/raid1/www/Hosts/bankrupt/TCR_Public/201025.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 25, 2020, Vol. 24, No. 298
Headlines
ADAMS OUTDOOR 2018-1: Fitch Affirms BBsf Rating on Class C Debt
AIMCO CLO 2017-A: Moody's Lowers $6MM Class F Notes to B3
AMERICAN INT'L 2020-3: Fitch to Rate Class B-5 Debt 'B(EXP)'
AMSR TRUST 2020-SFR5: DBRS Finalizes B(low) Rating on Class G Certs
ANCHORAGE CREDIT 12: Moody's Rates $18MM Class E Notes 'Ba3'
APRES STATIC 1: Fitch Assigns B-sf Rating on Class E-R Notes
ASHFORD HOSPITALITY 2018-KEYS: DBRS Cuts Rating on F Certs to CCC
ATRIUM HOTEL 2018-ATRM: DBRS Confirms B(low) Rating on Cl. F Certs
BALBOA CAPITAL XIV 2019-1: Moody's Raises Class D Notes to Ba1(sf)
BARINGS CLO 2020-I: S&P Assigns BB- (sf) Rating to Class E Notes
BBCMS MORTGAGE 2020-BID: DBRS Finalizes BB Rating on HRR Certs
BCC FUNDING 2020-1: Moody's Gives (P)B2 Rating on Class E Notes
BCC FUNDING XVII: DBRS Assigns Prov. B Rating on Class E Notes
BEAR STEARNS 2003-PWR2: Fitch Affirms D Rating on Class N Certs
BENCHMARK 2018-B7: Fitch Affirms B-sf Rating on Class G-RR Certs
BRAEMAR HOTELS 2018-PRME: DBRS Confirms BB Rating on Class E Certs
BRAVO RESIDENTIAL 2020-RPL2: Fitch to Rate Class B-2 Debt 'B(EXP)'
BRAVO RESIDENTIAL 2020-TAC1: Fitch Rates Class B5 Debt 'Bsf'
BUSINESS JET 2020-1: S&P Assigns Prelim BB (sf) Rating to C Notes
BX COMMERCIAL 2020-FOX: Fitch to Rate $98.3MM Class F Certs B-sf
BX TRUST 2017-CQHP: DBRS Cuts Rating on Class F Certs to B(low)
CANTOR COMMERCIAL 2016-C7: Fitch Lowers Rating on 2 Tranches to CCC
CEDAR FUNDING XII: S&P Assigns Prelim BB- (sf) Rating to E Notes
CFCRE TRUST 2018-TAN: DBRS Lowers Rating on Class E Certs to BB
COLLEGE AVENUE 2017-A: DBRS Confirms BB on Class C Notes
COMM 2010-C1: Moody's Confirms B3 Rating on Class G Certs
COMM 2014-CCRE21: Fitch Lowers Rating on Class E Certs to B-sf
COMM 2016-CCRE28: Fitch Affirms Bsf Rating on Class F Certs
CONN'S RECEIVABLES 2020-A: Fitch Rates Class C Notes 'Bsf'
CPA AUTO 2018-1: DBRS Keeps BB(low) on Class A Notes Under Review
CSAIL 2018-C14: Fitch Affirms B-sf Rating on 2 Tranches
CSMC 2020-FACT: Moody's Assigns (P)B3 Rating on Class F Certs
CSMC TRUST 2017-CHOP: DBRS Confirms BB(low) Rating on Cl. E Certs
CWALT INC 2005-62: Moody's Lowers Rating on Cl. 2-X-1 Certs to C
ELLINGTON FINANCIAL 2020-2: Fitch to Rate Class B-2 Debt B(EXP)
FAIRSTONE FINANCIAL 2020-1: Moody's Rates Class D Notes 'Ba3'
GS MORTGAGE 2018-HULA: DBRS Confirms B(low) Rating on Cl. G Certs
GS MORTGAGE 2020-PJ5: DBRS Gives Prov. B Rating on Class B5 Notes
HOME RE 2020-1: Moody's Assigns (P)B2 Rating on Class B-1 Notes
IMPERIAL FUND 2020-NQM1: DBRS Finalizes B(high) Rating on B1 Certs
INTOWN HOTEL 2018-STAY: DBRS Confirms B Rating on Class G Certs
JP MORGAN 2017-FL11: DBRS Confirms BB(low) Rating on Class E Certs
JPMCC COMMERCIAL 2016-JP4: Fitch Affirms BB- Rating on Cl. E Certs
LENDMARK FUNDING 2020-2: DBRS Gives Prov. BB Rating on Cl. D Notes
MARGARITAVILLE BEACH 2019-MARG: DBRS Confirms B Rating on G Certs
MCA FUND III: DBRS Assigns Provisional BB Rating to Class C Notes
MCA FUND III: Fitch Assigns BB(EXP) Rating on Class C Debt
MELLO WAREHOUSE 2020-1: Moody's Gives (P)Ba1 Rating on Cl. E Debt
NOVASTAR MORTGAGE 2006-MTA1: Moody's Lowers Class X Debt to C
OAKTOWN RE 2020-2: DBRS Gives Prov. B(low) Rating on Class M2 Notes
OAKTOWN RE V: Moody's Assigns (P)B3 Rating on Class B-1 Notes
REPUBLIC FINANCE 2019-A: DBRS Confirms BB Rating on Class C Notes
SEQUOIA MORTGAGE 2020-4: Fitch to Rate Class B4 Certs BB-(EXP)
SG RESIDENTIAL 2020-2: Fitch to Rate Class B-2 Certs 'B(EXP)'
