/raid1/www/Hosts/bankrupt/TCR_Public/201018.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 18, 2020, Vol. 24, No. 291
Headlines
1828 CLO LTD: Moody's Confirms Ba3 Rating on $26MM Class D-R Notes
20 TIMES 2018-20TS: DBRS Assigns B(low) Rating on 2 Tranches
AMUR EQUIPMENT 2018-1: DBRS Confirms BB Rating on Class E Notes
ANCHORAGE CREDIT 12: Moody's Assigns (P)Ba3 Rating on Cl. E Notes
BB-UBS TRUST 2012-TFT: DBRS Assigns B(low) Rating on Class D Certs
BBCMS 2017-DELC: DBRS Confirms B Rating on Class HRR Certs
BBCMS MORTGAGE 2020-C8: DBRS Gives Prov. B Rating on J-RR Certs
BCC FUNDING 2018-1: DBRS Confirms BB Rating on Class E Notes
BENCHMARK MORTGAGE 2020-B20: Fitch to Rate Class H Certs B-sf
BRAVO RESIDENTIAL 2020-TAC1: Fitch Gives B(EXP) Rating to B5 Debt
BX TRUST 2017-CQHP: Moody's Lowers Rating on Class F Certs to Caa3
BX TRUST 2018-EXCL: DBRS Assigns BB(low) Rating on Class D Certs
BX TRUST 2018-GW: DBRS Confirms B(low) Rating on Class G Certs
CFCRE 2016-C6: Fitch Affirms B-sf Rating on 2 Tranches
CFCRE COMMERCIAL 2011-C1: Fitch Affirms Dsf Rating on 3 Tranches
CHT MORTGAGE 2017-COSMO: DBRS Confirms BB(high) on Class F Certs
CITIGROUP COMMERCIAL 2016-GC36: Fitch Lowers F Debt Rating to CCC
COLT 2020-RPL1: Fitch Assigns Bsf Rating on Class B-2 Debt
COMM 2012-LTRT: DBRS Gives BB(high) Rating on Class E Certs
CSMC 2018-SITE: DBRS Assigns BB Rating on Class HRR Certs
CSMC TRUST 2017-CALI: S&P Affirms B- (sf) Rating on Class F Certs
EAGLE RE 2020-2: DBRS Gives Prov. 'B' Rating on 3 Tranches
EAGLE RE 2020-2: Moody's Assigns (P)B1 Rating on 2 Tranches
FONTAINEBLEAU MIAMI 2019-FBLU: DBRS Confirms B(low) on G Certs
FREMF 2017-K61: Fitch Affirms BB+sf Rating on Class C Certs
GS MORTGAGE 2017-GS8: Fitch Affirms B-sf Rating on Cl. G-RR Debt
GS MORTGAGE 2017-STAY: DBRS Confirms B Rating on Class HRR Certs
GS MORTGAGE 2020-PJ5: Fitch to Rate Class B-5 Certs 'B(EXP)'
IMPERIAL FUND 2020-NQM1: DBRS Gives Prov. B Rating on Cl. B-1 Certs
JP MORGAN 2012-WLDN: DBRS Gives BB(high) Rating on Class C Certs
JP MORGAN 2018-ASH8: DBRS Confirms B(low) Rating on Cl. F Certs
LB-UBS COMMERCIAL 2006-C1: Fitch Affirms D Ratings on 16 Tranches
M360 LTD 2019-CRE2: DBRS Confirms B(low) Rating on Class G Notes
MORGAN STANLEY 2013-C12: Fitch Cuts Rating on 2 Tranches to CCC
NZCG FUNDING: Moody's Confirms Ba3 Rating on $34MM Class D-R Notes
OZLM XVI: Moody's Lowers Rating on $18.4MM Class D Notes to B1
PAWNEE EQUIPMENT 2019-1: DBRS Confirms BB Rating on Class E Notes
PPM CLO 4: Moody's Assigns (P)Ba3 Rating on $15.6MM Cl. E Notes
PRESTIGE AUTO 2020-1: DBRS Gives Prov. BB(high) Rating on E Notes
PROGRESS RESIDENTIAL 2020-SFR3: DBRS Finalizes B(low) on G Certs
REPUBLIC FINANCE 2020-A: DBRS Finalizes BB(low) Rating on D Notes
RMF BUYOUT 2020-HB1: DBRS Gives Prov. BB Rating on Class M4 Notes
STACR REMIC 2020-DNA5: DBRS Gives Prov. BB Rating on 16 Tranches
TOWD POINT 2018-SL1: DBRS Keeps 2 Note Tranches Under Review
TRIANGLE RE 2020-1: Moody's Assigns (P)B2 Rating on Cl. B-1 Notes
UBS-BARCLAYS 2012-C3: Moody's Lowers Rating on Class F Debt to B3
US COMMERCIAL 2018-USDC: DBRS Gives BB(high) Rating on Cl. F Certs
VINE 2020-1: DBRS Assigns Provisional BB Rating on Class C Notes
[*] S&P Takes Actions on 60 Ratings From 10 US RMBS Non-QM Deals
[*] S&P Takes Various Actions on 60 Classes From Nine US RMBS Deals
*********
1828 CLO LTD: Moody's Confirms Ba3 Rating on $26MM Class D-R Notes
------------------------------------------------------------------
Moody's Investors Service downgraded the ratings on the following
notes issued by 1828 CLO Ltd.:
US$41,600,000 Class 1 Rated Structured Notes due 2031 (composed of
components representing US$30,600,000 of Class A-2-Rb1 Notes and
US$11,000,000 of Subordinated Notes (collectively, the "Underlying
Components")) (current outstanding balance of $37,831,431),
Downgraded to Baa2 (sf); previously on October 15, 2018 Assigned
Aa2 (sf)
US$22,700,000 Class 2 Rated Structured Notes due 2031 (composed of
components representing US$16,700,000 of Class A-2-Rb2 Notes and
US$6,000,000 of Subordinated Notes (collectively, the "Underlying
Components")) (current outstanding balance of $20,643,761),
Downgraded to Baa2 (sf); previously on October 15, 2018 Assigned
Aa2 (sf)
US$17,200,000 Class 3 Rated Structured Notes due 2031 (composed of
components representing US$1,350,000 of Class A-2-Rb3 Notes,
US$10,300,000 of Class B-Rb3 Notes, and US$5,550,000 of
Subordinated Notes (collectively, the "Underlying Components"))
(current outstanding balance of $15,462,438), Downgraded to Baa3
(sf); previously on October 15, 2018 Assigned A3 (sf)
US$17,200,000 Class 4 Rated Structured Notes due 2031 (composed of
components representing US$1,350,000 of Class A-2-Rb4 Notes,
US$10,300,000 of Class B-Rb4 Notes, and US$5,550,000 of
Subordinated Notes (collectively, the "Underlying Components"))
(current outstanding balance of $15,462,438), Downgraded to Baa3
(sf); previously on October 15, 2018 Assigned A3 (sf)
Moody's also confirmed the ratings on the following notes:
US$17,500,000 Class C-R Mezzanine Secured Deferrable Floating Rate
Notes due 2031 (the "Class C-R Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$26,000,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes due 2031 (the "Class D-R Notes"), Confirmed at Ba3 (sf);
previously on April 17, 2020 Ba3 (sf) Placed Under Review for
Possible Downgrade
These actions conclude the reviews for downgrade initiated on April
17, 2020 on the Class C-R and Class D-R Notes issued by the CLO.
The CLO, originally issued in June 2016 and refinanced in October
2018, is a managed cashflow CLO. The CLO is 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 actions on the Class 1, Class 2, Class 3, and Class 4
Rated Structured Notes are primarily the result of a decrease in
the expected cash flows from the Underlying Components. Due to a
sudden and sharp decrease of the LIBOR rate and the forward LIBOR
curve following the onset of the coronavirus pandemic, the interest
payments received from the underlying debt components have
decreased considerably and are expected to remain depressed as
Moody's expects the low interest rate levels to persist in future.
In addition, since March 2020 the pandemic has led to credit
deterioration, loss of collateral coverage and failures of
over-collateralization (OC) test and interest diversion test in the
CLO portfolio. Consequently, the distributions to the underlying
equity component have also decreased significantly.
Despite the credit quality deterioration stemming from the
coronavirus outbreak, Moody's concluded that the expected losses on
the Class C-R and Class D-R 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
OC levels. Consequently, Moody's has confirmed the ratings on these
Notes.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3122, compared to 3055
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 18.4%. Furthermore, Moody's noted that the
interest diversion test was recently reported [3] as failing, which
could result in a portion of excess interest collections being
diverted towards reinvestment in collateral at the next payment
date should the failure continue. Nevertheless, Moody's noted that
the OC tests for the Class C Notes and the Class D Notes were
recently reported [4] as passing.
The rating actions also reflect corrections to Moody's cash flow
modeling of these notes. In the previous rating action, the
amortization step after the end of the reinvestment period for the
transaction, and the proportion of the equity components in the
Class 3 and Class 4 Rated Structured Notes, were modeled
incorrectly. These errors have been corrected, and the rating
actions reflect the correct modeling.
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: $386,853,317
Defaulted Securities: $5,787,307
Diversity Score: 70
Weighted Average Rating Factor (WARF): 3138
Weighted Average Life (WAL): 6.1 years
Weighted Average Spread (WAS): 3.36%
Weighted Average Recovery Rate (WARR): 47.8%
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 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;
additional interest rate scenarios assuming parallel shifts in
yield curve; 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 secured 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.
20 TIMES 2018-20TS: DBRS Assigns B(low) Rating on 2 Tranches
------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2018-20TS issued by 20 Times Square Trust
2018-20TS as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at B (high) (sf)
-- Class H at B (low) (sf)
-- Class V 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 22, 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.
The subject rating actions result from DBRS Morningstar's
application of the NA SASB Methodology in conjunction with the
"North American CMBS Surveillance Methodology," as applicable.
Because the property closed shortly after opening because of the
coronavirus' impact, DBRS Morningstar valued the property in two
ways: (1) valuing the future ground lease payments, and (2)
determining a liquidation value as additional validation to support
the valuation of the future ground lease payments. DBRS Morningstar
utilized these methods to determinate the subject ratings as an
alternative to a look-through analysis to derive the fee-simple
value for the collateral. The DBRS Morningstar Value determined by
future ground lease payments was $758.6 million, resulting in a
loan-to-value (LTV) ratio of 98.9% supported by the liquidation
value of $798.3 million, resulting in an LTV of 94.0%. DBRS
Morningstar used the value of the ground-rent payments (the
leased-fee interest) to assign the ratings to this transaction.
This leased-fee valuation was supported by the liquidation value
that DBRS Morningstar also calculated as part of this analysis. The
purpose of calculating the liquidation value was to illustrate
that, if the project experienced a severe decline in revenue and
subsequently value, there was still sufficient value to justify the
foreclosure by the leased-fee financing source. DBRS Morningstar
did not make qualitative adjustments to the final LTV sizing
benchmarks used for this rating analysis.
LOAN/PROPERTY OVERVIEW
The underlying collateral is 20 Times Square, a mixed-use property
comprising a 452-key Marriott Edition luxury hotel; 74,820 square
feet (sf) of retail space (5,500 sf of which is
non-revenue-generating storage space); and 18,000 sf of digital
billboards. Because of the coronavirus pandemic's effects and a
dispute with the property owner related to the delinquent leasehold
mortgage discussed below, the hotel is currently closed. A
significant amount of the retail space is vacant as the NFL
Experience, which occupied 43,130 sf, closed after only a few
months of operation in 2019. At present, the only retail in place
is the 8,440-sf Hershey's Chocolate World flagship store while the
remaining 66,380 sf is vacant. At this time, determining cash flow
assumptions for look-through (fee-simple) valuation is
challenging.
The subject of this rating action is the financing (leased-fee
mortgage) of $750.0 million. The property's ground lease and the
leased-fee financing are senior to the leasehold interest and
leasehold financing. In addition to the leased-fee mortgage, there
is additional leased-fee financing in the form of a $150.0 million
mezzanine note. The total leased-fee financing is $900.0 million.
In addition to the leased-fee financing, there is an additional
leasehold mortgage with an estimated balance of $1.1 billion. This
mortgage is reported to be in default; however, the leased-fee
financing (which is the subject of this rating action) is
reportedly current based on the servicer's response dated October
6, 2020. The ground lease is also not in default per the servicer's
response on October 6, 2020.
Metropolitan Valuation Services Inc. performed the origination
appraisal dated April 20, 2018, which valued the leased-fee
interest at $1.6 billion.
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." However, because of the uncertainty
related to the property's performance and the leasehold mortgage
default, DBRS Morningstar focused its analysis on the ground lease
value and the leased-fee mortgage. Ground-rent payments are fixed
under the terms of the ground lease, and the ground lease and
leased-fee financing are senior to the leasehold interest and the
leasehold financing. The leasehold interest owner and the
leased-fee mezzanine lender are both motivated to prevent the
leased-fee mortgage from defaulting to protect their security
interest.
Therefore, for purposes of this analysis, DBRS Morningstar analyzed
the payments expected from the in-place ground lease and applied a
blended cap rate to the ground-rent payment at maturity to
determine a DBRS Morningstar Value for the leased-fee interest.
Using this value and the dollar amount allocated to each class,
DBRS Morningstar derived the LTV for each of the designated classes
and assigned ratings based on the resulting LTV.
The cap rate DBRS Morningstar applied was a blended cap rate of
8.0% applied to the original DBRS Morningstar-projected hotel
income and 6.5% applied to the original DBRS Morningstar-projected
retail/digital billboard income. This blended rate of 7.28%, which
reflects a cap rate for the fee-simple interest, was reduced by 250
basis points to reflect the senior position of the ground lease and
low cash flow volatility of the ground rent compared with the
look-through cash flow.
DBRS Morningstar used the actual ground-rent figure of $36.3
million in its analysis (based on the scheduled ground rent at loan
maturity) and applied a blended cap rate of 4.78%, resulting in a
DBRS Morningstar Leased-Fee Value of $758.6 million, a variance of
53.6% from the appraised value of $1.6 billion at issuance. Using
the total leased-fee mortgage amount of $750.0 million and the
origination value of the leased-fee interest of $1.6 billion, the
LTV at origination was 45.8%. Using the leased-fee mortgage amount
of $750.0 million and the DBRS Morningstar-estimated value of
$758.6 million, the LTV at origination was 98.9%.
Additionally, because the leasehold financing is in default, DBRS
Morningstar also determined a liquidation value consistent with its
"North American CMBS Surveillance Methodology" as the ability to
make ground-rent payments is at more risk in this transaction than
is typical for leased-fee transactions. DBRS Morningstar determined
the liquidation value of $798.3 million by applying the cap rates
described above to a stressed cash flow for the project. DBRS
Morningstar derived this stressed cash flow by adjusting the
original DBRS Morningstar revenue estimates, including reducing the
projected rental rates for the now-vacant retail space by 50%,
eliminating retail percentage-rent income, and reducing the
expected NCF generated by the hotel component by 25%.
DBRS Morningstar did not deem additional scenarios for coronavirus
impact to be necessary as the analysis itself incorporates the
impact of the coronavirus.
Notes: All figures are in U.S. dollars unless otherwise noted.
AMUR EQUIPMENT 2018-1: DBRS Confirms BB Rating on Class E Notes
---------------------------------------------------------------
DBRS, Inc. confirmed or downgraded its ratings on the following
classes of securities included in three Amur Equipment Finance
transactions:
Amur Equipment Finance Receivables V LLC:
-- Series 2018-1, Class A-2 Notes, confirmed at AAA (sf)
-- Series 2018-1, Class B Notes, confirmed at AA (sf)
-- Series 2018-1, Class C Notes, confirmed at A (sf)
-- Series 2018-1, Class D Notes, confirmed at BBB (sf)
-- Series 2018-1, Class E Notes, confirmed at BB (sf)
-- Series 2018-1, Class F Notes, downgraded to CCC (high) (sf)
and removed from Under Review with Negative Implications
Amur Equipment Finance Receivables VI LLC:
-- Series 2018-2, Class A-2 Notes, confirmed at AAA (sf)
-- Series 2018-2, Class B Notes, confirmed at AA (sf)
-- Series 2018-2, Class C Notes, confirmed at A (sf) and removed
from Under Review with Negative Implications
-- Series 2018-2, Class D Notes, confirmed at BBB (low) (sf) and
removed from Under Review with Negative Implications
-- Series 2018-2, Class E Notes, confirmed at B (high) (sf) and
removed from Under Review with Negative Implications
-- Series 2018-2, Class F Notes, confirmed at CCC (high) (sf)
and removed from Under Review with Negative Implications
Amur Equipment Finance Receivables VII LLC:
-- Series 2019-1, Class A-2 Notes, confirmed at AAA (sf)
-- Series 2019-1, Class B Notes, confirmed at AA (sf) and removed
from Under Review with Negative Implications
-- Series 2019-1, Class C Notes, downgraded to A (low) (sf) and
removed from Under Review with Negative Implications
-- Series 2019-1, Class D Notes, downgraded to BBB (low) (sf)
and removed from Under Review with Negative Implications
-- Series 2019-1, Class E Notes, downgraded to B (high) (sf)
and removed from Under Review with Negative Implications
-- Series 2019-1, Class F Notes, downgraded to CCC (high) (sf)
and removed from Under Review with Negative Implications
The rating actions are based on the following analytical
considerations:
-- The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
Coronavirus Disease (COVID-19), available in its commentary "Global
Macroeconomic Scenarios: September Update," published on September
10, 2020. DBRS Morningstar initially published macroeconomic
scenarios on April 16, 2020, which 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. Observed performance during the
2008–09 financial crisis and the possible impact from a stimulus
package were also incorporated into the analysis.
-- There have been material changes in Amur Equipment Finance,
Inc.'s (AEF) origination strategies, underwriting framework,
financed asset mix, and access to liquidity since the Great
Recession of 2008–09, which DBRS Morningstar considered in
assessing the additional economic stress related to the coronavirus
pandemic. DBRS Morningstar also views these factors as potentially
mitigating some of the impact of recessionary conditions stemming
from the coronavirus pandemic.
-- The collateral performance to date and DBRS Morningstar's
assessment of future performance, including upward revisions to the
expected cumulative net loss assumptions that take into account the
increased stress commensurate with the moderate macroeconomic
scenario.
-- The currently available hard credit enhancement in the form of
overcollateralization, subordination (as applicable), and amounts
of deposit in the cash reserve account, as well as the change in
the level of protection afforded by each form of credit enhancement
since the closing of each transaction.
-- The relative benefit from obligor and geographic
diversification of collateral pools.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
ANCHORAGE CREDIT 12: Moody's Assigns (P)Ba3 Rating on Cl. E Notes
-----------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to six
classes of notes to be issued by Anchorage Credit Funding 12, Ltd.
Moody's rating action is as follows:
US$114,750,000 Class A-1 Senior Secured Fixed Rate Notes due 2038
(the "Class A-1 Notes"), Assigned (P)Aaa (sf)
US$30,000,000 Class A-2 Senior Secured Floating Rate Notes due 2038
(the "Class A-2 Notes"), Assigned (P)Aaa (sf)
US$41,250,000 Class B Senior Secured Fixed Rate Notes due 2038 (the
"Class B Notes"), Assigned (P)Aa3 (sf)
US$15,000,000 Class C Mezzanine Secured Deferrable Fixed Rate Notes
due 2038 (the "Class C Notes"), Assigned (P)A3 (sf)
US$15,000,000 Class D Mezzanine Secured Deferrable Fixed Rate Notes
due 2038 (the "Class D Notes"), Assigned (P)Baa3 (sf)
US$18,000,000 Class E Junior Secured Deferrable Fixed Rate Notes
due 2038 (the "Class E Notes"), Assigned (P)Ba3 (sf)
The Class A-1 Notes, the Class A-2 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."
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.
Anchorage Credit Funding 12 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, at least 10%
of the portfolio must consist of floating rate oblgations, up to
15% of the portfolio may consist of second lien loans, and up to
5.0% of the portfolio may consist of letters of credit. Moody's
expects the portfolio to be approximately 25% ramped as of the
closing date.
Anchorage Capital Group, L.L.C. 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 up to 50% of unscheduled principal payments and proceeds
from sales of credit risk assets.
In addition to the Rated Notes, the Issuer will issue 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: $300,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 3160
Weighted Average Coupon (WAC): 5.7%
Weighted Average Recovery Rate (WARR): 34.0%
Weighted Average Life (WAL): 11.0 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.
BB-UBS TRUST 2012-TFT: DBRS Assigns B(low) Rating on Class D Certs
------------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage-Pass Through
Certificates, Series 2012-TFT issued by BB-UBS Trust 2012-TFT as
follows:
-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at BBB (high) (sf)
-- Class D at B (low) (sf)
-- Class E at CCC (sf)
-- Class TE at B (high) (sf)
DBRS Morningstar has also placed Classes A, X-A, B, C, D, and TE
Under Review with Negative Implications, given the negative impact
of the Coronavirus Disease (COVID-19) on the underlying collateral.
Class E, rated CCC (sf), does not carry a trend.
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 22, 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 transaction is backed by three separate 7.5-year, fixed-rate,
interest-only (IO) first-mortgage loans with a combined principal
balance of $567.8 million. The three loans are secured by the
Tucson Mall located in Tucson; the Fashion Place mall located in
Murray, Utah; and the Town East Mall in Mesquite, Texas. The loans
were sponsored by GGP Limited Partnership, which Brookfield
Property Partners, L.P. (rated BBB with a Negative trend by DBRS
Morningstar) acquired in July 2018. The first-mortgage loans along
with a combined $65.2 million in mezzanine debt ($40.5 million
allocated to Tucson Mall and $24.7 million allocated to Fashion
Place) were used to refinance $341.0 million of existing debt and
return $292.0 million of equity back to the sponsor.
The loans were originally set to mature on June 1, 2020; however,
the sponsor was unable to refinance the outstanding debt because of
complications surrounding the coronavirus pandemic. The sponsor
requested relief and was transferred to special servicing in May
2020 for imminent default with the upcoming maturity. In June 2020,
a modification agreement was executed, which includes the following
for all three properties: (1) a maturity date extension to June 1,
2021, including mezzanine debts; and (2) the borrower's ability to
grant rent deferral without the servicer's consent, but to a
limited degree. Other terms and conditions have been instituted to
permit the basic forbearance strategy. As of the September 2020
remittance report, the sponsor is current on all interest payments
and has agreed to continue to cover operating and debt service
shortfalls out of pocket. Updated appraisals have been ordered but
are currently unavailable.
A $205.5 million portion of the combined $567.8 million of debt is
secured by a 667,581-sf portion of the 1.3 million-sf Tucson Mall.
The property is anchored by Dillard's, Macy's, JCPenney, Dick's
Sporting Goods, and Forever 21, all of which own their own
improvements. Dillard's, Macy's, and JCPenney sublease the land
from the sponsor. In addition to the current anchor set, a Sears
was in place at issuance but it vacated the property in April 2020.
While JCPenney has filed for bankruptcy, the store at the subject
property remains in operation and no announcements have been made
to date that the store will close. Over the past few years, the
property has shown precipitous cash flow declines as the YE2018 NCF
of $19.5 million was 19.2% below the issuance level of $24.1
million and dipped again by 14.0% from YE018 to YE2019 when the NCF
was reportedly $16.8 million, representing a 30.4% decline from
issuance. The most recent sales figures for the trailing 12-month
(T-12) period ended July 31, 2020, also reflected performance
declines with comparable sales below 10,000 sf at $320 psf, which
is 17.7% lower than the issuance level of $389 psf. The property's
occupancy rate generally held near the issuance level of 97.1%
prior to the pandemic with the August 2020 occupancy rate reported
at 92.5%; however, the potential for a deterioration in occupancy
is likely as the pandemic drives a record number of retailers into
bankruptcy. The mall has been severely affected by the pandemic as
it was forced to close for two months and did not reopen until May.
While collections at the property improved from 39.5% in April
2020, the property averaged only 58.0% between April and September
2020 and has had consecutive month-to-month declines from the peak
in July 2020. Furthermore, the upcoming expirations of Macy's in
October 2020 (with 11 five-year renewal options remaining),
Dillard's in July 2021, and JCPenney in July 2022 could prove
obtaining refinancing difficult if any of the anchor tenants
vacated or give notice to vacate the property prior to the extended
maturity date in June 2021. To date, Macy's remains at the property
despite the upcoming expiration. DBRS Morningstar has requested a
leasing update.
A $202.0 million portion of the combined $567.8 million of debt is
secured by a 421,206-sf portion of the 1.0 million-sf Fashion Place
regional mall located in Murray. The property is anchored by
Macy's, Dillard's, and Nordstrom; Dillard's and Nordstrom own their
respective improvements and land. In addition to the current anchor
set, a Sears was in place at issuance. Despite Sears vacating the
property, this did not have a trickledown effect for the mall as
occupancy has remained consistent with issuance levels at 98.9%
with the July 2020 occupancy level at 98.2%. While the YE2019 NCF
of $26.0 million is 11.0% below the $29.2 million at YE2018, the
YE2019 NCF is still 19.6% above the issuance level of $21.8
million. The most recent sales figures for the T-12 period ended
July 31, 2020, reported a slight increase in performance with
comparable sales below 10,000 sf at $723 psf, which is 1.5% higher
than the issuance level of $712 psf. The mall has been severely
affected by the pandemic as it was forced to close in March 2020
and did not reopen until May. While rent collections have improved
from the 30.3% in April 2020, collections started to decline
beginning in August 2020 and were at only 55.9% in September 2020,
which represents a 15.6% decline from the August 2020 level. A
decline in performance is anticipated moving forward as the
pandemic continues to have devasting impacts on business and forces
additional retailers into bankruptcy.
The remaining $160.3 million first-lien mortgage is secured by a
421,206-sf portion of the 1.2 million-sf Town East regional mall in
Mesquite. The property is anchored by Sears, Dillard's, JCPenney,
and Macy's, all of which own their own stores, portions of the
land, and parking areas. Other major retailers at the mall include
Dick's Sporting Goods, Forever 21, and H&M. While Sears and
JCPenney have filed for bankruptcy, both stores remain open at the
mall and are not included in store closures. The YE2019 NCF of
$19.2 million is slightly down from the $19.3 million from YE2018,
yet it is still 14.3% above issuance levels at $16.8 million.
Although overall operating performance has increased, sales have
actually declined from $452 psf at issuance for comparable sales
below 10,000 sf; the T-12 period ended July 31, 2020, reported
comparable sales at $429 psf, which represents a 5.1% decline.
Despite the small decline in sales, occupancy levels remain
consistent with issuance levels at 99.2% compared with 96.3% in
August 2020. The mall has also been severely affected by the
pandemic as it was forced to close in March 2020 and did not reopen
until May. While rent collections have improved from 28.8% in April
2020, collections started to decline beginning in August 2020 and
were at only 51.5% in September 2020, representing a 21.5% decline
from the August 2020 level. The mall is at an inflection point
because of the performance issues caused by the pandemic and all
four anchors have ground-lease expirations in December 2020. In the
event any number of the anchor tenants decide to vacate the
property, this could have a devastating impact on performance and
the sponsor's ability to refinance the loan. A decline in future
performance is anticipated as the pandemic continues to have
devasting impacts on businesses and forces additional retailers
into bankruptcy.
DBRS Morningstar derived the NCF for each property using the latest
reported servicer NCF with an adjustment, considering ongoing
collateral performance including tenant movement and sales
performance. The resulting NCF figure for Tucson Mall was $16.4
million and DBRS Morningstar applied a cap rate of 8.25%, which
resulted in a pre-coronavirus DBRS Morningstar Value of $199.3
million, a variance of -50.2% from the appraised value of $400.0
million at issuance. The resulting NCF figure for Fashion Place was
$25.5 million and DBRS Morningstar applied a cap rate of 7.75%,
which resulted in a pre-coronavirus DBRS Morningstar Value of
$329.1 million, a variance of -13.9% from the appraised value of
$382.0 million at issuance. The resulting NCF figure for Town East
Mall was $18.8 million and DBRS Morningstar applied a cap rate of
8.25%, which resulted in a pre-coronavirus DBRS Morningstar Value
of $227.8 million, a variance of -10.3% from the appraised value of
$254.0 million at issuance. The combined pre-coronavirus DBRS
Morningstar Value implies an A note LTV of 75.1% and a whole loan
LTV of 83.7% compared with the A note LTV of 54.8% and whole loan
LTV of 61.1% on the appraised value at issuance.
The cap rates DBRS Morningstar applied is at the middle end of the
range of DBRS Morningstar Cap Rate Ranges for regional mall
properties, reflecting each mall's position within its respective
suburban market.
DBRS Morningstar made positive and negative qualitative adjustments
to the final LTV sizing benchmarks for each loan used for this
rating analysis to account for cash flow volatility at each
property. In summary, DBRS Morningstar applied positive 0.25%
adjustments for the Fashion Place and Town East Mall loans and
-0.50% for the Tucson Mall loan.
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 assets 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.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had higher variances from the ratings assigned to Classes A, B, and
C 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 and mirrors the referenced obligation.
Notes: All figures are in U.S. dollars unless otherwise noted.
BBCMS 2017-DELC: DBRS Confirms B Rating on Class HRR Certs
----------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of the
Commercial Mortgage Pass-Through Certificates, Series 2017-DELC
issued by BBCMS 2017-DELC Mortgage Trust:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)
All trends are Negative because the underlying collateral continues
to face performance challenges associated with the Coronavirus
Disease (COVID-19) global pandemic. The ratings have been removed
from Under Review with Negative Implications, where they were
placed on March 27, 2020.
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 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.
As it reviewed the ratings for 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. 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
This transaction closed in August 2017, at an original trust
balance of $507.6 million, with three mezzanine loans totalling
$204.4 million held outside of the trust. The collateral for this
transaction is the Hotel del Coronado, located on Coronado Island
in the greater San Diego area. The underlying trust loan is
interest-only (IO) throughout the term, structured with a two-year
initial term with five one-year extension options. The servicer
confirmed that the sponsor has exercised its second extension
option, which extended the maturity date to August 2021. The loan
is sponsored by Blackstone Real Estate Partners VIII L.P., an
affiliate of The Blackstone Group Inc., the world's largest
alternative asset manager and real estate advisory firm. The hotel
previously operated as an independent hotel but is now managed by
Hilton Worldwide Holdings Inc. (Hilton) under the Curio Collection
flag, one of Hilton's upscale brands. The hotel management
agreement with Hilton began in July 2017 and runs through July
2027, containing two five-year extension options.
The loan is currently on the servicer's watchlist for an increased
level of risk stemming from the coronavirus pandemic and the
ensuing business disruptions. The hotel was forced to close in
mid-March and was reopened to the public in mid-June. DBRS
Morningstar also notes that the Borrower has alerted the Master
Servicer about potential cash flow problems arising in the future.
To date there has been no forbearances granted but the Master
Servicer continues to monitor the situation at the collateral.
The sponsor has exhibited a strong commitment to maintaining and
upgrading the property since acquiring an ownership interest in
2011. Since 2004, roughly $106.2 million ($156,363 per key on owned
rooms) has been invested into the property. As of a June 2020
property inspection report, there was reportedly $330.0 million of
capital expenditure budgeted for improvements through YE2021. The
massive project will be completed in two phases over the next few
years and will include a complete refresh of all guest rooms by
2021 in addition to various upgrades and additions throughout the
collateral. As of the June 2020 report, updates have been completed
for the following areas: outdoor meeting space, three-level parking
structure, front restaurant, cabana, and adjoining guest suites.
The planned completion date for the new spa and fitness facilities
is the end of October 2020. The construction on the new 149 guest
suites began in June 2020 but has been delayed by the pandemic. The
overall project was under consideration at issuance but had not
been finalized at the time of the loan's closing; as such, there
were no reserved funds structured for these renovations.
Per the trailing 12 months ended March 30, 2020, the subject
reported an occupancy rate, average daily rate (ADR), and revenue
per available room (RevPAR) of 65.6%, $436.71, and $286.51,
respectively. The subject is outperforming its competitive set only
in the ADR category while seeing the only positive increase of a
marginal 1.0%. The occupancy rate and RevPAR declined by 14.7% and
13.8% year over year, respectively. In addition, with its unique
historic status and highly desirable location with over 1,400
linear feet of ocean frontage and a relatively substantial meeting
and event space footprint of over 135,000 square feet, the hotel
has no true direct competition in the vicinity or even in the
larger Southern California market. According to the June 2020
reporting and YE2019 financials, the servicer's calculated debt
service coverage ratio (DSCR) for the trust portion of the loan was
0.52 times (x) and 1.22x, respectively, and compared with the
YE2018 DSCR of 1.81x.
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 $49.9
million and DBRS Morningstar applied a cap rate of 8.0%, which
resulted in a DBRS Morningstar Value of $624.0 million, a variance
of 39.6% from the appraised value of $1.0 billion at issuance. The
DBRS Morningstar Value implies an LTV of 81.3% compared with the
LTV of 49.1% on the appraised value at issuance.
The cap rate DBRS Morningstar applied is at the middle of the range
of DBRS Morningstar Cap Rate Ranges for lodging properties,
reflecting the luxury nature of the collateral, lack of true
competition in the immediate vicinity, as well as the strong
sponsorship and significant commitment of capital to the collateral
in the form of upgrades and renovations since issuance.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling
6.50% to account for cash flow volatility, property quality, and
market fundamentals.
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 25.0% 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.
Class X-NCP 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.
BBCMS MORTGAGE 2020-C8: DBRS Gives Prov. B Rating on J-RR Certs
---------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2020-C8 to be
issued by BBCMS Mortgage Trust 2020-C8 (BBCMS 2020-C8):
-- Class A-1 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (low) (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class X-D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class F at BB (high)(sf)
-- Class G at BB (high) (sf)
-- Class H at BB (low) (sf)
-- Class X-FG at BBB (low) (sf)
-- Class X-H at BB (sf)
-- Class J-RR at B (sf)
All trends are Stable. The Class X-D, X-FG, X-H, D, E, F, G, H,
J-RR, and K-RR Certificates will be privately placed.
The Class X-A, X-B, X-D, X-FG, and X-H balances are notional.
Coronavirus Disease (COVID-19) Overview
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 CRE 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.
Based on the information provided by the borrowers as of July,
August, and September 2020, despite the coronavirus pandemic, no
borrowers in the pool have requested forbearance, debt service
relief, or loan modification. The August and September 2020 debt
service has been collected on all loans that have closed and
commenced principal and interest payments. On an aggregate basis,
99% and 98% of the August and September 2020 rent payments were
collected, respectively.
