96% losses in a base case scenario, and 19.80%
losses under a Aaa stress scenario. The aggregate exposed principal
balance is the product, for all the mortgage loans covered by MI
policies, of (i) the unpaid principal balance of each mortgage
loan, (ii) the MI coverage percentage, and (iii) the reinsurance
coverage percentage. Reinsurance coverage percentage is 100% minus
existing quota share reinsurance through unaffiliated insurer, if
any. The existing quota share reinsurance applies to nearly 100% of
unpaid principal balance of the reference pool, in which
approximately 10.1% have 40% quota share existing reinsurance, and
89.9% have 20% quota share existing reinsurance. The ceding insurer
has purchased quota share reinsurance from unaffiliated third
parties, which provides proportional reinsurance protection to the
ceding insurer for certain losses.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's increased its model-derived median expected losses by 15%
(mean expected losses by 13.43%) and its Aaa losses by 5% to
reflect the likely performance deterioration resulting from a
slowdown in US economic activity in 2020 due to the COVID-19
outbreak.
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 calculated losses on the pool using its US Moody's
Individual Loan Analysis (MILAN) model based on the loan-level
collateral information as of the cut-off date. Loan-level
adjustments to the model results included, but were not limited to,
adjustments for origination quality.
Collateral Description
Each mortgage loan has an insurance coverage effective date on or
after September 1, 2019, but on or before July 31, 2020. The
reference pool consists of 243,890 primes, fixed- and
adjustable-rate, one- to four-unit, first-lien fully-amortizing,
predominantly conforming mortgage loans with a total insured loan
balance of approximately $68 billion. All loans in the reference
pool had a loan-to-value (LTV) ratio at origination that was
greater than 80%, with a weighted average of 91.4%. The borrowers
in the pool have a weighted average FICO score of 748, a weighted
average debt-to-income ratio of 35.9% and a weighted average
mortgage rate of 3.6%. The weighted average risk in force (MI
coverage percentage net of existing reinsurance coverage) is
approximately 19.4% of the reference pool unpaid principal balance.
The aggregate exposed principal balance is the portion of the
pool's risk in force that is not covered by existing quota share
reinsurance through unaffiliated parties.
The weighted average LTV of 91.4% is far higher than those of
recent private label prime jumbo deals, which typically have LTVs
in the high 60's range, however, it is in line with those of recent
STACR high LTV CRT transactions. All these insured loans in the
reference pool were originated with LTV ratios greater than 80%.
100% of insured loans were covered by mortgage insurance at
origination with 96.6% covered by BPMI and 3.4% covered by LPMI
based on risk in force.
Underwriting Quality
Moody's took into account the quality of Essent's insurance
underwriting, risk management and claims payment process in its
analysis.
Essent's underwriting requirements address credit, capacity
(income), capital (asset/equity) and collateral. It has a licensed
in-house appraiser to review appraisals.
Lenders submit mortgage loans to Essent for insurance either
through delegated underwriting or non-delegated underwriting
programs. Under the delegated underwriting program, lenders can
submit loans for insurance without Essent re-underwriting the loan
file. Essent issues an MI commitment based on the lender's
representation that the loan meets the insurer's underwriting
requirement. Lenders eligible under this program must be
pre-approved by Essent's risk management group and are subject to
targeted internal quality assurance reviews. Under the
non-delegated underwriting program, insurance coverage is approved
after full-file underwriting by the insurer's underwriters. As of
June 2020, approximately 62.3% of the loans in Essent's overall
portfolio are insured through delegated underwriting and 37.8%
through non-delegated underwriting. Essent broadly follows the GSE
underwriting guidelines via DU/LP, subject to certain additional
limitations and requirements.
Servicers provide Essent monthly reports of insured loans that are
60-day delinquent prior to any submission of claims. Claims are
typically submitted when servicers have taken possession of the
title to the properties. Essent's claims review process include
loan files, payment history, quality review results, and property
value. Essent will send the first document request letter to the
related servicer within 20 days of receipt of claim, and may take
additional 10-day period after receipt of response to make
additional requests. Claims are paid within 60 days after all
required documents are submitted.
Essent performs an internal quality assurance review on a sample
basis of delegated and non-delegated underwritten loans. Essent
selects a random and targeted sample of loans for review, and
assesses each loan file for data accuracy, underwriting quality and
process integrity. Third party vendors are utilized in the quality
assurance reviews as well as re-verifications and investigations.
Vendors must meet stringent approval requirements. 10% of all third
party reviewed loans are evaluated by Essent's staff to ensure
accuracy of findings.
Third-Party Review
Essent engaged Consolidated Analytics, Inc. to perform a data
analysis and diligence review of a sampling of mortgage loans files
submitted for mortgage insurance. This review included validation
of credit qualifications, verification of the presence of material
documentation as applicable to the mortgage insurance application,
updated valuation analysis and comparison, and a tape-to-file data
integrity validation to identify possible data discrepancies. The
scope does not include a compliance review.
The scope of the third-party review is weaker than other MI CRT
transactions Moody's rated because the sample size was small (only
321 of the total loans in the initial reference pool as of May
2020, or 0.13% by loan count). Once the sample size was determined,
the files were selected randomly to meet the final sample count of
321 files out of a total of 243,890 loan files.
In spite of the small sample size and a limited TPR scope for
Radnor Re 2020-2 Ltd., Moody's did not make an additional
adjustment to the loss levels because, (1) approximately 35% of the
loans in the reference pool were submitted through non-delegated
underwriting, which have gone through full re-underwriting by the
ceding insurer, (2) the underwriting quality of the insured loans
is monitored under the GSEs' stringent quality control system, and
(3) MI policies will not cover any costs related to compliance
violations.
In addition, the TPR available sample does not cover a subset of
pool that have MI coverage effective date on and after June 2020,
representing 36.2% of the pool by loan count. Moody's did not make
any adjustment because Moody's found no material difference in
credit characteristics between the post-June 2020 subset and the
pre-June 2020 subset, including the percentage of loans with MI
policies underwritten through non-delegated underwriting program,
which ceding insurer requires full loan file and performs
independent re-underwriting and quality assurance. Moody's took
this into consideration in its TPR review.
Scope and results. The third-party due diligence scope focuses on
the following:
Appraisals: The third-party diligence provider also reviewed
property valuation on 321 loans in the sample pool. The third-party
review concluded a property grade of A for 315 loans. For those
loans with property grade A, an AVM was first ordered on all loans,
in which 6 AVMs returned no results due to insufficient property
information. The AVM variance is calculated as difference between
AVM value and the lesser of original appraisal or sales price. If
the resulting negative variance of the AVM was greater than 10%, or
if no results were returned, a BPO was ordered on the property. If
the resulting value of the BPO was less than 90% of the value
reflected on the original appraisal a field review was ordered on
the property. Within these grade A loans, all the appraisal values
are supported by BPO within a 10% variance. Loans qualified with a
property inspection waiver were excluded from a BPO or a field
review.
In addition, there were 6 loans not assigned a property grade. For
these loans, the vendor ordered 1 broker price opinion (BPO) and 5
field review appraisals for the related properties, however, the
results were not obtained in time for this offering. Moody's did
not make additional adjustment to these loans given Moody's used
the lower of appraisal and purchase price as property value in its
analysis.
Credit: The third-party diligence provider reviewed credit on 321
loans in the sample pool. The third-party diligence provider
reviewed each mortgage loan file to determine the adherence to
stated underwriting or credit extension guidelines, standards,
criteria or other requirements provided by Essent. For GSE eligible
mortgage loan files, the review of the Automated Underwriting
System (AUS) output was also performed. Per the TPR report, 314
loans have credit grade A, 1 loan has grade B and 6 loans have
grade C. These grade C exceptions were due to insufficient document
provided to due diligence provider from the lender or servicer,
given the time frame of this offering. Moody's did not make
adjustment to its losses for these exceptions because these were
all GSE eligible loans underwritten to full documentation. Such
exceptions will likely to be cured after transaction closing.
Data integrity: The third-party review firm was provided a data
file with loan level data, which was audited against origination
documents to determine the accuracy of data found within the data
tape. The following 16 data fields were reviewed against the list
of source documents in loan files to confirm the integrity of data
tape information. As the TPR report suggests, there are 29
discrepancy findings under DTI column, in which only 6 loans have
higher DTI per TPR provider's calculation.
Reps & Warranties Framework
The ceding insurer does not make any representations and warranties
to the noteholders in this transaction. Since the insured mortgages
are predominantly GSE loans, the individual sellers would provide
exhaustive representations and warranties to the GSEs that are
negotiated and actively monitored. In addition, the ceding insurer
may rescind the MI policy for certain material misrepresentation
and fraud in the origination of a loan, which would benefit the MI
CRT noteholders.
Transaction Structure
The transaction structure is very similar to GSE CRT transactions
that Moody's has rated. The ceding insurer will retain the senior
coverage level A-H, coverage level B-2H and the coverage level B-3H
at closing. The offered notes benefit from a sequential pay
structure. The transaction incorporates structural features such as
a 10-year bullet maturity and a sequential pay structure for the
non-senior tranches, resulting in a shorter expected weighted
average life on the offered notes.
Funds raised through the issuance of the notes are deposited into a
reinsurance trust account and are distributed either to the
noteholders, when insured loans amortize or MI policies terminate,
or to the ceding insurer for reimbursement of claims paid when
loans default. Interest on the notes is paid from income earned on
the eligible investments and the coverage premium from the ceding
insurer. Interest on the notes will accrue based on the outstanding
balance of the notes, but the ceding insurer will only be obligated
to remit coverage premium based on each note's coverage level.
Credit enhancement in this transaction is comprised of
subordination provided by mezzanine and junior tranches. The rated
Class M-1A, Class M-1B, Class M-1C, Class M-2 and Class B-1 offered
notes have credit enhancement levels of 5.90%, 5.20%, 4.50%, 3.75%
and 3.50%, respectively. The credit risk exposure of the notes
depends on the actual MI losses incurred by the insured pool. MI
losses are allocated in a reverse sequential order starting with
the coverage level B-3H. Investment deficiency amount losses are
allocated in a reverse sequential order starting with the class B-1
notes.
So long as the senior coverage level is outstanding, and no
performance trigger event occurs, the transaction structure
allocates principal payments on a pro-rata basis between the senior
and non-senior reference tranches. Principal is then allocated
sequentially amongst the non-senior tranches. Principal payments
are all allocated to the senior reference tranche when a trigger
event occurs.
A trigger event with respect to any payment date will be in effect
if the coverage level amount of coverage level A-H for such payment
date has not been reduced to zero and either (i) the preceding
three month average of the sixty-plus delinquency amount for that
payment date equals or exceeds 75.00% of coverage level A-H
subordination amount or (ii) the subordinate percentage (or with
respect to the first payment date, the original subordinate
percentage) for that payment date is less than the target CE
percentage (minimum C/E test: 7.50%).
Premium Deposit Account (PDA)
The premium deposit account will benefit the transaction upon a
mandatory termination event (e.g. the ceding insurer fails to pay
the coverage premium and does not cure, triggering a default under
the reinsurance agreement), by providing interest liquidity to the
noteholders, when combined with the income earned on the eligible
investments, of approximately 70 days while the reinsurance trust
account and eligible investments are being liquidated to repay the
principal of the notes.
On the closing date, the ceding insurer will establish a cash and
securities account (the PDA) but no initial deposit amount will be
made to the account by the ceding insurer unless the premium
deposit event is triggered. The premium deposit event will be
triggered (1) with respect to any class of notes, if the rating of
that class of notes exceeds the insurance financial strength (IFS)
rating of the ceding insurer or (2) with respect to all classes of
notes, if the ceding insurer's IFS rating falls below Baa2. If the
note ratings exceed that of the ceding insurer, the insurer will be
obligated to deposit into and maintain in the premium deposit
account the required PDA amount (see next paragraph) only for the
notes that exceeded the ceding insurer's rating. If the ceding
insurer's rating falls below Baa2, it will be obligated to deposit
the required PDA amount for all classes of notes.
The required PDA amount for each class of notes and each month is
equal to the excess, if any, of (i)(a) the coupon rate of the note
multiplied by (b) the applicable funded percentage, (c) the
coverage level amount for the coverage level corresponding to such
class of notes and (d) a fraction equal to 70/360, over (ii) two
times the investment income collected (but not yet distributed) on
the eligible investments.
Moody's believes the requirement that the PDA be funded only upon a
rating trigger event does not establish a linkage between the
ratings of the notes and the IFS rating of the ceding insurer
because, 1) the required PDA amount is small relative to the entire
deal, 2) the risk of PDA not being funded could theoretically occur
only if the ceding insurer suddenly defaults, causing a rating
downgrade from investment grade to default in a very short period,
which is a highly unlikely scenario, and 3) even if the insurer
becomes insolvent, there would be a strong incentive for the
insurer's insolvency regulator to continue to make the interest
payments to avoid losing reinsurance protection provided by the
deal.