SKOPOS AUTO 2018-1: DBRS Confirms BB Rating on Class D Notes
SOUTH TEXAS 2013-1: Fitch Cuts Series 2013-1 Ratings to BBsf
THORNBURG MORTGAGE 2006-5: Moody's Cuts Class A-1 Debt to 'Caa1'
TOWD POINT 2020-4: Fitch Assigns B-sf Rating on Class B2 Notes
TRIANGLE RE 2020-1: Moody's Assigns B2 Rating on Class B-1 Notes
TRTX 2019-FL3: DBRS Confirms B(low) Rating on Class G Notes
UBS COMMERCIAL 2017-C6: Fitch Affirms B-sf Rating on 2 Tranches
VERUS SECURITIZATION 2020-5: DBRS Gives Prov. B Rating on B-2 Certs
WAMU COMMERCIAL 2006-SL1: Fitch Ups Rating on Class F Certs to CCC
WELLS FARGO 2011-C3 Fitch Lowers Rating on 2 Tranches to Csf
WELLS FARGO 2011-C4: Fitch Lowers Rating on Class E Certs to B
WELLS FARGO 2016-C34: Fitch Cuts Rating on Class F Debt to CC
WP GLIMCHER 2015-WPG: DBRS Assigns B(low) on Class SQ-3 Certs
[*] DBRS Reviews 470 Classes From 90 U.S. RMBS Transactions
*********
ADAMS OUTDOOR 2018-1: Fitch Affirms BBsf Rating on Class C Debt
---------------------------------------------------------------
Fitch Ratings has affirmed three classes of Adams Outdoor
Advertising Limited Partnership (LP) Secured Billboard Revenue
Notes Series 2018-1.
The transaction represents a securitization in the form of notes
backed by 11,822 available outdoor advertising faces and other
advertising displays. The ratings reflect a structured finance
analysis of the cash flows from advertising structures, not an
assessment of the corporate default risk of the ultimate parent,
Adams Outdoor Advertising (AOA).
RATING ACTIONS
Adams Outdoor Advertising LP 2018-1
Class A 006346AS9; LT Asf Affirmed; previously at Asf
Class B 006346AU4; LT BBBsf Affirmed; previously at BBBsf
Class C 006346AV2; LT BBsf Affirmed; previously at BBsf
KEY RATING DRIVERS
Coronavirus Pandemic Impact on Net Cash Flow (NCF): Fitch's NCF for
the pool is $61.2 million as of the TTM ended August 2020, down
from $64.0 million for the prior 12-month period but relatively
in-line with $61.6 million at issuance. Servicer-reported revenue
declined by 8.4% as of the TTM ended August 2020 from the prior
12-month period due to advertisers either suspending or canceling
their campaign as a result of the coronavirus pandemic. At the same
time, operating expenses also declined to 36.4% (as a percentage of
revenue) for the TTM ended August 2020 from 39.9% for the prior
12-month period as result, primarily due to a significant cut in
wages and layoffs. Fitch's NCF analysis utilized a 42.0% direct
operating expense ratio.
Fitch's TTM ended August 2020 NCF reflects a stressed debt service
coverage ratio (DSCR) of 1.44x. The debt multiple relative to
Fitch's NCF is 8.0x, which equates to a debt yield of 12.5%.
Advertisers Tied to Economic, Retail Outlook: Fitch expects the
outdoor industry to continue to track the overall macroeconomic
environment, given the largely discretionary nature of the majority
of advertising spend. AOA's management team has experience managing
these assets in its respective markets through economic cycles. In
addition, many of these markets are located in stable economic
regions in which state governments and colleges/universities are
the major employers.
Experienced Sponsorship and Management Team: AOA has been operating
since 1983 and is currently one of the largest domestic billboard
operators. AOA has shown consistent performance and demonstrated an
ability to effectively manage its operations through the economic
cycle, as it was able to reduce expenses in 2008 and 2009 during
the financial crisis and more recently in 2020 during the
coronavirus pandemic to offset the declines in revenue.