The collateral consists of 48 fixed-rate loans secured by 127
commercial and multifamily properties. The transaction is a
sequential-pay pass-through structure. DBRS Morningstar analyzed
the conduit pool to determine the provisional ratings, reflecting
the long-term probability of loan default within the term and its
liquidity at maturity. Two loans, representing 19.9% of the pool
balance, are shadow-rated investment grade by DBRS Morningstar.
When the cut-off loan balances were measured against the DBRS
Morningstar Net Cash Flow and their respective actual constants,
the initial DBRS Morningstar weighted-average (WA) Debt Service
Coverage Ratio (DSCR) of the pool was 2.27x. Five loans,
representing 19.1% of the pool balance, had a DBRS Morningstar DSCR
below 1.30x, a threshold indicative of a higher likelihood of
midterm default. The DBRS Morningstar WA Loan-to-Value Ratio (LTV)
of the pool at issuance was 59.3%, and the pool is scheduled to
amortize down to a DBRS Morningstar WA LTV of 54.3% at maturity.
These credit metrics are based on A note balances. Eleven loans,
representing 24.8% of the pool balance, were originated in
connection with the borrower's acquisition of the related mortgage
property. Thirty-four loans, representing 64.4% of the pool
balance, were originated in connection with the borrower's
refinancing of a previous mortgage loan. The remaining loans were
originated in connection with either recapitalization or a
combination of acquisition/refinance of the property. DBRS
Morningstar views acquisition loans as more favorable in the
context of recent-vintage conduit and fusion transactions.
Cash-equity infusions from a sponsor in a transaction typically
result in greater alignment of interests between the lender and
borrower, especially compared with a refinancing scenario where the
sponsor may be withdrawing equity from the transaction.
The collateral features two loans, representing 19.9% of the pool
balance that DBRS Morningstar assessed as investment-grade: One
Manhattan West and MGM Grand & Mandalay Bay. One Manhattan West
exhibits credit characteristics consistent with a shadow rating of
"A" and MGM Grand & Mandalay Bay exhibits credit characteristics
consistent with a shadow rating of AAA.
Six loans, representing 21.5% of the aggregate pool balance, are in
areas with DBRS Morningstar Market Ranks 7 and 8, which benefit
from locations in urban and liquid markets, driven by consistently
strong investor demand, even during times of economic stress. Urban
markets represented in this deal include New York, Miami, and
Seattle. In addition, 12 loans, representing 41.0% of the pool
balance, have collateral located in the metropolitan statistical
area (MSA) Group 3, which represents the best-performing group in
terms of historical commercial mortgage-backed securities (CMBS)
default rates among the top 25 MSAs. MSA Group 3 has a historical
default rate of 17.2%, which is nearly 40.0% lower than the overall
CMBS historical default rate of approximately 28.0%.
Seventeen loans, representing 37.8% of the pool by allocated loan
balance, exhibited a DBRS Morningstar LTV at issuance of equal to
or less than 60.0%, a threshold historically indicative of
relatively low-leverage financing and generally associated with
below-average default frequency.
Term default risk is low as indicated by a strong DBRS Morningstar
WA DSCR of 2.27x. Even with the exclusion of the shadow-rated
loans, representing 19.9% of the pool, the deal exhibits a
favorable DBRS Morningstar DSCR of 1.79x.
Five loans, representing 26.3% of the pool balance, have
sponsorship that DBRS Morningstar deems as Strong. Only four loans,
representing 5.8% of the pool balance, have sponsorship and/or loan
collateral associated with a voluntary bankruptcy filing, a prior
discounted payoff, a loan default, limited net worth and/or
liquidity, a historical negative credit event, and/or inadequate
commercial real estate experience.
DBRS Morningstar did not deem any of the sampled loans as Below
Average or Poor property quality. Seven sampled loans, representing
31.6% of the pool balance, exhibited Average +, Above Average, or
Excellent property quality. Additionally, two of the top three
loans, One Manhattan West and MGM Grand & Mandalay Bay, are secured
by collateral with property quality that DBRS Morningstar deemed as
Excellent.
Eleven loans, representing 19.3% of the pool balance, including two
portfolios, are secured by properties that are either fully or
partially leased to a single tenant. In ExchangeRight Net Leased
Portfolio 38, 11 of the 13 individual properties are occupied by
investment-grade credit-rated tenants, and the leases are direct
with rated entities or have guarantees from such entities.
ExchangeRight Net Leased Portfolio 32 consists of eight different
tenants, six of which are investment grade. Investment-grade
tenants occupy 21 properties and account for 53.1% of the net
rentable area. The DBRS Morningstar WA LTV at issuance for the
single-tenant properties is 62.1%, which is considered to be
relatively low-leverage financing and generally associated with
below-average default frequency.
The pool has a relatively high concentration of loans secured by
office properties, comprising 10 loans, representing 38.9% of the
pool by allocated loan balance. The ongoing coronavirus pandemic
continues to pose challenges globally, and the future demand for
office space is uncertain with corporate downsizings and more
companies extending their remote-working strategy. The largest
loan, One Manhattan West, comprising 9.997% of the pool balance, is
shadow-rated investment grade by DBRS Morningstar. The office
properties in the pool exhibit a favorable DBRS Morningstar WA DSCR
of 2.37x and DBRS Morningstar WA LTV of 58.7%, which mitigate some
of DBRS Morningstar's concerns about this property type. In a
closer context, 70% of these offices have DBRS Morningstar LTVs of
less than 65%, while 40% have a DBRS Morningstar DSCR of higher
than 2.00x. Three of the office loans, representing 19.6% of the
office concentration, are secured by office properties located in
areas with a DBRS Morningstar Market Rank of 7 and 8, which are in
desirable primary markets. For the loans secured by office
properties in more suburban areas, the WA expected loss is more
than 2 times the expected loss of the overall pool. Three of the
loans, representing 19.0% of the office concentration, are backed
by sponsors that DBRS Morningstar deems as Strong because they meet
certain net worth and liquidity multiple thresholds and have
substantial real estate experience with limited past credit
issues.
Sixteen loans, representing 48% of the pool balance, are structured
with full-term interest-only (IO) periods. An additional 17 loans,
representing 36.4% of the pool balance, are structured with
partial-IO terms ranging from 12 months to 60 months. Two full-term
IO loans, One Manhattan West and MGM Grand & Mandalay Bay are
shadow-rated investment grades and represent 41.5% of the full-term
IO concentration. The loan metrics on these IO loans are favorable
with a DBRS Morningstar WA DSCR and DBRS Morningstar WA LTV of
2.30x and 59.0%, respectively, for the full-term IO loans.
The pool features a relatively high concentration of loans secured
by properties located in less favorable suburban, tertiary, and
rural market areas. Thirty-four loans, representing 57.9% of the
pool balance, are secured by properties predominately located in
areas with a DBRS Morningstar Market Rank of 1 through 4. Loans in
markets with a DBRS Morningstar Market Rank of 1 through 4
typically have a higher probability of default and, on average,
produce higher expected losses than similar loans; therefore, the
component of the pool that is concentrated in these weaker markets
resulted in higher deal-level credit enhancement with the average
expected loss of 3.10%, compared with the overall deal-level
expected losses of 1.96%.
Five loans, accounting for 24.6% of the transaction, have
collateral that is subject to a condominium regime. The borrowers
generally exercise sufficient voting rights to exercise control
over those structures that would prevent actions taken that could
affect the collateral. The 7 Powder Horn Drive loan is subject to a
condominium in which the borrower holds 30.4% of the interests and,
therefore, does not have control of the condominium board. Both
properties securing 44 Mercer Street and 471 Broadway loans are
subject to condominium regimes. In neither case does the borrower
have control of the condominium board.
Four loans with an original loan amount exceeding $20 million,
representing 12.8% of the pool balance, lack the requirements for a
nonconsolidation opinion in the loan document. Per the
representations and warranties in the Mortgage Loan Purchase
Agreement, each mortgage loan with a cut-off date balance of $30
million or more has a counsel's opinion regarding nonconsolidation
of the mortgagor.
Classes X-A, X-B, X-D, X-FG, and X-H are 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.
BCC FUNDING 2018-1: DBRS Confirms BB Rating on Class E Notes
------------------------------------------------------------
DBRS, Inc. confirmed or upgraded its ratings on the following
classes of securities included in three BCC Funding transactions as
follows:
BCC Funding XII LLC:
-- Loan, confirmed at A (sf)
BCC Funding XIV LLC:
-- Series 2018-1, Class A-2 Note, confirmed at AAA (sf)
-- Series 2018-1, Class B Notes, upgraded to AAA (sf)
-- Series 2018-1, Class C Notes, upgraded to AA (sf)
-- Series 2018-1, Class D Notes, upgraded to A (low) (sf)
-- Series 2018-1, Class E Notes, confirmed at BB (sf)
BCC Funding XVI LLC:
-- Series 2019-1, Class A-2 Notes, confirmed at AAA (sf)
-- Series 2019-1, Class B Notes, upgraded to AA (low) (sf)
-- Series 2019-1, Class C Notes, upgraded to A (low) (sf)
-- Series 2019-1, Class D Notes, confirmed at BB (sf)
The rating actions are based on the following analytical
considerations:
-- The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
Coronavirus Disease (COVID-19), available in its commentary "Global
Macroeconomic Scenarios: September Update," published on September
10, 2020. DBRS Morningstar initially published macroeconomic
scenarios on April 16, 2020, which 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. Observed performance during the
2008–09 financial crisis and the possible impact from a stimulus
package were also incorporated into the analysis.
-- The collateral performance to date and DBRS Morningstar's
assessment of future performance, including upward revisions to the
expected cumulative net loss assumptions that take into account the
increased stress commensurate with the moderate macroeconomic
scenario.
-- The currently available hard credit enhancement in the form of
overcollateralization, subordination (as applicable), and amounts
of deposit in the cash reserve account, as well as the change in
the level of protection afforded by each form of credit enhancement
since the closing of each transaction.
-- The relative benefit from obligor and geographic
diversification of collateral pools.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
BENCHMARK MORTGAGE 2020-B20: Fitch to Rate Class H Certs B-sf
-------------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
Benchmark 2020-B20 Mortgage Trust commercial mortgage pass-through
certificates series 2020-B20.
RATING ACTIONS
Fitch expects to rate the transaction and assign Rating Outlooks as
follows:
-- $ 13,046,000 class A-1 'AAAsf'; Outlook Stable;
-- $ 69,728,000 class A-2 'AAAsf'; Outlook Stable;
-- $ 68,875,000 class A-3 'AAAsf'; Outlook Stable;
-- $ 85,000,000a class A-4 'AAAsf'; Outlook Stable;
-- $ 345,642,000a class A-5 'AAAsf'; Outlook Stable;
-- $ 18,529,000 class A-SB 'AAAsf'; Outlook Stable;
-- $ 667,339,000b class X-A 'AAAsf'; Outlook Stable;
-- $ 79,394,000b class X-B 'A-sf'; Outlook Stable;
-- $ 66,519,000 class A-S 'AAAsf'; Outlook Stable;
-- $ 38,624,000 class B 'AA-sf'; Outlook Stable;
-- $ 40,770,000 class C 'A-sf'; Outlook Stable;
-- $ 50,426,000bc class X-D 'BBB-sf'; Outlook Stable;
-- $ 12,875,000bc class X-F 'BB+sf'; Outlook Stable;
-- $ 10,729,000bc class X-G 'BB-sf'; Outlook Stable;
-- $ 8,583,000bc class X-H 'B-sf'; Outlook Stable;
-- $ 28,968,000c class D 'BBBsf'; Outlook Stable;
-- $ 21,458,000c class E 'BBB-sf'; Outlook Stable;
-- $ 12,875,000c class F 'BB+sf'; Outlook Stable;
-- $ 10,729,000c class G 'BB-sf'; Outlook Stable;
-- $ 8,583,000c class H 'B-sf'; Outlook Stable.
The following classes are not expected to be rated by Fitch:
-- $ 28,968,432bc class X-NR;
-- $ 28,968,432c class NR;
-- $ 35,420,444cd class RR;
-- $ 9,754,000cd class RRI.
(a) The initial certificate balances of class A-4 and A-5 are
unknown and expected to be $430,642,000 in aggregate, subject to a
5% 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 $260,642,000 to $430,642,000. Fitch's
certificate balances for classes A-4 and A-5 are assumed at the
midpoint of the range for each class.
(b) Notional amount and interest only (IO).
(c) Privately placed and pursuant to Rule 144A.
(d) Vertical credit risk retention interest.
The expected ratings are based on information provided by the
issuer as of Oct. 13, 2020.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 34 fixed-rate loans secured by
89 commercial properties having an aggregate principal balance of
$903,488,876 as of the cut-off date. The loans were contributed to
the trust by Citi Real Estate Funding Inc., JPMorgan Chase Bank,
National Association, Goldman Sachs Mortgage Company, and German
American Capital Corporation.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 49.3% of the properties
by balance, cash flow analysis of 93.1% and asset summary reviews
on 100% of the pool.
KEY RATING DRIVERS
Higher Fitch Leverage than Recent Transactions: The pool has
slightly higher than average leverage relative to other recent
Fitch-rated multiborrower transactions. The pool's Fitch LTV of
101.0% is higher than YTD 2020 average of 99.1% but lower than the
2019 average of 103.0%. The pool's Fitch DSCR of 1.32x is
consistent with the YTD 2020 average of 1.32x and slightly better
than the 2019 average of 1.26x. Excluding credit opinion loans, the
pool's weighted average (WA) DSCR and LTV are 1.25 and 110.7,
respectively.
Credit Opinion Loans: The pool includes three loans, representing
19.9% of the deal, that received investment-grade credit opinions.
This falls between the YTD 2020 and 2019 averages of 27.3% and
14.2%, respectively. Moffett Place - Building 6 (8.3% of pool)
received a stand-alone credit opinion of 'BBB-sf*'; MGM Grand &
Mandalay Bay (7.7% of pool) received a stand-alone credit opinion
of 'BBB+sf*'; and Agellan Portfolio (3.9% of pool) received a
stand-alone credit opinion of 'A-sf*'.
Property Type Representation: Office properties represent the
largest property type concentration at 67.5% of the pool, which is
notably higher than the YTD 2020 and 2019 average office
concentrations of 39.0% and 34.2%, respectively. While the pool is
highly exposed to Office, these properties generally consist of
better-quality assets located in core markets. Additionally, the
pool has a relatively low exposure to Retail properties (7.8% of
the pool) and Hotel properties (7.7% of the pool).
RATING SENSITIVITIES
This section provides insight into the sensitivity of ratings when
one assumption is modified, while holding others equal. For U.S.
CMBS, the sensitivity reflects the impact of changes to property
net cash flow (NCF) in up- and down-environments. The results below
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.
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:
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf' /'
BB-sf' / 'B-sf'.
10% NCF Decline: 'A+sf' / 'A-sf' / 'BBB-sf' / 'BB+sf' / 'BB-sf'
/'CCCsf' / 'CCCsf'.
20% NCF Decline: 'BBB+sf' / 'BBB-sf' / 'BB+sf' / 'B+sf' / 'CCCsf' /
'CCCsf' / 'CCCsf'.
30% NCF Decline: 'BBBsf' / 'BB+sf' / 'Bsf' / 'CCCsf'/ 'CCCsf' /
'CCCsf' / 'CCCsf'.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Similarly, improvement in cash flow increases property value and
capacity to meet its debt service obligations. The table below
indicates the model implied rating sensitivity to changes to the
same one variable, Fitch NCF:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf' /'
BB-sf' / 'B-sf'.
20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AAsf' / 'A+sf' / 'A-sf' /
'BBBsf' / 'BBB-sf'.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Ernst & Young LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis and it did not
have an effect on Fitch's 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 "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.
BRAVO RESIDENTIAL 2020-TAC1: Fitch Gives B(EXP) Rating to B5 Debt
------------------------------------------------------------------
Fitch Ratings has assigned expected ratings to BRAVO Residential
Funding Trust 2020-TAC1 (BRAVO 2020-TAC1).
RATING ACTIONS
Bravo 2020-TAC1
Class A1; LT AAA(EXP)sf Expected Rating
Class AIO; LT AAA(EXP)sf Expected Rating
Class AIOS; LT NR(EXP)sf Expected Rating
Class B1; LT AA(EXP)sf Expected Rating
Class B1A; LT AA(EXP)sf Expected Rating
Class B1IO; LT AA(EXP)sf Expected Rating
Class B2; LT A(EXP)sf Expected Rating
Class B2A; LT A(EXP)sf Expected Rating
Class B2IO; LT A(EXP)sf Expected Rating
Class B3; LT BBB(EXP)sf Expected Rating
Class B4; LT BB(EXP)sf Expected Rating
Class B5; LT B(EXP)sf Expected Rating
Class B6; LT NR(EXP)sf Expected Rating
Class FB; LT NR(EXP)sf Expected Rating
Class SA; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch Ratings expects to rate this seasoned residential
mortgage-backed transaction, BRAVO Residential Funding Trust
2020-TAC1 (BRAVO 2020-TAC1), issued by a private fund managed by
Pacific Investment Management Company LLC (PIMCO) as indicated. The
transaction is expected to close on Oct. 16, 2020. The notes are
supported by 2,239 prime quality seasoned loans with a total
balance of approximately $198 million, which includes $201 thousand
of the aggregate pool balance in non-interest-bearing deferred
principal amounts, as of the statistical calculation date.
The loans were originated or acquired by affiliates of Capital One,
National Association, which exited the mortgage originations
business in 2018, and were subsequently purchased by an affiliate
of a PIMCO-managed private fund in a bulk sale, and will be
serviced by Rushmore Loan Management Services (RLMS).
KEY RATING DRIVERS
Revised GDP Due to the Coronavirus: The coronavirus and the
resulting containment efforts have resulted in revisions to Fitch's
GDP estimates for 2020. Fitch's baseline global economic outlook
for U.S. GDP growth is currently a 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
coronavirus, an Economic Risk Factor (ERF) floor of 2.0 (the ERF is
a default variable in the U.S. RMBS loan loss model) was applied to
'BBBsf' and below.
Liquidity Stress for Payment Forbearance (Negative): The outbreak
of the coronavirus pandemic 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
Alt-A delinquencies and past due payments following Hurricane Maria
in Puerto Rico. The lowest ranked classes may be vulnerable to
temporary interest shortfalls to the extent there is not enough
funds available once the more senior bonds are paid.
There is no advancing of delinquent P&I in this transaction or
excess interest available to cover interest shortfalls. However, if
there are outstanding interest shortfalls, money allocated to pay
the AIOS class will first be allocated to cover interest shortfalls
on the A1 thru B6 classes then any remaining funds will be
allocated to the AIOS class.
Although diverting money from the AIOS class to the A1 thru B6
classes helps to reduce the amount of interest shortfall, the
lowest ranked classes may be vulnerable to temporary interest
shortfalls to the extent not enough funds are available once the
more senior bonds are paid.
Payment Forbearance (Mixed): Of the borrowers, 7.8% are on an
active coronavirus relief plan. Of this amount, 7.4% are on a
deferral and 0.36% are on an active forbearance. If the borrower
was not cash flowing, the loan was treated as delinquent. If the
borrower made a payment after the deferral period ended or after
the forbearance period ended these borrowers were treated as
current.
No borrower in the pool on a coronavirus relief plan or under
review for coronavirus relief is more than 30 days delinquent.
Fitch considered 0.6% of the loans on a coronavirus plan as
delinquent since they were not cash flowing and the remaining 7.2%
as current since they were cash flowing.
No P&I Servicer Advances (Mixed): The servicer will not make
advances of delinquent P&I on any of the mortgage loans. As a
result, the loss severity is lower; however, principal will need to
be used to pay interest to the notes. As a result, more credit
enhancement (CE) will be needed.
Prime Credit Quality (Positive): The collateral consists of
15-year, 30-year and 40-year fixed-rate and adjustable-rate
mortgage (ARMs) loans. While the majority of the pool is fully
amortizing, 0.5% of the pool are IO loans, and 11.5% of the pool
are balloon loans. The pool is seasoned approximately 75 months in
aggregate as of the closing date. The borrowers in this pool have
strong credit profiles with a weighted-average (WA) FICO of 744 (as
determined by Fitch) and relatively low leverage (57.6% sLTV). The
loans were predominantly originated with full income documentation
through Capital One's retail channel, which Fitch views positively.
In addition, 88% of the borrowers have been paying on time for the
past 24 months, and 98% are current.
All of the loans are first liens. Any loan that was identified as a
second lien was removed from the pool.
Cash-Out Refinances (Negative): 66% of the pool consists of
cash-out refinance loans. The loans are equity take-outs but
considered cash out refinances despite no refinancing of a prior
mortgage and therefore received a PD penalty. A cash-out refinance
mortgage loan is generally a mortgage loan in which the use of the
loan amount is not limited to specific purposes. A mortgage loan
placed on a property previously owned free and clear by the
borrower is considered a cash-out refinance mortgage loan. The low
LTVs and concentration of 15-year terms reflect the lack of a prior
mortgage. The losses were increased by 207 bps to account for the
additional risk of a cash out compared to a purchase loan (all else
being equal).
Geographic Concentration (Negative): 29.9% of the pool is
concentrated in Louisiana with relatively low MSA concentration
(MSA concentrations below are as determined by Fitch). The largest
MSA concentration is in New York MSA (24.1%) followed by the New
Orleans MSA (11.3%) and the Washington MSA (8.9%). The top three
MSAs account for 44.3% of the pool. As a result, there was a 1.11x
probability of default (PD) adjustment for the geographic
concentration and an increase of Fitch's 'AAAsf' expected Loss (EL)
by 90 bps.
Catastrophic Risk (Negative): This pool is highly concentrated
across the Gulf Coast, which is at greater risk of natural
disasters compared to the other parts of the country.
On Aug. 27, 2020, Hurricane Laura made landfall in Texas and
Louisiana and Hurricane Sally made landfall in Alabama on Sept. 15,
2020. A total of 6.3% of the pool was recently listed by FEMA as a
declared natural disaster area as a result of Hurricane Laura and
Hurricane Sally. The servicer had property inspections performed on
19 loans in the pool and approximately half of those loans had
damage. The majority of the damage was minor to moderate. It is the
servicer's practice to only order property inspections on loans
that are 30+ days DQ in the impacted area or if a borrower calls in
to report damage. All loans with confirmed damages are in LA and
the majority are in the Lake Charles area.
The majority of the loans in the impacted area are current.
To address the impact of the hurricane, values were haircut by 10%
for all properties listed in the area to reflect the potential risk
of property damage. In addition, for the eight loans that had
damage Fitch haircuts the property value by 35% (AAA stress below
sustainable levels). Additionally, the catastrophic risk adjustment
was doubled to address future natural disasters in the region.
MIM - Multiple Indebtedness Mortgage (Neutral): By loan count, 41%
of the pool and 25.4% of the pool by balance consists of MIM loans.
A MIM is a loan (which are a mortgage product specific to
Louisiana) where the borrower owes more than one debt secured by a
property. Unlike a traditional mortgage where a promissory note is
used to secure the loan, a MIM directly secures the credit
extension or loan advances on a line of credit basis. At
origination, the borrower is approved for a loan of a certain
amount, and later can borrow up to that amount. However, the
product doesn't require any additional adjustment because for all
MIMs in the pool, no additional funding on the MIMs can be
exercised. Additionally, to the extent a borrower had previously
exercised an additional MIM financing, Fitch considered all
balances to be cross collateralized for its analysis.
Limited Title Search (Negative): 100% of the pool received a
cursory tax and title lien search using a Corelogic Lien Report
Lite (Lite) product. Only 44% of the final pool was confirmed to be
in a first-lien position based on the Lite and had a medium to high
confidence score. The remaining 56% of the pool resulted in a low
confidence first lien based on the Lite product, were confirmed to
be a second or greater lien or did not return a result. The sponsor
selected a statistically significant random sample from the 56% for
a full title search, the results of which showed 89% (based on the
original sample set) to be in the first-lien position, while 11%
(based on the original sample set) were determined to be
subordinate to small liens, such as homeowners association fees
(HOA), mechanic's liens or tax liens; these loans were subsequently
dropped. Based on the sample results provided, Fitch assumed a
portion of the loans without a title search are second liens and
applied 100% loss severity. This was significantly more
conservative than the sample indicated. Additionally, to account
for delinquent taxes or liens, Fitch extrapolated potential
outstanding liens based on the tax and title search to the loans
not included in the search, which increased the 'AAAsf' expected
loss levels by 85 bps.
Shifting Interest 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.
Subordination Floor (Positive): To mitigate tail risk, which arises
as the pool seasons and fewer loans are outstanding, a
subordination floor of 4.50% of the original balance will be
maintained for the senior certificates. A subordinate CE floor of
4.50% will be maintained for the subordinate.
Low Operational Risk (Positive): Certain investment vehicles
managed by PIMCO have a long operating history of aggregating
residential mortgage loans. PIMCO is assessed as 'Above Average' by
Fitch. The servicer for this transaction, Rushmore Loan Management
Servicer LLC has demonstrated strong servicing capabilities and is
rated by Fitch as 'RPS2'.
Representation Framework (Negative): The rep and warranty (R&W)
framework is consistent with Tier 2 quality. The framework contains
an optional breach review at the discretion of the controlling
holder for loans with a realized loss; however, 25% of the
aggregate bond holders may also initiate a review. The framework
includes knowledge qualifiers without a claw back provision. The
adjustments for a Tier 2 framework resulted in an 86-bps addition
to the AAAsf loss expectation. The reps are being provided by an
unrated counterparty.
Due Diligence Review Results (Negative): Third-party due diligence
was performed on approximately two-thirds of the loans by Digital
Risk, an 'Acceptable - Tier 2' firm. Although the diligence scope
was not fully in line with Fitch criteria, and the pool showed
higher than typical 'C' or 'D' grades, the impact on the
transaction was relatively limited due to the TPR unable to
conclusively test for predatory lending. Overall, Fitch adjusted
its loss expectation at the 'AAAsf' by 131 bps for these issues.
Deferred Amounts (Negative): Non-interest-bearing principal
forbearance totaling $201 thousand (0.1%) of the unpaid principal
balance (UPB) is outstanding. The non-interest-bearing balance is
being allocated to a nonrated class. 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 loss severity (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.
The model implied rating for the B1 note indicated a rating two
notches lower than the rating assigned. Under Fitch's 'AA' cashflow
stresses and assuming a 0.50% servicing fee, the B1 note took a
small interest temporary shortfall of 0.06% near month 60 in one
stress (the backloaded flat). The interest shortfall was repaid in
full by period 119 in the most conservative case. Assuming a 0.25%
servicing fee, the B1 note is paid timely interest and is paid in
full in all of Fitch's AA cashflow stresses. Fitch determined that
the 0.06% temporary interest shortfall was not material, due to the
small size of the temporary interest shortfall, the fact that the
temporary interest shortfall only occurred in one cashflow stress
(Backloaded Flat), which is a very conservative scenario that is
not likely to occur, and that making a minor change to an
assumption results in no temporary interest shortfall for the B1
note. Further, under Fitch's US RMBS Cash flow Analysis Criteria, a
bond does not need to pass all scenarios in the assigned rating
stress in order to achieve that rating.
RATING SENSITIVITIES
Fitch's 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. Three sets of sensitivity
analyses were conducted at the state and national levels to assess
the effect of higher MVDs for the subject pool.
Factors that could, individually or collectively, lead to a
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 10.0%. Excluding the
senior classes which are already 'AAAsf', the analysis indicates
there is potential positive rating migration for all of the rated
classes.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
This defined stress sensitivity analysis demonstrates how the
ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0%, in addition to the
model-projected 39.0% at 'AAA'. As shown in the table, the analysis
indicates that there is some potential rating migration with higher
MVDs, compared with the model projection.
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. For enhanced disclosure of Fitch's
stresses and sensitivities, please refer to the transaction's
presale report.
Fitch has also added a coronavirus sensitivity analysis that
contemplates a more severe and prolonged economic stress caused by
a reemergence of infections in the major economies, before a slow
recovery begins in 2Q21. Under this severe scenario, Fitch expects
the ratings to be impacted by changes in its sustainable home price
model due to updates to the model's underlying economic data
inputs. Any long-term impact arising from coronavirus disruptions
on these economic inputs will likely affect both investment and
speculative grade ratings Fitch's stress and rating sensitivity
analysis are discussed in its presale report "BRAVO Residential
Mortgage Trust 2020-TAC1".
CRITERIA VARIATION
Fitch's analysis incorporated two criteria variations one from the
"U.S. RMBS Loan Loss Model Rating Criteria" and the second from
"U.S. RMBS Rating Criteria."
The first variation relates to the Loan Loss Model Criteria. Fitch
haircut property values in the natural disaster areas (10% haircut
for non-damaged properties and a 35% haircut for damaged
properties), as well as doubling the catastrophic risk adjustment
in the model to account for an increase in catastrophic risk, this
impacted the loss levels by 30bps. The rating impact of the
variation was one notch.
The second variation relates to the limited title review that is a
variation from the U.S. RMBS Rating Criteria. A 12% statistical
sample of title searches was conducted on the 1,259 no-hit
population of loans. The sample indicated that 13% of loans
searched were nonfirst liens. Fitch extrapolated from the sample
results to the no-hit population of loans and assumed 100% LS for
that extrapolation (15%). The 100% loss severity for missing a
title search as described herein, affected 7.5% of the total pool.
Due to the conservative extrapolation of the title search findings
and the fact that the depositor is making a loan level rep that
mortgage is a valid first lien (This rep does not sunset), Fitch
felt comfortable that the risk was adequately addressed. This
variation had an impact of 85 bps to the 'AAA' expected loss and
impacted the rating by one notch.
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 Digital Risk. The third-party due diligence described
in Form 15E focused on three areas: compliance review, credit
review and valuation review.
Fitch considered this information in its analysis and, as a result,
Fitch did not make any adjustment(s) to its analysis. Based on the
results of the due diligence performed on the pool, the overall
expected loss was increased by approximately 1.30%.
DATA ADEQUACY
Third-party due diligence was completed on a sample of
approximately 64% of the loans in this transaction. The majority of
the due diligence was completed in connection with the sale of a
large portfolio of loans originated by Capital One. The reviews
were conducted by Digital Risk, an Acceptable - Tier 2 firm. After
acquiring the majority of the Capital One portfolio, the Sponsor
ordered additional searches for the securitization pool, including
a tax, title and lien reviews. The scope of the reviews was
substantially in line with Fitch criteria.
Fitch analysts reviewed each exception and determined where a loan
level adjustment was warranted. The regulatory compliance review
indicated that 616 reviewed loans, or approximately 27.7% (42% of
the sample) of the total pool, were found to have a material defect
and, therefore, assigned a final grade of 'C' or 'D'. While the
concentration of material grades in this transaction is high
relative to prior transactions, which indicates that there may be
higher levels of compliance risk, the majority of exceptions are
for missing specific documentation that does not prevent the TPR
from effectively testing for compliance with lending regulations.
A total of 42% of the diligence loans did not fully confirm
predatory lending compliance. Inability to test for predatory
lending may expose the trust to potential assignee liability, which
creates added risk for bond investors. As a result, Fitch also
extrapolated the findings to the remaining 36% of the pool where
diligence was not performed overall. Per criteria, Fitch increased
its loss severity by 5% to account for this increased risk (5% is
added for properties which are not located in the states that fall
under Freddie Mac's high cost do not purchase list). For the
indeterminates, including extrapolation, there was an adjustment of
about 41 bps to AAA EL.
BX TRUST 2017-CQHP: Moody's Lowers Rating on Class F Certs to Caa3
------------------------------------------------------------------
Moody's Investors Service affirmed the ratings on two and
downgraded the ratings on four classes of BX Trust 2017-CQHP,
Commercial Mortgage Pass-Through Certificates, Series 2017-CQHP.
Moody's rating action is as follows:
Cl. A, Affirmed Aaa (sf); previously on Feb 13, 2020 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa3 (sf); previously on Feb 13, 2020 Affirmed Aa3
(sf)
Cl. C, Downgraded to Baa2 (sf); previously on Feb 13, 2020 Affirmed
A3 (sf)
Cl. D, Downgraded to Ba2 (sf); previously on Feb 13, 2020 Affirmed
Baa3 (sf)
Cl. E, Downgraded to B2 (sf); previously on Apr 17, 2020 Ba3 (sf)
Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Caa3 (sf); previously on Apr 17, 2020 B3 (sf)
Placed Under Review for Possible Downgrade
RATINGS RATIONALE
The ratings on the two most senior P&I classes were affirmed
because the transaction's key metrics, including Moody's
loan-to-value (LTV) ratio, are within acceptable ranges.
The ratings on Cl. C, Cl. D, Cl. E and Cl. F were downgraded due to
the immediate decline in performance due to the coronavirus
outbreak and the uncertainty over the timing and extent of the
recovery. Moody's has assumed a significant drop in net cash flow
(NCF) in 2020, followed by two or more years of improvement in pool
performance, resulting in a lower than previously assumed Moody's
NCF levels. The properties are located in urban locations that rely
heavily on corporate business travel and may not achieve its
long-term stabilization prior to its final loan maturity in
November 2022. The actions conclude the review for downgrade
initiated on April 17, 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.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns, an increase in defeasance or
an improvement in loan performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the loan or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in these ratings was "Moody's
Approach to Rating Large Loan and Single Asset/Single Borrower
CMBS" published in September 2020.
DEAL PERFORMANCE
As of the September 15, 2020 payment date, the transaction's
aggregate certificate balance remains unchanged at $274 Million.
The securitization is backed by a single floating rate loan
collateralized by four Club Quarters hotels. The portfolio totals
1,228 rooms, and includes the 346 room Club Quarters San Francisco,
the 429 room Club Quarters Chicago Central Loop, the 178 room Club
Quarters Boston, and the 275 room Club Quarters Philadelphia. The
interest only loan's final maturity date is in November 2022.
The portfolio's NCF for year end 2019 was $29.4 Million, compared
to 2018 NCF of $27.3 Million. For full year 2020 NCF, Moody's
expects a significant drop due to coronavirus outbreak induced
property closures and travel restrictions that were put into effect
in the first half of the year and negative impact from those
measures. In the foreseeable future, Moody's expects demand for
lodging in leisure drive-to destinations to lead the recovery.