Claims Consultant
To mitigate risks associated with the ceding insurer's control of
the trust account and discretion to unilaterally determine the MI
claims amounts (i.e. ultimate net losses), the ceding insurer will
engage Consolidated Analytics, Inc., as claims consultant, to
verify MI claims and reimbursement amounts withdrawn from the
reinsurance trust account once the coverage level B-3H and the
coverage level B-2H have been written down. The claims consultant
will review on a quarterly basis a sample of claims paid by the
ceding insurer covered by the reinsurance agreement. In verifying
the amount, the claims consultant will apply a permitted variance
to the total paid loss for each MI Policy of +/- 2%. The claims
consultant will provide a preliminary report to the ceding insurer
containing results of the verification. If there are findings that
cannot be resolved between the ceding insurer and the claims
consultant, the claims consultant will increase the sample size. A
final report will be delivered by the claim's consultant to the
trustee, the issuer and the ceding insurer. The issuer will be
required to provide a copy of the final report to the noteholders
and the rating agencies.
Unlike RMBS transactions where there is typically some level of
independent third-party oversight by the trustee, the master
servicer and/or the securities administrator, MI CRT transactions
typically do not have such oversight. As noted, the ceding insurer
not only has full control of the trust account but can also
determine, at its discretion, the MI claims amount. The ceding
insurer will then direct the trustee to withdraw the funds to
reimburse for the claims paid. Since the trustee is not required to
verify the MI claims amount, there could be a scenario where funds
are withdrawn from the reinsurance trust account in excess of the
amounts necessary to reimburse the ceding insurer. As such, Moody's
believes the claims consultant in this transaction will provide the
oversight to mitigate such risks.
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 these ratings was "Moody's
Approach to Rating US RMBS Using the MILAN Framework" published in
April 2020.
REPUBLIC FINANCE 2020-A: DBRS Gives Prov. BB Rating on Cl. D Notes
------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following notes to
be issued by Republic Finance Issuance Trust 2020-A:
-- $132,960,000 Series 2020-A, Class A at AA (sf)
(the Class A Notes)
-- $28,270,000 Series 2020-A, Class B at A (low) (sf)
(the Class B Notes)
-- $16,120,000 Series 2020-A, Class C at BBB (low) (sf)
(the Class C Notes)
-- $26,650,000 Series 2020-A, Class D at BB (low) (sf)
(the Class D Notes)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
-- Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- 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.
-- 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: September Update," published on September
10, 2020. DBRS Morningstar initially published its macroeconomic
scenarios on April 16, 2020, and they have been regularly updated.
The scenarios were last updated on September 10, 2020, and are
reflected in DBRS Morningstar's rating analysis.
-- The assumptions consider the moderate macroeconomic scenario
outlined in the commentary, with the moderate scenario serving as
the primary anchor for current ratings. The moderate scenario
remains predicated on a more rapid return of confidence and a
steady recovery heading into 2021.
-- Republic Finance, LLC's (Republic or the Company) capabilities
with regard to originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Republic
and considers the entity to be an acceptable originator and
servicer of personal loans with an acceptable backup servicer.
-- Republic's senior management team has considerable experience
and a successful track record within the consumer loan industry.
-- The acquisition of a majority stake in the Company by CVC
Capital Partners (CVC) in December 2017. CVC has since implemented
a growth strategy that includes increasing the number of branches,
centralizing the underwriting and servicing functions, and building
an online presence.
-- In April 2019, Republic completed the implementation of
centralized underwriting policies and processes for all branches,
which led to the ability to create a hybrid servicing model.
-- Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS
Morningstar) will serve as backup servicer.
-- The credit quality of the collateral and performance of
Republic's consumer loan portfolio. DBRS Morningstar used a hybrid
approach in analyzing the Republic portfolio that incorporates
elements of static pool analysis, employed for assets such as
consumer loans, and revolving asset analysis, employed for assets
such as credit card master trusts.
-- The legal structure and presence of legal opinions that will
address the true sale of the assets from the Seller to the
Depositor, the nonconsolidation of the special-purpose vehicle with
the Seller, that the Indenture Trustee has a valid first-priority
security interest in the assets, and that it is consistent with the
DBRS Morningstar "Legal Criteria for U.S. Structured Finance."
Credit enhancement in the transaction consists of
overcollateralization, subordination, excess spread, and a reserve
account. The rating on the Class A Notes reflects the 39.15% of
initial hard credit enhancement provided by the subordinated notes
in the pool, the reserve account (1.00%), and overcollateralization
(6.50%). The ratings on the Class B Notes, the Class C Notes, and
the Class D Notes reflect 26.00%, 18.50%, and 7.50% of initial hard
credit enhancement, respectively. Additional credit support may be
provided from excess spread available in the structure.
Notes: All figures are in U.S. dollars unless otherwise noted.
TCP DLF VIII 2018: DBRS Confirms B Rating on Class E Notes
----------------------------------------------------------
DBRS, Inc. confirmed the ratings on the Class A-1 Notes at AAA
(sf), Class A-2 Notes at AA (sf), Class B at A (sf), Class C Notes
at BBB (sf), Class D Notes as BB (sf), Class E Notes at B (sf), and
the Combination Notes at BBB (low) (sf) (collectively, the Notes)
issued by TCP DLF VIII 2018 CLO, LLC (the Issuer) pursuant to the
Note Purchase and Security Agreement dated as of February 28, 2018,
among TCP DLF VIII 2018 CLO, LLC as Issuer; U.S. Bank National
Association (rated AA (high) with a Negative trend by DBRS
Morningstar) as Collateral Agent, Custodian, Collateral
Administrator, Information Agent, and Note Agent; and the
Purchasers referred to therein.
The ratings on the Class A-1 Notes and Class A-2 Notes address the
timely payment of interest (excluding the additional 1% of interest
payable at the Post-Default Rate as defined in the Note Purchase
and Security Agreement) and the ultimate payment of principal on or
before the Stated Maturity (as defined in the Note Purchase and
Security Agreement). The ratings on the Class B Notes, Class C
Notes, Class D Notes, and Class E Notes address the ultimate
payment of interest (excluding the additional 1% of interest
payable at the Post-Default Rate as defined in the Note Purchase
and Security Agreement) and the ultimate payment of principal on or
before the Stated Maturity (as defined in the Note Purchase and
Security Agreement). The rating on the Combination Notes addresses
the ultimate repayment of the Combination Note Rated Principal
Balance (as defined in the Note Purchase and Security Agreement) on
or before the Stated Maturity (as defined in the Note Purchase and
Security Agreement). The Combination Notes have no stated Coupon.
The Notes issued by the Issuer will be collateralized primarily by
a portfolio of U.S. middle-market corporate loans. The Issuer will
be managed by Series I of SVOF/MM, LLC (the Collateral Manager), a
consolidated subsidiary of Tennenbaum Capital Partners, LLC, which
is itself a wholly owned subsidiary of BlackRock, Inc. DBRS
Morningstar considers Series I of SVOF/MM, LLC to be an acceptable
collateralized loan obligation manager.
The Combination Notes shall consist of a portion of the principal
amount (the Components) of the initial original principal amounts
of each of the Class A-2 Notes, Class B Notes, Class C Notes, Class
D Notes, Class E Notes, and Subordinated Notes (the Underlying
Classes). Each Component of the Combination Notes will be treated
as Notes of the respective Underlying Class. Payments on any
Underlying Class shall be allocated to the relevant Combination
Notes in the proportion that the outstanding principal amount of
the applicable Component bears to the outstanding principal amount
of such Underlying Class as a whole (including all related
Components). Each Component of the Combination Notes shall bear
interest and shall receive payments in the same manner as the
related Underlying Class and each Component shall mature and be
payable on the Stated Maturity in the same manner as the related
Underlying Class.
All interest and principal amounts paid on the Secured Notes and
any distributions made to the Subordinated Notes are the only
sources of payment for the Combination Notes. All payments made on
the Component Notes (whether interest, principal or otherwise) to
the Combination Notes shall reduce the Combination Note Rated
Principal Balance. The Combination Notes shall remain outstanding
until the earlier of (1) the payment in full and redemption of each
Component or (2) the Stated Maturity of each Component.
The Combination Notes were stressed by applying the BBB (low)
stress scenario under the "Rating CLOs and CDOs of Large Corporate
Credit" methodology to the loans securing the Component Notes.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning a rating to the facility.
As the Coronavirus Disease (COVID-19) spread around the world,
certain countries imposed quarantines and lockdowns, including the
United States, which accounts for more than one fourth of confirmed
cases worldwide. The coronavirus pandemic has negatively affected
not only the economies of the nations most afflicted, but also the
overall global economy with diminished demand for goods and
services as well as disrupted supply chains. The effects of the
pandemic may result in deteriorated financial conditions for many
companies and obligors, some of which will experience the effects
of such negative economic trends more than others. At the same
time, governments and central banks in multiple regions, including
the United States and Europe, have taken significant measures to
mitigate the economic fallout from the coronavirus pandemic.
In conjunction with DBRS Morningstar's commentary titled "Global
Macroeconomic Scenarios: Implications for Credit Ratings,"
published on April 16, 2020, and updated on July 22, 2020 and
September 10, 2020, DBRS Morningstar further considers additional
adjustments to assumptions for the collateralized loan obligations
(CLO) asset class that consider the moderate economic scenario
outlined in the commentary. The adjustments include a higher
default assumption for the weighted-average (WA) credit quality of
the current collateral obligation portfolio. To derive the higher
default assumption, DBRS Morningstar notches ratings for obligors
in certain industries and obligors at various rating levels based
on their perceived exposure to the adverse disruptions caused by
the coronavirus. Considering a higher default assumption would
result in losses that exceed the original default expectations for
the affected classes of notes. DBRS Morningstar may adjust the
default expectations further if there are changes in the duration
or severity of the adverse disruptions.
For CLOs, DBRS Morningstar ran an additional higher default
adjustment on the weighted-average DBRS Morningstar Risk Score of
the current collateral obligation pool, and this adjusted modelling
pool was run through the DBRS Morningstar CLO Asset Model to
generate a stressed default rate. DBRS Morningstar then performed a
cash flow model analysis to determine the breakeven default rate
for the rated debt. The breakeven default rate is computed over
nine combinations of default timing and interest rate stresses. The
breakeven default rate must exceed the lifetime total default rate
generated by the DBRS Morningstar CLO Asset Model for the debt in
order to achieve the rating. The results of this adjustment
indicate that the Notes can withstand an additional higher default
stress commensurate with a moderate-scenario impact of the
coronavirus pandemic.
Notes: All figures are in U.S. dollars unless otherwise noted.
TCP RAINIER: DBRS Confirms BB Rating on Class C Certs
-----------------------------------------------------
DBRS, Inc. confirmed the ratings of A (low) (sf) on the Class A
Notes, BBB (sf) on the Class B Notes, and BB (sf) on the Class C
Notes (collectively, the Notes) as well as the provisional rating
of BBB (low) (sf) on the Combination Notes issued by TCP Rainier,
LLC (TCP or the Issuer), pursuant to the Note Purchase and Security
Agreement (NPSA) dated as of December 11, 2018 (and as further
amended by the First Amendment dated as of July 2, 2019, and
effective as of July 25, 2019, and by the Second Amendment dated as
of February 28, 2020; together, the Amendments), among TCP as
Issuer; U.S. Bank National Association (USB; rated AA (high) with a
Stable trend by DBRS Morningstar) as Collateral Agent, Custodian,
Document Custodian, Collateral Administrator, Information Agent,
and Note Agent; and the Purchasers referred to therein.
The rating on the Class A Notes addresses the timely payment of
interest (excluding the additional 1% of interest payable at the
Post-Default Rate as defined in the NPSA) and the ultimate payment
of principal on or before the Stated Maturity of December 11, 2027.
The ratings on the Class B Notes and Class C Notes address the
ultimate payment of interest (excluding the additional 1% of
interest payable at the Post-Default Rate as defined in the NPSA)
and the ultimate payment of principal on or before the Stated
Maturity of December 11, 2027. The provisional rating on the
Combination Notes addresses the ultimate repayment of the
Combination Note Rated Principal Balance (which is equal to the
commitment amount for the Combination Notes) on or before the
Stated Maturity of December 11, 2027. The Combination Notes have no
stated coupon. The Components of the Combination Notes include
portions of the Class A Notes, Class B Notes, and Class C Notes as
well as the Subordinated Notes (or equity) of the Issuer.
All interest and principal amounts paid on the Secured Notes and
any distributions made to the Subordinated Notes are the only
sources of payment for the Combination Notes. All payments made on
the Component Notes (whether interest, principal, or otherwise) to
the Combination Notes shall reduce the Combination Note Rated
Principal Balance. The Combination Notes shall remain outstanding
until the earlier of (1) the payment in full and redemption of each
Component and (2) the Stated Maturity of each Component.
As of the Closing Date, the Second Amendment, and this confirmation
date, DBRS Morningstar's rating on the Combination Notes will be
provisional. The provisional rating reflects the fact that the
effectiveness of the Combination Notes are subject to certain
conditions after the Closing Date and Second Amendment, and this
confirmation date, such as a drawing order. It is expected that the
Combination Notes will be funded in tandem with, and in proportion
to, each Underlying Class but that the Combination Notes will not
become effective until each of the Subordinated Notes and other
Secured Notes are funded in reverse-sequential order. The
finalization of the provisional rating on the Combination Notes
will be subject to satisfaction of certain conditions, as specified
in the NPSA, including, but not limited to, the remaining unfunded
commitments of the Class A Notes, the Class B Notes, and the Class
C Notes being reduced to zero. The provisional rating on the
Combination Notes may not be finalized if the other Secured Notes
fail to be fully drawn.