Non-Traditional Asset Type; Rating Cap: Due to the specialized
nature of the collateral consisting primarily of outdoor
advertising displays and lack of mortgages, the senior classes of
this transaction do not achieve ratings above 'Asf'.
High Barriers to Entry: AOA faces limited competition in its market
as result of the billboard permitting process and significant
federal, state and local regulations that limit supply and prohibit
new billboards.
Scheduled Amortization: Principal will be payable to the 2018-1
class A note to the extent funds are available equal to 29.3% of
the 2018-1 class A note over the seven years prior to the
anticipated repayment date (ARD). Total amortization on the entire
trust is scheduled to be 23.0%.
Notes Not Secured by Mortgages: The security interest will be
perfected by a pledge of the membership interests of the issuer and
its subsidiaries, and the filing of financing statements under the
Uniform Commercial Code (UCC). The issuer will be filing UCCs on
the permits and the advertising contracts. The security interest in
the equity of the issuer provides the noteholders with the ability
to foreclose on the issuer in an event of default. The lack of
mortgages is mitigated in this transaction to some extent, as the
value of billboard assets is heavily dependent on non-mortgageable
permits and licenses, which have been secured by UCC filings.
Issuance of Additional Notes: The issuer may issue additional notes
pursuant to a series supplement in one or more classes, which will
rank pari passu with, and be rated the same as, the class of notes
bearing the same alphabetical class designation in connection with
the contribution of additional billboard assets if the pro forma
interest-only (IO) DSCR after such issuance is not less than the IO
DSCR before such issuance and rating agency confirmation, among
other conditions set forth in the Indenture; issuance of additional
notes without the contribution of additional billboard assets is
permitted, provided the pro forma IO DSCR after such issuance is
equal to or greater than 2.25x and rating agency confirmation,
among other conditions set forth in the Indenture.
There was a variance from Fitch's 'CMBS Large Loan Rating Criteria'
related to the stressed refinance constant and rating specific DSCR
parameters. The constant used is outside Fitch's published
refinance constant range for 'Other' property types; however, the
constant utilized reflects AOA's dominant industry position in its
respective markets, barriers to entry and experienced management.
The DSCR attachment points used to determine the class sizes were
derived from Fitch's large loan criteria, reflecting retail
attachment points with an adjustment for nonmortgage collateral.
RATING SENSITIVITIES
The Rating Outlook for all classes remains Stable.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades are limited due to the provision allowing the
issuance of additional notes, and the non-traditional asset type
and rating cap.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades are limited due to the high barriers of entry and
limited competition, and the sponsors ability to manage expenses to
offset declines in revenue during periods of economic downturns.
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.
AIMCO CLO 2017-A: Moody's Lowers $6MM Class F Notes to B3
---------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by AIMCO CLO, Series 2017-A:
US$6,000,000 Class F Junior Secured Deferrable Floating Rate Notes
due 2029 (the "Class F Notes"), Downgraded to B3 (sf); previously
on May 24, 2017 Definitive Rating Assigned B2 (sf)
The Class F Notes are referred to herein as the "Downgraded
Notes."
The CLO, issued in May 2017, is a managed cashflow CLO. The notes
are collateralized primarily by a portfolio of broadly syndicated
senior secured corporate loans. The transaction's reinvestment
period will end in July 2021.
RATINGS RATIONALE
The downgrade on the Downgraded Notes reflects the risks posed by
credit deterioration observed in the underlying CLO portfolio,
which have been primarily prompted by economic shocks stemming from
the coronavirus pandemic. Since the outbreak widened in March 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 3140, compared to 2971
reported in the March 2020 trustee report [2]. Moody's also noted
that the WARF was failing the test level of 2781 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
16.2%.
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: $398,058,312
Defaulted Securities: $2,494,220
Diversity Score: 75
Weighted Average Rating Factor (WARF): 3134
Weighted Average Life (WAL): 4.9 years
Weighted Average Spread (WAS): 3.24%
Weighted Average Recovery Rate (WARR): 48.4%
Par haircut in OC tests and interest diversion test: 0.4%
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
corporate assets from the current weak US economic activity and a
gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the degree
of uncertainty around its forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Factors that Would Lead to an Upgrade or Downgrade of the Rating:
The performance of the rated notes is subject to uncertainty. 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.
The principal methodology used in this rating was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
August 2020.
AMERICAN INT'L 2020-3: Fitch to Rate Class B-5 Debt 'B(EXP)'
------------------------------------------------------------
Fitch Ratings expects to rate American International Group, Inc.'s
(AIG) PSMC 2020-3 Trust (PSMC 2020-3).