Moody's does not anticipate the return of corporate transient
business travel at the earliest the second quarter of 2021 as
spring and fall months are traditional high demand season for the
segment. Due to the length and the magnitude of the disruption,
Moody's does not expect hotel performance to return to pre-COVID
levels within the next 24 months which may lead to heighten
refinance risk at the loan's maturity date. Moody's expects the
pace of recovery to vary depending on the property's primary market
segment and location.
Club Quarters drives business through memberships with corporate
clients that commit to a minimum number of room nights at a
property annually. On weekends when corporate travel demand
generally decreases, they cater to non-members and leisure
travelers. The coronavirus outbreak has had an outsized negative
impact on densely populated and urban locations. According to STR,
LLC, Revenue per Available Room (RevPAR) decline in the first eight
months of 2020 compared to the same period in 2019 for the Top 25
MSA's (-53.8%) was greater than that of the US average (-48.9%) or
the drop suffered by All Other Markets (-41.1%).
The loan was transferred to special servicing in June 2020 for
imminent monetary default related to the impact of COVID as the
properties were closed by the end of March 2020. The loan status is
90+ days delinquent as of the September distribution date and there
are outstanding P&I and property protective advances totaling
approximately $3.5 million as the borrower's last debt service
payment date was made in April 2020. The first mortgage balance
represents a Moody's stabilized LTV of 154%. Moody's first mortgage
stressed debt service coverage ratio (DSCR) is 0.79X. However,
these metrics are based on return of travel demand for leisure and
corporate travel and normalized operations. The downgrades take
into account volatility and uncertainty of the pool's near-term
performance. There are outstanding interest shortfalls totaling
$153,956 affecting Cl. F and Cl. RRI.
BX TRUST 2018-EXCL: DBRS Assigns BB(low) Rating on Class D Certs
----------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2018-EXCL issued by BX Trust 2018-EXCL as
follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at BBB (low) (sf)
-- Class D at BB (low) (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 23, 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 will be the most affected.
LOAN/PROPERTY OVERVIEW
The BX Trust 2018-EXCL transaction is currently backed by a $522.8
million loan secured by 12 retail properties located throughout
California, Texas, Arizona, and Virginia. The loan was structured
with an initial two-year term with five one-year extension options.
The loan is interest only throughout the fully extended loan term.
The loan was added to the servicer's watchlist in June 2020 because
of the impending initial maturity date on September 1, 2020, but
the borrower has since exercised the first one-year extension
option for the loan.
BPP Retail Holdings, LP together with certain affiliates of the
Blackstone Group, L.P. (Blackstone) are the sponsors for the
transaction. The guarantor's recourse liability is limited to 10.0%
of the then-outstanding principal balance. The sponsor acquired the
portfolio as part of the acquisition of Excel Trust in July 2015.
The sponsor cashed out $121.5 million of equity with this
refinancing. Blackstone has invested more than $55.0 million since
acquiring the pool in 2015, which increased the occupancy and
operating cash flow from the properties.
The transaction is structured with weak release premiums and a pro
rata prepayment structure on the first 30.0% of the initial loan
balance. The release provisions for individual properties within
the portfolio, which are subject to no event of default, a
debt-yield test, and payment of an amount that is 105% for the
first 25.0% of the loan balance and 110.0% thereafter, among other
stipulations outlined in the offering documents. As a result, there
is adverse selection risk that could result in poorer performing
assets remaining in the pool, while the higher quality assets are
being released. The senior balance loan at issuance was $576.2
million, and the loan was secured by 11 power centers, one
community center, one grocery-anchored center, and one movie
theater. Since issuance, two properties—Stadium Center and
Edwards Theater—have been two released and the loan amount has
been paid down by $53.5 million. The allocated loan amount (ALA) at
issuance for Stadium Center and Edwards Theater was $30.2 million
and $20.0 million, respectively.
The remaining collateral for the loan is secured by 10 power
centers representing 85.5% of the ALA; one grocery-anchored center,
representing 8.6% of the ALA; and one community center,
representing 5.9% of the ALA. The remaining collateral is primarily
concentrated in California as there are five properties,
representing 45.6% of the ALA, located in this state. However,
these properties, Monte Vista Crossing, Park West Place, Gilroy
Crossing, Highland Reserve, and RiverPoint, are located across four
separate metropolitan statistical areas within California. There
are four properties, representing 24.2% of the ALA, located in
Texas; two properties, representing 21.5% of the ALA, located in
Arizona; and one property, representing 8.6% of the ALA, in
Virginia. The remaining properties have a weighted-average DBRS
Morningstar Market Rank by ALA of 3, implying the remaining
collateral is generally located in light-suburban areas.
At issuance, the portfolio exhibited an occupancy rate of 96.6% per
the rent roll dated August 31, 2018, and the properties were leased
by more than 350 tenants. The remaining collateral reported an
occupancy rate of 93.6% per the June 30, 2020, rent roll. Notable
occupancy rate drops since issuance within the portfolio at a
property-level basis include (1) Southlake Park Village, as the
occupancy rate dropped to 70.7% from 86.8% and (2) West Broad
Village, where the occupancy rate dropped to 92.8% from 100.0%.
Notable occupancy rate increases since issuance on a property-level
basis include (1) Gilroy Crossing, as the occupancy rate increased
to 98.6% from 87.4% and (2) League City Towne Center, as the
occupancy rate increased to 95.2% from 85.2%.
DBRS Morningstar excluded tenants that have plans to close their
stores at individual properties such as Stein Mart, Pier 1 Imports,
Justice, Dress Barn, Sur la Table, and Cato, which represented $2.9
million of in-place base rent and reimbursement revenue at issuance
in the DBRS Morningstar NCF analysis. Additionally, DBRS
Morningstar excluded revenue in the DBRS Morningstar NCF analysis
from six tenants, representing $1.4 million of in-place base rent
and reimbursement revenue, because the tenants vacated their
suites, according to the rent rolls dated June 30, 2020. The
largest of these tenants was the Cost Plus at the Park West Place,
which reportedly vacated its suite in January 2020. At Park West
Place, prior to the coronavirus pandemic, the sponsor was able to
bifurcate a box formerly occupied by Babies 'R' Us at issuance and
re-lease the space to Old Navy and Five Below in 2019 and 2020,
respectively. While the sponsor's previous experience releasing and
subdividing anchor space to a tenant is a positive, the
proliferation of bankruptcy and store closures by national anchor
and junior anchor tenants will likely continue to negatively affect
the performance of the portfolio over the near term.
Since mid-March 2020, the pandemic has had severe impacts on
national and local economies. Much economic activity has ceased
following mandated lockdowns and stay-at-home orders, which
resulted in significantly less foot traffic for many retailers.
Small retail shops, fitness centers, movie theaters, and other
retail spaces were forced to close while grocers and other
essential stores were permitted to remain open. Restrictions have
slowly been lifted in some areas based on phased approaches to
reopening and decreases in active coronavirus cases.
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 $49.6 million and DBRS
Morningstar applied a blended cap rate of 8.01%, which resulted in
a pre-coronavirus DBRS Morningstar Value of $618.7 million, a
variance of -35.0% from the appraised value of $951.4 million at
issuance for the remaining collateral. The pre-coronavirus DBRS
Morningstar Value implies an LTV of 84.5% compared with the LTV of
55.0% on the appraised value at issuance for the remaining
collateral.
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 retail property subtypes of the collateral, the
locations, and market positions of the assets.
DBRS Morningstar made negative qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling -1.5%
to account for cash flow volatility, property quality, and market
fundamentals. DBRS Morningstar also made other negative adjustments
to account for certain property release thresholds and the pro rata
structure of the transaction.
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 10.0% 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.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had higher variances from the ratings assigned to Classes A, B, C,
and D 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.
BX TRUST 2018-GW: DBRS Confirms B(low) Rating on Class G Certs
--------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2018-GW issued by BX Trust
2018-GW (the Trust) as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-EXT 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 Negative because the underlying collateral continues
to face performance challenges associated with the Coronavirus
Disease (COVID-19) global pandemic. The ratings have been removed
from Under Review with Negative Implications, where they were
placed on March 27, 2020.
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 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.
As it reviewed the ratings for 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. 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 subject loan consists of a $510.5 million first mortgage and
$289.5 million in mezzanine debt, totalling $800.0 million in
financing. The collateral for this transaction is the Grand Wailea,
a 776-key luxury beachfront resort located in Maui. There are an
additional 120 villas that are third-party owned and are not
collateral; however, 62 participate in a rental management program
whereby the hotel receives a fee for use of its amenity space. The
underlying loan is interest-only (IO) throughout the term,
structured with an initial 24-month term and five one-year
extension options. The Borrower executed its first extension option
in April 2020.
The subject property is a Four-Diamond oceanfront luxury resort,
Grand Wailea Maui, a Waldorf Astoria Resort, located on Wailea
Beach on the island of Maui. Originally developed in 1991, the
property features 776 hotel keys, eight food and beverage outlets,
100,000 square feet (sf) of meeting/event space, a 50,000 sf spa,
and a 20,000 sf recreation outlet centre for children. The hotel
received over $61.1 million ($78,700 per key) of capital investment
in the five years prior to this securitization, including
approximately $22.6 million ($29,182 per key) since 2015, allocated
to guest rooms and suites.
The loan is sponsored by Blackstone Real Estate Partners, which
acquired the portfolio from GIC Private Limited. Loan proceeds were
used to facilitate the acquisition of the subject as part of a
three-property portfolio transaction that included the Arizona
Biltmore and the La Quinta Resort & Club, for an aggregate purchase
price of $1.635 billion, $980 million of which was allocated to the
Grand Wailea. The hotel has been managed by Waldorf Astoria, an
affiliate of Hilton Worldwide Holdings Inc., since 2013, with the
current management agreement running through 2024 with one ten-year
extension option remaining.
The property has performed well over the past several years as
compared with its competitive set of luxury properties in Maui. The
resort is supported by a strong, consistent base of group business.
The hotel features 100,000 sf of indoor and outdoor meeting space,
including the 27,000 sf Haleakala Ballroom, the largest resort
ballroom in all of Maui. Historically, the subject has served as
the premier meeting and convention venue of choice for technology
giants, such as Google, Oracle, and SAP. Unlike the island of Oahu,
which relies in large part on demand from Japan, the vast majority
of travelers to Maui are from the United States. This serves to
insulate the subject from currency risk and other factors that
affect properties that rely on tourists from other countries. The
current year presented more challenges with the coronavirus
pandemic lockdown beginning in mid-March 2020. The governor
responded to the virus by closing the island’s tourism-related
industry and has now further delayed the reopening date for this
industry to October 2020 from September 2020.
Per the trailing 12-months ending March 2020 STR report, the
subject reported an occupancy rate, average daily rate, and revenue
per available room of 89.4%, $559.69, and $500.64, respectively,
compared with the competitive set figures of 82.1%, $570.19, and
$468.16.
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 $47.0
million and DBRS Morningstar applied a cap rate of 7.75%, which
resulted in a DBRS Morningstar Value of $606.7 million, a variance
of 42.7% from the appraised value of $1,058 million at issuance.
The DBRS Morningstar Value implies an LTV of 84.1% compared with
the LTV of 48.3% on the appraised value at issuance.
The cap rate DBRS Morningstar applied is at the lower end of the
range of DBRS Morningstar Cap Rate Ranges for lodging properties,
reflecting the asset quality and excellent oceanfront location in a
market with high barriers to entry.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis totalling 4.50%
to account for property quality and market fundamentals.
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.
Classes X-EXT 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.
CFCRE 2016-C6: Fitch Affirms B-sf Rating on 2 Tranches
------------------------------------------------------
Fitch Ratings has affirmed 14 classes of CFCRE 2016-C6 Mortgage
Trust's commercial mortgage pass-through certificates.
RATING ACTIONS
CFCRE 2016-C6
Class A-1 12532AAW9; LT AAAsf Affirmed; previously at AAAsf
Class A-2 12532AAY5; LT AAAsf Affirmed; previously at AAAsf
Class A-3 12532AAZ2; LT AAAsf Affirmed; previously at AAAsf
Class A-M 12532ABA6; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 12532AAX7; LT AAAsf Affirmed; previously at AAAsf
Class B 12532ABB4; LT AA-sf Affirmed; previously at AA-sf
Class C 12532ABC2; LT A-sf Affirmed; previously at A-sf
Class D 12532AAA7; LT BBB-sf Affirmed; previously at BBB-sf
Class E 12532AAC3; LT BB-sf Affirmed; previously at BB-sf
Class F 12532AAE9; LT B-sf Affirmed; previously at B-sf
Class X-A 12532ABD0; LT AAAsf Affirmed; previously at AAAsf
Class X-B 12532ABE8; LT AA-sf Affirmed; previously at AA-sf
Class X-E 12532AAL3; LT BB-sf Affirmed; previously at BB-sf
Class X-F 12532AAN9; LT B-sf Affirmed; previously at B-sf
KEY RATING DRIVERS
Increased Loss Expectations: While much of the underlying
collateral performs in line with issuance expectations, loss
expectations have increased due to an increase in the number of
Fitch Loans of Concern (FLOCs) and specially serviced loans. Seven
loans (12.9% of pool), including four loans (9.6%) in special
servicing, were designated FLOCs. Outside of the specially serviced
loans and FLOCs, overall performance of the pool has been
relatively stable. As of the October 2020 distribution period there
were 13 loans (27.1%) on the servicer's watchlist for low DSCR,
requesting coronavirus relief, high vacancy, rolling tenant and
delinquent taxes. Since Fitch's prior rating action in 2019, the
specially serviced loan Mandeville Marketplace was disposed in
December 2019 for a $3.7 million loss, in line with Fitch's
expectations.
Minimal Change to Credit Enhancement: Due to minimal amortization,
disposals and defeasance (1.7%), there has been minimal change to
credit enhancement since issuance. As of the October 2020
distribution date, the pool's aggregate principal balance has been
reduced 3.7% to $758.1 million from $787.5 million at issuance with
44 loans remaining. Of the remaining pool balance, 49.9% of the
pool is classified as full interest-only through the term of the
loan. No loans mature until December 2025.
Exposure to Coronavirus: There are eight loans (14.8% of pool),
which have a weighted average NOI DSCR of 1.91x, secured by hotel
properties. Sixteen loans (39.0%), which have a weighted average
NOI DSCR of 2.48x, are secured by retail properties. Two loans
(.7%), which have a weighted average NOI DSCR of 1.36x, are secured
by multifamily properties. Fitch's base case analysis applied
additional stresses to seven hotel loan, three retail loans and one
multifamily loan given the significant declines in property-level
cash flow expected in the short term as a result of the decrease in
travel and tourism and property closures from the coronavirus
pandemic. The additional stresses impacted the ratings.
Fitch Loans Of Concern: Waterstone Portfolio (3.0%) is a retail
portfolio with six properties, five located across New Hampshire
and one in Massachusetts. The loan was transferred to special
servicing in March 2018 due to a non-permitted transfer. According
to watchlist commentary, the borrower has indicated that
approximately 70% of their tenants are closed due to COVID. Most
recent 17g5 updates indicate that the borrower and special servicer
are negotiating a forbearance request. Loan was classified as 90+
Days Delinquent as of the July 2020 distribution period.
Inn at the Colonnade (2.9%) is a full-service hotel located in
Baltimore, MD. Loan transferred in March 2020 at the request of the
borrower due to imminent monetary default as a result of the
coronavirus pandemic. The borrower and the special servicer are
negotiating a modification and a forbearance agreement is under
consideration. Legal counsel has been engaged.
Holiday Inn Express Nashville - Downtown (2.8%) is secured by an
eight-story, 287-key limited service hotel built in 1968 and
renovated in 2015 and a leasehold interest in an adjoining parking
lot located in downtown Nashville, Tennessee. Loan transferred in
June 2020 for imminent monetary default as a result of the
coronavirus pandemic. Discussions between the borrower and the
special servicer are ongoing. According to the most recent 17g5
updates the parties are pursuing a forbearance modification.
Holiday Inn Indianapolis - Carmel (1.8%) is a full-service hotel
located in Indianapolis, IN. The loan has been on the servicer's
watchlist since September 2018 for low DSCR and persisting
underperformance. Subject TTM June 2020 NOI DSCR was .61x compared
to 1.35x at YE 2019 and 2.12x underwritten NOI DSCR at issuance. In
order to improve performance, the borrower has hired a new Director
of Sales and new GM. Additionally, there have been various
improvements to public and in-room amenities completed in 2018 and
2019. It is unknown whether the borrower has requested coronavirus
relief.
312-314 Bleecker Street (1%) is an open-air retail center located
in Manhattan (Greenwich Village). Loan was transferred to special
servicing for payment default. The borrower has not signed the PNL
and legal counsel has been engaged. Special Servicer is dual
tracking a settlement. Borrower is working on complying with cash
management. According to watchlist comments, subject tenants are
requesting rent abatement due to the effects of the pandemic. The
loan was initially added to the watchlist for not providing
financial statements to the servicer since closing.
RATING SENSITIVITIES
The Stable Rating Outlooks on classes A-1 through D reflect the
overall stable performance of the majority of the pool and expected
continued amortization. The Negative Rating Outlooks on classes E
and F as well as the interest-only classes X-E and X-F reflect the
potential for downgrade due to concerns surrounding the ultimate
impact of the coronavirus pandemic and the performance concerns
associated with the FLOCs, which include four specially serviced
loans.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that could lead to upgrades include stable to
improved asset performance, coupled with additional paydown and/or
defeasance. Upgrades to the 'A-sf' and 'AA-sf' rated classes are
not expected but would likely occur with significant improvement in
CE and/or defeasance and/or the stabilization to the properties
impacted from the coronavirus pandemic. Upgrade of the 'BBB-sf'
class is considered unlikely and would be limited based on the
sensitivity to concentrations or the potential for future
concentrations. Classes would not be upgraded above 'Asf' if there
were a likelihood of interest shortfalls. An upgrade to the 'BB-sf'
and 'B-sf' 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 classes A-1 through A-M and the
interest-only classes X-A are not likely due to the position in the
capital structure, but may occur should interest shortfalls occur.
Downgrades to classes B, C, D, and X-B 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 if performance of the
FLOCs improves and/or properties vulnerable to the coronavirus
stabilize once the pandemic is over. Classes E, F, X-E and X-F
could be downgraded should losses become more certain or be
realized.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, classes with Negative Rating
Outlooks will be downgraded one or more categories.
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.
CFCRE COMMERCIAL 2011-C1: Fitch Affirms Dsf Rating on 3 Tranches
----------------------------------------------------------------
Fitch Ratings has affirmed eight classes of CFCRE Commercial
Mortgage Trust 2011-C1 commercial mortgage pass-through
certificates.
RATING ACTIONS
CFCRE 2011-C1
Class A-4 12527EAD0; LT AAAsf Affirmed; previously at AAAsf
Class B 12527EAG3; LT AAAsf Affirmed; previously at AAAsf
Class C 12527EAH1; LT AAAsf Affirmed; previously at AAAsf
Class D 12527EAJ7; LT BBBsf Affirmed; previously at BBBsf
Class E 12527EAK4; LT Dsf Affirmed; previously at Dsf
Class F 12527EAL2; LT Dsf Affirmed; previously at Dsf
Class G 12527EAM0; LT Dsf Affirmed; previously at Dsf
Class X-A 12527EAE8; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Loss Expectations/Upcoming Maturity Concentration Concerns: While
loss expectations for the pool remain relatively stable, all of the
remaining loans mature in 2021, including the defeased loans, of
which 11 (64.5% of the pool) mature in the first quarter of 2021.
Two non defeased loans (10.3% of the pool) are considered Fitch
Loans of Concern (FLOCs) due to declining performance, relatively
high loan to values (LTVs), and refinancing concerns. The largest
FLOC, Main Street at Town Center (6.1% of the pool), is secured by
a 114,685-sf retail center located in Kennesaw, GA. The largest
collateral anchor is David's Bridal (10.1% of the NRA; lease
expiration March 2027). Property occupancy remained relatively
stable at 81% as of June 2020 compared to 80.8% at YE 2019 but is
below YE 2018 at 87.3% and YE 2017 at 94.2%. The declines in
occupancy are primarily related to the departure of two major
tenants ahead of their respective lease expirations. As of June
2020, NOI debt service coverage ratio (DSCR) declined to 2.12x from
2.33x at YE 2019, 2.51x at YE 2018 and 2.46x at YE 2017.
The second FLOC, Amber Fields & Calico Apartments (4.7% of the
pool), is secured by two-cross defaulted, cross-collateralized
multifamily properties located in Fargo, ND. While occupancy as of
June 2020 remained relatively stable at 88%, NOI DSCR has remained
below 1.20x coverage since 2016. NOI DSCR as of June 2020 slightly
improved to 1.14x from 1.11x at YE 2019 and 0.92x at YE 2018. The
declines in NOI DSCR were primarily related to increased operating
expenses, namely higher utility costs related to colder winters and
increased repairs and maintenance.
Improved Credit Enhancement: The senior classes have benefitted
from improving credit enhancement (CE) due to continued loan
payoffs, scheduled amortization and defeasance. Ten loans are
defeased (76.3% of the pool). Since Fitch's last rating action, two
loans (previously 8.1% of the pool) paid off in full ahead of their
respective maturity dates. As of the September 2020 remittance, the
pool's aggregate principal balance has been reduced by 74.0% to
$164.8 million from $634.5 million at issuance. The pool has
experienced $40.7 million in realized losses (0.5% of the pool),
which have impacted through class E which is currently rated
'Dsf'.
Concentrated Pool: The pool is concentrated with 14 loans remaining
of which four are not defeased. Of the remaining, non-defeased
collateral, two loans are secured by office properties located in
secondary and tertiary markets, one loan is secured by a retail
property located in Kennesaw, GA and one is secured by a
multifamily property located in Fargo, ND.
Additional Loss Considerations: Due to the concentrated nature of
the pool, Fitch performed a look-through analysis that considers
the likelihood of repayment and expected losses on the remaining
loans in the pool. The affirmations reflect the collateral quality
of the remaining pool and concerns surrounding the ultimate impact
of the coronavirus pandemic on the performance.
Coronavirus Exposure: The largest non-defeased retail loan (6.0% of
pool) is secured by a 113,615-sf retail property located in
Kennesaw, GA (approximately 25 miles outside of Atlanta). The
property's occupancy declined in 2018 after two tenants vacated
ahead of their respective lease expirations, including the former
top tenant BM Traders (formerly 5.6% of the NRA), which vacated
ahead of its 2026 lease expiration. The property is 81% occupied as
of June 2020. Fitch's base case analysis applied an additional
stress due to refinance concerns, decline in performance and
vulnerability due to the coronavirus pandemic.
RATING SENSITIVITIES
The Stable Outlooks on classes A-4 through D reflect the relatively
stable performance of the pool and expected continued
amortization.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
Factors that could lead to upgrades would include stable to
improved asset performance, coupled with additional paydown and/or
defeasance. Upgrades of the 'BBBsf' and below-rated classes are
considered unlikely and would be limited based on the sensitivity
to concentrations or the potential for future concentrations.
Classes would not be upgraded above 'Asf' if there is a likelihood
of interest shortfalls.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
Downgrades to the senior classes, rated 'AAAsf', are not likely due
to high CE and continued stable performance of the pool. Downgrades
to the classes rated 'BBBsf' and below would occur if the
performance of the FLOCs continue to decline or fails to
stabilize.
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 could be downgraded one or
more categories.
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.
CHT MORTGAGE 2017-COSMO: DBRS Confirms BB(high) on Class F Certs
----------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2017-COSMO issued by CHT
2017-COSMO Mortgage Trust 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 BBB (low) (sf)
-- Class F at BB (high) (sf)
Trends on Classes A, B, C, D, and E are Negative because the
underlying collateral continues to face performance challenges
associated with the Coronavirus Disease (COVID-19) global pandemic.
Classes A , B, C, D, and E have been removed from Under Review with
Negative Implications, where they were placed on March 27, 2020.
DBRS Morningstar has also maintained Class F Under Review with
Negative Implications, given the negative impact of the Coronavirus
Disease (COVID-19) on the underlying collateral.
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 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.
As it reviewed the ratings for 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. 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
This transaction closed in November 2017 with an original trust
balance of $1.38 billion backed by The Cosmopolitan, a luxury hotel
and casino in Las Vegas. Whole-loan proceeds, along with $420.0
million of mezzanine financing, refinanced existing debt of $1.55
billion and returned equity of approximately $227.5 million to
Blackstone Real Estate Partners (Blackstone). The interest-only
trust loan is structured with a two-year initial term with five
one-year renewal options. The property is subject to an operating
leasehold interest. The loan is currently on the Servicer's
Watchlist for its upcoming loan expiry in November 2020. The
Borrower has been contacted by the Master Servicer regarding its
intentions.
In March 2020, the property closed to comply with the
coronavirus-related shutdown in Nevada. It reopened on June 4 with
government-mandated capacity restrictions in place. Local media
indicated that casinos were allowed to reopen at a 50.0% capacity
of their normal offerings. Based on the collateral’s website, it
appears that the subject is offering all of its normal amenities at
limited capacities. Furthermore, according to an article from
HVS.com, visitors to Las Vegas dropped by 96.4% in April and May
2020 when compared to the previous year's figures as stated by the
Las Vegas Convention and Visitors Authority.
The Cosmopolitan was completed in 2010 and is situated in an
excellent mid-strip location between the Bellagio Hotel & Casino
and CityCenter. Collateral amenities include, but are not limited
to, 3,027 keys; over 250,000 square feet (sf) of convention and
banquet space facilities; 115,000 sf of casino space; 96,000 sf of
entertainment space; 23,500 sf of retail space; and spa/fitness
facilities. The Cosmopolitan hotel is a part of Marriott's
Autograph Collection and is subject to a license agreement that
expires in 2031 with termination options every five years.
Per the July 2020 operating statements, the subject reported a
trailing 12-month (T-12) occupancy, average daily rate, and revenue
per available room of 87.0%, $352.81, and $306.94, respectively. In
comparison, the subject reported T-12 July 2019 figures of 97.5%,
$344, and $335, respectively. However, it is important to note that
based on the July 2020 T-12 figures, the number of available rooms
has dropped by 21.4% from the July 2019 T-12 figures and is
expected to drop as the 50.0% operating capacity is realized in the
reporting. Per the July 2020 T-12 financials, 33.2% of revenue was
generated from guest rooms, 32.5% from food and beverages, and the
remaining 34.3% was generated from gaming and alternate sources.
Based on the June 2020 T-12 operating statement analysis report
figures, room revenue declined 26.2%, food and beverage sales
dropped by a similar 26.6%, while the operating expense ratio
increased by 25.2% for an overall net cash flow (NCF) decline of
36.2% when comparing to the YE2019 figures.
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 $195.9 million and DBRS
Morningstar applied a cap rate of 9.89%, which resulted in a DBRS
Morningstar Value of $1.9 billion, a variance of 32.1% from the
appraised value of $2.9 billion at issuance. The DBRS Morningstar
Value implies an LTV of 69.6% compared with the LTV of 47.3% 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 lodging properties,
reflecting strong sponsorship by Blackstone Real Estate Partners,
its prime location on the Las Vegas strip, and the overall quality
of the subject property.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling 5.0%
to account for property quality and market fundamentals.
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.
The DBRS Morningstar rating assigned to Class F had variances that
were generally higher than those results implied by the LTV Sizing
Benchmarks when market value declines are assumed under the
Coronavirus Impact Analysis. This class remains Under Review with
Negative Implications as DBRS Morningstar continues to monitor the
evolving economic impact of coronavirus-induced stress on the
transaction.
DBRS Morningstar provides updated analysis and in-depth commentary
in the DBRS Viewpoint platform for this transaction.
Notes: All figures are in U.S. dollars unless otherwise noted.
CITIGROUP COMMERCIAL 2016-GC36: Fitch Lowers F Debt Rating to CCC
-----------------------------------------------------------------
Fitch has downgraded four and affirmed 10 classes of Citigroup
Commercial Mortgage Trust (CGCMT) 2016-GC36 commercial mortgage
pass-through certificates.
RATING ACTIONS
CGCMT 2016-GC36
Class A-2 17324TAB5; LT AAAsf Affirmed; previously at AAAsf
Class A-3 17324TAC3; LT AAAsf Affirmed; previously at AAAsf
Class A-4 17324TAD1; LT AAAsf Affirmed; previously at AAAsf
Class A-5 17324TAE9; LT AAAsf Affirmed; previously at AAAsf
Class A-AB 17324TAF6; LT AAAsf Affirmed; previously at AAAsf
Class A-S 17324TAJ8; LT AAAsf Affirmed; previously at AAAsf
Class B 17324TAK5; LT AA-sf Affirmed; previously at AA-sf
Class C 17324TAM1; LT A-sf Affirmed; previously at A-sf
Class D 17324TAN9; LT BBsf Downgrade; previously at BBB-sf
Class E 17324TAQ2; LT B-sf Downgrade; previously at BB-sf
Class EC 17324TAL3; LT A-sf Affirmed; previously at A-sf
Class F 17324TAS8; LT CCCsf Downgrade; previously at B-sf
Class X-A 17324TAG4; LT AAAsf Affirmed; previously at AAAsf
Class X-D 17324TAY5; LT BBsf Downgrade; previously at BBB-sf
VIEW ADDITIONAL RATING DETAILS
Class A-S, B, and C certificates may be exchanged for class EC
certificates, and class EC certificates may be exchanged for the
class A-S, B, and C certificates. Fitch does not rate the class G
or H certificates.
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades and Negative Rating
Outlook revisions reflect increased loss expectations due to
performance deterioration on an increasing number of Fitch Loans of
Concern (FLOCs) and the slowdown in economic activity related to
the coronavirus. Fitch has designated 16 loans (43.6%) as FLOCs,
which includes two loans (9.6%) that transferred to special
servicing since June 2020.
The average net operating income (NOI) for the 15 FLOCs reporting
YE 2019 financials declined 7% from the prior year. Fitch
previously modeled a 13% loss on the specially serviced Glenbrook
Square loan at the prior rating action in October 2019; however,
this has now been increased to approximately 40% due to the recent
transfer to special servicing and delinquent status of the loan.
Specially Serviced Loans: The fourth largest loan, Glenbrook Square
(8.8%), which is secured by a super-regional mall located in Fort
Wayne, IN, transferred to special servicing in July 2020 for
payment default and was over 90 days delinquent as of September
2020. The loan had already been flagged a FLOC due to declining
occupancy and tenant sales since issuance, and YE 2019 NOI fell
12.7% from YE 2018. Collateral anchors include Macy's and JCPenney.
The former non-collateral Sears store has reportedly been
demolished. The collateral anchor Carson's and non-collateral
anchor Sears both closed their stores at the property in 2018.
Collateral occupancy declined to 81.7% from 82.3% in March 2019 and
96.8% in September 2017. The servicer previously indicated that the
sponsor, Brookfield Property Partners, had entered into a new
10-year lease with Round 1 for 50% of the former Carson's space.
Fitch has an outstanding inquiry to the servicer for updates on the
lease. Comparable inline sales for tenants occupying less than
10,000 sf were $371 psf for the TTM period ended June 2020, down
from $436 psf at YE 2019, $415 psf as of TTM September 2018, $414
psf at YE 2017 and $443 psf at issuance. As a result of the
pandemic, the mall closed in March 2020 and reopened in May with
restricted hours. According to the special servicer, discussions on
potential resolution strategies remain ongoing.
The Abilene Hotel Portfolio loan (0.8%), secured by a portfolio of
two limited service hotels located in Abilene, TX, was transferred
to special servicing in June 2020 for payment default and was over
90 days delinquent as of September 2020. The borrower requested
coronavirus relief through the suspension of reserve payments and
reallocation of reserves for debt service for 12 months; relief
negotiations are ongoing. Portfolio NOI for the TTM ended March
2020 declined 20% from YE 2019 and 39% from YE 2018. The
servicer-reported NOI DSCR for the TTM ended March 2020 was 1.25x,
down from 1.56x at YE 2019.
Fitch Loans of Concern: The largest non-specially serviced FLOC,
Austin Block 21 (9.3%), is secured by a mixed-use property located
in downtown Austin, TX with recent occupancy and cash flow
declines. The loan collateral consists of a parking garage, retail
and office space, ACL Live entertainment venue and the 251-room W
Hotel Austin. Occupancy for the retail, office and hotel components
was 96.7%, 61.7% and 31.2%, respectively, as of June 2020. Overall
rental income has fallen in 2020 due to lower occupancy of the
office component after M. Arthur Gensler & Associates (38% of
office NRA; 4% of total property NRA) vacated at its January 2020
lease expiration, a decrease in hotel revenue given the impact of
the coronavirus pandemic and a decline in other income due to
reduced revenue from the ACL Live venue and other event space at
the property.
The Westin Boston Waterfront loan (4.5%) is secured by a 793-key
full-service hotel located in the Seaport District in Boston, MA
that had historically lagged its competitive set prior to the onset
of the coronavirus pandemic. The loan was granted coronavirus
relief through a modification that closed in July 2020; however,
details on the modification terms have not been provided by the
servicer at this time. Per the July 2020 STR report, the hotel was
outperforming its competitive set in terms of occupancy and RevPAR
for the TTM July 2020 period, with respective penetration ratios of
108.4% and 100.4%; ADR penetration was 92.7%. The hotel reported
TTM July 2020 occupancy, ADR and RevPAR of 71.7%, $238.72 and
$171.13, respectively, compared with 75.4%, $251.59 and $189.58 as
of TTM June 2019.
The Park Place loan (4.4%) is secured by a 523,673 sf suburban
office property in Chandler, AZ with declining occupancy and
upcoming lease rollover. Property occupancy dropped to 75% as of
June 2020 from 77.1% in June 2019 and 100% in June 2018 after
several large tenants vacated at or prior to lease expiration, and
another smaller tenant downsized its space; as a result, YE 2019
NOI declined 25.5% from YE 2018. The former second largest tenant,
Dream Center (19.3% of NRA), vacated in early 2019, ahead of its
January 2022 lease expiration. Insys Therapeutics (6.7%) vacated
ahead of its June 2021 lease expiration after filing for bankruptcy
in June 2019. Tivity Healthy Inc. (formerly known as Healthways,
Inc.) downsized to 8.6% of the NRA from 17.7% as part of its recent
four-year lease renewal. The increased vacancy was partially offset
by new leases signed between October 2019 and July 2020 with Aetna
Life Insurance Company (9.7% of NRA leased through June 2027) and
LoanDepot.com LLC (3.6% through January 2028). The majority of
space (30.9% of NRA) leased by the current largest tenant, Keap, is
scheduled to roll in September 2021. The servicer-reported YE 2019
NOI DSCR was 1.43x, down from 2.42x at YE 2018. The loan began
amortizing in February 2019.