The Combination Notes were stressed by applying the BBB (low)
stress scenario under the "Rating CLOs and CDOs of Large Corporate
Credit" methodology to the loans securing the Component Notes.
The Notes will be collateralized primarily by a portfolio of U.S.
middle-market corporate loans. The Issuer is managed by Series I of
SVOF/MM, LLC, a consolidated subsidiary of Tennenbaum Capital
Partners, LLC, which is itself a wholly owned subsidiary of
BlackRock, Inc. DBRS Morningstar considers Series I of SVOF/MM, LLC
to be an acceptable collateralized loan obligation (CLO) manager.
The confirmation of the ratings reflects the following:
(1) The NPSA dated as of December 11, 2018, and as further amended
by the Amendments;
(2) The integrity of the transaction structure;
(3) DBRS Morningstar's assessment of the portfolio quality;
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios; and
(5) DBRS Morningstar's assessment of the origination, servicing,
and CLO management capabilities of Series I of SVOF/MM, LLC.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning a rating to the facility.
Under the NPSA, following an Event of Default and the acceleration
of the Obligations, the Controlling Parties (as defined in the
NPSA) may direct the Collateral Agent to sell all or any portion of
the Collateral to the Controlling Parties or any Affiliate of the
Controlling Parties, without soliciting or accepting bids therefore
from any Person, at the Market Value of such Collateral, which may
be at the disadvantage of the other non–Controlling Parties.
As the Coronavirus Disease (COVID-19) spread around the world,
certain countries imposed quarantines and lockdowns, including the
United States, which accounts for more than one fourth of confirmed
cases worldwide. The coronavirus pandemic has negatively affected
not only the economies of the nations most afflicted, but also the
overall global economy with diminished demand for goods and
services as well as disrupted supply chains. The effects of the
pandemic may result in deteriorated financial conditions for many
companies and obligors, some of which will experience the effects
of such negative economic trends more than others. At the same
time, governments and central banks in multiple regions, including
the United States and Europe, have taken significant measures to
mitigate the economic fallout from the coronavirus pandemic.
In conjunction with DBRS Morningstar's commentary, "Global
Macroeconomic Scenarios: Implications for Credit Ratings,"
published on April 16, 2020, and updated on July 22, 2020 and
September 10, 2020, DBRS Morningstar further considers additional
adjustments to assumptions for the collateralized loan obligations
(CLO) asset class that consider the moderate economic scenario
outlined in the commentary. The adjustments include a higher
default assumption for the weighted-average (WA) credit quality of
the current collateral obligation portfolio. To derive the higher
default assumption, DBRS Morningstar notches ratings for obligors
in certain industries and obligors at various rating levels based
on their perceived exposure to the adverse disruptions caused by
the coronavirus. Considering a higher default assumption would
result in losses that exceed the original default expectations for
the affected classes of notes. DBRS Morningstar may adjust the
default expectations further if there are changes in the duration
or severity of the adverse disruptions.
For CLOs, DBRS Morningstar ran an additional higher default
adjustment on the weighted-average DBRS Morningstar Risk Score of
the current collateral obligation pool, and this adjusted modelling
pool was run through the DBRS Morningstar CLO Asset Model to
generate a stressed default rate. DBRS Morningstar then performed a
cash flow model analysis to determine the breakeven default rate
for the rated debt. The breakeven default rate is computed over
nine combinations of default timing and interest rate stresses. The
breakeven default rate must exceed the lifetime total default rate
generated by the DBRS Morningstar CLO Asset Model for the debt in
order to achieve the rating. The results of this adjustment
indicate that the Notes can withstand an additional higher default
stress commensurate with a moderate-scenario impact of the
coronavirus pandemic.
Notes: All figures are in U.S. dollars unless otherwise noted.
TOWD POINT 2020-4: Fitch Gives 'B-(EXP)' Rating on Class B2 Notes
-----------------------------------------------------------------
Fitch Ratings has assigned expected ratings to the residential
mortgage-backed notes issued by Towd Point Mortgage Trust 2020-4
(TPMT 2020-4).
RATING ACTIONS
TPMT 2020-4
Class A1: LT AAA(EXP)sf Expected Rating
Class A2: LT AA(EXP)sf Expected Rating
Class M1: LT A-(EXP)sf Expected Rating
Class M2: LT BBB-(EXP)sf Expected Rating
Class B1: LT BB-(EXP)sf Expected Rating
Class B2: LT B-(EXP)sf Expected Rating
Class B3: LT NR(EXP)sf Expected Rating
Class B4: LT NR(EXP)sf Expected Rating
Class B5: LT NR(EXP)sf Expected Rating
Class A2A: LT AA(EXP)sf Expected Rating
Class A2AX: LT AA(EXP)sf Expected Rating
Class A2B: LT AA(EXP)sf Expected Rating
Class A2BX: LT AA(EXP)sf Expected Rating
Class M1A: LT A-(EXP)sf Expected Rating
Class M1AX: LT A-(EXP)sf Expected Rating
Class M1B: LT A-(EXP)sf Expected Rating
Class M1BX: LT A-(EXP)sf Expected Rating
Class M2A: LT BBB-(EXP)sf Expected Rating
Class M2AX: LT BBB-(EXP)sf Expected Rating
Class M2B: LT BBB-(EXP)sf Expected Rating
Class M2BX: LT BBB-(EXP)sf Expected Rating
Class A3: LT AA(EXP)sf Expected Rating
Class A4: LT A-(EXP)sf Expected Rating
Class A5: LT BBB-(EXP)sf Expected Rating
TRANSACTION SUMMARY
The notes are supported by one collateral group that consists of
11,673 seasoned performing loans (SPLs) and re-performing loans
(RPLs) with a total balance of approximately $1.39 billion, which
includes $106 million, or 8%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts, as of the
statistical calculation date.
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 servicers will not be advancing delinquent monthly
payments of P&I.
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 4.6% 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' and below.
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage, SPLs and RPLs. Of the pool,
approximately 7% were delinquent (DQ) as of the statistical
calculation date. Based on Fitch's treatment of COVID-19-related
forbearance and deferral loans, approximately 69% of the loans were
treated as having clean payment histories for the past two years
and the remaining 24% of the loans are current but have had recent
delinquencies or incomplete 24-month pay strings. Roughly 84% have
been modified.
Expected Payment Forbearance and Deferrals Related to Coronavirus
(Negative): The outbreak of COVID-19 and widespread containment
efforts in the U.S. will result in increased unemployment and cash
flow disruptions. Mortgage payment 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 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.
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 'A-sf' through 'B-sf'
rated classes incurred temporary interest shortfalls that were
ultimately recovered.
Low Operational Risk (Positive): Operational risk is well
controlled for in this transaction. FirstKey Mortgage, LLC
(FirstKey) has a well-established track record in RPL activities
and has an "above-average" aggregator assessment from Fitch. Select
Portfolio Servicing, Inc. (SPS) and Specialized Loan Servicing LLC
(SLS) will perform primary and special servicing functions for this
transaction and are rated 'RPS1-'/Outlook Negative and
'RPS2+'/Outlook Negative, respectively, for this product type. The
benefit of highly rated servicers decreased Fitch's loss
expectations by 135 bps at the 'AAAsf' rating category. The
issuer's retention of at least 5% of the bonds helps ensure an
alignment of interest between issuer and investor.
Low Aggregate Servicing Fee (Mixed): Fitch determined that the
stated aggregate servicing fee of approximately 18 bps (18bps for
SPS and 30bps for SLS) may be insufficient to attract subsequent
servicers under a period of poor performance and high
delinquencies. To account for the potentially higher fee needed to
obtain a subsequent servicer, Fitch's cash flow analysis assumed a
45-bp servicing fee.
Third-Party Due Diligence (Negative): A third-party due diligence
review was conducted on 85% of the loan by loan count/94% by UPB
and focused on regulatory compliance, pay history and a tax and
title lien search. The third-party due diligence was performed by
Clayton and AMC, both of which are assessed as 'Acceptable — Tier
1' TPR firms by Fitch. The results of the review indicate moderate
operational risk with approximately 14% of the reviewed loans
assigned a 'C' or 'D' grade, meaning the loans had material
violations or lacked documentation to confirm regulatory
compliance. Fitch adjusted its loss expectation at the 'AAAsf'
rating category by approximately 10 bps to account for this added
risk.
Representation Framework (Negative): Fitch considers the
representation, warranty, and enforcement (RW&E) mechanism
construct for this transaction to generally be consistent with what
it views as a Tier 2 framework. The tier assessment is based
primarily on the inclusion of knowledge qualifiers in the framework
and the exclusion of several representations such as loans
identified as having unpaid taxes. The issuer is not providing R&Ws
for second liens, and therefore Fitch treated these loans as Tier
5. Fitch increased its 'AAAsf' loss expectations by 166 bps to
account for a potential increase in defaults and losses arising
from weaknesses in the reps a well as the non-investment grade
counterparty.
Limited Life of Rep Provider (Negative): FirstKey, as rep provider,
will only be obligated to repurchase a loan due to breaches prior
to the payment date in November 2021. Thereafter, a reserve fund
will be available to cover amounts due to noteholders for loans
identified as having rep breaches. Amounts on deposit in the
reserve fund as well as the increased level of subordination will
be available to cover additional defaults and losses resulting from
rep weaknesses or breaches occurring on or after the payment date
in November 2021.
No Servicer P&I Advances (Mixed): The servicers 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 (LS) 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 amounts totaling
$106 million (8%) of the UPB are outstanding on 2,888 loans. Fitch
included the deferred amounts when calculating the borrower's
loan-to-value ratio (LTV) and sustainable LTV (sLTV), despite the
lower payment and amounts not being owed during the term of the
loan. The inclusion resulted in a higher probability of default
(PD) 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.
Hurricane Exposure (Negative): 28 loans in the pool (0.2% of UPB)
were identified as being in an Individual Assistance FEMA disaster
area as a result of the recent hurricanes. In order to protect
against damages and potential losses, these loans were run as 100%
loss. This ultimately resulted in a 12bps increase to 'AAAsf'
expected loss.
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 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 10.0%, 20.0% and 30.0% in addition to the
model-projected 38.3% 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.
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.
CRITERIA VARIATION
Fitch's analysis incorporated four 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 15% of the reviewed
loans by loan count. Approximately 94% of the sample loans were
reviewed within 12 months and the remaining loans were reviewed
more than 12 month ago. Additionally, the servicers are monitoring
the tax and title status as part of standard practice and will
advance where deemed necessary to keep the first lien positon of
each loan. This variation had no rating impact.
The second variation is that a tax and title review was not
completed on 100% if the first lien loans. Approximately 99.8% of
first liens received an updated tax and title search. The first
liens without an updated tax and title search are a relatively
immaterial amount relative to the overall pool and were treated as
second liens which receive a 100% LS. This variation had no rating
impact.
The third variation is that a due diligence compliance and data
integrity review was not completed on approximately 15% of the pool
by loan count. The sample meets Fitch's criteria for second liens
and SPL loans as 32% of the second liens and 71% of the SPL loans
were reviewed (the criteria allows for a 20% sample). Fitch defines
SPL as loans which are seasoned over 24 months, have not been
modified and have had no more one 30-day delinquency in the prior
24 months but are current as of the cutoff date. A criteria
variation was applied for the RPL loans. 69% of the pool is
categorized as RPL, and Fitch's criteria expects 100% review for
RPL loans (99% was reviewed). The loans in the pool are
predominately from a single source. For the RPL loans which did not
receive a compliance review, approximately 1% of the total RPL
population, were treated as missing HUD-1s and received the
standard indeterminate adjustment which increases the LS depending
on the state that the property is located. This variation did not
have a rating impact.
The fourth variation relates to the pay history review. For RPL
transactions, Fitch expects a pay history review to be completed on
100% of the loans and expects the review to reflect the past 24
months. The pay history sample completed on the SPL and second
liens meet's Fitch's criteria. A pay history review was either not
completed, was outdate or a pay string was not received from the
servicer for approximately 4% of the RPL loans. Roughly half of
these loans have dirty pay histories and are therefore receiving a
PD hit in Fitch's model. In addition, the loans are approximately
14 years seasoned and 69% of the pool has been paying on time for
the past 24 months. For the loans where a pay history review was
conducted, the results verified what was provided on the loan tape.