The King of Prussia Hotel Portfolio loan (3.2%) is secured by a
portfolio of two hotels, the Crowne Plaza - King of Prussia
(226-room, full-service) and Fairfield Inn & Suites - King of
Prussia (80-room, limited service). The loan was 60 days delinquent
as of September 2020 and, per the servicer, will be transferred to
special servicing. A forbearance request is currently under review.
Cash management has been triggered due to NCF DSCR falling below
the 1.15x threshold. Portfolio-level TTM June 2020 NOI was down 54%
from YE 2019. The servicer-reported TTM June 2020 NOI DSCR was
0.70x, down from 1.51x at YE 2019.
The Stafford Park loan (2.6%) is secured by a retail center located
in Manahawkin, NJ that is shadow anchored by Costco and Target with
declining cash flow and moderate upcoming lease rollover. Three of
the major tenants at the property, Dick's Sporting Goods (37.3% of
NRA; lease expiry in January 2024), Ulta (8.1%; February 2021) and
Five Below (6.1%; March 2026), have requested rent relief in May
2020 after temporarily closing their stores due to the pandemic;
these tenants did not pay rent for May and June 2020. YE 2019 NOI
declined 14% from YE 2018 as recent lease renewals with Best Buy
(22.5%) and Dick's Sporting Goods have been at lower rates. The
servicer-reported YE 2019 NOI DSCR was 1.21x, down from 1.41x at YE
2018. Upcoming lease rollover includes 2.4% of the NRA in 2020,
13.7% in 2021 (mostly concentrated in Ulta) and 22.5% in 2022
(fully concentrated in Best Buy). The loan was granted a
three-month forbearance from June through September 2020, with
forborne payments to be repaid between September 2020 and August
2021.
The Northeast Corporate Center loan (2.2%) is secured by a suburban
office property in Ann Arbor, MI with declining occupancy and cash
flow. The former largest tenant, ForeSee Results (26.7% of NRA)
vacated at expiration in May 2019, and MB Financial Bank, which had
previously downsized to 15.3% of the NRA from 30.7% in late 2018,
vacated at expiration in May 2020. YE 2019 NOI declined nearly 20%
from YE 2018 due to the increased vacancy, with NOI DSCR dropping
to 1.35x from 2.19x over the same period. The loan began amortizing
in January 2019. The recent occupancy declines have been partially
mitigated by a new four-year lease with KLA-Tencor for 25.5% of the
NRA starting in March 2019 and a new five-year lease with Home
Point Financial Corporation for 14.5% of the NRA starting in
January 2020. The property was 80.1% occupied as of June 2020, up
from 69% in December 2019 but remains below the 94.1% reported in
March 2019. Upcoming lease rollover is mostly concentrated in the
January 2022 expiration of Siemens Real Estate (7.6% of NRA) in
2022.
The 6725 Sunset Office loan (1.9%) is secured by a creative office
property located in the Hollywood District of Los Angeles, CA.
Property occupancy dropped to 58% as of July 2020 from 96.7% in
August 2018 after multiple tenants vacated at lease expiration. YE
2019 NOI is 19.8% below YE 2018. The loan transferred to special
servicing in July 2020 for imminent monetary default after the
borrower requested coronavirus relief and stated they were no
longer able to come out of pocket to make debt service payments.
However, the loan was returned to the master servicer in early
September 2020. The property also faces moderate upcoming rollover
risk, with 12.1% of the NRA (two tenants) expiring in 2020, 12.1%
(two tenants) in 2021 and 3.2% (one tenant) in 2022. The loan is
scheduled to mature in January 2021. The servicer-reported YE 2019
NOI DSCR was 1.72x, down from 2.14x at YE 2018.
The seven non-specially serviced FLOCs outside of the top 15 (6%)
were flagged for declining occupancy and/or cash flow or upcoming
lease rollover.
Coronavirus Exposure: Loans secured by retail, hotel and
multifamily properties represent 26.2% of the pool (18 loans),
11.2% (6 loans) and 0.7% (two loans), respectively. The average NOI
declined 26% between 2018 and 2019 for the retail loans and by 2%
for the hotel loans. The retail loans have a weighted average (WA)
NOI DSCR of 1.72x and can withstand an average 42% decline to NOI
before DSCR falls below 1.00x. The hotel loans have a WA NOI DSCR
of 2.05x and can withstand an average 51.1% decline to NOI before
DSCR falls below 1.00x. The multifamily loans have a WA NOI DSCR of
2.22x and can withstand an average 54.9% decline to NOI before DSCR
falls below 1.00x.
Fitch applied additional coronavirus-related stresses on nine
retail loans (17.6%), five hotel loans (10.1%) and two mixed use
loans, Austin Block 21 and 215 West 34th Street & 218 West 35th
Street (totaling 13.3%) with hotel and retail components; these
additional stresses contributed to the downgrade of classes D, E, F
and X-D and the Rating Outlook revisions on classes A-S through D,
EC, X-A and X-D.
Minimal Change to Credit Enhancement: As of the September 2020
distribution date, the pool's aggregate principal balance has paid
down by 4% to $1.11 billion from $1.16 billion at issuance. The
transaction is expected to pay down by 10.3% based on scheduled
loan maturity balances. Eight loans (30.8% of pool) are full-term,
interest-only and six loans (3.6%) are partial interest-only and
have yet to begin amortizing, compared to 42.3% of the original
pool at issuance. Three loans (1.4%) have been defeased.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes A-S through E, EC, X-A and
X-D reflect the potential for downgrade due to concerns surrounding
the ultimate impact of the coronavirus pandemic and the performance
concerns associated with the FLOCs, which include two specially
serviced loans. The Stable Rating Outlooks on classes A-2 through
A-AB reflect the overall stable performance of the majority of the
pool and expected continued amortization, as well as the
substantial credit enhancement to the classes and senior position
in the capital stack.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that could lead to upgrades would include
stable to improved asset performance, particularly on the FLOCs,
coupled with additional paydown and/or defeasance. Upgrades to
classes B, C and EC would likely occur with significant improvement
in CE and/or defeasance and/or the stabilization of the properties
impacted from the coronavirus pandemic and would be limited based
on the sensitivity to concentrations or the potential for future
concentrations.
Classes would not be upgraded above 'Asf' if there is a likelihood
of interest shortfalls. 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.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool-level losses from underperforming or specially serviced
loans/assets. Downgrades to classes A-2 through A-AB are not likely
due to the position in the capital structure, but may occur should
interest shortfalls affect these classes. A downgrade of one
category to 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 Glenbrook Square becomes more
likely or if interest shortfalls occur.
Downgrades to classes C, D and E is 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.
The Negative Rating Outlooks on classes A-S through E, EC, X-A and
X-D may be revised back to stable if performance of the FLOCs
improves and/or properties vulnerable to the coronavirus pandemic
eventually stabilize. A further downgrade to class F would occur as
losses are realized and/or become more certain.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, classes with Negative Rating
Outlooks will be downgraded one or more categories.
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.
COLT 2020-RPL1: Fitch Assigns Bsf Rating on Class B-2 Debt
----------------------------------------------------------
Fitch Rates COLT 2020-RPL1 as follows:
RATING ACTIONS
COLT 2020-RPL1
Class A-1; LT AAAsf New Rating; previously AAA(EXP)sf
Class A-1A; LT AAAsf New Rating; previously AAA(EXP)sf
Class A-1B; LT AAAsf New Rating; previously AAA(EXP)sf
Class A-2; LT AAsf New Rating; previously AA(EXP)sf
Class A-IO-S; LT NRsf New Rating; previously NR(EXP)sf
Class B-1; LT BBsf New Rating; previously BB(EXP)sf
Class B-2; LT Bsf New Rating; previously B(EXP)sf
Class B-3; LT NRsf New Rating; previously NR(EXP)sf
Class B-4; LT NRsf New Rating; previously NR(EXP)sf
Class B-5; LT NRsf New Rating; previously NR(EXP)sf
Class M-1; LT Asf New Rating; previously A(EXP)sf
Class M-2; LT BBBsf New Rating; previously BBB(EXP)sf
Class XS; LT NRsf New Rating; previously NR(EXP)sf
TRANSACTION SUMMARY
Fitch rates the residential mortgage-backed notes issued by COLT
2020-RPL1 Trust. 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 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. As of the
cutoff date 95% of the loans in the pool are current. 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 'RPS1-'
by Fitch, 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
ensure an alignment of interest between the issuer and investors.
Adequate Servicing Fee (Neutral): Fitch assumed a stressed
servicing fee of 40bps in its analysis while analyzing the
structure. The 40bps fee was assumed as the required amount to
attract a successor servicer in a high-delinquency environment.
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 25bps 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 183bps 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 50bps of the pool are located 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 25bps.
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 were
conducted at the state and national levels to assess the effect of
higher MVDs for the subject pool as well as lower MVDs, as
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
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 of
the rated classes. Specifically, a 10% gain in home prices would
result in a full category upgrade for the rated class excluding
those assigned 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 including a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delay 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 fairly minor amount of unpaid taxes and liens,
as well as that all of 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
A due diligence review was completed on 100% of the loans in this
transaction by SitusAMC, which provided ABS Due Diligence-15E (Form
15E), and assessed by Fitch as 'Acceptable — Tier 1'. The due
diligence scope included a regulatory compliance review that
covered applicable federal, state and local high-cost loan and/or
anti-predatory laws, as well as Truth In Lending Act (TILA) and
Real Estate Settlement Procedures Act (RESPA) compliance. The scope
was consistent with published Fitch criteria for due diligence on
RPL RMBS.
COMM 2012-LTRT: DBRS Gives BB(high) Rating on Class E Certs
-----------------------------------------------------------
DBRS, Inc. assigned ratings to the COMM 2012-LTRT Commercial
Mortgage Pass-Through Certificates issued by COMM 2012-LTRT
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 (low) (sf)
-- Class C at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class X-B at BBB (low) (sf)
-- Class E at BB (high) (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 21, 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 COMM 2012-LTRT Mortgage Trust transaction is evidenced by two
promissory notes. Each note is secured by the fee interest in a
portion of a super-regional mall: Westroads Mall and Oaks Mall. The
two loans are co-terminus with a 10-year loan term, a 30-year
amortization schedule, and maturity on October 1, 2022. The loans
currently have an aggregate senior note balance of $222.0 million
and an aggregate mezzanine debt balance of $32.0 million. The loans
are not cross-collateralized or cross-defaulted.
The sponsor and manager of both loans is Brookfield Property
Partners L.P. (Brookfield; rated BBB with a Negative trend by DBRS
Morningstar) as Brookfield acquired the original owner, General
Growth Properties, Inc. The sponsor has continued to support the
performance of both properties by contributing fresh equity to
cover shortfalls for operating expenses and debt service to keep
the loans current. Both loans are currently on the servicer's
watchlist, as the borrower has notified the master servicer about
potential cash flow concerns caused by the coronavirus pandemic.
However, the loan for Oaks Mall was also watchlisted because the
operating statement dated March 31, 2020, exhibited a debt service
coverage ratio (DSCR) of 1.13 times (x), which is well below the
YE2017 and YE2018 DSCRs of 1.97x and 1.46x, respectively
The Westroads Mall loan had an initial balance of $140.7 million
and an initial mezzanine debt balance of $16.4 million. It is
secured by the fee interest in 540,304 square feet (sf) of a 1.1
million-sf regional mall in Omaha, Nebraska. The subject was
originally constructed in 1968 and has undergone several different
renovations with the most recent renovation in 2016. The sponsor
finished constructing a new food hall, Flagship Commons, in January
2016 and the old food court space was converted into a Container
Store leased box later in 2016. The noncollateral anchor spaces are
occupied by JCPenney, Von Maur, and Macy's. The noncollateral
tenant JCPenney has filed for bankruptcy protection; although this
location has not appeared on the company's store closings list to
date, the future operational status is currently unknown. The
largest anchor tenants at the property include Dick's Sporting
Goods, AMC Theatres, and Forever 21. The Forever 21 store remains
in operation at the mall, and is the only Forever 21 operating in
the state of Nebraska after the retailer left Gateway Mall and
Nebraska Crossings in 2019. AMC Theatres reopened with reduced
capacity to facilitate social distancing on August 31, 2020, after
closing because of the pandemic. The theater requires movie-goers
to wear face coverings and is currently open only three days a
week: Thursday, Friday, and Saturday.
A new Topgolf venue, which is not a part of the collateral, opened
east of I-680 and west of Westroads Mall in July 2020, which should
help drive traffic to the mall and the surrounding area. Village
Pointe, an open-air design shopping center, competes with the
subject and is located approximately 7 miles west of Westroads
Mall. Both properties have overlapping tenants, such as Old Navy
and Designer Shoe Warehouse (DSW). Village Pointe has been able to
position itself as a more upscale shopping center compared with the
subject by leasing to national retailers such as Apple, Kendra
Scott, Bentley, and Lululemon. The subject will likely continue to
have to compete with Village Pointe for tenants, especially as
retailers continue to consolidate and close amid the pandemic.
At issuance, Westroads Mall had an occupancy rate of 94.5% and
in-line sales of $458 psf for the trailing 12 months (T-12) period
ended June 2012. Westroads Mall was 95.3% occupied as of the March
2020 rent roll and had in-line sales of $410 psf for the YE2019.
The senior note annual DSCR remained steady from the YE2012 to the
YE2019 with the senior DSCR ranging from 1.89x for the YE2019 to
2.00x for the YE2018. Westroads Mall was closed in March 2020
because of the pandemic but reopened with restrictions on May 5,
2020.
The Oaks Mall loan had an initial balance of $118.3 million and an
initial mezzanine debt balance of $20.7 million. Oaks Mall is
secured by the fee interest in 581,849 sf of the 906,349-sf Oaks
Mall in Gainesville, Florida. The subject was originally
constructed in 1978 and has undergone several different renovations
and expansions with the most recent major renovation in 2002. Mall
operators reportedly installed solar panels on the mall's roof and
replaced light pole bulbs with LED bulbs in 2017. The mall is
anchored by Belk, two Dillard's, and a JCPenney. The Dillard's
located at the southern portion of the mall and the JCPenney are
both not collateral for this transaction. JCPenney has filed for
bankruptcy protection and the store was not listed among the latest
round of store closures. Since issuance two noncollateral anchor
suites that were tenanted by Macy's and Sears have been backfilled.
The former Macy's anchor was purchased by Dillard's. Dillard's
reportedly purchased the Macy's box because their existing suite
was around half the size of a typical Dillard's and the operator
wanted to provide more brand selection at this mall. The Sears
anchor is now occupied by the University of Florida Health (UF
Health) The Oaks. UF Health's ear, nose, and throat doctor offices
previously occupied space in the adjacent Hampton Oaks Medical
Plaza. UF Health is planning to have other UF Health medical
offices operate out of the Hampton Oaks Medical Plaza, now that UF
Health's ear, nose, and throat doctor offices have moved into the
former Sears box. The Oaks Mall has the potential to add additional
office and/or residential space after the City of Gainesville voted
to rezone the Oaks Mall property from retail to mixed-use in May
2019.
Oaks Mall was 89.1% occupied per the December 31, 2019, rent roll
and the mall had in-line sales of $309 psf for YE2019. At issuance,
Oaks Mall had an occupancy rate of 96.8% and in-line sales of $368
psf for the T-12 period ended June 2012. While the senior loan's
DSCR remained at least at 1.94x from the YE2012 to the YE2017, the
senior loan's DSCR began declining in the YE2018 because of tenant
closures. National tenants such as Charming Charlie, Charlotte
Rouse, and Wet Seal have closed at the property since issuance
after corporate bankruptcies. The senior loan's DSCR dropped to
1.19x in the YE2019 from 1.46x in the YE2018 and 1.97x in the
YE2017, which implies the property was already facing performance
issues prior to the pandemic. Oaks Mall was closed in March 2020
because of the pandemic but reopened with restrictions on May 15,
2020.
Oak Mall is located around 4 miles from the University of Florida's
main campus. The mall competes with the open-air shopping center,
Butler Plaza, which is the largest power center in the southeast
United States. Butler Plaza is located only 2.5 miles from
University of Florida's main campus. Butler Plaza first opened in
the 1980s but has undergone several expansions. Butler Plaza is
leased by notable tenants such as Whole Foods, Target, Regal
Cinemas, Publix, Ross Dress for Less, and numerous restaurants. Oak
Mall will continue to have to compete with Butler Plaza for
tenants, as national tenants continue to close and consolidate
locations in secondary markets.
DBRS Morningstar derived the respective NCFs using the latest
reported servicer NCF with an adjustment, considering ongoing
collateral performance including tenant movement and sales
performance. The resulting aggregate NCF figure was $25.3 million
and DBRS Morningstar applied a cap rate of 8.94% based on a blend
of 8.25% for Westroads Mall and 10.00% for Oaks Mall. Based on the
DBRS Morningstar NCF and DBRS Morningstar blended cap rate, DBRS
Morningstar concluded a pre-coronavirus DBRS Morningstar Value of
$282.7 million, a variance of -39.7% from the appraised value of
$469.0 million at issuance. The pre-coronavirus DBRS Morningstar
Value implies an LTV of 78.5% compared with the LTV of 47.3% on the
appraised value at issuance
The cap rate DBRS Morningstar applied is in the middle of the range
of DBRS Morningstar Cap Rate Ranges for retail properties,
reflecting the locations and market positions of the assets.
DBRS Morningstar made positive and negative qualitative adjustments
to the final LTV sizing benchmarks used for this rating analysis,
totaling 0.75% to account for cash flow volatility, property
quality, and market fundamentals. DBRS Morningstar also made other
negative adjustment to account for the near-term maturity risk of
the loans.
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.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had higher variances from the ratings assigned to Classes A-1, A-2,
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
coronavirus on the collateral assets and as a result, DBRS
Morningstar placed these classes Under Review with Negative
Implications.
Classes X-A and X-B 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.
CSMC 2018-SITE: DBRS Assigns BB Rating on Class HRR Certs
---------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2018-SITE issued by CSMC 2018-SITE as
follows:
-- Class A at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BB (high) (sf)
-- Class HRR at BB (sf)
Class A carries a Negative trend because the underlying collateral
continues to face performance challenges associated with the
Coronavirus Disease (COVID-19) global pandemic. DBRS Morningstar
has also placed Classes B, C, D, E, HRR, and X Under Review with
Negative Implications, given the negative impact of the coronavirus
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 20, 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 (sf) will be the most affected.
LOAN/PROPERTY OVERVIEW
The transaction's only loan is secured by the borrower's fee-simple
interest in the SITE JV Portfolio. The collateral comprises 10
retail centers totaling 3.4 million sf across nine different
states. The loan consists of two pari passu notes: a $170.0 million
A-1 note and a $50.0 million A-2 note (held outside the trust). The
trust also includes a $144.3 million subordinated B note. Total
loan proceeds of $364.3 million along with borrower equity of
$259.3 million funded the purchase price of $607.2 million, upfront
reserves of $8.4 million, and closing costs of $8.0 million. Of the
$8.4 million in upfront reserves, the sponsor allocated $5.6
million to unfunded obligations and $2.6 million to the restoration
of the University Centre. The 64-month loan pays interest only (IO)
through the entire loan term and matures in April 2024.
Individual properties may be released from the security under
certain conditions and with a payment of a release price of 110% of
the allocated loan amount (ALA) for the property if released to an
affiliate of the sponsor, 115% of the ALA for releases with respect
to the first 30% of the original principal balance, and 115% of the
ALA for releases thereafter, except to an affiliated party when the
release percentage shall be 120%.
The portfolio consists of 10 retail properties in multiple markets
in nine states. The largest market exposures are in Phoenix (20.2%
of net rentable area (NRA) and 25.6% of the ALA), Chicago (9.3% of
NRA and 9.5% of the ALA), and Atlanta (8.4% of NRA and 7.8% of the
ALA). Eight properties have grocery store anchors. The three
largest tenants are AMC Theatres (5.6% of total NRA); The TJX
Companies, Inc. (TJX; 4.9% of total NRA); and Ross Dress for Less
(4.4% of total NRA). The tenant mix for the portfolio is granular
and consists of a number of credit-rated tenants, including TJX
(eight properties; 5.1% of DBRS Morningstar base rent); Ross
Stores, Inc. (six properties; 4.7% of DBRS Morningstar base rent);
Best Buy Co., Inc. (three properties; 4.2% of DBRS Morningstar base
rent); Lowe's Companies, Inc. (two properties; 4.5% of base rent);
and Kohl’s (four properties; 4.4% of base rent). No single tenant
represents more than 8.4% of the total square footage. The
portfolio's average occupancy between 2014 and 2017 was 94.8%, but
dipped in late 2018 to 90.9% with the bankruptcy and departure of
Toys "R" Us and Babies "R" Us stores.
The sponsor and nonrecourse carveout guarantor is Dividend Trust
Portfolio JV LP, a joint venture among wholly owned subsidiaries of
SITE Centers Corp. (SITE; 20% ownership) and subsidiaries of China
Merchants Group Limited and China Life Insurance Company Ltd. (80%
ownership). DDR Property Management (rebranded as SITE on October
12, 2018) manages the properties.
Performance had been consistently strong until the coronavirus
pandemic struck in mid-March 2020. The government-enforced social
distancing and lockdown of nonessential businesses devastated many
smaller stores. In recent months, the restrictions have relaxed. In
general, restaurants and stores have been permitted to reopen with
safety procedures in place, including social distancing, masking of
employees and customers, and limited shopper density and
interaction. The portfolio has exposure to AMC Theatres (5.6% of
NRA and 10.2% of the DBRS Morningstar base rent) via three leases
that expire in December 2020, 2029, and 2031, respectively. In
recent news articles, AMC Theatres has publicly reported concerns
about its operations amid the pandemic with statements noting
severe cash flow impairments as all locations were closed beginning
in March 2020. As of October 2020, AMC Theatres reopened some
locations across the country, including the three locations
included in this transaction.
DBRS Morningstar is still monitoring the situation and is waiting
for an update from the servicer on how the coronavirus has affected
rent collections. The borrower has maintained debt service payments
and the servicer have not reported any delinquencies.
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 $35.4 million and DBRS
Morningstar applied a cap rate of 8.29%, which resulted in a
pre-coronavirus DBRS Morningstar Value of $426.7 million, a
variance of 31.2% from the appraised value of $620.0 million at
issuance. The pre-coronavirus DBRS Morningstar Value implies an LTV
of 85.4% compared with the LTV of 58.8% on the appraised value at
issuance.
The cap rate DBRS Morningstar applied is in the middle of the range
of DBRS Morningstar Cap Rate Ranges for retail properties,
reflecting the subjects' location, property quality, and market
position.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 1.5%
to account for cash flow volatility, property quality, and market
fundamentals. DBRS Morningstar also made other positive adjustments
to account for the portfolio's diversity and other negative
adjustments to account for the portfolio's high total secured debt
LTV.
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 through
Class HRR exceeded the value under the Coronavirus Impact Analysis
and therefore DRS 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 B, C, D,
E, and HRR 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.
Class X is an IO certificate that references a single rated tranche
or multiple rated tranches. The IO rating mirrors the lowest-rated
applicable reference obligation tranche adjusted upward by one
notch if senior in the waterfall.
Notes: All figures are in U.S. dollars unless otherwise noted.
CSMC TRUST 2017-CALI: S&P Affirms B- (sf) Rating on Class F Certs
-----------------------------------------------------------------
S&P Global Ratings affirmed its ratings on eight classes of
commercial mortgage pass-through certificates from CSMC Trust
2017-CALI, a U.S. CMBS transaction.
S&P affirmed its ratings on the principal- and interest-paying
classes because the current rating levels are in line with the
model-indicated ratings. However, S&P considered the significant
tenant rollover scheduled in 2020 and 2021. Despite the office
submarket vacancy being in the double digits, S&P applied a
higher-than-market vacancy and higher tenant improvement
assumptions for the office space in its analysis to account for the
rollover risk (see details below). S&P will continue to monitor the
transaction's performance, and, if there are any meaningful changes
to its performance expectations, the rating agency may update its
analysis and take rating actions as deem necessary. Additionally,
S&P considered that, according to the master servicer, KeyBank Real
Estate Capital, the borrower has not requested for COVID-19
forbearance relief, and is current on its debt service payments.
S&P affirmed its ratings on the class X-A and X-B interest-only
(IO) certificates based on its criteria for rating IO securities,
in which the ratings on the IO securities would not be higher than
that of the lowest-rated reference class. Class X-A's notional
amount references the balance of the class A certificates, and
class X-B's notional amount references the balance of the class B
and C certificates.
TRANSACTION SUMMARY
This is a stand-alone (single borrower) transaction backed by a
$250.0 million portion of a $300.0 million, seven-year, fixed-rate
IO mortgage whole loan, secured by the first-mortgage lien on the
borrower's fee simple interest in One California Plaza, a 42-story,
1.05 million–sq.-ft. class A office building located within the
Bunker Hill district of downtown Los Angeles. The property is
well-located and in proximity to major downtown demand drivers,
including the Civic Center, the 12-acre Grand Park, and the Moca
Museum. It is also accessible by public transportation, located
within walking distance of several major metro and railway lines.
According to the Sept. 14, 2020, trustee remittance report, the IO
mortgage loan has a trust balance of $250.0 million and a whole
loan balance of $300.0 million, the same as at issuance. The whole
loan consists of an $86.0 million senior A note in the trust, a
$50.0 million senior pari passu A note held outside the trust, and
a $164.0 million subordinate B note in the trust. The $136.0
million senior A notes are pari passu in right of payment with each
other and senior to the $164.0 million subordinate B note. The
whole loan pays interest at a per annum fixed rate of 3.80% and
matures on Nov. 6, 2024. To date, the trust has not incurred any
principal losses.
CREDIT CONSIDERATIONS
S&P's property-level analysis included a re-valuation of the office
building securing the whole loan. S&P considered the relatively
stable to slightly declining servicer-reported net operating income
(NOI) and occupancy for the past two-plus years: $20.9 million and
89.1% respectively, in 2018; $21.8 million and 87.4% in 2019; and
$20.4 million and 88.4% for the trailing-12-months (TTM) ended June
30, 2020. The slight decline in NOI for the TTM ended June 30,
2020, was mainly attributable to lower expense reimbursements
income and parking income.
As of the June 30, 2020, rent roll, the office building was 88.4%
occupied and had a law firm tenancy concentration. The five largest
tenants comprised 49.7% of the net rentable area (NRA) and 54.9% of
the in-place base rent as calculated by S&P Global Ratings and
included: Skadden, Arps, Slate, Meagher & Flom LLP (14.0% of NRA,
16.1% of in-place base rent as calculated by S&P Global Ratings,
November 2021 expiration); AECOM (12.0%, 11.0%, February 2032
expiration); Morgan Lewis & Bockius LLP (8.9%, 10.5%, December 2021
expiration); Bank of the West(8.7%, 10.0%, August 2020 expiration);
and Dentons US LLP (6.0%, 7.3%, September 2022 expiration).
According to the June 2020 rent roll, the property faces impending
tenant rollover. Leases comprising 8.9% of the NRA (12.2% of the in
place rent as calculated by S&P) expire in 2020 (a majority is from
the tenant Bank of the West, and since the lease has expired and
S&P has not received an update on the intent, S&P considered the
leased square footage as vacant in its analysis), 27.3% of the NRA
(31.6% of the in place rent) expires in 2021, and 9.3% of NRA
(10.9% of in place rent) expires in 2022.
According to CoStar, the downtown Los Angeles office submarket,
where the property is located, had an availability rate of 18.5%
and asking base rent of $42.97 per sq. ft. as of third-quarter
2020. The CoStar historical five-year and 10-year vacancy for the
submarket, as calculated by S&P Global Ratings, were 13.9% and
14.1%, and the CoStar historical five-year and 10-year asking base
rent, as calculated by S&P Global Ratings, were $39.56 per sq. ft.
and $35.65 per sq. ft. This compares to the actual in place base
rent of $27.29 per sq. ft., according to the June 30, 2020, rent
roll.
To account for the softening of the office submarket vacancy and
the property's high tenant rollover risk, S&P applied a 20.0%
vacancy assumption. In addition, for its office tenant improvement
(TI) assumptions, S&P utilized a 7.3-year average lease term and
$45 per sq. ft. TI for new office leases and $22.50 per sq. ft. TI
for renewal office leases.
"We arrived at an S&P Global Ratings' net cash flow of $17.9
million (the same as at issuance) and divided it by a 7.00% S&P
Global Ratings' capitalization rate (unchanged from issuance) to
determine our expected-case value, which was $255.8 million or $248
sq. ft. This yielded an S&P Global Ratings' loan-to-value ratio of
117.3% and debt service coverage (DSC) of 1.55X on the whole loan.
KeyBank reported a DSC of 1.54x on the whole loan balance for the
TTM ended June 30, 2020," the rating agency said.
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The current consensus among health
experts is that COVID-19 will remain a threat until a vaccine or
effective treatment becomes widely available, which could be around
mid-2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
the rating agency said.
RATINGS AFFIRMED
CSMC Trust 2017-CALI
Commercial mortgage pass-through certificates
Class Rating
A AAA (sf)
B AA- (sf)
C A- (sf)
D BBB- (sf)
E BB- (sf)
F B- (sf)
X-A AAA (sf)
X-B A- (sf)
EAGLE RE 2020-2: DBRS Gives Prov. 'B' Rating on 3 Tranches
----------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the Mortgage
Insurance-Linked Notes, Series 2020-2 (the Notes) issued by Eagle
Re 2020-2 Ltd. (EMIR 2020-2 or the Issuer):
-- $130.1 million Class M-1A at BB (high) (sf)
-- $65.1 million Class M-1B at BB (sf)
-- $65.1 million Class M-1C at BB (low) (sf)
-- $97.6 million Class M-2 at B (sf)
-- $32.5 million Class M-2A at B (high) (sf)
-- $32.5 million Class M-2B at B (high) (sf)
-- $32.5 million Class M-2C at B (sf)
-- $32.5 million Class B-1 at B (sf)
The BB (high) (sf), BB (sf), BB (low) (sf), B (high) (sf), and B
(sf) ratings reflect 5.250%, 4.750%, 4.250%, 3.750%, and 3.250% of
credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
EMIR 2020-2 is Radian Guaranty Inc.'s (Radian Guaranty or the
ceding insurer) fourth rated mortgage insurance (MI) linked note
transaction. The Notes are backed by reinsurance premiums, eligible
investments, and related account investment earnings, in each case
relating to a pool of MI policies linked to residential loans. The
Notes are exposed to the risk arising from losses the ceding
insurer pays to settle claims on the underlying MI policies. As of
the cut-off date, the pool of insured mortgage loans consists of
196,160 fully amortizing first-lien fixed- and variable-rate
mortgages. They all have been underwritten to a full documentation
standard, have original loan-to-value ratios (LTVs) less than or
equal to 97%, and have never been reported to the ceding insurer as
60 or more days delinquent. The mortgage loans have MI policies
effective in or after October 2019 and in or before July 2020. On
March 1, 2020, a new master policy was introduced to conform to
government-sponsored enterprises' revised rescission relief
principles under the Private Mortgage Insurer Eligibility
Requirements guidelines. Approximately 57.6% of the mortgage loans
were originated under the new master policy.
On the closing date, the Issuer will enter into the Reinsurance
Agreement with the ceding insurer. Per the agreement, the ceding
insurer will receive protection for the funded portion of the MI
losses. In exchange for this protection, the ceding insurer will
make premium payments related to the underlying insured mortgage
loans to the Issuer.
The Issuer is expected to use the proceeds from selling the Notes
to purchase certain eligible investments that will be held in the
reinsurance trust account. The eligible investments are restricted
to AAA or equivalently rated U.S. Treasury money market funds and
securities. Unlike other residential mortgage-backed security
(RMBS) transactions, cash flow from the underlying loans will not
be used to make any payments; rather, in MI-linked note (MILN)
transactions, a portion of the eligible investments held in the
reinsurance trust account will be liquidated to make principal
payments to the noteholders and to make loss payments to the ceding
insurer when settling claims on the MI policy.
The Issuer will use the investment earnings on the eligible
investments, together with the ceding insurer's premium payments,
to pay interest to the noteholders.
The calculation of principal payments to the Notes will be based on
a reduction in aggregate exposed principal balance on the
underlying MI policy. The subordinate Notes will receive their pro
rata share of available principal funds if the minimum credit
enhancement test and the delinquency test are satisfied. The
minimum credit enhancement test will purposely fail at the closing
date, thus locking out the rated classes from initially receiving
any principal payments until the subordinate percentage grows to
7.25% from 6.25%. The delinquency test will be satisfied if the
three-month average of 60-plus days delinquency percentage is below
75% of the subordinate percentage. Unlike MILN transactions that
were rated prior to the Coronavirus Disease (COVID-19) pandemic,
where the delinquency test is satisfied when the delinquency
percentage falls below a fixed threshold, this transaction
incorporates a dynamic delinquency test.
On the closing date, the ceding insurer will establish a cash and
securities account, the premium deposit account. If the ceding
insurer defaults in paying coverage premium payments to the Issuer,
the amount available in this account will cover interest payments
to the noteholders. Unlike prior EMIR transactions, the premium
deposit account will not be funded at closing. Instead, the ceding
insurer will make a deposit into this account up to the applicable
target balance only when one of the premium deposit events occur.
Please refer to the related report and/or offering circular for
more details.
The Notes are scheduled to mature on the payment date in October
2030 but will be subject to early redemption at the option of the
ceding insurer (1) for a 10% clean-up call or (2) on or following
the payment date in October 2027, among others. The Notes are also
subject to mandatory redemption before the scheduled maturity date
upon the termination of the Reinsurance Agreement.
Radian Guaranty, will be the ceding insurer. The Bank of New York
Mellon (rated AA (high) with a Stable trend by DBRS Morningstar)
will act as the Indenture Trustee, Paying Agent, Note Registrar,
and Reinsurance Trustee.
The coronavirus 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 RMBS asset classes, some meaningfully.
Various MI companies have set up programs to issue MILNs. These
programs aim to transfer a portion of the risk related to MI claims
on a reference pool of loans to the investors of the MILNs. In
these transactions, investors' risk increases with higher MI
payouts. The underlying pool of mortgage loans with MI policies
covered by MILN reinsurance agreements are typically
conventional/conforming loans that follow government-sponsored
enterprises’ acquisition guidelines and therefore have LTVs above
80%. However, a portion of each MILN transaction’s covered loans
may not be agency eligible.
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 the moderate
scenario in its commentary, see Global Macroeconomic Scenarios:
September Update, published on September 10, 2020. For the MILN
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, DBRS Morningstar may assume a portion of the
pool (randomly selected) to be on forbearance plans in the
immediate future. For these loans, DBRS Morningstar assumes 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 MILN asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes that loans with layered risk (low
FICO score with high LTV/high debt-to-income ratio) may be more
sensitive to economic hardships resulting from higher unemployment
rates and lower incomes. Additionally, higher delinquencies might
cause a longer lockout period or a redirection of principal
allocation away from outstanding rated classes because performance
triggers failed.
Notes: All figures are in U.S. dollars unless otherwise noted.
EAGLE RE 2020-2: Moody's Assigns (P)B1 Rating on 2 Tranches
-----------------------------------------------------------
Moody's Investors Service assigned provisional ratings to eight
classes of mortgage insurance credit risk transfer notes issued by
Eagle Re 2020-2 Ltd.
Eagle Re 2020-2 Ltd is the fourth transaction issued under the
Eagle Re program, which transfers to the capital markets the credit
risk of private mortgage insurance (MI) policies issued by Radian
Guaranty Inc (Radian, 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, Eagle 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-3 and Class B-2 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: Eagle Re 2020-2 Ltd.
Cl. M-1A, Assigned (P)Baa3 (sf)
Cl. M-1B, Assigned (P)Ba1 (sf)
Cl. M-1C, Assigned (P)Ba2 (sf)
Cl. M-2A, Assigned (P)Ba2 (sf)
Cl. M-2B, Assigned (P)Ba3 (sf)
Cl. M-2C, Assigned (P)B1 (sf)
Cl. M-2, Assigned (P)Ba3 (sf)
Cl. B-1, Assigned (P)B1 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expects this insured pool's aggregate exposed principal
balance to incur 2.30% losses in a base case scenario, and 17.03%
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.
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 of 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 October 1, 2019, but on or before July 31, 2020. The
reference pool consists of 196,160 prime, fixed- and
adjustable-rate, one- to four-unit, first-lien fully-amortizing,
predominantly conforming mortgage loans with a total insured loan
balance of approximately $13 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 90.9%. The borrowers
in the pool have a weighted average FICO score of 753, a weighted
average debt-to-income ratio of 35.4% and a weighted average
mortgage rate of 3.55%. The weighted average risk in force (MI
coverage percentage net of existing reinsurance coverage) is
approximately 23.9% 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 90.9% 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 99.3% covered by BPMI and 0.7% covered by LPMI
based on risk in force.
Underwriting Quality
Moody's took into account the quality of Radian's insurance
underwriting, risk management and claims payment process in its
analysis.
Radian'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 Radian for insurance either
through delegated underwriting or non-delegated underwriting
program. Under the delegated underwriting program, lenders can
submit loans for insurance without Radian re-underwriting the loan
file. Radian issues an MI commitment based on the lender's
representation that the loan meets the insurer's underwriting
requirement. Radian allows exceptions for loans approved through
both its delegated and non-delegated underwriting programs. Lenders
eligible under the delegated program must be pre-approved by
Radian'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 September 2020,
approximately 61% of the loans in Radian's overall portfolio are
insured through delegated underwriting, 34% through non-delegated
underwriting and 5% through contract underwriting. Radian broadly
follows the GSE underwriting guidelines via DU/LP, subject to few
additional limitations and requirements.
Servicers provide Radian 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. Radian's claims review process includes
loan files, payment history, quality review results, and property
value. Radian sends first document request letter to Servicer
within 35 days of receipt of claim, and may take additional 10-day
period after receipt of response to first document request to make
additional requests. Claims are paid within 60 days after all
required documents are submitted.
Radian performs an internal quality assurance review on a sample
basis of delegated and non-delegated underwritten loans. Radian
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.
Third-Party Review
Radian engaged Opus Capital Markets Consultants, LLC 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
325 of the total loans in the initial reference pool as of May
2020, or 0.17% by loan count). Once the sample size was determined,
the files were selected randomly to meet the final sample count of
325 files out of a total of 196,160 loan files.
In spite of the small sample size and a limited TPR scope for Eagle
Re 2020-2, Moody's did not make an additional adjustment to the
loss levels because (1) the underwriting quality of the insured
loans is monitored under the GSEs' stringent quality control system
and (2) MI policies will not cover any costs related to compliance
violations.
The loans are reviewed on a quarterly basis and depending on the
timing of the transaction relative to the quarterly review, the
loans from that production may or may not be included. The TPR
available sample does not cover a subset of pool that have MI
coverage effective date on and after April 2020, representing
approximately 54.0% 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-April 2020 subset and the
pre-April 2020 subset, including the percentage of loans with MI
policies underwritten through non-delegated underwriting program,
which ceding insurer requires full loan origination 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 325 loans in the sample pool. A Freddie Mac
Home Value Explorer ("HVE") was ordered on the entire population of
325 files. If the resulting value of the AVM was less than 90% of
the value reflected on the original appraisal, or if no results
were returned, a Broker Price Opinion ("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, an Appraisal Review
appraisal was ordered on the property. Among the 325 loans, five
(5) loans were not assigned any grade by the third-party review
firm and all other loans were graded A. The third-party diligence
provider was not able to obtain property valuations on five
mortgage loans due to the inability to complete the field review
assignment during the due diligence review period.
Credit: The third-party diligence provider reviewed credit on 325
loans in the sample pool. All the loans were wither rated graded A
or B. There were no loans with final grade of "C".
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. Per the due diligence report, there are seven discrepancy
findings under four fields: DTI, maturity date, original loan
amount, and borrower count. The discrepancies are considered to be
non-material.
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, coverage level B-2 and the coverage level B-3 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-2A, Class M-2B, Class
M-2C and Class B-1 offered notes have credit enhancement levels of
5.25%, 4.75%, 4.25%, 4.00% and 3.75%, 3.50%, 3.25%, 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-3.
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 senior reference tranches when 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 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 Class A 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: 7.25%).
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) the coupon rate of the note
multiplied by (a) the applicable funded percentage, (b) the
coverage level amount for the coverage level corresponding to such
class of notes and (c) 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 Opus Capital Markets Consultants, LLC, as claims consultant,
to verify MI claims and reimbursement amounts withdrawn from the
reinsurance trust account once the coverage level B-3 and the
coverage level B-2 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.
FONTAINEBLEAU MIAMI 2019-FBLU: DBRS Confirms B(low) on G Certs
--------------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2019-FBLU
issued by Fontainebleau Miami Beach Trust 2019-FBLU:
-- Class A at AAA (sf)
-- Class X-A at AA (sf)
-- Class B at AA (sf)
-- Class C as AA (low) (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G 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. The ratings have been removed
from Under Review with Negative Implications, where they were
placed on March 27, 2020.
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 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.
As it reviewed the ratings for 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. 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 subject is a Four-Diamond, 1,594-room luxury resort situated
along 15.5 acres of oceanfront property at 4441 Collins Avenue in
the mid-beach area of Miami Beach, Florida. The financing package
totals $1.175 billion with $975.0 million structured as first
mortgage debt and $200.0 million structured as mezzanine debt.
Originally constructed in 1954, the property serves as one of the
most recognizable and architecturally significant resorts in the
world, rich with historical relevance and well known for its
extensive amenities. Collateral includes the fee-simple interest in
the land and resort improvements. The total room count includes 748
non-owned condo-hotel units, which are not collateral for the loan;
however, historical participation in the hotel's unit rental
program averaged 85.6% since 2011 up to and including the most
recent period ending September 2019, which reports a current
participation rate of 89.8%. Two major airports are near the
subject, including the Miami International Airport, 10 miles west,
and Fort Lauderdale-Hollywood International Airport, approximately
21 miles north.
Jeffrey Soffer, along with other principals of the prior sponsor
entity, originally acquired the subject in 2005 and later brought
in an equity partner, Istithmar Hotels FB Miami LLC, which took on
a 50.0% stake in 2008 for $375.0 million just prior to completing
an extensive $571.8 million ($397,079 per key) renovation. Since
acquiring the resort in 2005, the sponsor has invested
approximately $837.3 million in capital improvements throughout the
property, the majority of which occurred in 2008 with a
transformative capital renovation. The sponsor continues to commit
to the property, with plans to contribute an additional $32.0
million between 2020 and 2022.
In March 2020, the loan was transferred to the special servicer due
to the borrower requesting coronavirus-related relief in a form of
a forbearance. According to the servicer, the forbearance request
was primarily providing the deferral of furniture, fixtures, and
equipment payments through 2020 and the exclusion of the 2020
financials when calculating the debt yield tests. The loan is
expected to return to the master servicer in October 2020. As of
September 2020 reporting, the loan has $8.4 million in a
replacement reserve.
Based on the trailing 12-months ending September 2019 operating
statement, the subject reported a weighted-average occupancy rate,
average daily rate, and revenue per available room of 75.2.0%,
$361.38, and $271.74, respectively, compared to the 2015 figures of
74.6%, $346.01, and $287.34, respectively.
Both the domestic and international tourism reliance factor is
particularly noteworthy given the global travel disruptions
currently underway amid the coronavirus outbreak. DBRS Morningstar
notes the subject will likely experience cash flow disruptions in
the coming months, potentially more severe than the property
experienced in 2016 with the outbreak of the Zika virus. However,
DBRS Morningstar notes the subject and other local hotels likely
benefitted from a strong start to the year given the fact that
Miami hosted Super Bowl LIV in February 2020, which should serve to
provide some cushion against declines in revenue associated with
the coronavirus pandemic.
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 $77.2
million and DBRS Morningstar applied a cap rate of 8.0%, which
resulted in a DBRS Morningstar Value of $965.0 million, a variance
of 41.2% from the appraised value of $1,640 million at issuance.
The DBRS Morningstar Value implies an LTV of 101.0% compared with
the LTV of 59.5% on the appraised value at issuance.
The cap rate DBRS Morningstar applied is at the lower end of the
range of DBRS Morningstar Cap Rate Ranges for lodging properties,
reflecting property's irreplaceable location, high quality, and
limited competitive new supply.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis totalling 4.00%
to account for cash flow volatility, property quality, and market
fundamentals.
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.
The DBRS Morningstar rating assigned to Class D had a variance that
was higher than those results implied by the LTV Sizing Benchmarks
when market value declines are assumed under the Coronavirus Impact
Analysis. This Class carries a Negative trend as DBRS Morningstar
continues to monitor the evolving economic impact of coronavirus
induced stress on the transaction.
Classes 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.
FREMF 2017-K61: Fitch Affirms BB+sf Rating on Class C Certs
-----------------------------------------------------------
Fitch Ratings has affirmed eight classes of Freddie Mac (FREMF)
2017-K61 Multifamily Mortgage Pass-Through Certificates and five
classes of Freddie Mac Structured Pass-Through Certificates, K-061.
Fitch has also affirmed unenhanced ratings for five classes of the
FREMF 2017-K61 Multifamily Mortgage Pass-Through Certificates and
five classes of the Freddie Mac Structured Pass-Through
Certificates, K-061.
RATING ACTIONS
Freddie Mac Structured Pass-Through Certificates 2017-K061
Class A-1 3137BTUL3; LT AAAsf Affirmed; previously at AAAsf
Class A-1 3137BTUL3; ULT AAAsf Affirmed; previously at AAAsf
Class A-2 3137BTUM1; LT AAAsf Affirmed; previously at AAAsf
Class A-2 3137BTUM1; ULT AAAsf Affirmed; previously at AAAsf
Class A-M 3137BTUN9; LT AAAsf Affirmed; previously at AAAsf
Class A-M 3137BTUN9; ULT Asf Affirmed; previously at Asf
Class X1 3137BTUP4; LT AAAsf Affirmed; previously at AAAsf
Class X1 3137BTUP4; ULT AAAsf Affirmed; previously at AAAsf
Class XAM 3137BTUR0; LT AAAsf Affirmed; previously at AAAsf
Class XAM 3137BTUR0; ULT Asf Affirmed; previously at Asf
FREMF 2017-K61
Class A-1 30296AAA5; LT AAAsf Affirmed; previously at AAAsf
Class A-1 30296AAA5; ULT AAAsf Affirmed; previously at AAAsf
Class A-2 30296AAC1; LT AAAsf Affirmed; previously at AAAsf
Class A-2 30296AAC1; ULT AAAsf Affirmed; previously at AAAsf
Class A-M 30296AAE7; LT AAAsf Affirmed; previously at AAAsf
Class A-M 30296AAE7; ULT Asf Affirmed; previously at Asf
Class B 30296AAS6; LT BBBsf Affirmed; previously at BBBsf
Class C 30296AAU1; LT BB+sf Affirmed; previously at BB+sf
Class X1 30296AAG2; LT AAAsf Affirmed; previously at AAAsf
Class X1 30296AAG2; ULT AAAsf Affirmed; previously at AAAsf
Class X2-A 30296AAN7; LT AAAsf Affirmed; previously at AAAsf
Class XAM 30296AAJ6; LT AAAsf Affirmed; previously at AAAsf
Class XAM 30296AAJ6; ULT Asf Affirmed; previously at Asf
KEY RATING DRIVERS
Freddie Mac Guarantee, Credit Linked Notes: The multifamily
mortgage pass-through certificates (FREMF 2017-K61) classes A-1,
A-2, A-M, X1, XAM and X3 are guaranteed by Freddie Mac. The
affirmation of classes A-1, A-2 are based on this guarantee and the
stable performance of the pool. The affirmation and Negative Rating
Outlook of the long-term rating of the A-M, which is credit linked
to the guarantee, reflects the credit linkage to the U.S. sovereign
rating. Although the interest-only classes X1 and XAM are
guaranteed, the long-term rating for the interest-only X1 class is
based on the pass-through to the referenced A-1 and A-2
certificates, and the long-term rating for the interest-only XAM
class is based on the pass-through to the referenced A-M
certificate. Fitch does not rate FREMF 2017-K61 class X3. Although
Freddie Mac does not guarantee the structured pass-through
certificates (Freddie Mac K-061), they benefit indirectly from the
guarantee. The Freddie Mac K-061 classes represent a pass-through
interest in the corresponding multifamily mortgage pass-through
certificates issued by FREMF 2017-K61.
Stable Performance; Increased Loss Expectations: Fitch's unenhanced
ratings are based on an analysis of the underlying collateral pool
and do not give any credit to the Freddie Mac guarantee. While
overall pool performance remains stable, loss expectations
increased since Fitch's prior rating action, primarily due to
additional stresses applied to loans expected to be affected in the
near term due to the coronavirus pandemic. Eleven loans (12.6% of
pool), including nine (11.9%) backed by student housing and senior
housing properties, were designated Fitch Loans of Concern
primarily due to the expected impact from the coronavirus pandemic
in the near term. There have been no specially serviced loans since
issuance.
Minimal Change to Credit Enhancement: The pool's aggregate
principal balance was reduced by 1.3% to $1.245 billion as of the
September 2020 distribution date from $1.261 billion at issuance.
Four loans (2.9%) are defeased.
Full-Term and Partial-Term Interest-Only Loans: Based on the loans'
scheduled maturity balances, Fitch expects the pool to amortize
10.8% during the term. Seven loans, representing 12.3% of the pool,
are full-term, interest only. At issuance, 47 loans (75.1%) had a
partial-term, interest-only component, 17 of which have begun to
amortize.
Multifamily Concentration: 96.2% of the pool is secured by
multifamily properties, 1.8% is secured by manufactured housing
communities and 2.0% is secured by cooperative properties. Two
loans (2.3%) are classified as student housing properties and seven
loans (9.6%) are classified as senior housing properties. Fitch
applied additional stress to the student housing and senior housing
properties due to the greater volatility associated with these
multifamily subtypes.
Pool and Loan Concentration: The top 10 loans comprise 42.4% of the
pool. All 69 loans mature in 2026. The largest loan, The Breakers
(11.3%), which was rebranded as TAVA Waters after a $30 million
renovation, is secured by a 1,523-unit multifamily property in
Denver, CO. While the property recently suffered $7 million (based
on replacement cost) in hail damage in June 2020, the borrower
continues to make debt service payments, and performance remains in
line with Fitch's analysis at issuance. The borrower received
supplemental debt in the amount of $10.9 million in April 2020.
Exposure to Coronavirus Pandemic: The weighted-average NOI debt
service coverage ratio (DSCR) for all nondefeased, nonmanufactured
housing community and noncooperative loans is 2.10x. These loans
could sustain a weighted-average decline in NOI of 53% before DSCR
falls below 1.00x. Fitch's base case analysis applied additional
stresses to all student housing and senior housing property
subtypes (11.9%) and two multifamily properties (0.7%) due to the
expected impact from the coronavirus pandemic in the near term.
While pool losses increased, the Rating Outlooks on all classes
remain Stable due to sufficient credit enhancement (CE) and the
overall stable performance of the pool.
RATING SENSITIVITIES
The Stable Rating Outlooks on the long-term ratings of classes A-1,
A-2 and X1 reflect both the overall stable pool performance and the
Freddie Mac guarantee. The Stable Rating Outlooks on the unenhanced
ratings reflect stable pool performance, increasing CE and expected
continued amortization. The Negative Outlooks on the long-term
ratings of classes A-M and XAM reflect the recent affirmation of
the U.S. sovereign rating at 'AAA', with a Negative Outlook. The
guarantee is credit linked to the U.S. sovereign rating.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that lead to upgrades on the unenhanced ratings include
stable to improved asset performance coupled with paydown and/or
defeasance. However, loans expected to be affected by the
coronavirus pandemic could cause this trend to reverse. Classes
would not be upgraded above 'Asf' if there is a likelihood for
interest shortfalls.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Factors that lead to downgrades on the unenhanced ratings include
an increase in pool-level expected losses from underperforming or
specially serviced loans. Downgrades to the senior classes rated
'AAAsf' are not likely due to the position in the capital structure
and the high CE. Downgrades of one category or more to classes A-M,
B and C would occur should overall pool expected losses increase
and properties default.
The unenhanced ratings represent a detachment from the guarantee
provided by Freddie Mac for their respective classes. Should the
performance of the underlying collateral deteriorate enough to
warrant a downgrade to any of the classes benefiting from the
Freddie Mac guarantee, the unenhanced ratings would only be
downgraded. If the rating of Freddie Mac is downgraded, the
long-term ratings for those classes that benefit from a guarantee
would be rated at the higher of Freddie Mac or the underlying
rating without the guarantee.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021. If this scenario plays out, Fitch expects
classes would be susceptible to negative rating actions, including
either a change in Outlook or downgrade of a category to both the
long-term and unenhanced ratings.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Single- and Multi-Name Credit-Linked Notes Rating 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.
GS MORTGAGE 2017-GS8: Fitch Affirms B-sf Rating on Cl. G-RR Debt
----------------------------------------------------------------
Fitch Ratings has affirmed 17 classes of GS Mortgage Securities
Trust series 2017-GS8. Fitch also revised the Rating Outlook on
class F-RR to Negative from Stable.
RATING ACTIONS
GSMS 2017-GS8
Class A-1 36254KAH5; LT AAAsf Affirmed; previously at AAAsf
Class A-2 36254KAJ1; LT AAAsf Affirmed; previously at AAAsf
Class A-3 36254KAK8; LT AAAsf Affirmed; previously at AAAsf
Class A-4 36254KAL6; LT AAAsf Affirmed; previously at AAAsf
Class A-AB 36254KAM4; LT AAAsf Affirmed; previously at AAAsf
Class A-BP 36254KAN2; LT AAAsf Affirmed; previously at AAAsf
Class A-S 36254KAS1; LT AAAsf Affirmed; previously at AAAsf
Class B 36254KAT9; LT AA-sf Affirmed; previously at AA-sf
Class C 36254KAU6; LT A-sf Affirmed; previously at A-sf
Class D 36254KAA0; LT BBBsf Affirmed; previously at BBBsf
Class E-RR 36254KAC6; LT BBB-sf Affirmed; previously at BBB-sf
Class F-RR 36254KAD4; LT BB-sf Affirmed; previously at BB-sf
Class G-RR 36254KAE2; LT B-sf Affirmed; previously at B-sf
Class X-A 36254KAP7; LT AAAsf Affirmed; previously at AAAsf
Class X-B 36254KAR3; LT AA-sf Affirmed; previously at AA-sf
Class X-BP 36254KAQ5; LT AAAsf Affirmed; previously at AAAsf
Class X-D 36254KAB8; LT BBBsf Affirmed; previously at BBBsf
KEY RATING DRIVERS
Increased Loss Expectations: Although overall pool performance
remains fairly stable, loss expectations have increased due to an
increase in the number of Fitch Loans of Concern (FLOCs). Fitch has
identified six loans (25.9%) as FLOCs, including the only specially
serviced loan in the pool (3.5%), which recently transferred due to
pandemic-related performance issues.
Fitch Loans of Concern: The largest FLOC, Spectrum Office Portfolio
(6.9%), is secured by a portfolio of four suburban office
properties located in Southern California totaling 446,000 sf. The
rent roll is very granular with over 100 tenants; no tenant
occupies more than 3.4% of portfolio NRA. Property performance has
remained stable and occupancy as of February 2020 was 91.3%. The YE
2019 NOI DSCR was 2.33x. However, there is significant upcoming
rollover risk. Over 60% of the NRA is scheduled to roll by YE 2021;
Fitch applied a 25% NOI haircut to account for the rollover. The
loan is structured with a general leasing reserve that can be used
for re-tenanting.
Life Time Fitness Portfolio (5.6%) is secured by a portfolio of two
Life Time Fitness properties located in Fort Washington, PA and
Folsom, CA. Both leases expire in December 2042 with no termination
options. Both gyms have re-opened after a temporary closure due to
the coronavirus pandemic. Despite recent re-openings, Fitch has
concerns about the future performance of the loan based on the
specialty property type and the nature of the tenant's operations.
Given the potential for performance volatility, Fitch applied a 25%
NOI haircut in its analysis.
The Triangle (4.1%) is secured by a 205,000-sf anchored retail
property located in Costa Mesa, CA. The property has a mix of
lifestyle tenants including the anchor tenants, 24 Hour Fitness
(29% NRA) and Triangle Cinemas (18% NRA), as well as a bowling
alley, nightclub, and various restaurants. The anchor, 24 Hour
Fitness, recently filed chapter 11 bankruptcy in June 2020. There
are no imminent plans to close the gym, and the subject is not on
the initial list of closing gyms. The servicer has agreed to
provide coronavirus relief by allowing the borrower to use reserve
funds to cover debt service. Fitch's analysis included an NOI
stress of 20%, given the uncertainty surrounding the anchor tenant
and a variety of other tenants that are susceptible to
interruptions in performance due to the pandemic.
Westin Palo Alto (3.9%) is secured by a 184-key full service hotel
located in Palo Alto, CA. The hotel is located in close proximity
to Stanford University. The property's franchise agreement with
Westin expired in May 2020. According to the website, the property
is still operating as a Westin. It seems the franchise agreement
was extended; however, Fitch is still awaiting the updated terms of
the agreement. Additionally, the property performance has declined
as a result of the economic shutdown associated with the
coronavirus pandemic. Occupancy as of the TTM period ending July
2020 was 50%, down from 84% at YE 2019. The partial interest-only
loan remains in its IO period and the YE 2019 NOI DSCR was 2.03x.
Inn at the Market (3.5%) is the only specially serviced loan in the
pool. The loan is secured by a 76-key full service hotel located in
downtown Seattle, WA, near the Pike Place Market and Seattle
waterfront. The hotel operates as an independent boutique hotel.
The loan transferred in June 2020, having missed each payment since
April 2020. The property suffered a pandemic-related performance
hit and was closed for several months before it re-opened in July.
According to the special servicer, the borrower is in the process
of proposing a modification of the loan terms, and the special
servicer is also pursuing a receivership sale.
The final FLOC is outside of the top 15. Shops at Boardman (1.9%)
is secured by a 316,000-sf retail center located in Boardman, OH.
The loan is on the watchlist, having missed the August and
September debt service payments. The borrower and asset manager are
in discussions regarding the delinquent payments.
Limited Improvement in Credit Enhancement: There have been minimal
changes in credit enhancement due to limited amortization, no loan
payoffs and no defeasance. As of the September 2020 distribution
date, the pools' aggregate balance has been paid down by 0.5% to
$1.015 billion from $1.020 billion at issuance. There are 15 loans
(52.5%) that are full term interest-only. Nineteen loans (44.5%)
are structured with a partial interest-only period; seven (13.9%)
of which have begun to amortize. There have been no realized losses
to date.
Coronavirus Exposure: Fitch expects significant economic impact to
certain hotel, retail and multifamily properties from the
coronavirus pandemic. There are six loans (21.8%) secured by hotel
properties and 15 loans (27.6%) secured by retail properties. The
hotel loans have a weighted average NOI DSCR of 3.33x and can
sustain a weighted average NOI decline of 65% before DSCR falls
below 1.00x. The retail properties have a weighted average NOI DSCR
of 2.11x and can sustain a weighted average NOI decline of 50%
before DSCR falls below 1.00x. One loan, 1301 University Avenue
(1.6%), is secured by a student housing property located in
Minneapolis, MN, close to the campus of the University of
Minnesota. Student housing properties may face additional risk from
the pandemic given their reliance on school enrollment. Fitch's
base case analysis applied additional NOI stresses to three (12%)
hotel loans and four (5.5%) retail loans that did not meet certain
performance thresholds. These additional stresses contributed to
the Negative Outlook revisions on class F-RR.
Foreign Asset: One loan, Esperanza (1.5%) is secured by a 53-room
full-service hotel located in Cabo San Lucas, Mexico. The Cabo San
Lucas market is heavily dependent on tourism as a primary demand
generator and, while air travel from the U.S to Mexico is currently
permitted, Fitch believes there will be a sizable decline in
foreign tourists during the coronavirus pandemic. Fitch applied an
additional NOI stress given its heavy reliance on tourism.
Investment Grade Credit Opinion Loans: Three loans (19.1%) received
an investment grade credit opinion at issuance. Worldwide Plaza
received a 'BBB+sf', Starwood Lodging Portfolio received an 'Asf',
and Olympic Tower received a 'BBBsf'.
RATING SENSITIVITIES
The Negative Outlook on classes F-RR and G-RR reflect the potential
for downgrades given an increase in loss expectations. The Stable
Rating Outlooks on classes A-1 through E-RR reflect continued
amortization and generally stable loss expectations, despite the
increase in FLOCs.
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.
Upgrades to classes B and C would likely occur with significant
improvement in CE and/or defeasance. However, adverse selection,
increased concentrations or the underperformance of a particular
loan(s) may limit the potential for future upgrades. An upgrade to
classes D and E-RR 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 for interest shortfalls. Upgrades to
classes F-RR and G-RR are not likely until the later years of the
transaction, and only if the performance of the remaining pool is
stable and/or properties vulnerable to the coronavirus return to
pre-pandemic levels, and there is sufficient CE to the class.
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-1, A-2, A-3, A-4, A-AB, A-BP and A-S
classes, along with class B, are not expected given the position in
the capital structure and sufficient CE, but may occur if interest
shortfalls occur or losses increase considerably. A downgrade to
classes C, D, and E-RR would occur should several loans transfer to
special servicing and/or as pool losses significantly increase. A
downgrade to classes F-RR and G-RR is likely should the performance
of the FLOCs fail to stabilize and/or as losses materialize and CE
becomes eroded.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, Fitch expects that a greater
percentage of classes may be assigned a Negative Rating Outlook or
those with Negative Rating Outlooks will be downgraded one or more
categories.
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.
GS MORTGAGE 2017-STAY: DBRS Confirms B Rating on Class HRR Certs
----------------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of the
Commercial Mortgage Pass-Through Certificates, Series 2017-STAY
issued by GS Mortgage Securities Corporation Trust 2017-STAY:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class X-NCP at A (high) (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)
All trends are Negative because the underlying collateral continues
to face performance challenges associated with the Coronavirus
Disease (COVID-19) global pandemic. The ratings have been removed
from Under Review with Negative Implications, where they were
placed on March 27, 2020.
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 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.
As it reviewed the ratings for 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. 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 $200.0 million trust loan is a floating-rate, interest-only
mortgage with an initial term of three years and two one-year
extension options. The loan is secured by the fee interest in a
portfolio of 40 extended-stay hotels totalling 5,195 keys, an
average of 132 keys per location, located in 14 states across the
United States. Although somewhat concentrated in the southeast
region, the portfolio is geographically diverse and relatively
granular as no single hotel represents more than 4.7% of the
allocated loan balance. All hotels operate under the InTown Suites
flag, which is owned by the loan sponsor, Starwood Capital Group
Global L.P. (Starwood). The sponsor has substantial experience in
the hotel sector and acquired the collateral in 2013 from Kimco
Realty Corporation as part of the acquisition of the InTown Suites
platform for $735.0 million. Loan proceeds were used to refinance
$174.5 million of existing portfolio debt, return $19.0 million of
equity to the sponsor, and cover closing costs. The borrower
exercised its first of two one-year extension options with a new
loan maturity date of July 2021. The loan is currently on the
servicer's watchlist for a deferred maintenance issue. DBRS
Morningstar does not consider this watchlist item to be a credit
concern.
The portfolio's performance has improved since issuance as the loan
reported a YE2019 debt service coverage ratio (DSCR) of 3.18 times
(x) and YE2018 figure of 3.19x, compared with the DBRS Morningstar
Term DSCR of 2.57x derived at issuance. The most recent reporting
based on a trailing twelve-month period ended June 30, 2020, the
DSCR was reported at 3.00x. DBRS Morningstar does expect the
financial performance to deteriorate further once the full impact
of the coronavirus is captured. However, even though the portfolio
has seen a small decline in its DSCR, the DSCR remains above
issuance. In addition, the low average daily rate price point of
the portfolio should be a positive aspect during the coronavirus
pandemic as the properties provide medium- to long-term housing
solutions for contract workers such as those in construction and an
affordable alternative housing solution for individuals
experiencing financial difficulty who may be unable to meet monthly
rent obligations at traditional multifamily properties.
All of the properties are well-established within their respective
markets and the sponsor has continued to further invest in the
collateral since acquisition. Since 2013, the sponsor has spent
approximately $24.1 million ($4,639 per key) on capital
improvements across the portfolio. There are no franchised
locations, so a property improvement plan is not required for any
of the hotels. Because the average age of the portfolio assets is
more than 20 years and because the rates are generally lower that
at traditional hotels, the borrower is required to deposit 5.0% of
the portfolio's operating income into the furniture, fixtures, and
equipment reserve on a monthly basis.
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 $25.0
million and DBRS Morningstar applied a cap rate of 10.7%, which
resulted in a DBRS Morningstar Value of $233.2 million, a variance
of 29.9% from the appraised value of $333.0 million at issuance.
The DBRS Morningstar Value implies an LTV of 85.8% compared with
the LTV of 60.0% 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 the tertiary and suburban locations of the portfolio and
the property quality of the portfolio assets, while still providing
some credit for the strong sponsorship of Starwood.
DBRS Morningstar made negative qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling 2.0%
to account for property quality and market fundamentals.
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 25% 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.
The DBRS Morningstar rating assigned to Class E had a variance that
was higher than those results implied by the LTV sizing benchmarks
when market value declines are assumed under the Coronavirus Impact
Analysis. This Class carries a Negative trend as DBRS Morningstar
continues to monitor the evolving economic impact of
coronavirus-induced stress on the transaction.
DBRS Morningstar provides updated analysis and in-depth commentary
in the DBRS Viewpoint platform for this transaction.
Notes: All figures are in U.S. dollars unless otherwise noted.
GS MORTGAGE 2020-PJ5: Fitch to Rate Class B-5 Certs 'B(EXP)'
------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by GS Mortgage-Backed Securities Trust 2020-PJ5
(GSMBS 2020-PJ5).
RATING ACTIONS
GSMBS 2020-PJ5
Class A-1; LT AAA(EXP)sf Expected Rating
Class A-2; 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-3; LT AA+(EXP)sf Expected Rating
Class A-4; LT AA+(EXP)sf Expected Rating
Class A-9; LT AA+(EXP)sf Expected Rating
Class A-10; LT AA+(EXP)sf Expected Rating
Class A-X-1; LT AAA(EXP)sf Expected Rating
Class A-X-2; LT AAA(EXP)sf Expected Rating
Class A-X-3LTAA+(EXP)sf Expected Rating
Class A-X-5; LT AAA(EXP)sf Expected Rating
Class A-X-7; LT AAA(EXP)sf Expected Rating
Class B-1; LT AA(EXP)sf Expected Rating
Class B-1-A; LT AA(EXP)sf Expected Rating
Class B-1-X; LT AA(EXP)sf Expected Rating
Class B-2; LT A(EXP)sf Expected Rating
Class B-2-A; LT A(EXP)sf Expected Rating
Class B-2-X; LT A(EXP)sf Expected Rating
Class B; LT BBB(EXP)sf Expected Rating
Class B-3; LT BBB(EXP)sf Expected Rating
Class B-3-A; LT BBB(EXP)sf Expected Rating
Class B-3-X; 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
Class AR; LT NR(EXP)sf Expected Rating
Class BX; LT NR(EXP)sf Expected Rating
KEY RATING DRIVERS
High Quality Mortgage Pool (Positive): The collateral consists
primarily of 30-year fixed-rate mortgage (FRM) fully amortizing
loans seasoned approximately eight months in aggregate. The
borrowers in this pool have strong credit profiles (766 model FICO)
and relatively low leverage (a 74.1% sustainable loan-to-value
ratio [sLTV]). The collateral is a mix of conforming agency
eligible loans (15%) and nonconforming prime-jumbo loans (85%).
Shifting-Interest Deal Structure (Mixed): The mortgage cash flow
and loss allocation are based on a senior-subordinate,
shifting-interest structure whereby the subordinate classes receive
only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. While there is
only minimal leakage to the subordinate bonds early in the life of
the transaction, the structure is more vulnerable to defaults
occurring at a later stage compared to a sequential or modified
sequential structure.
To help mitigate tail risk, which arises as the pool seasons and
fewer loans are outstanding, a subordination floor of 1.5% of the
original balance will be maintained for the senior certificates,
and a subordination floor of 1.0% of the original balance will be
maintained for the subordinate certificates.
Shellpoint Servicing will provide full advancing for the life of
the transaction. While this helps the liquidity of the structure,
it also increases the expected loss due to unpaid servicer
advances.