Additionally, the pay strings which were provided on the loan tape
were provided to FirstKey by the current servicer. This variation
did not have a rating impact.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
A third-party due diligence review was conducted on 85% of the loan
by loan count/94% by UPB and focused on regulatory compliance, pay
history and a tax and title lien search. The third-party due
diligence was performed by Clayton and AMC, both of which are
assessed as 'Acceptable — Tier 1' TPR firms by Fitch. AMC and
WestCor performed the tax and title review. While the review was
substantially to Fitch criteria with respect to RPL transactions,
the sample size yielded minor variations to the criteria which
resulted in various loan level adjustments for loans that were not
reviewed. However, loans that were subject to the review received a
due diligence scope that is in line with Fitch criteria which
consisted primarily of a regulatory compliance review, pay history
review, updated tax and title, and a review of collateral files
from the custodian. The sample meets Fitch's criteria for second
liens and SPLs. 31.9% of the second liens and 70.9% of the SPLs
were reviewed, which meets Fitch's criteria as it allows for a
20.0% sample to be reviewed. Fitch defines SPLs as loans which are
seasoned over 24 months, have not been modified and have had no
more than one 30-day delinquency in the prior 24 months and are
current as of the cutoff date. A criteria variation was applied for
the RPLs in the pool. 69.3% of the pool by count is categorized as
RPL by Fitch, and criteria expects 100% review for RPL loans
(instead, 98.5% was reviewed). Fitch treated the unreviewed RPLs as
high-cost uncertain and applied the standard indeterminate
adjustment for loans that do not have a final HUD-1 to effectively
test for compliance with predatory lending regulations. Based on
the due diligence findings, Fitch made loan-level adjustments. 796
of reviewed loans, or approximately 6.8% of the total pool,
received a final grade of 'D' as the loan file did not have a final
HUD-1 for compliance testing purposes. The absence of a final HUD-1
file does not allow the TPR firm to properly test for compliance
surrounding predatory lending in which statute of limitations does
not apply. These regulations may expose the trust to potential
assignee liability in the future and create added risk for bond
investors. Fitch also applied this adjustment to two additional
graded 'C' as the compliance review was deemed to be unreliable due
to missing additional documentation. In addition to adjustments
related to the due diligence findings, Fitch applied the missing
HUD-1 adjustments to 85 loans, or approximately 0.7% of the
transaction pool, which are considered first lien RPLs that did not
receive a regulatory compliance review. Fitch believes this
adequately captures additional risk posed to the trust by these
loans not receiving a compliance review. The remaining 617 loans
with a final grade of 'C' or 'D' reflect missing final HUD-1 files
that are not subject to predatory lending, missing state
disclosures, and other missing documents related to compliance
testing. Fitch notes that these exceptions are unlikely to add
material risk to bondholders since the statute of limitations on
these issues have expired. No adjustment to loss expectations were
made for these 617 loans. Fitch also applied an adjustment on 692
loans that had missing modification agreements. Each loan received
a three-month foreclosure timeline extension to represent a delay
in the event of liquidation as a result of these files not being
present. Fitch adjusted its loss expectation at the 'AAAsf' by
approximately 8 basis points to reflect both missing final HUD-1
files and modification agreements. Fitch was provided with Form ABS
Due Diligence-15E (Form 15E) as prepared by AMC, Clayton and
WestCor.
VENTURE 31: Moody's Confirms B3 Rating on Class F Notes
-------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by Venture 31 CLO, Limited:
US$44,000,000 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
US$32,000,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2031 (the "Class E Notes"), Confirmed at Ba3 (sf), previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
US$12,000,000 Class F Junior Secured Deferrable Floating Rate Notes
due 2031 (the "Class F Notes"), Confirmed at B3 (sf), previously on
April 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade
The Class D Notes, the Class E Notes, and the Class F Notes are
referred to herein, collectively, as the "Confirmed Notes."
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D, the Class E, and the Class F Notes issued
by the CLO. The CLO, originally issued 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 will end in April 2023.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
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 ratings on the Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3007 compared to 2624
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was passing the test level of 3028 reported in the
August 2020 trustee report [3]. 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
17.9%.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $779,843,974
Defaulted Securities: $14,447,714
Diversity Score: 112
Weighted Average Rating Factor (WARF): 3047
Weighted Average Life (WAL): 5.93
Weighted Average Spread (WAS): 3.70%
Weighted Average Recovery Rate (WARR): 46.99%
Finally, Moody's notes that it also considered the information in
the September 2020 trustee report [4] which became available
immediately prior to the release of this announcement.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
VENTURE CLO XIII: Moody's Lowers Rating on Class E-R Notes to 'B1'
------------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Venture XIII CLO, Limited:
US$39,500,000 Class E-R Junior Secured Deferrable Floating Rate
Notes due 2029 (the "Class E-R Notes"), Downgraded to B1 (sf),
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
The Class E-R Notes are referred to herein as the "Downgraded
Notes."
Moody's also confirmed the rating on the following notes:
US$34,000,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes due 2029 (the "Class D-R Notes"), Confirmed at Baa2 (sf);
previously on April 17, 2020 Baa2 (sf) Placed Under Review for
Possible Downgrade
The Class D-R Notes are referred to herein as the "Confirmed
Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D-R and Class E-R Notes issued by the CLO.
The CLO, originally issued in March 2013, refinanced in September
2017, and partially refinanced in March 2020, 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 September 2021.
RATINGS RATIONALE
The downgrade on the Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering 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
Confirmed Notes.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 2993, compared to 2725
reported in the March 2020 trustee report [2]. 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 17.46%. Furthermore, Moody's calculated the total
collateral par balance, including recoveries from defaulted
securities, at $556.7 million, or $19.3 million less than the
deal's ramp-up target par balance. Moody's noted that the interest
diversion test was recently reported as failing, which could result
a portion of excess interest collections being diverted towards
reinvestment in collateral at the next payment date should the
failures continue. Nevertheless, Moody's noted that the OC tests
for the Class D-R Notes and Class E-R Notes were recently reported
[3] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $545,112,594
Defaulted Securities: $25,547,486
Diversity Score: 98
Weighted Average Rating Factor (WARF): 3092
Weighted Average Life (WAL): 4.68 years
Weighted Average Spread (WAS): 3.73%
Weighted Average Recovery Rate (WARR): 46.89%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
VOYA CLO 2014-2: Moody's Lowers Rating on Cl. E-R Notes to Caa1
---------------------------------------------------------------
Moody's Investors Service downgraded the ratings on the following
notes issued by Voya CLO 2014-2, Ltd.:
US$23,000,000 Class D-R Deferrable Floating Rate Notes due 2030
(the "Class D-R Notes"), Downgraded to B1 (sf); previously on June
3, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
US$9,500,000 Class E-R Deferrable Floating Rate Notes due 2030 (the
"Class E-R Notes") (current outstanding balance of $9,712,160),
Downgraded to Caa1 (sf); previously on June 3, 2020 B2 (sf) Placed
Under Review for Possible Downgrade
The Class D-R Notes and Class E-R Notes are referred to herein,
collectively, as the "Downgraded Notes."
Moody's also confirmed the rating on the following notes:
US$33,600,000 Class C-R Deferrable Floating Rate Notes due 2030
(the "Class C-R Notes"), Confirmed at Baa3 (sf); previously on June
3, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
The Class C-R Notes are referred to herein as the "Confirmed
Notes."
These actions conclude the reviews for downgrade initiated on June
3, 2020 on the Class C-R Notes, the Class D-R Notes, and the Class
E-R Notes issued by the CLO. The CLO, originally issued in June
2014, refinanced in April 2017, and partially refinanced in March
2020, 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 Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering 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
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3256, compared to 2870
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 2863 reported in
the August 2020 trustee report [3]. 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
16.6%. Furthermore, Moody's calculated the total collateral par
balance, including recoveries from defaulted securities, at $494.7
million, or $19.8 million less than the deal's ramp-up target par
balance. Moody's noted that the Class D OC test and the interest
diversion test were recently reported as failing, which could
result in repayment of senior notes or in a portion of excess
interest collections being diverted towards reinvestment in
collateral at the next payment date should the failures continue.
Nevertheless, Moody's noted that the Class C OC test was recently
reported as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $490,164,709
Defaulted Securities: $10,323,398
Diversity Score: 91
Weighted Average Rating Factor (WARF): 3218
Weighted Average Life (WAL): 5.8 years
Weighted Average Spread (WAS): 3.26%
Weighted Average Recovery Rate (WARR): 48.1%
Par haircut in OC tests and interest diversion test: 0.8%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
VOYA CLO 2014-3: Moody's Lowers Rating on Class E Notes to Caa3
---------------------------------------------------------------
Moody's Investors Service has downgraded the ratings on the
following notes issued by Voya CLO 2014-3, Ltd.:
US$23,000,000 Class D Deferrable Floating Rate Notes due 2026 (the
"Class D Notes"), Downgraded to B1 (sf); previously on April 17,
2020 Ba3 (sf) Placed Under Review for Possible Downgrade
US$8,750,000 Class E Deferrable Floating Rate Notes Due 2026, (the
"Class E Notes") Downgraded to Caa3 (sf); previously on April 17,
2020 Caa1 (sf) Placed Under Review for Possible Downgrade
The Class D Notes and the Class E Notes are referred to herein,
collectively, as the "Downgraded Notes."
Moody's also confirmed the rating on the following notes:
US$31,250,000 Class C-R Deferrable Floating Rate Notes Due 2026
(the "Class C-R Notes"), Confirmed at Baa2 (sf); previously on
April 17, 2020 Baa2 (sf) Placed Under Review for Possible
Downgrade
The Class C-R Notes are referred to herein as the "Confirmed
Notes."
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class C-R Notes, the Class D Notes, and the Class E
Notes. The CLO, issued in July 2014, 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 July 2018.
RATINGS RATIONALE
The downgrades on the Downgraded 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 2020, 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 some CLO notes has declined,
and expected losses (ELs) on certain notes have increased. Moody's
also notes that the amortization of the portfolio reduces the
interest collections available to pay the notes. The end of the
reinvestment period in July 2018 also limits the deal's ability to
reposition the portfolio or benefit from a recovery if the current
condition of lower economic activity extends over a long period.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3588 compared to 3146
reported in the February 2020 trustee report [2]. Moody's also
noted that the WARF was failing the test level of 2871 reported in
the August 2020 trustee report [3]. 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
25.97%. Furthermore, Moody's calculated the OC ratios for the Class
D Notes and Class E Notes at 106.20% and 102.20%, respectively.
According to the August 2020 trustee report [4], the OC test for
the Class D Notes was recently reported as failing, which has
resulted in deferral of current interest on the Class E Notes and
repayment of senior notes. Nevertheless, Moody's noted that the OC
test for the Class C-R Notes was recently reported [5] as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $236,085,636
Defaulted Securities: $10,848,923
Diversity Score: 68
Weighted Average Rating Factor (WARF): 3556
Weighted Average Life (WAL): 3.73 years
Weighted Average Spread (WAS): 3.20%
Weighted Average Recovery Rate (WARR): 48.15%
Par haircut in OC tests and interest diversion test: 3.16%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
VOYA CLO 2015-2: Moody's Confirms Ba3 Rating on Class E-R Notes
---------------------------------------------------------------
Moody's Investors Service upgraded the rating on the following
notes issued by Voya CLO 2015-2, Ltd.:
US$50,000,000 Combination Notes (composed of components
representing US$12,500,000 Class B-R Notes, US$27,500,000 Class C-R
Notes and US$10,000,000 subordinated notes) due 2027 (current rated
balance of $34,555,878), Upgraded to Aa3 (sf); previously on July
23, 2018 Affirmed A1 (sf)
The Combination Notes are referred to herein as the "Upgraded
Notes."
Moody's also confirmed the rating on the following notes:
US$33,000,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes due 2027 (the "Class D-R Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$24,750,000 Class E-R Junior Secured Deferrable Floating Rate
Notes due 2027 (the "Class E-R Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
The Class D-R Notes and Class E-R Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the review for downgrade initiated on April
17, 2020 on the Class D-R Notes and the Class E-R Notes. The CLO,
issued in July 2015 and refinanced in July 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 July 2020.