Geographic Concentration (Negative): Approximately 60% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in the Los Angeles
MSA (24.7%), followed by the San Francisco (13.4%) and San Diego
(6.3%) MSAs. The top three MSAs account for 44.4% of the pool. As a
result, there was a 1.06x adjustment for geographic concentration
and a 30 basis-points (bps) increase to expected loss levels at the
'AAAsf' rating category.
Payment Holidays Related to Coronavirus Pandemic (Negative): The
coronavirus pandemic and widespread containment efforts in the U.S.
will result in increased unemployment and cash flow disruptions. To
account for the cash flow disruptions, Fitch assumed delinquent
payments on a minimum of 25% of the pool for the first six months
of the transaction at all rating categories, with a reversion to
its standard delinquency and liquidation timing curve by month 10.
This assumption is based on observations of past-due payments
following Hurricane Maria in Puerto Rico. Due to the servicer
advancing P&I payments, this stress does not significantly impact
the structure. As of the cutoff date, the issuer confirmed that no
loans were either delinquent or had entered a forbearance program,
and the servicer is not expected to defer scheduled payment dates.
Low Operational Risk (Neutral): Operational risk is well controlled
for in this transaction. Goldman Sachs is assessed as an 'Above
Average' aggregator by Fitch due to its robust sourcing strategy
and seller oversight, experienced senior management and staff and
strong risk management and corporate governance controls. Primary
and master servicing responsibilities are performed by Shellpoint
Mortgage Servicing (Shellpoint), rated 'RPS2-' by Fitch.
Representation Framework (Negative): The loan-level representation,
warranty and enforcement (RW&E) framework is consistent with Tier 2
quality. Fitch increased its loss expectations by 44 bps at the
'AAAsf' rating category as a result of the Tier 2 framework and the
underlying sellers supporting the repurchase obligations of the
RW&E providers.
Third-Party Due Diligence Results (Positive): Third-party due
diligence was performed on 100% of the loans in the transaction.
Due diligence was performed by AMC, Opus, Digital Risk,
Consolidated Analytics, and Clayton, which Fitch assesses as
'Acceptable - Tier 1', 'Acceptable - Tier 2', 'Acceptable - Tier
2', 'Acceptable - Tier 3', 'Acceptable - Tier 1' and 'Acceptable -
Tier 2', respectively. The review scope is consistent with Fitch
criteria, and the results are generally similar to prior prime RMBS
transactions. Credit exceptions were supported by strong mitigating
factors, and compliance exceptions were primarily cured with
subsequent documentation. Fitch applied a credit for the high
percentage of loan-level due diligence, which reduced the 'AAAsf'
loss expectation by 26 bps.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. The implied rating sensitivities are only
an indication of some of the potential outcomes and do not consider
other risk factors that the transaction may become exposed to, or
that may be considered in the surveillance of the transaction.
Sensitivity analysis was conducted at the state and national levels
to assess the effect of higher MVDs for the subject pool, and lower
MVDs illustrated by a gain in home prices.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to negative MVDs at the national level, or
positive home price growth with no assumed overvaluation. The
analysis assumes positive home price growth of 10%. Excluding the
senior class, which is already 'AAAsf', the analysis indicates
there is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result in a
full category upgrade for the rated class excluding those assigned
'AAAsf' ratings.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
This defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10%, 20% and 30% in addition to the
model-projected 4.5%. The analysis indicates that there is some
potential rating migration with higher MVDs for all rated classes,
compared with the model projection. Specifically, a 10% additional
decline in home prices would lower all rated classes by one full
category.
Fitch has added a coronavirus sensitivity analysis that includes a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delays
any meaningful recovery to beyond 2021. Under this severe scenario,
Fitch expects the ratings to be affected by changes in its
sustainable home price model due to updates to the model's
underlying economic data inputs. Any long-term effects arising from
coronavirus-related disruptions on these economic inputs will
likely affect both investment and speculative-grade ratings.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E).
Third-party due diligence was performed on approximately 100% of
the loans in the transaction. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." Clayton,
SitusAMC, Opus, Digital Risk and Consolidate Analytics were engaged
to perform the review. The due diligence scope includes a review of
credit, regulatory compliance and property valuation for each loan
and is consistent with Fitch criteria for RMBS that are backed by
newly originated loans. The results of the review indicate overall
thorough origination practices that are consistent with prime RMBS.
All of the loans in the transaction pool received a final due
diligence grade of 'A' or 'B'. Loans receiving a final due
diligence grade of 'B' were primarily driven by regulatory
compliance exceptions related to TILA-RESPA Integrated Disclosure
(TRID) rules. These exceptions are not considered material based on
guidance from the Structured Finance Association (SFA), or they
were corrected with subsequent post-closing documentation. Less
than 6% of the loans received a final grade of 'B' related to
credit exceptions that were deemed immaterial due to the presence
of strong compensating factors identified during the review. Three
loans had a property inspection waiver (PIW) from the
government-sponsored entities (GSEs). Goldman Sachs (GS)had ordered
a 2055 drive-by appraisal (a field review) on the PIW loans. All
loans were within a 10% +/- variance.
DATA ADEQUACY
Fitch relied in its analysis on an independent third-party due
diligence review performed on 100% of the pool. The third-party due
diligence was consistent with Fitch's "U.S. RMBS Rating Criteria."
Clayton, SitusAMC, Opus, Digital Risk and Consolidate Analytics
were engaged to perform the review. Loans reviewed under this
engagement were given compliance, credit and valuation grades and
assigned initial grades for each subcategory. Minimal exceptions
and waivers were noted in the due diligence reports.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5-designated website. Fitch received
loan-level information based on the American Securitization Forum's
(ASF) data layout format, and the data are considered
comprehensive. The ASF data tape layout was established with input
from various industry participants, including rating agencies,
issuers, originators, investors and others, to produce an industry
standard for the pool-level data in support of the U.S. RMBS
securitization market. The data contained in the ASF layout data
tape were reviewed by the due diligence companies, and no material
discrepancies were noted.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
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.
IMPERIAL FUND 2020-NQM1: DBRS Gives Prov. B Rating on Cl. B-1 Certs
-------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following Mortgage
Pass-Through Certificates, Series 2020-NQM1 (the Certificates) to
be issued by Imperial Fund Mortgage Trust 2020-NQM1 (the Trust):
-- $89.1 million Class A-1 at AAA (sf)
-- $10.2 million Class A-2 at AA (high) (sf)
-- $18.4 million Class A-3 at A (low) (sf)
-- $8.8 million Class M-1 at BBB (low) (sf)
-- $7.2 million Class B-1 at B (high) (sf)
The AAA (sf) rating on the Class A-1 Certificates reflects 38.80%
of credit enhancement provided by subordinated Certificates. The AA
(high) (sf), A (low) (sf), BBB (low) (sf), and B (high) (sf)
ratings reflect 31.80%, 19.15%, 13.10%, and 8.15% 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 fixed- and adjustable-rate
prime and non-prime first-lien residential mortgages funded by the
issuance of the Certificates. The Certificates are backed by 457
loans with a total principal balance of $145,563,679 as of the
Cut-Off Date (September 1, 2020).
This is the first transaction by Imperial Fund I, LLC (Imperial
Fund) as Issuer. While the overall collateral characteristics are
comparable to other non-QM pools, there are a few characteristics
unique to the Trust: (1) a notable share of the collateral
comprises loans originated to foreign national (14.2%) and to
non-resident alien borrowers (2.7%; together, known as foreign
borrowers), some of which do not have FICO scores provided by the
U.S. credit bureaus; (2) overall, 3.9% of the collateral are loans
to borrowers with no FICO score; and (3) a large population of the
loans (60.5%) is concentrated in Florida.
The originators for the aggregate mortgage pool are A&D Mortgage
(ADM; 99.5%) and various other originators, each comprising less
than 0.3% of the loans. The mortgage loans not originated by ADM
were originated by ADM's correspondent lenders to ADM's
underwriting standards. ADM originated the mortgages primarily
under the following seven programs: Super Prime, Prime, Prime
Access, Premier, Premier Access, Foreign National, and Debt Service
Coverage Ratio.
ADM is the Servicer for all loans. Specialized Loan Servicing LLC
will subservice the mortgage loans beginning on or about the
Closing Date. Imperial Fund will act as the Sponsor and Servicing
Administrator, and 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 the Securities Administrator and
Certificate Registrar. Wilmington Trust National Association (rated
AA (low) with a Negative trend by DBRS Morningstar) will serve as
the Custodian and Wilmington Savings Fund Society, FSB will act as
the Trustee.
In accordance with U.S. credit risk retention requirements,
Imperial Fund as the Sponsor, either directly or through a
Majority-Owned Affiliate, will retain an eligible horizontal
residual interest consisting of the Class B-3 and Class X
Certificates (together, the "Risk Retained Certificates"),
representing not less than 5% economic interest in the transaction,
to satisfy the requirements under Section 15G of the Securities and
Exchange Act of 1934 and the regulations promulgated thereunder.
Such retention aligns Sponsor and investor interest in the capital
structure.
Although the applicable mortgage loans were originated to satisfy
the Consumer Financial Protection Bureau (CFPB) ability-to-repay
(ATR) rules, they were made to borrowers who generally do not
qualify for agency, government, or private-label nonagency prime
products for various reasons described above. In accordance with
the CFPB Qualified Mortgage (QM)/ATR rules, 49.1% are designated as
non-QM. Approximately 50.9% of the loans are made to investors for
business purposes and are thus not subject to the QM/ATR rules.
The Servicer will generally fund advances of delinquent principal
and interest (P&I) on any mortgage until such loan becomes 90 days
delinquent, contingent upon recoverability determination. The
Servicer is also obligated to make advances in respect of taxes,
insurance premiums, and reasonable costs incurred in the course of
servicing and disposing of properties.
The Seller will have the option, but not the obligation, to
repurchase any nonliquidated mortgage loan that is 90 or more days
delinquent under the Mortgage Bankers Association (MBA) method (or,
in the case of any Coronavirus Disease (COVID-19) forbearance loan,
such mortgage loan becomes 90 or more days MBA Delinquent after the
related forbearance period ends) at the Repurchase Price, provided
that such repurchases in aggregate do not exceed 7.5% of the total
principal balance as of the Cut-Off Date.
On or after the earlier of September 2023 or the date when the
collateral pool balance is reduced to or below 30% of the Cut-Off
Date balance, Imperial Fund Mortgage Depositor LLC (the Depositor)
has the option to purchase all outstanding certificates (Optional
Redemption) at a price equal to the outstanding class balance plus
accrued and unpaid interest, including any cap carryover amounts.
After such a purchase, the Depositor then has the option to
complete a qualified liquidation, which requires a complete
liquidation of assets within the Trust and the distribution of
proceeds to the appropriate holders of regular or residual
interests.
On any date following the date on which the collateral pool balance
is less than or equal to 10% of the Cut-Off Date balance, the
Servicing Administrator and the Servicer will have the option to
terminate the transaction by purchasing all of the mortgage loans
and any real-estate owned (REO) property. The purchase price will
be equal to the sum of the aggregate stated principal balance of
the mortgage loans (other than any REO property) plus applicable
accrued interest thereon, the lesser of the fair market value of
any REO property and the stated principal balance of the related
loan, and any outstanding and unreimbursed advances, accrued and
unpaid fees, and expenses that are payable or reimbursable to the
transaction parties (Optional Termination). An Optional Termination
is conducted as a qualified liquidation.
The transaction employs a sequential-pay cash flow structure with a
pro rata principal distribution among the senior tranches. Interest
payments and shortfalls on the Class A-1, A-2, and A-3 Certificates
can be paid sequentially from the principal remittance waterfall
when the trigger event is not in effect. Also, principal proceeds
can be used to cover interest shortfalls on the Class A-1 and A-2
Certificates sequentially (IIPP) after a delinquency or cumulative
loss trigger event has occurred. For more subordinate Certificates,
principal proceeds can be used to cover interest shortfalls as the
more senior Certificates are paid in full. Furthermore, excess
spread can be used to cover realized losses and prior period bond
writedown amounts first before being allocated to unpaid cap
carryover amounts to Class A-1 down to Class B-1.
Coronavirus 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 securities
(RMBS) asset classes, some meaningfully.
The non-QM sector is a traditional RMBS asset class that consists
of securitizations backed by pools of residential home loans that
may fall outside of the CFPB ATR rules, which became effective on
January 10, 2014. Non-QM loans encompass the entire credit
spectrum. They range from high-FICO, high-income borrowers who opt
for interest-only or higher debt-to-income ratio mortgages, to
near-prime debtors who have had certain derogatory pay histories
but were cured more than two years ago, to nonprime borrowers whose
credit events were only recently cleared, among others. In
addition, some originators offer alternative documentation or bank
statement underwriting to self-employed borrowers in lieu of
verifying income with Form W-2, Wage and Tax Statements (W-2s) or
tax returns. Finally, foreign nationals and real estate investor
programs, while not necessarily non-QM in nature, are often
included in non-QM pools.
As a result of the coronavirus, DBRS Morningstar expects increased
delinquencies, 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 non-QM asset class, DBRS
Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than what it previously
used. Such MVD assumptions are derived through a fundamental home
price approach based on the forecast unemployment rates and GDP
growth outlined in the aforementioned moderate scenario. In
addition, for pools with loans on forbearance plans, DBRS
Morningstar may assume higher loss expectations above and beyond
the coronavirus assumptions. Such assumptions translate to higher
expected losses on the collateral pool and correspondingly higher
credit enhancement.
In the non-QM asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes loans originated to (1) borrowers
with recent credit events, (2) self-employed borrowers, or (3)
higher loan-to-value (LTV) ratio borrowers may be more sensitive to
economic hardships resulting from higher unemployment rates and
lower incomes. Borrowers with prior credit events have exhibited
difficulties in fulfilling payment obligations in the past and may
revert to spotty payment patterns in the near term. Self-employed
borrowers are potentially exposed to more volatile income sources,
which could lead to reduced cash flows generated from their
businesses. Higher LTV borrowers, with lower equity in their
properties, generally have fewer refinance opportunities and
therefore slower prepayments. In addition, certain pools with
elevated geographic concentrations in densely populated urban
metropolitan statistical areas may experience additional stress
from extended lockdown periods and the slowdown of the economy.
In addition, for this transaction, as permitted by the Coronavirus
Aid, Relief, and Economic Security Act, signed into law on March
27, 2020, 0.6% of the loans had been granted 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 Servicer is generally offering borrowers a three-month payment
forbearance plan and would attempt to contact the borrowers before
the expiration of the forbearance period to evaluate the borrowers'
capacity to repay the missed amounts. Beginning in month four, the
borrower can repay the entire missed mortgage payments at once,
extend the forbearance, or opt to go on a repayment plan to catch
up on missed payments. During the repayment period, the borrower
needs to make regular payments and additional amounts to catch up
on the missed payments. As a result, the Servicer may offer other
forms of payment relief, such as deferrals of the unpaid P&I
amounts or a loan modification, in addition to pursuing other loss
mitigation options.
For this deal, 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) limited
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 (low) (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.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2012-WLDN: DBRS Gives BB(high) Rating on Class C Certs
----------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2012-WLDN issued by J.P. Morgan Chase
Commercial Mortgage Securities Trust 2012-WLDN as follows:
-- Class X-A at A (high) (sf)
-- Class A at A (sf)
-- Class B at BBB (sf)
-- Class X-B at BBB (low) (sf)
-- Class C at BB (high) (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 21, 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 (sf) will be the most affected.
LOAN/PROPERTY OVERVIEW
The transaction is backed by a $270.0 million, 10-year, fixed-rate,
first-lien mortgage loan secured by the fee-simple interest in the
Walden Galleria, a super-regional shopping mall in Cheektowaga, New
York. The borrower used loan proceeds along with a $30.0 million
senior mezzanine loan and a $50.0 million junior mezzanine loan to
refinance $291.0 million of existing debt and return $54.3 million
of equity back to the sponsor. The loan was structured with an
initial three-year interest-only (IO) period, followed by
amortizing loan payments on a 30-year schedule with a final balloon
principal payment due on May 1, 2022. As of the September 2020
remittance report, the loan balance had amortized down to $247.5
million.
The subject loan transferred to special servicing in April 2020
because of the coronavirus pandemic's impact and a loan
modification is in the final stages of approval. The loan sponsor
is The Pyramid Companies (Pyramid), the largest privately held
shopping mall developer in the Northeast United States; its
affiliate, Pyramid Management Group, LLC, provides management
services. The subject is one of several commercial mortgage-backed
security (CMBS) loans backed by malls in the sponsor's portfolio
that is in default and in the process of obtaining or has already
obtained a loan modification. Pyramid's access to capital has been
constrained amid the pandemic and DBRS Morningstar considers the
firm’s ability to weather the challenges in the current
environment to be significantly impaired compared with larger,
better-capitalized owner-operators, such as Simon Property Group,
Inc. and Brookfield Property Partners L.P.
Of the subject mall's 1.6 million sf of space, approximately 1.2
million sf serves as collateral for the subject loan. Walden
Galleria is a super-regional mall that is considered the premier
shopping destination in the Buffalo metropolitan statistical area.
Anchors include JCPenney, Dick's Sporting Goods (ground lease),
Regal Cinemas, Best Buy, and Forever 21. In addition to the current
anchor set, a Sears was in place at issuance; an affiliate owned
the store, which was closed and released from the collateral in
January 2018. Noncollateral anchors include Macy's and Lord &
Taylor, but the Lord & Taylor store estimated to close in either
late 2020 or early 2021 following the retailer's bankruptcy filing
earlier this year. Historically, the mall has relied heavily on
traffic from shoppers from Canada, which represent between 20% and
30% of total volume; however, because the Canadian-U.S. border
remains closed through the pandemic, that traffic has ceased and
will contribute to further deepening of sales declines that were
already occurring prior to the pandemic. JCPenney has also filed
for bankruptcy, but remains in operation at the subject property
with a recent lease amendment that will expire in April 2024 and no
announcements that the store will close to date. Regal Cinemas has
been closed since the start of the pandemic and the theater's
parent company recently announced that all of its theaters that had
reopened in recent months would temporarily close again until
further notice, citing operational challenges related to the
limited number of box-office releases and resulting low traffic.
Over the past few years, the property has shown precipitous cash
flow declines as the YE2018 NCF of $30.2 million was 5.5% below the
issuance level of $31.9 million and dipped again by 8.6% from YE018
to YE2019 when the NCF was reportedly $27.5 million, which
represents a 13.7% decline from issuance. The most recent sales
figures for the trailing 12-month period ended February 29, 2020,
also reflected performance declines with total mall sales volume of
$400.4 million, which is 19.3% lower than the issuance level of
$496.3 million. The property's occupancy rate generally held near
the issuance level of 87.4% prior to the pandemic with the June
2020 occupancy rate reported at 82.5%; however, the loss of Lord &
Taylor later this year and the potential for further losses as the
pandemic drives a record number of retailers into bankruptcy
suggests that the risk of further deterioration in the property's
occupancy rate is high.
The onset of the pandemic in mid-March 2020 forced the property to
close in mid-April 2020 and the mall did not reopen until July 10,
2020. Rent collections dropped substantially as the sponsor only
received 33.8% of budgeted income between April 2020 and August
2020; however, each month showed significant improvement over the
last during this time period with August 2020 collections at 76.6%.
Several tenants have yet to reopen at the mall because of
government mandates, which include the previously discussed Regal
Cinemas, Dave & Buster's, Billy Beez, and Urban Air Adventure Park
(a recently executed lease; the tenant has yet to open for
business). Dave & Buster's, occupying 33,900 sf or 2.8% of the
collateral net rentable area, is particularly concerning as the
company recently permanently laid off 85 employees at the subject
location, per news articles.
Because of the pandemic's impact, the subject loan transferred to
special servicing in April 2020 for imminent default. The sponsor
requested payment relief for a six-month period commencing on April
1, 2020. According to the special servicer report dated September
1, 2020, the special servicer, senior mezzanine lender, and
borrower have agreed on modifications; however, the junior
mezzanine lender is still reviewing the terms. The modifications
include (1) debt service payment relief through December 2020; (2)
deferral of debt service for both mezzanine loans until the subject
mortgage is brought current; (3) the borrower's agreement to fund
any operating expense shortfalls and to fund increases in the
capital expenditure and tenant improvement/leasing commission
reserves for expected future needs; and (4) the borrower's ability
to grant rent deferral without the servicer's consent, but to a
limited degree, and the commencement of a stated increased debt
service payment in January 2021 with the excess monies used to pay
down the deferred debt service until the deferred balance is zero.
Other terms and conditions have been instituted to permit the basic
forbearance strategy. As of the September 2020 remittance report,
the sponsor had $245.3 million delinquent principal and interest
(P&I) payments and last paid P&I in April 2020. An updated
appraisal has been ordered; however, it is currently unavailable.
DBRS Morningstar derived the NCF using the latest reported servicer
NCF figure with adjustments, considering the closed and/or bankrupt
tenants, challenges in declining sales, and impact of the closed
Canada-U.S. border on traffic to the property for the foreseeable
future. The resulting NCF figure was $25.4 million and DBRS
Morningstar applied a cap rate of 8.0%, which resulted in a
pre-coronavirus DBRS Morningstar Value of $317.2 million, a
variance of -47.1% from the appraised value of $600.0 million at
issuance. The pre-coronavirus DBRS Morningstar Value implies an A
note LTV of 77.3% and whole-loan LTV of 102.6% compared with the A
note LTV of 45.0% and whole-loan LTV of 58.3% 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 position in a secondary market.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 0.25%
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 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.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had higher variances from the ratings assigned to Classes A, B, and
C 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.
Classes X-A and X-B are 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.
JP MORGAN 2018-ASH8: DBRS Confirms B(low) Rating on Cl. F Certs
---------------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of the
Commercial Mortgage Pass-Through Certificates, Series 2018-ASH8
issued by J.P. Morgan Chase Commercial Mortgage Securities Trust
2018-ASH8:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
-- Class X-EXT at BBB (high) (sf)
The trends for Classes A and B are Negative because the underlying
collateral continues to face performance challenges associated with
the Coronavirus Disease (COVID-19) global pandemic. Classes A and B
have been removed from Under Review with Negative Implications,
where they were placed on March 27, 2020.
DBRS Morningstar has also maintained Classes C, D, E, F, and X-EXT
Under Review with Negative Implications, given the negative impact
of the coronavirus on the underlying collateral.
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 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.
As it reviewed the ratings for 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. 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 transaction's loan is secured by eight full-service hotels
(totalling 1,964 keys), seven of which are affiliated with Hilton,
IHG, or Starwood, and operate under four flags (Embassy Suites by
Hilton, Crowne Plaza, Hilton, and Sheraton), with one operating as
an independent hotel. Loan proceeds of $395.0 million refinanced
existing debt of $378.9 million, returned equity of $2.4 million,
and funded upfront reserves of $5.8 million. Sponsorship for this
loan is provided by Ashford Hospitality Trust, Inc. (Ashford), a
publicly traded real estate investment trust, recognized as a
well-established owner and operator of approximately 116 hotels
across the United States. Per Ashford's Q2 2020 earnings release,
the company reported a decline of 88.3% to $16.60 in comparable
revenue per available room (RevPAR) for all hotels during the
quarter given the ongoing effects of the pandemic. Additionally,
the average daily rate (ADR) across their portfolio of 116 hotels
decreased 36.4% and occupancy decreased 81.6%.
The portfolio is largely concentrated in California (two hotels;
743 keys; 33.7% of the total loan amount), Florida (two hotels; 334
keys; 22.4% of the total loan amount), and Oregon (one hotel; 276
keys; 22.2% of the total loan amount),with the remaining collateral
in Virginia, Minnesota, and Maryland. The properties were built
between 1727 and 1999; however, they have all undergone renovations
between 2013 and 2015. Between 2013 and November 2017, $60.2
million ($30,124 per key) of improvements were made on the various
properties. Since the hotels were acquired, approximately $85.5
million ($43,534 per key) has been invested in improvements. The
upfront reserves included a $2.5 million allowance for capital
expenditures and a property improvement plan for the Embassy Suites
Crystal City asset. According to the September 2020 loan-level
reserve report, the replacement reserve has a balance of
approximately $1.2 million.
According to the most recent servicer update, the loan transferred
to the special servicer in April 2020 for imminent monetary
default. The borrower requested forbearance relief, which is
currently in process and expected to be resolved in October 2020.
Prior to the effects of the coronavirus pandemic, the portfolio
reported a YE2019 occupancy, ADR, and RevPAR of 77.5% (+0.3% year
over year (YOY)), $191 (no change YOY), and $152 (+1.0% YOY),
respectively. Since issuance, however, occupancy has decreased 5.3%
across the portfolio while net cash flow (NCF) has declined 9.4%
from 2018 to 2019 as a result of a decrease in other departmental
revenue of 9.6% and 3.1% increase in food and beverage expenses.
The YE2019 NCF of $33.7 million is 5.9% below DBRS Morningstar's
NCF at issuance of $35.8 million, driven by a substantial increase
in total operating expenses to $51.5 million at YE2019 versus DBRS
Morningstar's estimate of $41.0 million
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 $34.0 million and DBRS
Morningstar applied a cap rate of 9.22%, which resulted in a DBRS
Morningstar Value of $372.8 million, a variance of 28.7% from the
appraised value of $523.1 million at issuance. The DBRS Morningstar
Value implies an LTV of 106.0% compared with the LTV of 75.5% on
the appraised value at issuance.
The cap rate DBRS Morningstar applied is in the middle of the range
of DBRS Morningstar Cap Rate Ranges for lodging properties,
reflecting the geographic diversity of the collateral as the assets
are located across six states and eight metropolitan statistical
areas in addition to substantial capital investment into the
portfolio since 2013.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling
1.00% to account for cash flow volatility, property quality, and
market fundamentals. DBRS Morningstar also made other negative
adjustments to account for the partial pro rata pay structure
within the trust.
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 through
Class F exceeded the value under the Coronavirus Impact Analysis
and therefore DBRS Morningstar presumes that the economic stress
from coronavirus had affected the Class.
The DBRS Morningstar ratings assigned to Classes C, D, E, and F had
variances that were generally higher than those results implied by
the LTV sizing benchmarks when MVDs are assumed under the
Coronavirus Impact Analysis. These classes remain Under Review with
Negative Implications as DBRS Morningstar continues to monitor the
evolving economic impact of coronavirus-induced stress on the
transaction
Class X-EXT 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.
LB-UBS COMMERCIAL 2006-C1: Fitch Affirms D Ratings on 16 Tranches
-----------------------------------------------------------------
Fitch Ratings has affirmed 63 classes across four transactions in
U.S. CMBS.
RATING ACTIONS
LB-UBS Commercial Mortgage Trust 2006-C1
Class B 52108MDL4; LT CCsf Affirmed; previously at CCsf
Class C 52108MDM2; LT Csf Affirmed; previously at Csf
Class D 52108MDN0; LT Csf Affirmed; previously at Csf
Class E 52108MDP5; LT Dsf Affirmed; previously at Dsf
Class F 52108MDQ3; LT Dsf Affirmed; previously at Dsf
Class G 52108MDS9; LT Dsf Affirmed; previously at Dsf
Class H 52108MDU4; LT Dsf Affirmed; previously at Dsf
Class IUU-3 52108MEW9; LT Dsf Affirmed; previously at Dsf
Class IUU-4 52108MEY5; LT Dsf Affirmed; previously at Dsf
Class IUU-5 52108MFA6; LT Dsf Affirmed; previously at Dsf
Class IUU-6 52108MFC2; LT Dsf Affirmed; previously at Dsf
Class IUU-7 52108MFE8; LT Dsf Affirmed; previously at Dsf
Class IUU-8 52108MFG3; LT Dsf Affirmed; previously at Dsf
Class IUU-9 52108MFJ7; LT Dsf Affirmed; previously at Dsf
Class J 52108MDW0; LT Dsf Affirmed; previously at Dsf
Class K 52108MDY6; LT Dsf Affirmed; previously at Dsf
Class L 52108MEA7; LT Dsf Affirmed; previously at Dsf
Class M 52108MEC3; LT Dsf Affirmed; previously at Dsf
Class N 52108MEE9; LT Dsf Affirmed; previously at Dsf
LB-UBS Commercial Mortgage Trust 2007-C7
Class D 52109RBT7; LT Csf Affirmed; previously at Csf
Class E 52109RBU4; LT Dsf Affirmed; previously at Dsf
Class F 52109RBV2; LT Dsf Affirmed; previously at Dsf
Class G 52109RAL5; LT Dsf Affirmed; previously at Dsf
Class H 52109RAN1; LT Dsf Affirmed; previously at Dsf
Class J 52109RAQ4; LT Dsf Affirmed; previously at Dsf
Class K 52109RAS0; LT Dsf Affirmed; previously at Dsf
Class L 52109RAU5; LT Dsf Affirmed; previously at Dsf
Class M 52109RAW1; LT Dsf Affirmed; previously at Dsf
Class N 52109RAY7; LT Dsf Affirmed; previously at Dsf
Class P 52109RBA8; LT Dsf Affirmed; previously at Dsf
Class Q 52109RBC4; LT Dsf Affirmed; previously at Dsf
Class S 52109RBE0; LT Dsf Affirmed; previously at Dsf
Credit Suisse Commercial Mortgage Trust 2007-C1
Class A-J 22545XAG8; LT Dsf Affirmed; previously at Dsf
Class A-M 22545XAF0; LT Bsf Affirmed; previously at Bsf
Class A-MFL 22545XBC6; LT Bsf Affirmed; previously at Bsf
Class A-MFX 22545XBD4; LT Bsf Affirmed; previously at Bsf
Class B 22545XAJ2; LT Dsf Affirmed; previously at Dsf
Class C 22545XAK9; LT Dsf Affirmed; previously at Dsf
Class D 22545XAL7; LT Dsf Affirmed; previously at Dsf
Class E 22545XAM5; LT Dsf Affirmed; previously at Dsf
Class F 22545XAN3; LT Dsf Affirmed; previously at Dsf
Class G 22545XAP8; LT Dsf Affirmed; previously at Dsf
Class H 22545XAQ6; LT Dsf Affirmed; previously at Dsf
Class J 22545XAR4; LT Dsf Affirmed; previously at Dsf
Class K 22545XAS2; LT Dsf Affirmed; previously at Dsf
Class L 22545XAT0; LT Dsf Affirmed; previously at Dsf
Class M 22545XAU7; LT Dsf Affirmed; previously at Dsf
Class N 22545XAV5; LT Dsf Affirmed; previously at Dsf
Class O 22545XAW3; LT Dsf Affirmed; previously at Dsf
Class P 22545XAX1; LT Dsf Affirmed; previously at Dsf
Class Q 22545XAY9; LT Dsf Affirmed; previously at Dsf
Class S 22545XAZ6; LT Dsf Affirmed; previously at Dsf
Merrill Lynch Mortgage Trust 2008-C1
Class F 59025WAU0; LT Bsf Affirmed; previously at Bsf
Class G 59025WAV8; LT CCsf Affirmed; previously at CCsf
Class H 59025WAW6; LT Csf Affirmed; previously at Csf
Class J 59025WAX4; LT Dsf Affirmed; previously at Dsf
Class K 59025WAY2; LT Dsf Affirmed; previously at Dsf
Class L 59025WAZ9; LT Dsf Affirmed; previously at Dsf
Class M 59025WBA3; LT Dsf Affirmed; previously at Dsf
Class N 59025WBB1; LT Dsf Affirmed; previously at Dsf
Class P 59025WBC9; LT Dsf Affirmed; previously at Dsf
Class Q 59025WBD7; LT Dsf Affirmed; previously at Dsf
Class S 59025WBE5; LT Dsf Affirmed; previously at Dsf
TRANSACTION SUMMARY
Fitch has affirmed all classes of Credit Suisse Commercial Mortgage
Trust 2007-C1 based on limited change to loss expectations since
Fitch's prior review. Each of the remaining five assets are in
special servicing and significant losses are expected. Given the
small size of the senior classes, losses are not expected to be
incurred by classes A-M, A-MFL and A-MFX; however, any proceeds
would come from the disposition of assets by the special servicer
as the master servicer is not advancing principal or interest.
Fitch has affirmed all classes of LB-UBS Commercial Mortgage Trust
2006-C1 based on limited change to loss expectations from Fitch's
prior review. All remaining ratings remain distressed as all are
expected to incur losses from the specially serviced asset,
Triangle Town Center, an REO mall property located in Raleigh, NC.
Fitch has affirmed all classes of LB-UBS Commercial Mortgage Trust
2007-C7 based on the limited change to loss expectations from
Fitch's prior review. Three of the four remaining assets are in
special servicing, two of which transferred prior to the
coronavirus pandemic. Losses are expected to impact all remaining
classes and are considered inevitable.
Fitch has affirmed all classes of Merrill Lynch Mortgage Trust
2008-C1 based on limited change to loss expectations from Fitch's
prior review. Two of the four remaining assets are in special
servicing. While losses from the specially serviced assets are not
expected to impact class F, proceeds from the eventual dispositions
are required to pay the class in full.
KEY RATING DRIVERS
High Expected Losses: All of the transactions have high expected
losses, as most of the remaining assets are in special servicing.
Each transaction has five or fewer assets remaining and losses are
expected to impact most of the remaining classes.
For classes rated 'Bsf', losses are currently not expected to be
incurred; however, proceeds from dispositions are needed to pay the
classes in full.
Low Credit Enhancement (CE): Each of the remaining classes has low
CE. The distressed ratings on the majority of the bonds reflect
insufficient CE to absorb the expected losses.
LB-UBS Commercial Mortgage Trust 2006-C1 has an ESG relevance score
of 5 [-] for Social Impacts as it has exposure to sustained
structural shift in secular preferences affecting consumer trends,
occupancy trends, and more, which, on an individual basis, has a
significant impact on the rating. The transaction's ratings are
reliant on an REO mall property.
LB-UBS Commercial Mortgage Trust 2006-C1 has an ESG relevance score
of 5 [-] for Social Impacts as it has exposure to sustained
structural shift in secular preferences affecting consumer trends,
occupancy trends, and more, which, on an individual basis, has a
significant impact on the rating. The transaction's ratings are
reliant on an REO mall property.