RATINGS RATIONALE
The upgrade rating action on the Combination Notes is primarily the
result of reduction of the Combination Notes' rated balance and an
increase in the Combination Notes' rated balance collateralization
coverage. The rated balance has been reduced by $1.99 million or
5.4% since October 2019 and is fully covered by the Class B-R Notes
and Class C-R Notes components.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
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 ratings on the Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3237 compared to 2805
reported in the January 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 3221 reported in the
August 2020 trustee report [3]. 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
15.59%. According to the August 2020 trustee report [4], the OC
tests for the Class D-R Notes and Class E-R Notes were recently
reported as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $529,128,209
Defaulted Securities: $10,918,877
Diversity Score: 90
Weighted Average Rating Factor (WARF): 3194
Weighted Average Life (WAL): 4.69 years
Weighted Average Spread (WAS): 3.20%
Weighted Average Recovery Rate (WARR): 48.04%
Moody's rating of the Combination Securities addresses only the
ultimate receipt of the Combination Securities Rated Balance by the
holders of the Combination Securities. Moody's rating of the
Combination Securities does not address any other payments or
additional amounts that a holder of the Combination Securities may
receive pursuant to the underlying documents.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
WELLS FARGO 2020-5: DBRS Gives Prov. B(low) Rating on B-4 Certs
---------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Mortgage Pass-Through Certificates, Series 2020-5 (the
Certificates) to be issued by Wells Fargo Mortgage Backed
Securities 2020-5 Trust (WFMBS 2020-5):
-- $388.3 million Class A-1 at AAA (sf)
-- $388.3 million Class A-2 at AAA (sf)
-- $291.2 million Class A-3 at AAA (sf)
-- $291.2 million Class A-4 at AAA (sf)
-- $97.1 million Class A-5 at AAA (sf)
-- $97.1 million Class A-6 at AAA (sf)
-- $233.0 million Class A-7 at AAA (sf)
-- $233.0 million Class A-8 at AAA (sf)
-- $155.3 million Class A-9 at AAA (sf)
-- $155.3 million Class A-10 at AAA (sf)
-- $58.2 million Class A-11 at AAA (sf)
-- $58.2 million Class A-12 at AAA (sf)
-- $63.1 million Class A-13 at AAA (sf)
-- $63.1 million Class A-14 at AAA (sf)
-- $34.0 million Class A-15 at AAA (sf)
-- $34.0 million Class A-16 at AAA (sf)
-- $45.7 million Class A-17 at AAA (sf)
-- $45.7 million Class A-18 at AAA (sf)
-- $434.1 million Class A-19 at AAA (sf)
-- $434.1 million Class A-20 at AAA (sf)
-- $434.1 million Class A-IO1 at AAA (sf)
-- $388.3 million Class A-IO2 at AAA (sf)
-- $291.2 million Class A-IO3 at AAA (sf)
-- $97.1 million Class A-IO4 at AAA (sf)
-- $233.0 million Class A-IO5 at AAA (sf)
-- $155.3 million Class A-IO6 at AAA (sf)
-- $58.2 million Class A-IO7 at AAA (sf)
-- $63.1 million Class A-IO8 at AAA (sf)
-- $34.0 million Class A-IO9 at AAA (sf)
-- $45.7 million Class A-IO10 at AAA (sf)
-- $434.1 million Class A-IO11 at AAA (sf)
-- $7.5 million Class B-1 at AA (sf)
-- $8.7 million Class B-2 at A (low) (sf)
-- $2.1 million Class B-3 at BBB (high) (sf)
-- $1.8 million Class B-4 at BB (sf)
-- $913.0 thousand Class B-5 at B (low) (sf)
Classes A-IO1, A-IO2, A-IO3, A-IO4, A-IO5, A-IO6, A-IO7, A-IO8,
A-IO9, A-IO10, and A-IO11 are interest-only certificates. The class
balances represent notional amounts.
Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-9, A-10, A-11, A-13,
A-15, A-17, A-19, A-20, A-IO2, A-IO3, A-IO4, A-IO6, and A-IO11 are
exchangeable certificates. These classes can be exchanged for
combinations of initial exchangeable certificates as specified in
the offering documents.
Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8, A-9, A-10, A-11,
A-12, A-13, A-14, A-15, and A-16 are super-senior certificates.
These classes benefit from additional protection from senior
support certificates (Classes A-17 and A-18) with respect to loss
allocation.
The AAA (sf) ratings on the Certificates reflect 5.00% of credit
enhancement provided by subordinated certificates. The AA (sf), A
(low) (sf), BBB (high) (sf), BB (sf), and B (low) (sf) ratings
reflect 3.35%, 1.45%, 1.00%, 0.60%, and 0.40% of credit
enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The Trust is a securitization of a portfolio of first-lien
fixed-rate prime residential mortgages funded by the issuance of
the Certificates. The Certificates are backed by 493 loans with a
total principal balance of $456,913,614 as of the Cut-Off Date
(October 1, 2020).
The pool consists of fully amortizing fixed-rate mortgages with
original terms to maturity of primarily 30 years and a
weighted-average (WA) loan age of three months. All of the mortgage
loans were originated by Wells Fargo Bank, N.A. (Wells Fargo; rated
AA/R-1 (high) with a Negative trend by DBRS Morningstar) or were
acquired by Wells Fargo from its qualified correspondents. In
addition, Wells Fargo is the Servicer of the mortgage loans, as
well as the Mortgage Loan Seller and Sponsor of the transaction.
Wells Fargo will also act as the Master Servicer, Securities
Administrator, and Custodian.
Wilmington Savings Fund Society, FSB will serve as Trustee. AMC
Diligence, LLC (AMC) will act as the Representation and Warranty
(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, there are no loans that have entered a
Coronavirus Disease (COVID-19)-related forbearance plan with the
Servicer. Any loan that enters into a coronavirus-related
forbearance plan after the Cut-Off Date and prior to or on the
Closing Date will be repurchased within 30 days of the Closing
Date. Loans that enter into a coronavirus-related forbearance plan
after the Closing Date will remain in the pool.
In response to the coronavirus pandemic and for the safety of their
borrowers and appraisers, Wells Fargo discontinued the use of
interior appraisal inspections in most cases and broadly
implemented the use of exterior-only appraisals. For this
transaction, 73.7% of the pool had property valuations resulting
from exterior-only appraisals. In its analysis, DBRS Morningstar
applied property value haircuts to all loans where an exterior-only
appraisal was conducted, which resulted in increased expected
losses to the Trust.
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 rise 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: September Update,"
published on September 10, 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 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 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 flow
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.
The ratings reflect transactional strengths that include
high-quality credit attributes, well-qualified borrowers, financial
strength of the counterparties, 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 and a large percentage of loans
that employed exterior only appraisals in the property valuations.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2020-5: Fitch to Rate Class B-5 Debt 'B+(EXP)'
----------------------------------------------------------
Fitch Ratings expects to rate Wells Fargo Mortgage-Backed
Securities 2020-5 Trust.
RATING ACTIONS
WFMBS 2020-5
Class A-1; LT AAA(EXP)sf Expected Rating
Class A-2; 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-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-20; LT AAA(EXP)sf Expected Rating
Class A-IO1; LT AAA(EXP)sf Expected Rating
Class A-IO2; LT AAA(EXP)sf Expected Rating
Class A-IO3; LT AAA(EXP)sf Expected Rating
Class A-IO4; LT AAA(EXP)sf Expected Rating
Class A-IO5; LT AAA(EXP)sf Expected Rating
Class A-IO6; LT AAA(EXP)sf Expected Rating
Class A-IO7; LT AAA(EXP)sf Expected Rating
Class A-IO8; LT AAA(EXP)sf Expected Rating
Class A-IO9; LT AAA(EXP)sf Expected Rating
Class A-IO10; LT AAA(EXP)sf Expected Rating
Class A-IO11; 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 493 prime fixed-rate mortgage
loans with a total balance of approximately $457 million as of the
cutoff date. All the loans were originated by Wells Fargo Bank, N.A
(Wells Fargo). This is the eleventh post-crisis issuance from Wells
Fargo.
KEY RATING DRIVERS
Revised GDP Due to the 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 4.4% 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.
Expected Payment Deferrals Related to the 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 prior to or on the closing date will be
removed from the pool (at par) within 30 days of closing. For
borrowers who enter a coronavirus forbearance plan post-closing,
the P&I 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 available funds. Fitch increased its loss expectations by 10
bps for the 'BB+sf' ratings categories and below to address the
potential for writedowns due to reimbursements of servicer
advances. This increase is based on a servicer reimbursement
scenario analysis which incorporated collateral like WFMBS 2020-5.
Fitch did not adjust its loss expectations above 'BB+sf' because
its model output levels were sufficiently lower than its loss
floors for 30-year collateral.
Full Servicer Advancing (Neutral): The pool benefits from advances
of delinquent principal and interest until the servicer, Wells
Fargo, the primary servicer of the pool, deems them nonrecoverable.
Fitch's loss severities reflect reimbursement of amounts advanced
by the servicer from liquidation proceeds based on its liquidation
timelines assumed at each rating stress. In addition, the credit
enhancement for the rated classes has some cushion for recovery of
servicer advances for loans that are modified following a payment
forbearance.
Very High-Quality Mortgage Pool (Positive): The collateral
attributes are among the strongest of post-crisis RMBS rated by
Fitch. The pool consists primarily of 30-year fixed-rate fully
amortizing loans to borrowers with strong credit profiles, low
leverage, and large liquid reserves. All loans are Safe Harbor
Qualified Mortgages (SHQM). The loans are seasoned an average of
approximately four months.
The pool has a weighted average (WA) original FICO score of 777,
which is indicative of very high credit-quality borrowers.
Approximately 85% has original FICO scores at or above 750. In
addition, the original WA CLTV ratio of 72.5% represents
substantial borrower equity in the property. The pool's attributes,
together with Wells Fargo's sound origination practices, support
Fitch's very low default risk expectations.
High Geographic Concentration (Negative): Approximately 57% of the
pool is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in San Francisco
MSA (22.7%) followed by the New York MSA (12.3%) and the San Jose
MSA (12.3%). The top three MSAs account for 47.2% of the pool. As a
result, an additional penalty of approximately 7% was applied to
the pool's lifetime default expectations.
Low Operational Risk (Positive): Operational risk is very well
controlled for in this transaction. Wells Fargo has an extensive
operating history in residential mortgage originations and is
assessed as an 'Above Average' originator by Fitch. The entity has
a diversified sourcing strategy and utilizes an effective
proprietary underwriting system for its retail originations. Wells
Fargo will perform primary and master servicing for this
transaction; these functions are rated 'RPS1-' and 'RMS -',
respectively, which are among Fitch's highest servicer ratings.
Fitch revised the Outlook for both servicers to Negative from
Stable earlier in 2020 due to the changing economic landscape. The
expected losses at the 'AAAsf' rating stress were reduced by
approximately 56 bps to reflect these strong operational
assessments.
Tier 2 R&W Framework (Neutral): While the loan-level
representations and warranties (R&Ws) for this transaction are
substantially in conformity with Fitch criteria, the framework has
been assessed as a Tier 2 due to the narrow testing construct,
which limits the breach reviewer's ability to identify or respond
to issues not fully anticipated at closing. The Tier 2 assessment
and the strong financial condition of Wells Fargo as R&W provider
resulted in a neutral impact to the credit enhancement. In response
to the coronavirus and in an effort to focus breach reviews on
loans that are more likely to contain origination defects that led
to or contributed to the delinquency of the loan, Wells Fargo added
additional carve-out language relating to the delinquency review
trigger for certain Disaster Mortgage Loans that are modified or
delinquent due to disaster related loss mitigation (including the
coronavirus). This is discussed further in the Asset Analysis
section.
Due Diligence Review Results (Positive): Third-party due diligence
was performed on 100% of loans in the transaction pool. The review
was performed by Clayton, which is assessed by Fitch as an
'Acceptable - Tier 1' TPR firm. Fitch assessed 99.8% of the loans a
final grade of 'A' or 'B', which reflects strong origination
practices. Loans with a final grade of 'B' were supported with
sufficient compensating factors or were already accounted for in
Fitch's loan loss model. One loan was graded 'C' due to a material
property valuation exception where the secondary review value
yielded a negative variance greater than 10% of the original
appraisal value. Fitch applied the lower of the values to calculate
the LTV. The adjustment did not have a material impact on the
expected loss levels. Loans with due diligence receive a credit in
the loss model; the aggregate adjustment reduced the 'AAAsf'
expected losses by 13 bps.
Straightforward Deal Structure (Positive): 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 CE levels are not
maintained.
To mitigate tail risk, which arises as the pool seasons and fewer
loans are outstanding, a subordination floor of 1.05% of the
original balance will be maintained for the senior certificates.
Extraordinary Expense Treatment (Neutral): The trust provides for
expenses, including indemnification amounts, reviewer fees and
costs of arbitration, to be paid by the net WA coupon of the loans,
which does not affect the contractual interest due on the
certificates. Furthermore, the expenses to be paid from the trust
are capped at $350,000 per annum, except for independent reviewer
breach review fee, 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 37.1% 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 rated 'AAAsf',
the analysis indicates there is potential positive rating migration
for all 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 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.
WELLS FARGO 2020-5: Moody's Gives (P)Ba2 Rating on Cl. B-5 Debt
---------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 25
classes of residential mortgage-backed securities (RMBS) issued by
Wells Fargo Mortgage Backed Securities 2020-5 Trust ("WFMBS
2020-5"). The ratings range from (P)Aaa (sf) to (P)Ba2 (sf).
WFMBS 2020-5 is the sixth prime issuance by Wells Fargo Bank, N.A.
(Wells Fargo Bank, the sponsor and mortgage loan seller) in 2020,
consisting of 493 primarily 30-year, fixed rate, prime residential
mortgage loans with an unpaid principal balance of $456,913,614.
The pool has strong credit quality and consists of borrowers with
high FICO scores, significant equity in their properties and liquid
cash reserves. The pool has clean pay history and weighted average
seasoning of approximately 1.93 months. The mortgage loans for this
transaction are originated by Wells Fargo Bank, through its retail
channel, in accordance with its underwriting guidelines. In this
transaction, all 493 loans are designated as qualified mortgages
(QM) under the QM safe harbor rules. Wells Fargo Bank will service
all the loans and will also be the master servicer for this
transaction.
In response to the COVID-19 national emergency, Wells Fargo has
temporarily transitioned to allowing exterior-only appraisals,
instead of a full interior and exterior inspection of the subject
property, on many mortgage transactions. Majority of the loan pool,
approximately 73.73% by unpaid principal balance, does not have a
full appraisal that includes an exterior and an interior inspection
of the property. Instead, these loans have an exterior-only
appraisal.