RATING SENSITIVITIES
Classes currently rated 'Bsf' are considered to have a possibility
of payoff but are reliant on defaulted asset dispositions to pay in
full. Classes currently rated 'CCsf', or 'Csf' are considered
likely to incur realized losses. Upgrades are not expected.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade include a decline in the valuation
of the remaining assets and an increased likelihood of losses,
realized losses higher than expected, or downgrades to 'Dsf' as
losses are incurred.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade include recoveries higher than
currently expected or a significant increase in the valuation of
defaulted assets.
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
LB-UBS Commercial Mortgage Trust 2006-C1: Exposure to Social
Impacts: 5 [-]
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.
M360 LTD 2019-CRE2: DBRS Confirms B(low) Rating on Class G Notes
----------------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of
floating-rate notes issued by M360 2019-CRE2, Ltd. (the Issuer):
-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (low) (sf)
-- Class G Notes at B (low) (sf)
Additionally, DBRS Morningstar changed the trends on all classes to
Negative from Stable.
The Negative trends reflect the ongoing challenges faced by several
loans in the pool that have been significantly affected by the
Coronavirus Disease (COVID-19) pandemic and/or have been unable to
make progress toward the stated business plans at loan origination
to achieve property stabilization. Two loans, Forum Center and
Shops at Mauna Lai, representing 9.2% of the current pool balance,
are over 90 days delinquent and a total of six loans, representing
23.1% of the current pool balance, have been granted forbearances.
The transaction closed in August 2019, with the initial collateral
consisting of 32 floating-rate mortgages secured by 32 mostly
transitional properties with a cut-off balance totalling $306.0
million, excluding approximately $71.7 million of future funding
commitments. The transaction featured a 90-day Ramp-Up Period at
closing with a maximum pool balance of $360.0 million. Most of the
loans in the transaction are in a period of transition with plans
to stabilize and improve the asset values. Since issuance, the
Issuer has contributed an additional 13 loans to the transaction
for a current loan count of 36 loans totalling $353.4 million, as
of the September 2020 remittance. The 18-month Reinvestment Period
ends in April 2021, at which point the transaction will pay
sequentially.
As of the September 2020 reporting, the current pool composition by
asset type was 34.8% office, 26.2% mixed-use, 16.3% retail, 14.6%
multifamily, 3.7% hotel, and 4.4% of industrial and self-storage
combined. Properties securing 21 loans, representing 58.6% of the
current pool balance, are located in tertiary markets defined by
DBRS Morningstar with a market rank of 1 to 3; 13 loans,
representing 35.6% of the pool, are located in suburban markets
with a DBRS Morningstar market rank 4 or 5; and two loans,
representing of 5.8% of the pool, are located in urban markets with
a DBRS Morningstar market rank of 7.
As of the September 2020 reporting, 16 loans, representing 44.2% of
the current pool balance, are on the servicer's watchlist. Nine of
those loans, representing 25.8% of the current pool balance, are
flagged for a low debt service coverage ratio (DSCR) and other
performance-related issues, including the second-largest loan (Pros
ID#4 Shops at Mauna Lani). Three additional loans, representing
10.0% of the current pool balance, are flagged for an increased
level of risk; two loans, representing of 3.1% of the current pool
balance, are flagged for occupancy related issues; and one loan,
representing 3.3% of the current pool balance, is flagged for an
upcoming loan maturity.
Only 18 loans, representing 54.9% of the current pool balance, have
reported YE2019 DSCR figures: those loans have a weighted-average
(WA) DSCR of 0.42 times. Those same loans reported a WA occupancy
rate of 39.2%. For all loans currently in the pool, the WA as-is
loan-to-value ratio (LTV) at contribution is 88.5% while the WA
stabilized LTV for those same loans is 65.9%.
DBRS Morningstar materially deviated from its principal methodology
when determining the rating assigned to Class A-S. The material
deviation is warranted given the structural feature (loan or
transaction) and/or provisions in other relevant methodologies
outweigh the quantitative model output.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2013-C12: Fitch Cuts Rating on 2 Tranches to CCC
---------------------------------------------------------------
Fitch Ratings has downgraded four and affirmed eight classes of
Morgan Stanley Bank of America Merrill Lynch Trust, Commercial
Mortgage Pass-Through Certificates, series 2013-C12 (MSBAM
2013-C12).
RATING ACTIONS
Class A-3 61762XAT4; LT AAAsf Affirmed; previously at AAAsf
Class A-4 61762XAU1; LT AAAsf Affirmed; previously at AAAsf
Class A-S 61762XAW7; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 61762XAS6; LT AAAsf Affirmed; previously at AAAsf
Class B 61762XAX5; LT AA-sf Affirmed; previously at AA-sf
Class C 61762XAZ0; LT A-sf Affirmed; previously at A-sf
Class D 61762XAC1; LT BBsf Downgrade; previously at BBB-sf
Class E 61762XAE7; LT Bsf Downgrade; previously at BB+sf
Class F 61762XAG2; LT CCCsf Downgrade; previously at BB-sf
Class G 61762XAJ6; LT CCCsf Downgrade; previously at B-sf
Class PST 61762XAY3; LT A-sf Affirmed; previously at A-sf
Class X-A 61762XAV9; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades of classes D, E, F and
G and Negative Outlooks on classes B, C, D, E and PST reflect
increased loss expectations due to the declining performance of the
nine Fitch Loans of Concern (FLOCs; 30.1% of pool) and the recent
loan transfers to special servicing. All four of the specially
serviced loans (15.5%) are more than 90 days delinquent, including
three (12.6%) that have transferred since June 2020. Fitch
previously modeled a 25% loss on Westfield Countryside at the prior
rating action in March 2020; however, this has now been increased
to approximately 50% due the loan's recent transfer to special
servicing and delinquency status.
Fitch Loans of Concern: The largest contributor to Fitch's overall
loss expectation is the specially serviced Westfield Countryside
(5.8%), which is secured by a 464,836-sf collateral portion of a
1.26 million sf regional mall located in Clearwater, FL. The loan
transferred to special servicing in June 2020 due to imminent
default and is more than 90 days delinquent as of the September
2020 remittance. 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 had been trending downward with YE 2019 sales
reporting at $367 psf compared with $383 at YE 2018 and $396 at
issuance.
The 15 MetroTech Center loan (8.3%) is secured by the leasehold
interest in a 649,492-sf office property located in downtown
Brooklyn, NY. Collateral occupancy fell to 61.3% as of the October
2020 rent roll from 98.4% at YE 2019 after Anthem, Inc. (60.5% of
NRA), Brooklyn Hospital Center (2.4%) and Data Cubed (1.5%) vacated
upon their lease expirations during 2Q and 3Q 2020. Anthem had
previously subleased all of its space, with former sublease
tenants, Magellan Health Inc. and Slate, signing direct leases for
5.7% and 3.5% of the NRA, respectively. The borrower also recently
entered into a new 15-year lease with the NYS Department of
Taxation and Finance for 14.7% of the NRA. Slate and the NYS
Department of Taxation and Finance are currently in free rent
periods. Since issuance, all of the excess cash flow, capped at
$4.4 million annually, has been trapped in a reserve account to be
used for re-leasing the former Anthem space. As of September 2020,
the tenant leasing reserves account totaled $34.3 million. The
servicer-reported NOI debt service coverage ratio (DSCR) was 1.77x
as of YE 2019.
The specially serviced Marriott Chicago River North Hotel loan
(6.0%) is secured by the fee and leasehold interests in a 253-key
SpringHill Suites limited service hotel and a 270-key Residence Inn
extended stay hotel located in the River North district of Chicago.
The loan transferred to special servicing in July 2020 due to
payment default caused by the coronavirus pandemic and is more than
90 days delinquent as of the September 2020 remittance. The
borrower has requested servicer approval for a paycheck protection
program loan and is in the process of putting together a formal
request for a loan modification. As of the TTM June 2020 STR
reports, RevPAR was $105 for SpringHill Suites and $110 for
Residence Inn, with penetration ratios of 102.8% and 114.9%,
respectively. The servicer-reported NOI DSCR was 1.25x as of YE
2019.
The specially serviced Deer Springs Town Center loan (3.0%) is
secured by a 184,403-sf anchored retail center located in North Las
Vegas, NV. The loan transferred to special servicing in October
2018 following the bankruptcy and closure of Toys "R" Us (35.6% of
NRA) and has been delinquent since June 2019. Per the servicer,
several tenants previously expressed interest in leasing portions
of the vacant Toys "R" Us space; however, nothing has been
finalized to date. Per the most recent rent roll, major tenants,
Ross Dress for Less (16.4%), PetSmart (14.9%) and Staples (11.1%),
have recently renewed their leases expiring in 2019 and 2020 for
additional five-year terms. Occupancy was 64.4% as of the June 2020
rent roll.
The Avon Marketplace loan (2.6%) is secured by a 79,362-sf
neighborhood shopping center located in Avon, CT. Collateral
occupancy fell to 88.4% after Michaels (3.2% of NRA) and The Back
Store (2.7%) vacated upon their lease expirations in Q1 and Q2
2020, respectively. The servicer-reported NOI DSCR fell to 1.24x as
of YE 2019 from 1.51x at YE 2018. The loan began amortizing in
October 2018.
The remaining four FLOCs outside of the top 15 include one loan
(1.4%) secured by a 185,705-sf anchored retail center located in
Winter Haven, FL where anchor tenants, Macy's and Belks, have
upcoming lease expirations in 2021 and have not provided notice of
renewal; two loans (combined, 2.3%) secured by three student
housing properties serving the University of North Dakota that had
already experienced pre-pandemic performance declines; and one loan
secured by the leasehold interest in a 101-key full-service hotel
(0.8%) located in Katy, TX that transferred to special servicing in
June 2020 due to the coronavirus pandemic.
Increased Credit Enhancement: As of the September 2020 distribution
date, the pool's aggregate principal balance has been paid down by
28.5% to $912.1 million from $1.276 billion at issuance. Ten loans
(11.2%) are fully defeased. There have been no realized losses
since issuance. Six loans (7.1%) are full-term interest-only; all
other remaining loans (92.9%) are currently amortizing. Loan
maturities are concentrated in 2023 (99.6%), with only one loan
maturing in 2033 (0.4%). Cumulative interest shortfalls totaling
$695,240 are currently affecting the non-rated class H.
Coronavirus Exposure: Three loans (7.6%) are secured by hotel
properties. The weighted average (WA) NOI DSCR for the hotel loans
is 1.49x; these hotel loans could sustain a decline in NOI of 26.4%
before NOI DSCR falls below 1.0x. Twenty-two loans (55.2%) are
secured by retail properties. The WA NOI DSCR for the retail loans
is 1.85x; these retail loans could sustain a decline in NOI of
43.0% before DSCR falls below 1.0x. Three loans (3.1%) are secured
by multifamily properties, including two loans (2.3%) secured by
student housing properties. Fitch considers student housing assets
to be more vulnerable to the coronavirus pandemic; they also
require more operational experience than traditional multifamily
assets. The WA NOI DSCR for the multifamily loans is 1.19x; these
multifamily loans could sustain a decline in NOI of 12.9% before
DSCR falls below 1.0x. Fitch applied additional stresses to two
hotel loans, eight retail loans and two student housing loans to
account for potential cash flow disruptions due to the coronavirus
pandemic; these additional stresses contributed to the Negative
Rating Outlooks on classes B, C, D, E and PST.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes B, C, D, E and PST 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 Rating Outlooks on
classes A-SB, A-3, A-4, A-S and X-A reflect the increased credit
enhancement from paydowns and defeasance, continued expected
amortization and relatively stable performance of the majority of
the pool.
Factors that Could, Individually or Collectively, Lead to a
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 class D and E 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 classes F and G 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 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 'AAAsf' category are not likely due to the
position in the capital structure, but may occur should interest
shortfalls impact the classes. A downgrade to class B would occur
should all of the loans susceptible to the coronavirus pandemic
suffer losses or if interest shortfalls occur. Downgrade to classes
C and PST are possible should loss expectations increase
significantly and performance of the FLOCs continue to decline.
Further downgrades to classes D and E would occur should loss
expectations increase significantly, additional loans transfer to
special servicing and/or the loans vulnerable to the coronavirus
pandemic not stabilize. Further downgrades to classes F and G would
occur with increased certainty of losses or as losses are
realized.
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 additional downgrades
and/or Negative Rating Outlook revisions.
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-C12: Exposure to Social 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.
NZCG FUNDING: Moody's Confirms Ba3 Rating on $34MM Class D-R Notes
------------------------------------------------------------------
Moody's Investors Service confirmed the ratings on the following
notes issued by NZCG Funding Ltd.:
US$51,400,000 Class C-R Mezzanine Secured Deferrable Floating Rate
Notes due 2031 (the "Class C-R Notes"), Confirmed at Baa3 (sf);
previously on April 17, 2020 Baa3 (sf) Placed Under Review for
Possible Downgrade
US$34,000,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes due 2031 (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."
This action concludes the review for downgrade initiated on April
17, 2020 on the Class C-R and Class D-R Notes issued by the CLO.
The CLO, originally issued in December 2010 and refinanced in
February 2015 and February 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 February 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 September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3174, compared to 2947
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 3038 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
19.5%. Nevertheless, Moody's noted that 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: $844,626,067
Defaulted Securities: $9,369,156
Diversity Score: 74
Weighted Average Rating Factor (WARF): 3171
Weighted Average Life (WAL): 5.89 years
Weighted Average Spread (WAS): 3.4%
Weighted Average Recovery Rate (WARR): 47.6%
Par haircut in OC tests and interest diversion test: 0.4%
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.
OZLM XVI: Moody's Lowers Rating on $18.4MM Class D Notes to B1
--------------------------------------------------------------
Moody's Investors Service downgraded the ratings on the following
notes issued by OZLM XVI, Ltd.:
US$24,800,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2030 (the "Class C Notes"), Downgraded to Ba1 (sf); previously
on April 17, 2020 Baa3 (sf) Placed Under Review for Possible
Downgrade
US$18,400,000 Class D Secured Deferrable Floating Rate Notes due
2030 (the "Class D Notes"), Downgraded to B1 (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 "Downgraded 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, originally issued in June 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 May 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.
According to the September 2020 trustee report [1], the weighted
average rating factor (WARF) was reported at 3211, compared to 2738
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2735 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
22.67%. Furthermore, Moody's calculated the total collateral par
balance, including recoveries from defaulted securities, at $388.2
million, or $11.8 million less than the deal's ramp-up target par
balance. Moody's noted that the interest diversion test was
recently reported [3] as failing, which could result in a portion
of excess interest collections being diverted towards reinvestment
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:
Performing par and principal proceeds balance: $382,209,118
Defaulted Securities: $15,166,814
Diversity Score: 71
Weighted Average Rating Factor (WARF): 3208
Weighted Average Life (WAL): 5.74 years
Weighted Average Spread (WAS): 3.42%
Weighted Average Recovery Rate (WARR): 46.93%
Par haircut in OC tests and interest diversion test: 1.62%
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.
PAWNEE EQUIPMENT 2019-1: DBRS Confirms BB Rating on Class E Notes
-----------------------------------------------------------------
DBRS, Inc. confirmed its ratings on the following classes of notes
issued by Pawnee Equipment Receivables (Series 2019-1) LLC:
-- Class A-2 Notes, confirmed at AAA (sf)
-- Class B Notes, confirmed at AA (sf)
-- Class C Notes, confirmed at A (sf)
-- Class D Notes, confirmed at BBB (sf)
-- Class E Notes, confirmed at BB (sf)
The confirmations are based on the following analytical
considerations:
-- The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
Coronavirus Disease (COVID-19), available in its commentary "Global
Macroeconomic Scenarios: September Update," published on September
10, 2020. DBRS Morningstar initially published macroeconomic
scenarios on April 16, 2020, which 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. Observed performance during the
2008–09 financial crisis and the possible impact from a stimulus
package were also incorporated into the analysis.
-- The collateral performance to date and DBRS Morningstar's
assessment of future performance, including upward revisions to the
expected cumulative net loss assumptions that take into account the
increased stress commensurate with the moderate macroeconomic
scenario.
-- The currently available hard credit enhancement in the form of
overcollateralization, subordination (as applicable), and amounts
of deposit in the cash reserve account, as well as the change in
the level of protection afforded by each form of credit enhancement
since the closing of each transaction.
-- The relative benefit from obligor and geographic
diversification of collateral pools.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
PPM CLO 4: Moody's Assigns (P)Ba3 Rating on $15.6MM Cl. E Notes
---------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to six
classes of notes to be issued by PPM CLO 4 Ltd.
Moody's rating action is as follows:
US$210,000,000 Class A-1 Floating Rate Notes due 2031 (the "Class
A-1 Notes"), Assigned (P)Aaa (sf)
US$10,500,000 Class A-2 Floating Rate Notes due 2031 (the "Class
A-2 Notes"), Assigned (P)Aaa (sf)
US$45,500,000 Class B Floating Rate Notes due 2031 (the "Class B
Notes"), Assigned (P)Aa2 (sf)
US$16,200,000 Class C Deferrable Floating Rate Notes due 2031 (the
"Class C Notes"), Assigned (P)A2 (sf)
US$19,800,000 Class D Deferrable Floating Rate Notes due 2031 (the
"Class D Notes"), Assigned (P)Baa3 (sf)
US$15,600,000 Class E Deferrable Floating Rate Notes due 2031 (the
"Class E Notes"), Assigned (P)Ba3 (sf)
The Class A-1 Notes, the Class A-2 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."
RATINGS RATIONALE
The rationale for the ratings is based on its methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
PPM CLO 4 Ltd. is a managed cash flow CLO. The issued notes will be
collateralized primarily by broadly syndicated senior secured
corporate loans. At least 92.5% of the portfolio must consist of
first lien senior secured loans, cash, and eligible investments,
and up to 7.5% of the portfolio may consist of second lien loans,
unsecured loans and senior secured bonds. Moody's expects the
portfolio to be approximately 90% ramped as of the closing date.
PPM Loan Management Company, LLC 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 three-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 will issue 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: $350,000,000
Diversity Score: 80
Weighted Average Rating Factor (WARF): 2800
Weighted Average Spread (WAS): 3.20%
Weighted Average Coupon (WAC): 7.0%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 8.0 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.
PRESTIGE AUTO 2020-1: DBRS Gives Prov. BB(high) Rating on E Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Prestige Auto Receivables Trust 2020-1 (the
Issuer):
-- $50,500,000 Class A-1 Notes at R-1 (high) (sf)
-- $154,520,000 Class A-2 Notes at AAA (sf)
-- $47,380,000 Class B Notes at AA (high) (sf)
-- $60,480,000 Class C Notes at A (sf)
-- $28,220,000 Class D Notes at BBB (high) (sf)
-- $35,890,000 Class E Notes at BB (high) (sf)
The provisional ratings are based on a review by DBRS Morningstar
of the following analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of subordination,
overcollateralization (OC), amounts held in the reserve account,
and excess spread. Credit enhancement levels are sufficient to
support DBRS Morningstar-projected expected cumulative net loss
(CNL) assumptions under various stress scenarios.
-- 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 the payment of
principal by the Legal Final Maturity Date.
(2) The transaction parties' capabilities with regard to
originations, underwriting, and servicing.
-- DBRS Morningstar has performed an operational review of
Prestige Financial Services, Inc. (Prestige or the Company) and
considers the entity to be an acceptable originator and servicer of
subprime auto receivables. Additionally, the transaction has an
acceptable backup servicer.
-- The Company's management team has extensive experience.
Prestige has been lending to the subprime auto sector since 1994
and has considerable experience lending to Chapter 7 and 13
obligors.
(3) The credit quality of the collateral and performance of
Prestige's auto loan portfolio.
-- Prestige shared vintage CNL data with DBRS Morningstar that
dates back to 2009. The data was broken down by credit tier,
payment-to-income ratio, and other buckets. The analysis indicated
a pattern of increasing losses that was consistent with expected
trends.
-- The Company continues to evaluate and adjust its underwriting
standards as necessary to target and maintain the credit quality of
its loan portfolio.
-- DBRS Morningstar rating category loss multiples for each rating
assigned are within the published criteria.
(4) DBRS Morningstar's projected losses include the assessment of
the impact of the Coronavirus Disease (COVID-19). While
considerable uncertainty remains with respect to the intensity and
duration of the shock, DBRS Morningstar-projected CNL includes an
assessment of the expected impact on consumer behavior. The DBRS
Morningstar CNL assumption is 15.80% based on the expected cut-off
date pool composition.
-- The transaction assumptions consider DBRS Morningstar’s set
of macroeconomic scenarios for select economies related to the
coronavirus, available in its commentary "Global Macroeconomic
Scenarios: September Update," published on September 10, 2020. DBRS
Morningstar initially published macroeconomic scenarios on April
16, 2020, that have been regularly updated. The scenarios were last
updated on September 10, 2020, and are reflected in DBRS
Morningstar's rating analysis. The assumptions also take into
consideration observed performance during the 2008–09 financial
crisis and the possible impact of stimulus. 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.
(5) The legal structure and presence of legal opinions will
address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Prestige, that
the Issuer has a valid first-priority security interest in the
assets, and the consistency with the DBRS Morningstar "Legal
Criteria for U.S. Structured Finance."
The ratings on the Class A-1 and Class A-2 Notes reflect 50.15% of
initial hard credit enhancement provided by subordinated notes in
the pool (42.65%), the reserve account (1.00%), and OC (6.50%). The
ratings on the Class B, Class C, Class D, and Class E Notes reflect
38.40%, 23.40%, 16.40%, 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.
PROGRESS RESIDENTIAL 2020-SFR3: DBRS Finalizes B(low) on G Certs
----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Single-Family Rental Pass-Through Certificates (the Certificates)
issued by Progress Residential 2020-SFR3 Trust (PROG 2020-SFR3 or
the Issuer):
-- $158.2 million Class A at AAA (sf)
-- $42.2 million Class B at AA (sf)
-- $18.8 million Class C at A (sf)
-- $24.6 million Class D at A (low) (sf)
-- $55.1 million Class E at BBB (low) (sf)
-- $55.5 million Class F at BB (low) (sf)
-- $39.4 million Class G at B (low) (sf)
The AAA (sf) rating on the Class A Certificates reflects 64.5% of
credit enhancement provided by subordinated notes in the pool. The
AA (sf), A (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B
(low) ratings reflect 55.0%, 50.8%, 45.3%, 32.9%, 20.4%, and 11.6%
credit enhancement, respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
PROG 2020-SFR3's 1,777 properties are in nine states, with the
largest concentration by broker price opinion value in Florida
(42.0%). The largest metropolitan statistical area (MSA) by value
is Atlanta (11.0%), followed by Nashville (8.4%). The geographic
concentration dictates the home-price stresses applied to the
portfolio and the resulting market value decline (MVD). The MVD at
the AAA (sf) rating level for this deal is 62.4%. PROG 2020-SFR3
has properties from 23 MSAs, most of which did not experience home
price index declines as dramatic as those in the recent housing
downturn.
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's analysis includes estimated
base-case net cash flow (NCF) 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 higher than 1.0 times.
Furthermore, DBRS Morningstar reviewed the third-party participants
in the transaction, including the property manager, servicer, and
special servicer. These transaction parties are acceptable to DBRS
Morningstar. DBRS Morningstar also conducted a legal review and
found no material rating concerns.
Notes: All figures are in U.S. dollars unless otherwise noted.
REPUBLIC FINANCE 2020-A: DBRS Finalizes BB(low) Rating on D Notes
-----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following notes
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)
-- $23,650,000 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.
RMF BUYOUT 2020-HB1: DBRS Gives Prov. BB Rating on Class M4 Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following
Asset-Backed Notes to be issued by RMF Buyout Issuance Trust
2020-HB1:
-- $360.0 million Class A1 at AAA (sf)
-- $32.8 million Class A2 at AAA (sf)
-- $392.8 million Class AB at AAA (sf)
-- $22.7 million Class M1 at AA (sf)
-- $19.9 million Class M2 at A (sf)
-- $8.8 million Class M3 at BBB (sf)
-- $5.3 million Class M4 at BB (sf)
Class AB is an exchangeable note. This class can be exchanged for
combinations of exchange notes as specified in the offering
documents.
The AAA (sf) rating reflects 12.62% of credit enhancement. The AA
(sf), A (sf), BBB (sf), and BB (sf) ratings reflect 7.57%, 3.14%,
1.18%, and 0.00% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar did not
rate any other classes in this transaction.
Lenders typically offer reverse mortgage loans to people who are at
least 62 years old. Through reverse mortgage loans, borrowers have
access to home equity through a lump sum amount or a stream of
payments without periodically repaying principal or interest,
allowing the loan balance to accumulate over a period of time until
a maturity event occurs. Loan repayment is required (1) if the
borrower dies, (2) if the borrower sells the related residence, (3)
if the borrower no longer occupies the related residence for a
period (usually a year), (4) if it is no longer the borrower’s
primary residence, (5) if a tax or insurance default occurs, or (6)
if the borrower fails to properly maintain the related residence.
In addition, borrowers must be current on any homeowners’
association dues if applicable. Reverse mortgages are typically
nonrecourse; borrowers don't have to provide additional assets in
cases where the outstanding loan amount exceeds the property's
value (the crossover point). As a result, liquidation proceeds will
fall below the loan amount in cases where the outstanding balance
reaches the crossover point, contributing to higher loss severities
for these loans.
As of the Cut-Off Date (July 31, 2020), the collateral has
approximately $449.5 million in unpaid principal balance (UPB) from
1,878 performing and nonperforming home equity conversion mortgage
(HECM) reverse mortgage assets secured by first liens typically on
single-family residential properties, condominiums, multifamily
(two- to four-family) properties, manufactured homes, and planned
unit developments. The assets were originated between September
2003 and October 2017. Of the total loans, 642 have a fixed
interest rate (35.6%% of the balance), with a 5.06%
weighted-average coupon (WAC). The remaining 1,236 loans have
floating-rate interest (64.4% of the balance) with a 2.19% WAC,
bringing the entire collateral pool to a 3.21% WAC.
As of the Cut-Off Date, the loans in this transaction are both
performing and nonperforming (i.e., inactive) loans. There are 739
nonperforming assets comprising 36.9% of the total UPB. Among the
nonperforming loans, there are 302 loans that are referred for
foreclosure (15.5% of the balance), 32 are in bankruptcy status
(1.3%), 158 are called due following recent maturity (8.7%), 79 are
real estate owned (REO; 3.8%), and the remaining 168 (7.7%) are in
default. However, all these loans are insured by the United States
Department of Housing and Urban Development (HUD), which mitigates
losses vis-à-vis uninsured loans. See discussion in the Analysis
section below. Because the insurance supplements the home value,
the industry metric for this collateral is not the loan-to-value
ratio (LTV) but rather the WA effective LTV adjusted for HUD
insurance, which is 51.9% for the loans in this pool. To calculate
the WA LTV, DBRS Morningstar divides the UPB by the maximum claim
amount and the asset value.
The remaining 1,139 performing assets comprise 63.1% of the total
UPB. Among the performing, assignable loans, 747 (40.3% of the
total UPB) are flagged to be assigned to HUD, the "Intended
Assignment" set, and 392 (22.8% of the total UPB) are flagged to be
held, not assigned, the "Strategically Held" set.
The transaction includes a 24-month revolving period wherein cash
flow, after current interest and fees are paid, can be redeployed
to purchase new loans to replace liquidated, paid off, or assigned
collateral. Unused cash would be released to the notes' principal.
After the 24-month period, the pool becomes static.
The transaction uses a sequential structure. No subordinate note
shall receive any principal payments until the senior notes (Class
A1 and A2 Notes) have been reduced to zero. This structure provides
credit enhancement in the form of subordinate classes and reduces
the effect of realized losses. These features increase the
likelihood that holders of the most senior classes of notes will
receive regular distributions of interest and/or principal. All
note classes pay current interest and have available funds caps.
The Class A1 and A2 Notes are pro-rata and exchangeable for Class
AB Notes.
The Class M Notes have principal lockout terms as they are not
entitled to principal payments until the Senior Notes have been
paid off.
All Notes are subject to a mandatory call date on October 2025.
Failure of the deal to be called by this date will be considered an
Event of Default. If there is an Event of Default, the subordinate
bonds will cease to receive interest and the interested will be
directed to the Senior Notes. Note that at the time of issuance,
DBRS Morningstar does not expect these rules to affect the natural
cash flow waterfall.
Notes: All figures are in U.S. dollars unless otherwise noted.
STACR REMIC 2020-DNA5: DBRS Gives Prov. BB Rating on 16 Tranches
----------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Structured Agency Credit Risk (STACR) REMIC 2020-DNA5 Notes (the
Notes) issued by Freddie Mac STACR REMIC Trust 2020-DNA5 (STACR
2020-DNA5):
-- $308.0 million Class M-1 at BBB (sf)
-- $154.0 million Class M-2A at BB (high) (sf)
-- $154.0 million Class M-2B at BB (sf)
-- $115.5 million Class B-1A at BB (low) (sf)
-- $115.5 million Class B-1B at B (low) (sf)
-- $308.0 million Class M-2 at BB (sf)
-- $308.0 million Class M-2R at BB (sf)
-- $308.0 million Class M-2S at BB (sf)
-- $308.0 million Class M-2T at BB (sf)
-- $308.0 million Class M-2U at BB (sf)
-- $308.0 million Class M-2I at BB (sf)
-- $154.0 million Class M-2AR at BB (high) (sf)
-- $154.0 million Class M-2AS at BB (high) (sf)
-- $154.0 million Class M-2AT at BB (high) (sf)
-- $154.0 million Class M-2AU at BB (high) (sf)
-- $154.0 million Class M-2AI at BB (high) (sf)
-- $154.0 million Class M-2BR at BB (sf)
-- $154.0 million Class M-2BS at BB (sf)
-- $154.0 million Class M-2BT at BB (sf)
-- $154.0 million Class M-2BU at BB (sf)
-- $154.0 million Class M-2BI at BB (sf)
-- $154.0 million Class M-2RB at BB (sf)
-- $154.0 million Class M-2SB at BB (sf)
-- $154.0 million Class M-2TB at BB (sf)
-- $154.0 million Class M-2UB at BB (sf)
-- $231.0 million Class B-1 at B (low) (sf)
-- $115.5 million Class B-1AR at BB (low) (sf)
-- $115.5 million Class B-1AI at BB (low) (sf)
Classes M-2, M-2R, M-2S, M-2T, M-2U, M-2I, M-2AR, M-2AS, M-2AT,
M-2AU, M-2AI, M-2BR, M-2BS, M-2BT, M-2BU, M-2BI, M-2RB, M-2SB,
M-2TB, M-2UB, B-1, B-1AR, and B-1AI are Modifiable and Combinable
STACR Notes (MAC Notes). Classes M-2I, M-2AI, M-2BI, and B-1AI are
interest-only MAC Notes.
The BBB (sf), BB (high) (sf), BB (sf), BB (low) (sf), and B (low)
(sf) ratings reflect 2.500%, 2.000%, 1.500%, 1.125%, and 0.750% of
credit enhancement, respectively. Other than the specified classes
above, DBRS Morningstar does not rate any other classes in this
transaction.
STACR 2020-DNA5 is the 22nd transaction in the STACR DNA series.
The Notes are subject to the credit and principal payment risk of a
certain reference pool (the Reference Pool) of residential mortgage
loans held in various Freddie Mac-guaranteed mortgage-backed
securities.
As of the Cut-Off Date, the Reference Pool consists of 149,424
greater-than-20-year fully amortizing first-lien fixed-rate
mortgage loans underwritten to a full documentation standard, with
original loan-to-value (LTV) ratios greater than 60% and less than
or equal to 80%. The mortgage loans were originated on or after May
2019 and were securitized by Freddie Mac between April 1, 2020, and
May 15, 2020.
On the Closing Date, the trust will enter into a Collateral
Administration Agreement (CAA) with Freddie Mac. Freddie Mac, as
the credit protection buyer, will be required to make transfer
amount payments. The trust is expected to use the aggregate
proceeds realized from the sale of the Notes to purchase certain
eligible investments to be held in a custodian account. The
eligible investments are restricted to highly rated, short-term
investments. Cash flow from the Reference Pool will not be used to
make any payments; instead, a portion of the eligible investments
held in the custodian account will be liquidated to make principal
payments to the Noteholders and return amount, if any, to Freddie
Mac upon the occurrence of certain specified credit events and
modification events.
STACR 2020-DNA5 is the first credit risk transfer (CRT) transaction
where the coupon rates for the various notes are based on the
Secured Overnight Financing Rate (SOFR) whereas the coupon rates
for prior transactions were based on LIBOR. There are replacement
provisions in place in the event that SOFR is no longer available,
please see the Private Placement Memorandum for more details. DBRS
Morningstar did not run interest rate stresses for this
transaction, as the interest is not linked to the performance of
the reference obligations. Instead, the trust will use the net
investment earnings on the eligible investments together with
Freddie Mac's transfer amount payments to pay interest to the
Noteholders.
The calculation of principal payments to the Notes will be based on
actual principal collected on the Reference Pool. For STACR DNA
transactions, beginning with the STACR 2018-DNA2 transaction, there
has been a revision to principal allocation. The scheduled
principal in prior transactions was allocated pro rata between the
senior and nonsenior (mezzanine and subordinate) tranches,
regardless of deal performance, while the unscheduled principal was
allocated pro rata subject to certain performance tests being met.
For the more recent transactions, the scheduled and unscheduled
principal will be combined and only be allocated pro rata between
the senior and nonsenior tranches if the performance tests are
satisfied. For the STACR 2020-DNA5 transaction, the minimum credit
enhancement test—one of the three performance tests—has been
set to fail at the Closing Date thus locking out the rated classes
from initially receiving any principal payments until the
subordination percentage grows from 3.50% to 3.75%. Additionally,
the nonsenior tranches will also be entitled to supplemental
subordinate reduction amount if the offered reference tranche
percentage increases above 6.15%. The interest payments for these
transactions are not linked to the performance of the reference
obligations except to the extent that modification losses have
occurred.
The Notes will be scheduled to mature on the payment date in
October 2050, but will be subject to mandatory redemption prior to
the scheduled maturity date upon the termination of the CAA.
The sponsor of the transaction will be Freddie Mac. U.S. Bank
National Association (rated AA (high) with a Negative trend and R-1
(high) with a Stable trend by DBRS Morningstar) will act as the
Indenture Trustee, Exchange Administrator, and Custodian.
Wilmington Trust, National Association (rated AA (low) and R-1
(middle) with Stable trends by DBRS Morningstar) will act as the
Owner Trustee.
The Reference Pool consists of approximately 0.9% of loans
originated under the Home Possible program. Home Possible is
Freddie Mac's affordable mortgage product designed to expand the
availability of mortgage financing to creditworthy low- to
moderate-income borrowers.