The securitization has a shifting interest structure with a
five-year lockout period that benefits from a senior floor and a
subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool.
The complete rating actions are as follows:
Issuer: Wells Fargo Mortgage Backed Securities 2020-5 Trust
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-10, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aaa (sf)
Cl. A-15, Assigned (P)Aaa (sf)
Cl. A-16, Assigned (P)Aaa (sf)
Cl. A-17, Assigned (P)Aaa (sf)
Cl. A-18, Assigned (P)Aaa (sf)
Cl. A-19, Assigned (P)Aaa (sf)
Cl. A-20, Assigned (P)Aaa (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa2 (sf)
Cl. B-4, Assigned (P)Baa3 (sf)
Cl. B-5, Assigned (P)Ba2 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
In response to COVID-19, Wells Fargo Home Lending (WFHL) has
temporarily been allowing exterior-only appraisals. Most of the
mortgage loans (73.73% by unpaid principal balance) have been
evaluated using this alternative exterior-only appraisal method.
Since the exterior-only appraisal only covers the outside of the
property there is a risk that the property condition cannot be
verified to the same extent had the appraiser been provided access
to the interior of the home. Moody's did not make any adjustments
to its losses for such loans primarily because (i) substantial
percentage of the exterior only appraisal loans are Wells Fargo
rate/term refinance transactions where (a) majority of the original
appraisals were performed within the past 48 months, (b) the
differences in value between the original and current appraisals
were reasonable and (c) the loans had substantial amount of
reserves of $423,953 on an average, and (ii) for purchase only
loans Wells Fargo's review process includes looking at photographs
and other information available on publicly available databases.
This is further mitigated because (iii) all of the mortgage loans
are owner occupied with strong credit characteristics, such as high
FICOs, low LTVs and DTI ratios, and significant liquid cash
reserves, and it is unlikely that homeowners with equity in their
homes and resources would not properly maintain their properties,
(iv) all of the mortgage loans have a history of at least two
monthly payments, indicating that the borrowers have not found any
major issues with the interiors of the property that would prevent
them from paying the mortgage as required, (v) the reliability of
Wells Fargo's property valuation policies and procedures,
experienced valuation team, robust appraisal oversight, along with
a well-defined scope of work for exterior-only appraisals helps to
remove uncertainty risks associated with lack of the
full-appraisals for such mortgage loans, and (vi) such mortgage
loans were not adversely selected for inclusion in this transaction
but representative of Wells Fargo's portfolio of loans originated
during the same period.
Moody's expected loss for this pool in a baseline scenario-mean is
0.19% and reaches 2.82% at a stress level consistent with its Aaa
ratings.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
The contraction in economic activity in the second quarter was
severe and the overall recovery in the second half of the year will
be gradual. However, there are significant downside risks to its
forecasts if the pandemic is not contained and lockdowns must be
reinstated. As a result, the degree of uncertainty around its
forecasts is unusually high. Moody's increased its model-derived
median expected losses by 15% (8.75% for the mean) and its Aaa
losses by 5% to reflect the likely performance deterioration
resulting from a slowdown in US economic activity in 2020 due to
the coronavirus outbreak.
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
The WFMBS 2020-5 transaction is a securitization of 493 first lien
residential mortgage loans with an unpaid principal balance of
$456,913,614 as of the cut-off date. The loans in this transaction
have strong borrower characteristics with a weighted average
original FICO score of 783 and a weighted-average original
loan-to-value ratio (LTV) of 72.08%. In addition, 4.38% of the
borrowers are self-employed; rate-and-term refinance and cash-out
loans comprise approximately 36.43% of the aggregate pool
(inclusive of construction to permanent loans). 6.55% (by loan
balance) of the pool comprises construction to permanent loans. The
construction to permanent is a two-part loan where the first part
is for the construction and then it becomes a permanent mortgage
once the property is complete. For such loans in the pool, the
construction was complete and because the borrower cannot receive
cash from the permanent loan proceeds or anything above the
construction cost, Moody's treated these loans as a rate term
refinance rather than a cash out refinance loan. The pool has a
high geographic concentration with 57.34% of the aggregate pool
located in California and 12.47% located in the New
York-Newark-Jersey City MSA.
Origination Quality
Exterior-Only Appraisals: Its assessment of an originator's
property valuation capabilities focuses primarily on the types of
valuation techniques lenders use and which products are
subsequently utilized to validate the soundness of the primary
source of valuation in originations. Starting on March 26, 2020,
Wells Fargo Bank suspended the use of interior appraisals and
introduced the use of exterior-only appraisals for specific
non-conforming transactions due to the health and safety concerns
associated with COVID-19.
Wells Fargo Bank implemented certain changes to underwriting
guidelines such as the requirement of potential borrowers to (i)
exit any forbearance plan on any prior mortgage loan prior to
applying for a new loan from Wells Fargo Bank and (ii) provide
documentary evidence of on-time payment of mortgage, rent and/or
HELOC, as applicable, for the past three consecutive months. This
requirement was put in place because of inconsistencies around
credit reporting for customers in forbearance.
Other changes to underwriting guidelines, include (i) a verbal
verification of employment for all salaried and self-employed
borrowers within 10 business days of the note date, (ii)exclusion
of rental income to satisfy income requirement to qualify for a
mortgage loan, (iii) reduction in maximum permitted DTI, (iv)
reduction in maximum LTV/CLTV for second home purchase and
rate/term refinance loans, and (v) increase in post-close liquidity
requirement. Some of the credit policy changes include suspension
of non-conforming loan origination via correspondent channel and
addition of restrictions for non-conforming loan originations via
retail channel.
Wells Fargo Bank, N.A. (long term debt Aa2) is an indirect,
wholly-owned subsidiary of Wells Fargo & Company (long term debt
A2). Wells Fargo & Company is a U.S. bank holding company with
approximately $1.97 trillion in assets and approximately 266,000
employees as of June 30, 2020, which provides banking, insurance,
trust, mortgage, and consumer finance services throughout the
United States and internationally.
Wells Fargo Bank has sponsored or has been engaged in the
securitization of residential mortgage loans since 1988. Wells
Fargo Home Lending is a key part of Wells Fargo & Company's
diversified business model. The mortgage loans for this transaction
are originated by WFHL, through its retail channel, generally in
accordance with its underwriting guidelines. The company uses a
solid loan origination system which include embedded features such
as a proprietary risk scoring model, role-based business rules and
data edits that ensure the quality of loan production. After
considering the company's origination practices, Moody's made no
additional adjustments to its base case and Aaa loss expectations
for origination.
Third Party Review (TPR)
One independent third-party review firm, Clayton Services LLC, was
engaged to conduct due diligence for the credit, regulatory
compliance, property valuation and data accuracy for all the 497
loans in the initial population of this transaction. For an initial
population of 497 loans, Clayton Services LLC identified 479 loans
with level A and 18 loans with level B credit component grades.
Most of the level B loans were underwritten using underwriter
discretion. Areas of discretion included documents not supporting
minor guideline requirements, insufficient cash reserves, length of
mortgage/rental history, and explanation for other multiple credit
exceptions. The due diligence firm noted that these exceptions are
minor and/or provided an explanation of compensating factors.
Clayton Services LLC identified 13 loans with level B compliance
issues and the remaining 484 loans received level A grade. The
identified compliance issues were primarily related to Right of
Rescission and TRID exceptions and are not considered material.
Clayton Services LLC identified 496 loans with level A and one (1)
loan with level C property valuation grade. For the one (1) level C
loan there is finding related to property valuation review, because
Clayton determined that the appraisal value used in the origination
of such mortgage loan was not supported by field review within a
negative 10% variance. Low DTI and LTV were cited as compensating
factors.
Representation & Warranties (R&W)
Wells Fargo Bank, as the originator, makes the loan-level
representation and warranties (R&Ws) for the mortgage loans. The
loan-level R&Ws are strong and, in general, either meet or exceed
the baseline set of credit-neutral R&Ws Moody's has identified for
US RMBS. Further, R&W breaches are evaluated by an independent
third party using a set of objective criteria to determine whether
any R&Ws were breached when loans become 120 days delinquent, the
property is liquidated at a loss above a certain threshold, or the
loan is modified by the servicer. Like J.P. Morgan Mortgage Trust
(JPMMT) transactions, the transaction contains a "prescriptive" R&W
framework. These reviews are prescriptive in that the transaction
documents set forth detailed tests for each R&W that the
independent reviewer will perform.
It should be noted that exceptions exist for certain excluded
disaster mortgage loans that trip the delinquency trigger. These
excluded disaster loans include COVID-19 forbearance loans or any
other loan with respect to which (a) the related mortgaged property
is located in an area that is subject to a major disaster
declaration by either the federal or state government and (b) has
either been modified or is being reported delinquent by the
servicer as a result of a forbearance, deferral or other loss
mitigation activity relating to the subject disaster. Such excluded
disaster mortgage loans may be subject to a review in future
periods if certain conditions are satisfied.
Overall, Moody's believes that Wells Fargo Bank's robust processes
for verifying and reviewing the reasonableness of the information
used in loan origination along with effectively no knowledge
qualifiers mitigates any risks involved. Wells Fargo Bank has an
anti-fraud software tools that are integrated with the loan
origination system and utilized pre-closing for each loan. In
addition, Wells Fargo Bank has a dedicated credit risk, compliance
and legal teams oversee fraud risk in addition to compliance and
operational risks. Moody's did not make any additional adjustment
to its base case and Aaa loss expectations for R&Ws.
Tail Risk and Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
shrinks, senior bonds are exposed to increased performance
volatility, known as tail risk. The transaction provides for a
senior subordination floor of 1.05% of the closing pool balance,
which mitigates tail risk by protecting the senior bonds from
eroding credit enhancement over time. Additionally, there is a
subordination lock-out amount which is 1.05% of the closing pool
balance.
Moody's calculates the credit neutral floors for a given target
rating as shown in its principal methodology. The senior
subordination floor of 1.05% and subordinate floor of 1.05% are
consistent with the credit neutral floors for the assigned
ratings.
Transaction Structure
The securitization has a shifting interest structure that benefits
from a senior floor and a subordinate floor. Funds collected,
including principal, are first used to make interest payments and
then principal payments to the senior bonds, and then interest and
principal payments to each subordinate bond. As in all transactions
with shifting interest structures, the senior bonds benefit from a
cash flow waterfall that allocates all unscheduled principal
collections to the senior bond for a specified period and
increasing amounts of unscheduled principal collections to the
subordinate bonds thereafter, but only if loan performance
satisfies delinquency and loss tests.
All certificates in this transaction are subject to a net WAC cap.
Realized losses are allocated reverse sequentially among the
subordinate and senior support certificates and on a pro-rata basis
among the super senior certificates.
Servicing Arrangement
In WFMBS 2020-5, unlike other prime jumbo transactions, Wells Fargo
Bank acts as servicer, master servicer, securities administrator,
and custodian of all the mortgage loans for the deal. The servicer
will be primarily responsible for funding certain servicing
advances and delinquent scheduled interest and principal payments
for the mortgage loans, unless the servicer determines that such
amounts would not be recoverable. The master servicer and servicer
will be entitled to be reimbursed for any such monthly advances
from future payments and collections (including insurance and
liquidation proceeds) with respect to those mortgage loans (see
also COVID-19 impacted borrowers' section for additional
information).
In the case of the termination of the servicer, the master servicer
must consent to the trustee's selection of a successor servicer,
and the successor servicer must have a net worth of at least $15
million and be Fannie or Freddie approved. The master servicer
shall fund any advances that would otherwise be required to be made
by the terminated servicer (to the extent the terminated servicer
has failed to fund such advances) until such time as a successor
servicer is appointed. Additionally, in the case of the termination
of the master servicer, the trustee will be required to select a
successor master servicer in consultation with the depositor. The
termination of the master servicer will not become effective until
either the trustee or successor master servicer has assumed the
responsibilities and obligations of the master servicer which also
includes the advancing obligation.
After considering Wells Fargo Bank's servicing practices, Moody's
did not make any additional adjustment to its losses.
COVID-19 Impacted Borrowers
As of the cut-off date, no borrower under any mortgage loan has
entered a COVID-19 related forbearance plan with the servicer. The
mortgage loan seller will covenant in the mortgage loan purchase
agreement to repurchase at the repurchase price within 30 days of
the closing date any mortgage loan with respect to which the
related borrower requests or enters a COVID-19 related forbearance
plan after the cut-off date but on or prior to the closing date. If
after the closing date a borrower enters or requests a COVID-19
related forbearance plan, such mortgage loan (and the risks
associated with it) will remain in the mortgage pool.
In the event the servicer enters into a forbearance plan with a
COVID-19 impacted borrower of a mortgage loan, the servicer will
report such mortgage loan as delinquent (to the extent payments are
not actually received from the borrower) and the servicer will be
required to make advances in respect of delinquent interest and
principal (as well as servicing advances) on such loan during the
forbearance period (unless the servicer determines any such
advances would be a nonrecoverable advance). At the end of the
forbearance period, if the borrower is able to make the current
payment on such mortgage loan but is unable to make the previously
forborne payments as a lump sum payment or as part of a repayment
plan, the servicer anticipates it will modify such mortgage loan
and any forborne amounts will be deferred as a non-interest bearing
balloon payment that is due upon the maturity of such mortgage
loan.