If a reference obligation is refinanced under the Enhanced Relief
Refinance Program, then the resulting refinanced reference
obligation may be included in the Reference Pool as a replacement
of the original reference obligation. The Enhanced Relief Refinance
Program provides refinance opportunities to borrowers with existing
Freddie Mac mortgages who are current in their mortgage payments
but whose LTV ratios exceed the maximum permitted for standard
refinance products. The refinancing and replacement of a reference
obligation under this program will not constitute a credit event.
For this transaction, if a loan becomes delinquent and the related
servicer reports that such loan is in disaster forbearance before
or in the reporting period related to the payment date in March
2021, Freddie Mac will remove the loan from the pool to the extent
the related mortgaged property is located in a FEMA major disaster
area and in which FEMA had authorized individual assistance to
homeowners in such area as a result of Hurricane Laura, or any
other hurricane that impacts such related mortgaged property prior
to the Closing Date.
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 securities (RMBS) asset classes, some
meaningfully.
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 the moderate
scenario in its commentary, see "Global Macroeconomic Scenarios:
September 10 Update," published on September 10, 2020, for the
government-sponsored enterprise (GSE CRT) asset class DBRS
Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than what it previously
used. DBRS Morningstar derives such MVD assumptions 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 GSE CRT asset class, while the full effect of the
coronavirus may not occur until a few performance cycles later,
DBRS Morningstar generally believes that loans with layered risk
(low FICO score with high LTV/high debt-to-income ratio) may be
more sensitive to economic hardships resulting from higher
unemployment rates and lower incomes. Additionally, higher
delinquencies might cause a longer lockout period or a redirection
of principal allocation away from outstanding rated classes because
performance triggers failed.
Notes: All figures are in U.S. dollars unless otherwise noted.
TOWD POINT 2018-SL1: DBRS Keeps 2 Note Tranches Under Review
------------------------------------------------------------
DBRS, Inc. maintained the Under Review with Negative Implications
status on the following two classes of securities (together, the
Notes) issued by Towd Point Asset Trust 2018-SL1:
Debt Action Rating
---- ------ ------
Class D-1 Notes UR-Neg. BBB(low)
Class D-2 Notes UR-Neg. BB(low)
UR - Under Review.
DBRS Morningstar initially placed the Notes Under Review with
Negative Implications on June 30, 2020. DBRS Morningstar maintained
the Under Review with Negative Implications status on the Notes
based on the following analytical considerations:
-- The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
Coronavirus Disease (COVID-19), available in its commentary "Global
Macroeconomic Scenarios: September Update," published on September
10, 2020. DBRS Morningstar initially published macroeconomic
scenarios on April 16, 2020, which 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.
-- The application of adjusted default and forbearance
expectations that consider the impact of the coronavirus pandemic.
The assumed rate of forbearance considers significant recent
improvements; however, continued economic uncertainty may limit
this trend.
-- The likelihood that the proportion of loans that are either
delinquent or nonperforming will result in increased defaults.
-- The transaction's current form and sufficiency of available
credit enhancement benefiting the Notes.
When a rating is placed Under Review with Negative Implications,
DBRS Morningstar seeks to complete its assessment and remove the
rating from this status as soon as appropriate. Upon the resolution
of the Under Review status, DBRS Morningstar may confirm or
downgrade the ratings on the affected classes.
Notes: The principal methodology is DBRS Morningstar Master U.S.
ABS Surveillance (May 27, 2020), which can be found on
dbrsmorningstar.com under Methodologies & Criteria.
TRIANGLE RE 2020-1: Moody's Assigns (P)B2 Rating on Cl. B-1 Notes
-----------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to five
classes of mortgage insurance credit risk transfer notes issued by
Triangle Re 2020-1 Ltd.
Triangle Re 2020-1 Ltd. is the second transaction issued under the
Triangle Re program, which transfers to the capital markets the
credit risk of private mortgage insurance (MI) policies issued by
Genworth Mortgage Insurance (Genworth, 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, Triangle Re 2020-1 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-2 coverage level is 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: Triangle Re 2020-1 Ltd.
Cl. M-1A, Assigned (P)Baa3 (sf)
Cl. M-1B, Assigned (P)Ba2 (sf)
Cl. M-1C, Assigned (P)Ba2 (sf)
Cl. M-2, Assigned (P)B1 (sf)
Cl. B-1, Assigned (P)B2 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expects this insured pool's aggregate exposed principal
balance to incur 2.66% losses in a base case scenario, and 20.01%
losses under a Aaa stress scenario. The aggregate exposed principal
balance is the product, for all the mortgage loans covered by MI
policies, of the unpaid principal balance of each mortgage loan and
the MI coverage percentage.
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 13.33%) and its Aaa losses by 5% to
reflect the likely performance deterioration resulting from of 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 January 1, 2020, but on or before August 31, 2020. The
reference pool consists of 221,151 prime, fixed- and
adjustable-rate, one- to four-unit, first-lien fully-amortizing,
predominantly conforming mortgage loans with a total insured loan
balance of approximately $60 billion. Most of the loans in the
reference pool had a loan-to-value (LTV) ratio at origination that
was greater than 80%, with a weighted average of 91.5%. The
borrowers in the pool have a weighted average FICO score of 746, a
weighted average debt-to-income ratio of 36.5% and a weighted
average mortgage rate of 3.5%.
The weighted average LTV of 91.5% 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
MI CRT and STACR high-LTV transactions. Most of 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 97.8% covered by BPMI and 2.2% covered by LPMI
based on unpaid principal balance.
Underwriting Quality
Moody's took into account the quality of Genworth's insurance
underwriting, risk management and claims payment process in its
analysis
Lenders submit mortgage loans to Genworth for insurance either
through delegated underwriting or non-delegated underwriting
program. Under the delegated underwriting program, lenders can
submit loans for insurance without Genworth re-underwriting the
loan file. Genworth issues an MI commitment based on the lender's
representation that the loan meets the insurer's underwriting
requirement. Genworth does not allow exceptions for loans approved
through its delegated underwriting program. Lenders eligible under
this program must be pre-approved by Genworth. Under the
non-delegated underwriting program, insurance coverage is approved
after full-file underwriting by the insurer's underwriters. For
Genworth's overall portfolio, approximately 67% of the loans by
unpaid principal balance are insured through delegated underwriting
and 33% through non-delegated.
Genworth generally aligns with the GSE underwriting guidelines via
DU/LP. Genworth restricts its coverage to mortgage loans that meet
or exceed its thresholds with respect to borrower Credit Scores,
maximum DTI levels, maximum loan-to-value levels and documentation
requirements. Genworth's underwriting guidelines also seek to limit
the coverage it provides for certain higher-risk mortgage loans,
including those for cash-out refinancings, second homes or
investment properties, although certain Mortgage Loans covered by
the Reinsurance Agreement will contain such higher-risk
characteristics. Servicers file a claim within 60 days of taking
title or sale of the property. Claims are submitted by uploading or
entering on Genworth's website, electronic transfer or paper.
Claims documentation include: F/C chronology, servicing notes,
invoices, BPOs, closing docs, and modification agreement. All
claims are validated and audited by Genworth. Within 90 days after
the claim settlement, a supplemental claim may be filed for
trailing advances not included on the initial claim for loss.
Claims not perfected within 120 days of receipt will be denied.
Genworth performs an internal quality assurance review on a sample
basis of delegated and non-delegated underwritten loans to ensure
that (i) the reported risk exposure of insured mortgage loans is
accurately represented; (ii) lenders are submitting loans under
delegated authority are adhering to contractual requirements and
(iii) internal underwriters are following guidelines and
maintaining consistent underwriting standards and processes.
Genworth has a solid quality control process to ensure claims are
paid timely and accurately. Similar to the above procedure,
Genworth's claims management reviews a sample of paid claims each
month. Findings are used for performance management as well as
identified trends. In addition, there is strong oversight and
review from internal and external parties such as GSE audits,
Department of Insurance audits, audits from an independent account
firm, and Genworth's internal audits and compliance. Genworth is
also SOX compliant.
Third-Party Review
Genworth engaged Opus CMC. 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
350 of the total loans in the initial reference pool as of August
2020, or 0.14% by loan count). Once the sample size was determined,
the files were selected randomly to meet the final sample count of
350 files out of a total of 221,151 loan files.
In spite of the small sample size and a limited TPR scope for
Triangle Re 2020-1, Moody's did not make an additional adjustment
to the loss levels because, (1) approximately 34% 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.
Scope and results. The third-party due diligence scope focuses on
the following:
Appraisals: The third-party diligence provider also reviewed
property valuation on 100% of the loans in the sample pool.
Credit: The third-party diligence provider reviewed credit on 100%
of the 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 Genworth.
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.
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 and the B-2 coverage level 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 5.65%, 5.10%, 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-2. 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 senior reference tranches when 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 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 Class A 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: 8.00%).
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 Baa3. 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 Baa3, 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) the coupon rate of the note
multiplied by (a) the applicable funded percentage, (b) the
coverage level amount for the coverage level corresponding to such
class of notes and (c) 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 Opus Capital Markets Consultants LLC, as claims consultant,
to verify MI claims and reimbursement amounts withdrawn from the
reinsurance trust account once the coverage level B-2 has 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 claims 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.
UBS-BARCLAYS 2012-C3: Moody's Lowers Rating on Class F Debt to B3
-----------------------------------------------------------------
Moody's Investors Service affirmed the ratings on seven classes and
downgraded the ratings on two classes in UBS-Barclays Commercial
Mortgage Trust 2012-C3 as follows:
Cl. A-4, Affirmed Aaa (sf); previously on May 9, 2019 Affirmed Aaa
(sf)
Cl. A-S, Affirmed Aaa (sf); previously on May 9, 2019 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa2 (sf); previously on May 9, 2019 Affirmed Aa2
(sf)
Cl. C, Affirmed A2 (sf); previously on May 9, 2019 Affirmed A2
(sf)
Cl. D, Affirmed Baa3 (sf); previously on May 9, 2019 Affirmed Baa3
(sf)
Cl. E, Affirmed Ba2 (sf); previously on May 9, 2019 Affirmed Ba2
(sf)
Cl. F, Downgraded to B3 (sf); previously on May 9, 2019 Affirmed B2
(sf)
Cl. X-A*, Affirmed Aaa (sf); previously on May 9, 2019 Affirmed Aaa
(sf)
Cl. X-B*, Downgraded to B2 (sf); previously on May 9, 2019
Downgraded to B1 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on six P&I classes were affirmed because the
transaction's key metrics, including Moody's loan-to-value (LTV)
ratio, Moody's stressed debt service coverage ratio (DSCR) and the
transaction's Herfindahl Index (Herf), are within acceptable
ranges.
The ratings on one P&I class, Cl. F was downgraded due to a decline
in pool performance and increase in expected losses, driven
primarily by an increase in the number of loans in special
servicing to 11% of the pool from 2.5% at the last review.
Additionally, the pool has high exposure to hotel properties (18%)
and retail properties (36%), that may face a higher refinance risk
due to the current environment.
The rating on the IO class, Cl. X-A, was affirmed based on the
credit quality of its referenced classes.
The rating on the IO class, Cl. X-B, was downgraded due to a
decline in the credit quality of its referenced classes. The IO
Class references P&I classes, Cl. B through Cl. G (Cl. G is not
rated by Moody's).
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 4.8% of the
current pooled balance, compared to 3.6% at Moody's last review.
Moody's base expected loss plus realized losses is now 3.5% of the
original pooled balance, compared to 2.7% 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 14, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 27% to $788 million
from $1.08 billion at securitization. The certificates are
collateralized by 78 mortgage loans ranging in size from less than
1% to 14% of the pool, with the top ten loans (excluding
defeasance) constituting 39% of the pool. Twenty loans,
constituting 26% of the pool, have defeased and are secured by US
government securities.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of 17, compared to 20 at Moody's last review.
As of the September 2020 remittance report, loans representing 92%
were current or within their grace period on their debt service
payments, 2% were beyond their grace period but less than 30 days
delinquent, 2% were between 30- and 59-days delinquent, 1% was in
foreclosure and 3% was REO.
Twenty-three loans, constituting 20% of the pool, are on the master
servicer's watchlist, of which 16 loans, representing 15% of the
pool, indicate the borrower has requested relief in relation to
coronavirus impact on the property. The watchlist includes loans
that meet certain portfolio review guidelines established as part
of the CRE Finance Council (CREFC) monthly reporting package. As
part of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues
that could affect performance.
Eight loans, constituting 11% of the pool, are currently in special
servicing. Seven of the specially serviced loans, representing 8.5%
of the pool, have transferred to special servicing since March
2020.
The largest specially serviced loan is the Great Northeast Plaza
Loan ($19.9 million -- 2.5% of the pool), which is secured by an
approximately 293,000 square feet (SF) community shopping center
located in Philadelphia, PA. The loan transferred to special
servicing in October 2018 due to imminent default after the former
anchor tenant, Sears (81% of the NRA and 61% of base rent), vacated
in April 2018. Excluding the Sears revenue, the loan DSCR has
dropped to below 1.00X. The property was 19% occupied as of March
2020. A deed-in-lieu of foreclosure was closed in August 2019 and
the property is now REO. The property is currently under contract
with a contractual sale date of October 30, 2020 and an option to
extend to November 30, 2020.
The second largest specially serviced loan is the Cooper Retail
Portfolio Loan ($13.4 million -- 1.7% of the pool), which is
secured by three separate retail centers totaling 211,750 SF and
located in suburban areas of MS, KY, and FL. Two of the properties
have been impacted by the departure of their respective largest
tenants during 2019. The loan transferred to special servicing in
May 2020 due to imminent monetary default at the borrower's request
as a result of the coronavirus pandemic. The portfolio was
collectively 59% leased as of March 2020 compared to 98% at
securitization. The borrower is working to lease up the vacant
spaces.
The third largest specially serviced loan is the Homewood Suites
Charleston Airport Convention Center Loan ($12.6 million -- 1.6% of
the pool), which is secured by a 128 key extended stay hotel
located next to Charleston airport. The loan transferred to special
servicing in March 2020 due to imminent monetary default. While
revenues have been stable since securitization, expenses continue
to increase compared with the underwritten amount. The loan remains
current and is expected to be returned to the master servicer.
The remaining five specially serviced loans are secured by three
hotel and two retail properties. Four of these loans have recently
transferred to special servicing as a result of business
disruptions caused by the coronavirus pandemic.
Moody's received full year 2019 operating results for 97% of the
pool, and full or partial year 2020 operating results for 80% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 101%, compared to 93% at Moody's
last review. Moody's conduit component excludes loans with
structured credit assessments, defeased and CTL loans, and four of
the eight specially serviced loans (Great Northeast Plaza, Cooper
Retail Portfolio, Canterbury Shopping Center, and Southridge
Square). The remaining specially serviced loans were included in
the conduit model due to their performing nature prior to 2020.
Moody's net cash flow (NCF) reflects a weighted average haircut of
21% to the most recently available net operating income (NOI).
Moody's value reflects a weighted average capitalization rate of
10.1%.
Moody's actual and stressed conduit DSCRs are 1.51X and 1.20X,
respectively, compared to 1.66X and 1.31X at the last review.
Moody's actual DSCR is based on Moody's NCF and the loan's actual
debt service. Moody's stressed DSCR is based on Moody's NCF and a
9.25% stress rate the agency applied to the loan balance.
The top three performing conduit loans represent 23.4% of the pool
balance. The largest loan is the 1000 Harbor Boulevard Loan ($113.0
million -- 14.3% of the pool), which represents a pari-passu
portion of a $120 million loan. The loan is secured by a ten-story
suburban office building located in Weehawken, New Jersey. As of
June 2020, the property was 100% leased to UBS Financial Services,
Inc. through 2035. The property is part of Lincoln Harbor, a master
planned community set on 60 acres along the Hudson River, directly
across from Midtown Manhattan. The loan is structured with an
Anticipated Repayment Date ("ARD") in September 2022, after which
the loan will hyper-amortize and has a final maturity date in
December 2028. Due to the single-tenant nature of the asset,
Moody's value incorporated a lit/dark analysis. Given the financial
strength of the tenant and the hyper-amortizing ARD feature of the
loan structure, there is a high probability that the loan will be
lower leverage at the tenant's lease maturity date in December
2028, even if the tenant were to elect to vacate its premises.
Considering these additional factors, Moody's LTV and stressed DSCR
are 108% and 0.69X, respectively, the same as at the last review.
The second largest loan is the Plaza at Imperial Valley Loan ($38.9
million -- 4.9% of the pool), which is secured by a 362,400 SF
retail property located in El Centro, California. The property is
located 15 miles from the Mexico/California border. Major tenants
at the property include Burlington Coat Factory, Marshalls, Ross
Dress for Less, Best Buy and Bed, Bath & Beyond. Base rental
revenue has grown each year and expenses have stayed under control,
causing NOI to grow. As of June 2020, the property was 95% leased
compared to 100% in December 2018. The vacancy was caused by the
departure of DSW Shoes (20,096 SF). The borrower initially
submitted a request for relief as a result of the pandemic but has
since cancelled the request. The loan has amortized more than 13%
since securitization and Moody's LTV and stressed DSCR are 93% and
1.10X, respectively, compared to 90% and 1.14X at the last review.
The third largest loan is the Crossways Shopping Center Loan ($32.5
million -- 4.1% of the pool), which is secured by an approximately
351,000 SF retail power center located in Chesapeake, Virginia. The
property was 93% occupied as of March 2020 compared to 96% in
December 2018 and 99% at securitization. More than 40% of the NRA
will have leases expiring during the next 12 months. The borrower
initially submitted a request for relief as a result of the
pandemic but has since cancelled the request. The loan has
amortized almost 20% since securitization and Moody's LTV and
stressed DSCR are 82% and 1.26X, respectively, compared to 78% and
1.29X at last review.
US COMMERCIAL 2018-USDC: DBRS Gives BB(high) Rating on Cl. F Certs
------------------------------------------------------------------
DBRS, Inc. assigned ratings to the Commercial Mortgage Pass-Through
Certificates, Series 2018-USDC issued by US Commercial Mortgage
Trust 2018-USDC as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (high) (sf)
The trends for Classes A and B are Negative because the underlying
collateral continues to face performance challenges associated with
the Coronavirus Disease (COVID-19) global pandemic.
DBRS Morningstar has also placed Classes X, C, D, E, and F Under
Review with Negative Implications, given the negative impact of the
coronavirus 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 23, 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 (sf) will be the most affected.
LOAN/PROPERTY OVERVIEW
The transaction is backed by a $330.0 million, 10-year, fixed-rate,
interest-only (IO) first-lien mortgage loan secured by the sublease
hold interest in Union Station in Washington, D.C. Loan proceeds
along with $100.0 million of mezzanine debt were used to refinance
$275.0 million of existing debt plus a payment penalty, fund
upfront reserves and closing costs, and return $140.1 million of
equity back to the sponsor. The U.S. federal government originally
owned Union Station and leased it to the Union Station
Redevelopment Corporation (USRC), a D.C. nonprofit corporation
formed by an Act of Congress to preserve and restore the station
and its historic significance. The loan sponsor, Ashkenazy
Acquisition Corporation, an experienced commercial real estate
investment company, subleases the building from the USRC through an
assignment of the lease from Union Station Venture Ltd, which
expires on October 31, 2084. The subject loan was transferred to
special servicing in May 2020 because of the pandemic, and a
forbearance agreement is in the final stages of negotiation.
Union Station is a 420,797-sf mixed-use property and is the primary
transportation hub in downtown Washington, D.C. Situated on a
8.937-acre site, the landmark was constructed in 1908 and has an
irreplaceable location with close proximity to numerous demand
drivers in the central business district, including government
buildings and tourism destinations. The collateral space is divided
into four major uses: 220,550 sf for retail, 135,652 sf for office,
20,825 sf for events, and 63,770 sf used by Amtrak as platforms for
its Acela and regional rail services. The property also serves
numerous other rail lines including Virginia Railway Express,
Maryland Rail Commuter Service, and the Metro, as well as national
and local bus lines. Major retailers include Walgreens, H&M, and
Uniqlo. The sponsor redeveloped the building significantly to
enhance its retail service capabilities while maintaining the
historic physical structure. The sponsor invested more than $59
million from 2007 to the time of loan origination, and Amtrak had
planned a $50 million renovation to be completed in 2021 with the
intended purpose of tripling the number of passengers using the
station.
At issuance, the property was collectively 57.5% occupied with the
office portion being 100.0% vacant and the retail space being 78.4%
occupied. Historically, the property operated at 85.0% for the
10-year average and increased to 94.0% when excluding an old movie
theater space designated for redevelopment. The dip in occupancy at
issuance was primarily the result of Amtrak vacating the office
portion of the property in November 2017. At that time, the sponsor
was in discussions with numerous potential retail and office
tenants that would increase occupancy to be more in line with the
10-year average and potentially add approximately $12.0 million to
the NCF if leased at market levels. The sponsor was unable to
execute a substantial number of new leases to increase occupancy as
the retail portion of the property was 74.7%, based on the
September 1, 2020, rent roll, and no update has been provided on
the office space. Unfortunately, with the onset of the pandemic in
mid-March, new leasing across all sectors has been put to a halt.
The collateral is no exception, and only one tenant has a start
date in 2020. Per the servicer's March 2020 site inspection, the
impact of coronavirus was evident as most of the stores were
closed, except for the food court, and there were very few
customers even around lunchtime. Based on the Union Station
website, a number of stores remain temporarily closed including Ann
Taylor, The Body Shop, Claire's, H&M, Uniqlo, Jos. A. Bank,
Kiehl's, L'Occitane, MAC, and Warby Parker, which collectively
represent 9.8% of the retail net rentable area. Tenants at the
property will continue to struggle as these tenants relied heavily
on commuters and tourists using the rail lines at the property,
which are now near historic lows because of the pandemic and
resulting stay-at-home measures. DBRS Morningstar has requested
updated collections to determine the extent of the impact of
coronavirus on the property and which tenants have received
deferred rent agreements.
Because of the pandemic, the subject loan was transferred to
special servicing in May 2020 for imminent default. As of the
September 2020 remittance report, a loan forbearance is being
negotiated and is expected to include a senior payment deferral
through the October 2020 payment date with an option to extend to
the November 2020 payment date (subject to lender consent) and
deferred amounts to be repaid over a two-month span. Additionally,
the agreement is expected to include a mezzanine payment deferral
through the end of 2020 with repayment over 18 months beginning in
January 2021. As of the September 2020 remittance report, the
sponsor has $6.33 million in delinquent and interest payments and
last paid in April 2020. An updated appraisal has been ordered but
is currently unavailable.
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 $25.1 million and DBRS
Morningstar applied a cap rate of 6.0%, which resulted in a
pre-coronavirus DBRS Morningstar Value of $418.6 million, a
variance of -66.2% from the appraised value of $1.4 billion at
issuance. The pre-coronavirus DBRS Morningstar Value implies an A
note LTV of 78.8% and whole loan LTV of 102.7% compared with the A
note LTV of 26.6% and whole loan LTV of 34.7% on the appraised
value at issuance.
The cap rate DBRS Morningstar applied is at the lower end of the
range of DBRS Morningstar Cap Rate Ranges for retail properties,
reflecting its irreplaceable position in a urban market.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 5.0%
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 increased
vacancy expected at the asset to arrive at a coronavirus DBRS
Morningstar Value under the moderate scenario, a 10.0% 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.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had a higher variance from the rating assigned to Class D 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 represents 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.
VINE 2020-1: DBRS Assigns Provisional BB Rating on Class C Notes
----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following notes to
be issued by Vine 2020-1:
-- $384,300,000 Class A at A (sf)
-- $21,200,000 Class B at BBB (sf)
-- $16,000,000 Class C at BB (sf)
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 timely interest on a quarterly basis and
principal by the 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 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. Given the nature of the assets
supporting this transaction, the impact of the coronavirus pandemic
has limited impact on the transaction. DBRS Morningstar does not
believe that additional stresses are warranted in the cash flow
analysis at this time. The stresses applied and certain
characteristics of the underlying distribution agreements provide
ample credit protection against current coronavirus projections.
-- The transaction parties' capabilities in the film rights
exploitation space.
-- The operational history of Village Roadshow Entertainment Group
(VREG) and the strength of the overall company and its management
team.
-- The assets supporting this transaction are a combination of the
existing film library from VREG and the Virtual film library. The
transaction benefits from perpetual revenue generated from the
exploitation of the titles across various media platforms and
merchandising.
-- The film library includes titles with strong franchise value
including those related to the very successful Matrix, Ocean's,
Joker, and Sherlock Holmes franchises.
-- Because this is a film library transaction, there is no
production risk in the portfolios. All films have been released and
are through their theatrical windows.
-- The revenue generated by the film library depends on the
successful exploitation of the film titles, which is driven by the
distribution of the films across various platforms. Each film
benefits from distribution agreements with subsidiaries of Warner
Bros. Entertainment Inc. (Warner Bros.), Sony Pictures
Entertainment Inc. (Sony Pictures), Paramount Pictures Corporation,
and New Regency Enterprises USA, Inc. Additionally, the studios
will make advances for expenses incurred to distribute the films.
Therefore, the transaction heavily relies on the performance of the
distributors.
-- The library has received an independent valuation by FTI
Consulting, which has considerable expertise in valuing film
libraries. The company will provide appraisals annually and upon
the occurrence of certain events, including (1) the occurrence of
any Early Amortization Event, (2) the occurrence of any Series Cash
Trap Event, (3) the occurrence of any Event of Default, and (4) the
occurrence of any Servicer Termination Event.
-- The occurrence of a bankruptcy of Warner Bros. or Sony
Pictures.
-- In addition to the issuance of Series 2020-1, the Group A
Co-Issuers have incurred subordinated intercompany debt that will
survive the rated issuance. The subordinated debt is approximately
$550 million as of the Series 2020-1 Closing Date.
-- The existence of piracy risk, which is an inherent part of film
transactions. Studios have worked to combat and mitigate this risk
through the use of technology to help impede the copying process
and working with technology firms and platforms to reduce the risk
of illegal downloading.
-- VREG will act as the Servicer for the transaction. The
servicing function requires minimal activity beyond administering
cash flows, which has been a long-standing part of VREG's
day-to-day business, and the company has been co-financing and
co-producing films since 1997 with strong servicing capabilities
demonstrated to date.
-- Vine Investment Advisors LP (Vine) will act as the Backup
Servicer for the transaction. The company has extensive experience
in the film industry dating back to 2007 and has experience working
with various major studios. Furthermore, the servicing
infrastructure is easy to replicate and easily transferrable.
-- The investment funds controlled by Vine are the majority
shareholder of VREG. VREG is only one investment of Vine's total
portfolio; as such, VREG does not solely rely on the performance of
the portfolio company.
-- Additional series may be issued; however, the transaction has
the benefit of group- and series-level early amortization as well
as debt service coverage ratio amortization events.
-- The historical performance and anticipated future revenue
stream of the film library.
-- The legal structure and presence of legal opinions, which will
address the true sale of the assets to the Co-Issuers, the
nonconsolidation of the special-purpose vehicle with VREG, that the
trust has a valid first-priority security interest in the assets,
and the consistency with the DBRS Morningstar "Legal Criteria for
U.S. Structured Finance."
Notes: All figures are in U.S. dollars unless otherwise noted.
[*] S&P Takes Actions on 60 Ratings From 10 US RMBS Non-QM Deals
----------------------------------------------------------------
S&P Global Ratings took ratings actions on 60 classes from ten U.S.
RMBS non-qualified mortgage (non-QM) transactions, issued by
Deephaven Residential Mortgage Trust, following a review. The
review resulted in nine one-notch downgrades and 51 affirmations.
At the same time, S&P removed 16 ratings from CreditWatch, where
they were placed with negative implications on April 20, 2020.
These 16 ratings include the nine downgrades and seven of the
affirmed ratings.
On April 20, 2020, S&P placed 232 ratings from 68 U.S. RMBS
transactions on CreditWatch negative. The review for the
CreditWatch placements followed a revision to S&P's 'B' rating
level foreclosure frequency (FF) assumption for an archetypal pool
of U.S. residential mortgage loans upward to 3.25% from 2.50%. The
CreditWatch placements reflected cases where S&P's analysis
indicated an at least one-in-two likelihood of a downgrade under
its revised outlook and corresponding increase in the projected 'B'
archetypal FF.
The revision to S&P's 'B' archetypal FF assumption reflects various
factors, including:
-- An increase in forecasted unemployment levels, given
COVID-19-related consumer demand constraints;
-- The COVID-19-related government support in the U.S., including
fiscal support to businesses and consumers, which should offset
some income curtailment;
-- The state of the U.S. residential housing market, which S&P
views as being close to equilibrium on a national level, based on
price-to-income ratios; and
-- The implementation of temporary COVID-19-related payment
assistance plans for mortgagors, for which some payment assistance
may manifest into credit losses for RMBS.
Since the April CreditWatch placements, S&P has continued to
monitor changes in the transactions' collateral performance, credit
enhancement levels, payment mechanics, and other credit drivers.
S&P leveraged data through the September distribution period to
assess the impact of the pandemic and other factors on the
transactions' creditworthiness. S&P's most recent review of the
transactions incorporated the revised 'B' archetypal FF assumption
of 3.25% and updated credit factors to generate expected losses at
each rating level. S&P concluded that nine classes would not be
able to withstand stresses at their prior rating level and lowered
the ratings by one notch. The downgrades affected the more junior
classes from recent vintages that have yet to experience adequate
deleveraging. S&P also affirmed its ratings on 51 classes from
these ten transactions.
"The revision of our 'B' archetypal FF assumption accounted for a
portion of borrowers entering COVID-19-related payment assistance
plans and the impact on the overall credit quality of
collateralized pools. However, to the extent those forbearance,
deferral, and modification levels exceed our previous expectations,
additional adjustments to our FF assumptions may be applied," S&P
said.
"For the 10 transactions in this review, we believe the revised 'B'
archetypal FF assumption of 3.25% adequately accounted for current
forbearance, deferral, and modification levels and that no
additional adjustments were necessary. As such, loans that we
deemed to be delinquent solely due to being on a COVID-19-related
payment assistance plan did not receive a delinquency adjustment
factor in our credit analysis," the rating agency said.
For all transactions, S&P used the same mortgage operational
assessment, representation and warranty, and due diligence factors
that were applied at issuance. S&P's geographic concentration and
prior-credit-event adjustment factors were based on the
transactions' current pool composition.
Further, S&P applied an additional delinquency stress scenario to
address the potential liquidity stress to cash flows due to loans
entering COVID-19-related forbearance, deferrals, and modifications
for which the principal and interest (P&I) advancing party (e.g.,
the servicer) may not be obligated to advance any or only a limited
number of monthly P&I payments. S&P assumed that 35.00% of the pool
balance is delinquent for the first six months, with any P&I
payments related to this delinquent portion coming back to the
transaction after all defaults have been passed through to the
transaction.
ANALYTICAL CONSIDERATIONS
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The current consensus among health
experts is that COVID-19 will remain a threat until a vaccine or
effective treatment becomes widely available, which could be around
mid-2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
the rating agency said.
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by its projected cash flows. These considerations
are based on transaction-specific performance or structural
characteristics (or both) and their potential effects on certain
classes. Some of these considerations may include:
-- Factors related to the COVID-19 pandemic,
-- Collateral performance or delinquency trends, and
-- Available credit enhancement.
The downgrades of the B-2 classes from Deephaven Residential
Mortgage Trust 2017-1 (Deephaven 2017-1), Deephaven 2017-2,
Deephaven 2017-3, Deephaven 2018-1, Deephaven 2019-2, Deephaven
2019-3, Deephaven 2019-4, and Deephaven 2020-1 to 'CCC (sf)' from
'B- (sf)' and Deephaven 2018-2 to 'B- (sf)' from 'B (sf)' reflect
the effect of the revised 'B' archetypal FF assumption on the
transactions' projected losses and overall performance. In S&P's
analyses, it examined various factors such as the relative level of
hard credit support, the effects of triggers on payment mechanics,
and prepayments (which can erode excess spread but can also build
credit enhancement due to the deleveraging of the capital
structure). To date, these transactions have had no observed
losses.
The affirmations reflect S&P's view that the projected collateral
performance relative to its projected credit support on the
affected classes remains sufficient to cover its projected losses
for those rating scenarios.
A list of Affected Ratings can be viewed at:
https://bit.ly/2GWZ7HE
[*] S&P Takes Various Actions on 60 Classes From Nine US RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 60 ratings from nine
U.S. RMBS transactions issued in 2003 through 2006. The
transactions are backed by Alternative-A and subprime collateral.
The review yielded two upgrades, 20 downgrades, 30 affirmations,
and eight withdrawals.
ANALYTICAL CONSIDERATIONS
S&P acknowledges a high degree of uncertainty about the evolution
of the coronavirus pandemic. The current consensus among health
experts is that COVID-19 will remain a threat until a vaccine or
effective treatment becomes widely available, which could be around
mid-2021.
"We are using this assumption in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates accordingly,"
S&P said.
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by its projected cash flows. These considerations
are based on transaction-specific performance or structural
characteristics (or both) and their potential effects on certain
classes. Some of these considerations may include:
-- Factors related to the COVID-19 pandemic,
-- Collateral performance or delinquency trends,
-- Historical interest shortfalls or missed interest payments,
-- Available subordination and/or overcollateralization,
-- Erosion of or increases in credit support,
-- Small loan count,
-- Expected short duration, and
-- Principal-only criteria.
RATING ACTIONS
The rating changes reflect S&P's views regarding the associated
transaction-specific collateral performance and structural
characteristics, and/or the application of specific criteria
applicable to these classes.
"The affirmations reflect our view that our projected credit
support and collateral performance on these classes have remained
relatively consistent with our prior projections," S&P said.
"We withdrew our ratings on eight classes from two transactions due
to the small number of loans remaining within the related
structure. Once a pool has declined to a de minimis amount, we
believe there is a high degree of credit instability that is
incompatible with any rating level," the rating agency said.
S&P lowered its ratings on 16 classes from three transactions due
to increased delinquencies. Each respective collateral group has
experienced meaningful increases in delinquency levels. As a
result, S&P has projected higher losses and believe these classes
have credit support that is insufficient to withstand losses at
higher rating levels.
A list of Affected Rating can be viewed at:
https://bit.ly/33S1nJ6
*********
Monday's edition of the TCR delivers a list of indicative prices
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