At the end of the forbearance period, if the borrower repays the
forborne payments via a lump sum or repayment plan, advances will
be recovered via the borrower payment(s). In an event of
modification, Wells Fargo Bank will recover advances made during
the period of Covid-19 related forbearance from pool level
collections.
Any principal forbearance amount created in connection with any
modification (whether as a result of a COVID-19 forbearance or
otherwise) will result in the allocation of a realized loss and to
the extent any such amount is later recovered, will result in the
allocation of a subsequent recovery.
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 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 these ratings was "Moody's
Approach to Rating US RMBS Using the MILAN Framework" published in
April 2020.
WFRBS COMMERCIAL 2012-C6: Fitch Affirms Bsf Rating on Cl. F Certs
-----------------------------------------------------------------
Fitch Ratings has affirmed nine classes of WFRBS Commercial
Mortgage Trust 2012-C6 commercial mortgage pass-through
certificates series 2012-C6.
RATING ACTIONS
WFRBS 2012-C6
Class A3 92936QAE8; LT AAAsf Affirmed; previously at AAAsf
Class A4 92936QAG3; LT AAAsf Affirmed; previously at AAAsf
Class AS 92936QBC1; LT AAAsf Affirmed; previously at AAAsf
Class B 92936QAJ7; LT AAsf Affirmed; previously at AAsf
Class C 92936QAQ1; LT Asf Affirmed; previously at Asf
Class D 92936QAS7; LT BBB-sf Affirmed; previously at BBB-sf
Class E 92936QAU2; LT BBsf Affirmed; previously at BBsf
Class F 92936QAW8; LT Bsf Affirmed; previously at Bsf
Class X-A 92936QAL2; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Relatively Stable Performance: Most of the pool has exhibited
relatively stable performance since issuance. However, loss
expectations have increased, largely driven by an increase in
coronavirus pandemic related stresses. There are 19 Fitch Loans of
Concern (FLOC), totaling 27.2% of the pool, including two
specially-serviced loans (4.6% of the pool), both of which are in
the top 15. An additional five (12.0%) FLOCs are in the top 15.
Fitch Loans of Concern/Specially Serviced Loans: The largest FLOC
is Norwalk Town Square (3.6 % of total pool balance), a 232,987-sf
regional shopping center located in Norwalk, CA, approximately 15
miles southeast of Los Angeles. The largest tenants include LA
Fitness (13.2% of NRA, expiration December 2020, not renewing),
Regency Theaters (11.5%, 2022), DD's Discounts (9.0%, 2024) and 99
Cents (7.3%, 2022). The property has experienced a slight drop in
occupancy since issuance and a steady decline in NOI over the past
few years. Given significant upcoming lease expirations and the
upcoming loan maturity, Fitch applied an additional loss
sensitivity to this loan to reflect recoverability concerns and the
potential for outsized losses. The loan matures in August 2021.
The second largest FLOC and largest specially serviced loan, The
Lexington Hotel Portfolio (2.6 %), was transferred to special
servicing in May 2020, and was 60 days past due as of the September
2020 remittance date. The loan is secured by a 100-room
extended-stay Residence Inn and a 126-room limited-service
Courtyard by Marriott, both located 20 miles north of Cincinnati in
West Chester, OH. The hotels, constructed in 2007 and 2008, are
adjacent to each other. Both hotels have seen significant declines
in occupancy related to the coronavirus pandemic. The Special
Servicer is evaluating the collateral in order to recommend the
best course of action. The loan matures in March 2022.
The third largest FLOC, the Sunwest Portfolio (2.3%), has
experienced a drop in occupancy from 98% as of June 2019 to 85% as
of June 2020. The loan is secured by secured by 24 retail
properties in eight states, which total 612,838 sf, with a diverse
tenant mix of local, regional, and national tenants. Three of the
properties are vacant. Sixteen of the properties are single-tenant
properties; six have two tenant spaces; two have three tenants. The
loan is current and matures in April 2022.
The fourth largest FLOC is Williams Centre Plaza (2.2%), a loan
secured by a 112,787-sf shopping center located in Tucson, AZ. The
property includes five free-standing buildings built in 1987 and
1992 and an Olive Garden pad. The largest tenants include HBL
(10.9%, 2029); Olive Garden (8.0%, 2025); and Fed-Ex Kinko's (6.3%,
2022). The loan has been designated a FLOC due to rollover
risk--27% of the property tenants roll in 2021 and 2022. The loan
is current and matures in July 2021.
Commerce Park IV & V (2.0%), the fifth largest FLOC and second
largest specially serviced loan, was transferred to special
servicing in January 2019, initially due to lack of insurance
coverage. The collateral consists of two office buildings built in
1984 and 1989, totaling 229,624 sf, located in Beachwood, OH,
approximately 19 miles southeast of Cleveland. The debt service
coverage ratio (DSCR) was 0.43x in March 2020, a decrease from
0.76x in YE 2019 and 2.01x at issuance. Occupancy of 64.3% (March
2020) has dropped significantly from issuance occupancy of 93.2%. A
significant majority of the remaining leased portion rolls in the
next three years, including 14.6% of the NRA, which is leased
month-to-month. The servicer was unsuccessful in its attempt to put
a receiver in place and the loan remains current. The special
servicer continues to evaluate its options.
Hulen Shopping Center (1.8%), located in Fort Worth, TX, suffered
occupancy and performance decline due to Kroger vacating (36% of
NRA) in 2017. Although the space has been backfilled by Fitness
Connection, the property is also facing the lease expiration of the
second and fourth largest tenants, Mardels (17% of NRA, February
2021) and East Gourmet Buffet (5% of NRA, August 2020). NOI has
fallen steadily from 2016 and the DSCR is down to 0.55x as of YE
2019.
The remaining 13 FLOCs represent 12.7% of the pool, and are
considered FLOCs because of declining performance and/or failing to
meet Fitch's coronavirus NOI DSCR tolerance thresholds.
Increased Credit Enhancement: The senior classes have benefitted
from increased credit enhancement due to loan payoffs, scheduled
amortization and defeased collateral. As of the September 2020
remittance, the pool's aggregate principal balance has been reduced
by 30.2% to $645.3 million from $925.0 million at issuance.
Eighteen loans are fully defeased (24.0% of the current pool),
including four loans (15.7% of the pool) in the top 15. The pool
has experienced no realized losses. Only one loan (1.5%) is
interest-only and the remainder are amortizing.
Alternative Loss Considerations: Fitch performed an additional
sensitivity scenario on Norwalk Town Square (3.6%) and Sunwest
Portfolio (2.3%), which assumed a potential outsized loss of 25% on
the loans' respective maturity balance to account for potential
refinance concerns. The analysis also factored in the expected
paydown of the transaction from defeased loans. This scenario
contributed to the Negative Rating Outlooks on classes E and F.
Loan Maturities: Loan maturities are concentrated in 2021 (50.5%)
and 2022 (49.5%).
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. Twenty-five
loans in the pool (33.6% of total balance) are collateralized by
retail properties. However, none of the loans in the pool are
secured by regional malls. Additionally, five hotel loans make up
6.6% of the deal and three multifamily properties make up 2.7% of
the current deal. These additional stresses contributed to the
Negative Outlook on Classes E and F.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that could lead to upgrades would include
stable to improved asset performance, coupled with additional
paydown and/or defeasance. Upgrades to the 'Asf' and 'AAsf' 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 were 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:
Sensitivity factors that lead to downgrades include an increase in
pool-level losses from underperforming or specially serviced
loans/assets. Downgrades to the AAA through A classes are not
likely due to the position in the capital structure, but may occur
should interest shortfalls occur. Downgrades to 'BBB-', 'BB' and
'B' rated classes are possible should performance of the FLOCs
continue to decline, should loans susceptible to the coronavirus
pandemic not stabilize and/or should further loans transfer to
special servicing. The Rating Outlooks on these classes may be
revised back to Stable from Negative if the FLOCs' performance
improves and/or properties vulnerable to the coronavirus stabilize
once the pandemic is over.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, classes with Negative Rating
Outlooks will be downgraded one or more categories.
WIND RIVER 2014-2: Moody's Lowers Rating on Class F-R Notes to Caa1
-------------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Wind River 2014-2 CLO Ltd.:
US$12,300,000 Class F-R Secured Deferrable Floating Rate Notes Due
2031 (the "Class F-R Notes"), Downgraded to Caa1 (sf); previously
on April 17, 2020 B3 (sf) Placed Under Review for Possible
Downgrade
The Class F-R Notes are referred to herein, collectively, as the
"Downgraded Notes."
Moody's also confirmed the ratings on the following notes:
US$38,900,000 Class D-R Secured Deferrable Floating Rate Notes Due
2031 (the "Class D-R Notes"), Confirmed at Baa3 (sf); previously on
April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$27,900,000 Class E-R Secured Deferrable Floating Rate Notes Due
2031 (the "Class E-R Notes"), Confirmed at Ba3 (sf); previously on
April 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
The Class D-R Notes and Class E-R Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D-R, Class E-R, and Class F-R Notes issued by
the CLO. The CLO, originally issued August 2014 and refinanced in
January 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 2023.
RATINGS RATIONALE
The downgrade on the Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current ratings after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the August 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3069 compared to 2827
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2930 reported in the
August 2020 trustee report [3]. 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 13%.
Furthermore, Moody's calculated the total collateral par balance,
including recoveries from defaulted securities, at $589.5 million,
or $30.5 million less than the deal's ramp-up target par balance.
Moody's noted that all OC tests are passing, while the interest
diversion test was recently reported [4]as failing, which could
result in repayment of senior notes or in a portion of excess
interest collections being diverted towards reinvestment in
collateral at the next payment date should the failure continue.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $579,808,928
Defaulted Securities: $15,963,824
Diversity Score: 72
Weighted Average Rating Factor (WARF): 3034
Weighted Average Life (WAL): 5.8 years
Weighted Average Spread (WAS): 3.42%
Weighted Average Recovery Rate (WARR): 47.7%
Finally, Moody's notes that it also considered the information from
the manager and trustee in the September 2020 trustee report [5]
which became available prior to the release of this announcement.
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
WIND RIVER 2014-3K: Moody's Cuts Rating on Class F Notes to Caa1
----------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Wind River 2014-3K CLO Ltd.:
US$8,000,000 Class F Junior Secured Deferrable Floating Rate Notes
due 2030 (the "Class F Notes"), Downgraded to Caa1 (sf); previously
on June 3, 2020 B3 (sf) Placed Under Review for Possible Downgrade
The Class F Notes are referred to herein as the "Downgraded
Notes."
Moody's also confirmed the ratings on the following notes:
US$20,800,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2030 (the "Class C Notes"), Confirmed at A2 (sf);
previously on June 3, 2020 A2 (sf) Placed Under Review for Possible
Downgrade
US$25,400,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2030 (the "Class D Notes"), Confirmed at Baa3 (sf);
previously on June 3, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$17,800,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2030 (the "Class E Notes"), Confirmed at Ba3 (sf); previously
on June 3, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class C Notes, Class D Notes, and the Class E Notes are
referred to herein, collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on June
3, 2020 on the Class C, Class D, Class E, and Class F Notes issued
by the CLO. The CLO, issued 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 2023.
RATINGS RATIONALE
The downgrade on the Downgraded 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 2020, 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 declined, and
expected losses (ELs) on certain notes have increased.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3385, compared to 2991
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2950 reported in the
September 2020 trustee report [3]. 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%.
Moody's noted that the OC test for the Class E notes, as well as
the interest diversion test, were recently reported [4] as failing,
which resulted in repayment of senior notes and deferral of current
interest payments on the Class F Notes. Nevertheless, Moody's noted
that the OC test for the Class D Notes was recently reported [5] as
passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $377,901,671
Defaulted Securities: $20,700,404
Diversity Score: 68
Weighted Average Rating Factor (WARF): 3405
Weighted Average Life (WAL): 5.8 years
Weighted Average Spread (WAS): 3.63%
Weighted Average Recovery Rate (WARR): 47.9%
Par haircut in OC tests and interest diversion test: 2.1%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
WIND RIVER 2015-1: Moody's Confirms Ba3 Rating on Class E-R Notes
-----------------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by Wind River 2015-1 CLO Ltd.:
US$37,310,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes due 2030 (the "Class D-R Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$33,100,000 Class E-R Junior Secured Deferrable Floating Rate
Notes due 2030 (the "Class E-R Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
US$12,030,000 Class F-R Junior Secured Deferrable Floating Rate
Notes due 2030 (the "Class F-R Notes"), Confirmed at B3 (sf);
previously on April 17, 2020 B3 (sf) Placed Under Review for
Possible Downgrade
The Class D-R Notes, the Class E-R Notes, and the Class F-R Notes
are referred to herein, collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D-R Notes, the Class E-R Notes, and the Class
F-R Notes issued by the CLO. The CLO, originally issued in July
2015 and refinanced in August 2017 and 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
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3114, compared to 2829
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 3029 reported in the
September 2020 trustee report [3]. 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
15.7%. Nevertheless, according to the September 2020 trustee report
[4], the OC tests for the Class A/B, Class C, Class D, and Class E
notes were recently reported as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $576,255,062
Defaulted Securities: $19,903,461
Diversity Score: 76
Weighted Average Rating Factor (WARF): 3128
Weighted Average Life (WAL): 5.7 years
Weighted Average Spread (WAS): 3.46%
Weighted Average Recovery Rate (WARR): 47.9%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
WIND RIVER 2017-1: Moody's Confirms Ba3 Rating on Class E Notes
---------------------------------------------------------------
Moody's Investors Service has confirmed the ratings on the
following notes issued by Wind River 2017-1 CLO Ltd.:
US$33,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2029 (the "Class D Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$27,000,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2029 (the "Class E Notes"), Confirmed at Ba3 (sf); previously
on April 17, 2020 Ba3 (sf) Placed Under Review for Possible
Downgrade
The Class D Notes and the Class E Notes are referred to herein,
collectively, as the "Confirmed Notes."
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class D Notes and the Class E Notes issued by the
CLO. The CLO, originally issued in March 2017 and partially
refinanced in October 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 April 2021.
RATINGS RATIONALE
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Confirmed Notes continue to be consistent with the notes'
current rating after considering the CLO's latest portfolio, its
relevant structural features, and its actual over-collateralization
(OC) levels. Consequently, Moody's has confirmed the ratings on the
Confirmed Notes.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3157, compared to 2837
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 3019 reported in the
September 2020 trustee report [3]. 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
15.2%. Nevertheless, according to the September 2020 trustee report
[4], the OC tests for the Class A/B, Class C, Class D, Class E
notes, as well as the interest diversion test, were recently
reported as passing.
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."
For modeling purposes, Moody's used the following base-case
assumptions:
Performing par and principal proceeds balance: $584,475,530
Defaulted Securities: $5,688,756
Diversity Score: 73
Weighted Average Rating Factor (WARF): 3169
Weighted Average Life (WAL): 4.8 years
Weighted Average Spread (WAS): 3.51%
Weighted Average Coupon (WAC): 4.5%
Weighted Average Recovery Rate (WARR): 47.9%
Par haircut in OC tests and interest diversion test: 0.5%
In consideration of the current high uncertainties around the
global economy and the ultimate performance of the CLO portfolio,
Moody's conducted several additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from its base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; additional OC par haircuts to
account for potential future downgrades and defaults resulting in
an increased likelihood of cash flow diversion to senior notes; and
some improvement in WARF as the US economy gradually recovers in
the second half of the year and corporate credit conditions
generally stabilize.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. 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
August 2020.
[*] Fitch Takes Action on Distressed Bonds in 7 U.S/ CMBS Deals
---------------------------------------------------------------
Fitch Ratings, on Oct. 7, 2020, took various action on already
distressed bonds across seven U.S. commercial mortgage-backed
securities (CMBS) transactions.
RATING ACTIONS
Bear Stearns Commercial Mortgage Securities Trust 2005-TOP18
Class J 07383F5W4: LT Dsf Affirmed; previously at Dsf
Class J 07383F5W4: LT WDsf Withdrawn; previously at Dsf
Class K 07383F5X2: LT Dsf Affirmed; previously at Dsf
Class K 07383F5X2: LT WDsf Withdrawn; previously at Dsf
Class L 07383F5Y0: LT Dsf Affirmed; previously at Dsf
Class L 07383F5Y0: LT WDsf Withdrawn; previously at Dsf
Class M 07383F5Z7: LT Dsf Affirmed; previously at Dsf
Class M 07383F5Z7: LT WDsf Withdrawn; previously at Dsf
Class N 07383F6A1: LT Dsf Affirmed; previously at Dsf
Class N 07383F6A1: LT WDsf Withdrawn; previously at Dsf
Class O 07383F6B9: LT Dsf Affirmed; previously at Dsf
Class O 07383F6B9: LT WDsf Withdrawn; previously at Dsf
J. P. Morgan Chase Commercial Mortgage Securities Corp. 2004-C3
Class J 46625YFL2: LT Dsf Affirmed; previously at Dsf
Class K 46625YFM0: LT Dsf Affirmed; previously at Dsf
Class L 46625YFN8: LT Dsf Affirmed; previously at Dsf
Class M 46625YFP3: LT Dsf Affirmed; previously at Dsf
Class N 46625YFQ1: LT Dsf Affirmed; previously at Dsf
Class P 46625YFR9: LT Dsf Affirmed; previously at Dsf
Class Q 46625YFS7: LT Dsf Affirmed; previously at Dsf
Credit Suisse Commercial Mortgage Trust 2006-C1
Class J 225470H48: LT Dsf Affirmed; previously at Dsf
Class J 225470H48: LT WDsf Withdrawn; previously at Dsf
Class K 225470H63: LT Dsf Affirmed; previously at Dsf
Class K 225470H63: LT WDsf Withdrawn; previously at Dsf
Class L 225470H89: LT Dsf Affirmed; previously at Dsf
Class L 225470H89: LT WDsf Withdrawn; previously at Dsf
Class M 225470J20: LT Dsf Affirmed; previously at Dsf
Class M 225470J20: LT WDsf Withdrawn; previously at Dsf
Class N 225470J46: LT Dsf Affirmed; previously at Dsf
Class N 225470J46: LT WDsf Withdrawn; previously at Dsf
Class O 225470J61: LT Dsf Affirmed; previously at Dsf
Class O 225470J61: LT WDsf Withdrawn; previously at Dsf
Class P 225470J87: LT Dsf Affirmed; previously at Dsf
Class P 225470J87: LT WDsf Withdrawn; previously at Dsf
Class Q 225470K28: LT Dsf Affirmed; previously at Dsf
Class Q 225470K28: LT WDsf Withdrawn; previously at Dsf
LB-UBS Commercial Mortgage Trust 2005-C7
Class G 52108MAR4: LT Dsf Affirmed; previously at Dsf
Class G 52108MAR4: LT WDsf Withdrawn; previously at Dsf
Class H 52108MAS2: LT Dsf Affirmed; previously at Dsf
Class H 52108MAS2: LT WDsf Withdrawn; previously at Dsf
Class J 52108MAT0: LT Dsf Affirmed; previously at Dsf
Class J 52108MAT0: LT WDsf Withdrawn; previously at Dsf
Class K 52108MAU7: LT Dsf Affirmed; previously at Dsf
Class K 52108MAU7: LT WDsf Withdrawn; previously at Dsf
Class L 52108MAV5: LT Dsf Affirmed; previously at Dsf
Class L 52108MAV5: LT WDsf Withdrawn; previously at Dsf
Class M 52108MAW3: LT Dsf Affirmed; previously at Dsf
Class M 52108MAW3: LT WDsf Withdrawn; previously at Dsf
Class N 52108MAX1: LT Dsf Affirmed; previously at Dsf
Class N 52108MAX1: LT WDsf Withdrawn; previously at Dsf
Class P 52108MAY9: LT Dsf Affirmed; previously at Dsf
Class P 52108MAY9: LT WDsf Withdrawn; previously at Dsf
Class Q 52108MAZ6: LT Dsf Affirmed; previously at Dsf
Class Q 52108MAZ6: LT WDsf Withdrawn; previously at Dsf
Class S 52108MBA0: LT Dsf Affirmed; previously at Dsf
Class S 52108MBA0: LT WDsf Withdrawn; previously at Dsf
J. P. Morgan Chase Commercial Mortgage Securities Corp.
2005-CIBC13
Class B 46625YWB5: LT Dsf Affirmed; previously at Dsf
Class C 46625YWC3: LT Dsf Affirmed; previously at Dsf
Class D 46625YWD1: LT Dsf Affirmed; previously at Dsf
Class E 46625YWJ8: LT Dsf Affirmed; previously at Dsf
Class F 46625YWL3: LT Dsf Affirmed; previously at Dsf
Class G 46625YWN9: LT Dsf Affirmed; previously at Dsf
Class H 46625YWQ2: LT Dsf Affirmed; previously at Dsf
Class J 46625YWS8: LT Dsf Affirmed; previously at Dsf
Class K 46625YWU3: LT Dsf Affirmed; previously at Dsf
Class L 46625YWW9: LT Dsf Affirmed; previously at Dsf
Class M 46625YWY5: LT Dsf Affirmed; previously at Dsf
Class N 46625YXA6: LT Dsf Affirmed; previously at Dsf
Class P 46625YXC2: LT Dsf Affirmed; previously at Dsf
Morgan Stanley Capital I Trust 2004-IQ8
Class J 61745MP80: LT Dsf Affirmed; previously at Dsf
Class J 61745MP80: LT WDsf Withdrawn; previously at Dsf
Class K 61745MP98: LT Dsf Affirmed; previously at Dsf
Class K 61745MP98: LT WDsf Withdrawn; previously at Dsf
Class L 61745MQ22: LT Dsf Affirmed; previously at Dsf
Class L 61745MQ22: LT WDsf Withdrawn; previously at Dsf
Class M 61745MQ30: LT Dsf Affirmed; previously at Dsf
Class M 61745MQ30: LT WDsf Withdrawn; previously at Dsf
Class N 61745MQ48: LT Dsf Affirmed; previously at Dsf
Class N 61745MQ48: LT WDsf Withdrawn; previously at Dsf
Bear Stearns Commercial Mortgage Securities Trust 2005-PWR7
Class F 07383F4H8: LT Dsf Downgrade; previously at Csf
Eight classes of Credit Suisse Commercial Mortgage Trust 2006-C1
were affirmed at 'Dsf' and subsequently withdrawn. The transaction
has only 'Dsf'-rated classes left. It is no longer considered
relevant to Fitch's coverage.
Ten classes of LB-UBS Commercial Mortgage Trust 2005-C7 were
affirmed at 'Dsf' and subsequently withdrawn. While the deal still
has an outstanding balance, none of the Fitch rated classes have a
balance remaining. Lastly, five bonds in Morgan Stanley Capital I
Trust 2004-IQ8 and six bonds in Bear Stearns Commercial Mortgage
Securities Trust 2005-TOP18 were affirmed at 'Dsf' and subsequently
withdrawn. There is no collateral remaining in either of these
deals; the trust balances have been reduced to zero.
KEY RATING DRIVERS
Along with the rating withdrawals, one class of Bear Stearns
Commercial Mortgage Securities Trust 2005-PWR7 was downgraded to
'Dsf'. This class experienced its first dollar loss. The class was
previously rated 'Csf' which indicated default was inevitable.
Additionally, 20 classes across two deals, J.P. Morgan Chase
Commercial Mortgage Securities Corp. 2005-CIBC13 and J.P. Morgan
Chase Commercial Mortgage Securities Corp. 2004-C3, were all
affirmed at 'Dsf' as a result of previously incurred losses.
RATING SENSITIVITIES
The actions are limited to the bonds that have incurred losses. Any
remaining bonds in the transactions have not been analyzed as part
of this review. No further rating changes are expected as these
bonds have incurred principal realized losses. While the bonds that
have defaulted are not expected to recover any material amount of
lost principal in the future, there is a limited possibility this
may happen. In this unlikely scenario, Fitch would further review
the affected classes.
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
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than $3 per
share in public markets. At first glance, this list may look like
the definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
On Thursdays, the TCR delivers a list of recently filed
Chapter 11 cases involving less than $1,000,000 in assets and
liabilities delivered to nation's bankruptcy courts. The list
includes links to freely downloadable images of these small-dollar
petitions in Acrobat PDF format.
Each Friday's edition of the TCR includes a review about a book of
interest to troubled company professionals. All titles are
available at your local bookstore or through Amazon.com. Go to
http://www.bankrupt.com/books/to order any title today.
Monthly Operating Reports are summarized in every Saturday edition
of the TCR.
The Sunday TCR delivers securitization rating news from the week
then-ending.
TCR subscribers have free access to our on-line news archive.
Point your Web browser to http://TCRresources.bankrupt.com/and use
the e-mail address to which your TCR is delivered to login.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter is a daily newsletter co-published
by Bankruptcy Creditors Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Jhonas Dampog, Marites Claro, Joy Agravante, Rousel Elaine
Tumanda, Valerie Udtuhan, Howard C. Tolentino, Carmel Paderog,
Meriam Fernandez, Joel Anthony G. Lopez, Cecil R. Villacampa,
Sheryl Joy P. Olano, Psyche A. Castillon, Ivy B. Magdadaro, Carlo
Fernandez, Christopher G. Patalinghug, and Peter A. Chapman,
Editors.
Copyright 2020. All rights reserved. ISSN: 1520-9474.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers. Information contained
herein is obtained from sources believed to be reliable, but is
not guaranteed.
The TCR subscription rate is $975 for 6 months delivered via
e-mail. Additional e-mail subscriptions for members of the same
firm for the term of the initial subscription or balance thereof
are $25 each. For subscription information, contact Peter A.
Chapman at 215-945-7000.
*** End of Transmission ***