RATING ACTIONS
PSMC 2020-3
Class A-1; LT AAA(EXP)sf Expected Rating
Class A-2; LT AAA(EXP)sf Expected Rating
Class A-3; LT AAA(EXP)sf Expected Rating
Class A-4; LT AAA(EXP)sf Expected Rating
Class A-5; LT AAA(EXP)sf Expected Rating
Class A-6; LT AAA(EXP)sf Expected Rating
Class A-7; LT AAA(EXP)sf Expected Rating
Class A-8; LT AAA(EXP)sf Expected Rating
Class A-9; LT AAA(EXP)sf Expected Rating
Class A-10; LT AAA(EXP)sf Expected Rating
Class A-11; LT AAA(EXP)sf Expected Rating
Class A-12; LT AAA(EXP)sf Expected Rating
Class A-13; LT AAA(EXP)sf Expected Rating
Class A-14; LT AAA(EXP)sf Expected Rating
Class A-15; LT AAA(EXP)sf Expected Rating
Class A-16; LT AAA(EXP)sf Expected Rating
Class A-17; LT AAA(EXP)sf Expected Rating
Class A-18; LT AAA(EXP)sf Expected Rating
Class A-19; LT AAA(EXP)sf Expected Rating
Class A-20; LT AAA(EXP)sf Expected Rating
Class A-21; LT AAA(EXP)sf Expected Rating
Class A-22; LT AAA(EXP)sf Expected Rating
Class A-23; LT AAA(EXP)sf Expected Rating
Class A-24; LT AAA(EXP)sf Expected Rating
Class A-25; LT AAA(EXP)sf Expected Rating
Class A-26; LT AAA(EXP)sf Expected Rating
Class A-X1; LT AAA(EXP)sf Expected Rating
Class A-X2; LT AAA(EXP)sf Expected Rating
Class A-X3; LT AAA(EXP)sf Expected Rating
Class A-X4; LT AAA(EXP)sf Expected Rating
Class A-X5; LT AAA(EXP)sf Expected Rating
Class A-X6; LT AAA(EXP)sf Expected Rating
Class A-X7; LT AAA(EXP)sf Expected Rating
Class A-X8; LT AAA(EXP)sf Expected Rating
Class A-X9; LT AAA(EXP)sf Expected Rating
Class A-X10; LT AAA(EXP)sf Expected Rating
Class A-X11; LT AAA(EXP)sf Expected Rating
Class B-1; LT AA(EXP)sf Expected Rating
Class B-2; LT A+(EXP)sf Expected Rating
Class B-3; LT BBB+(EXP)sf Expected Rating
Class B-4; LT BBB-(EXP)sf Expected Rating
Class B-5; LT B(EXP)sf Expected Rating
Class B-6; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 532 loans with a total balance of
approximately $417.89 million as of the cutoff date. The pool
consists of prime fixed-rate mortgages (FRMs) acquired by
subsidiaries of American International Group, Inc. (AIG) from
various mortgage originators. Distributions of principal and
interest and loss allocations are based on a traditional
senior-subordinate, shifting-interest structure.
KEY RATING DRIVERS
Revised GDP Due to Coronavirus (Negative): The coronavirus outbreak
and the resulting containment efforts have resulted in revisions to
Fitch's GDP estimates for 2020. Its baseline global economic
outlook for U.S. GDP growth is currently a 4.4% decline for 2020,
down from 1.7% for 2019. Fitch's downside scenario would see an
even larger decline in output in 2020 and a weaker recovery in
2021. To account for declining macroeconomic conditions resulting
from the coronavirus, an Economic Risk Factor (ERF) floor of 2.0
(the ERF is a default variable in the U.S. RMBS loan loss model)
was applied to 'BBBsf' ratings and below.
Expected Payment Deferrals Related to Coronavirus (Negative): The
outbreak of the coronavirus and widespread containment efforts in
the U.S. have resulted in increased unemployment and cash flow
disruptions. To account for the cash flow disruptions, Fitch
assumed deferred payments on a minimum of 25% of the pool for the
first six months of the transaction at all rating categories with a
reversion to its standard delinquency and liquidation timing curve
by month 10. This assumption is based on observations of legacy
delinquencies and past-due payments following Hurricane Maria in
Puerto Rico.
Payment Forbearance (Neutral): As of the cutoff date, none of the
borrowers in the pool are on a coronavirus forbearance plan.
Additionally, any loan that enters a coronavirus forbearance plan
between the cutoff date and the settlement date will be removed
from the pool (at par) within 45 days of closing. For borrowers who
enter a coronavirus forbearance plan post-closing, the principal
and interest (P&I) advancing party will advance P&I during the
forbearance period. If at the end of the forbearance period, the
borrower begins making payments, the advancing party will be
reimbursed from any catch-up payment amount.
If the borrower does not resume making payments, the loan will
likely become modified and the advancing party will be reimbursed
from principal collections on the overall pool. This will likely
result in writedowns to the most subordinate class, which will be
written back up as subsequent recoveries are realized. Since there
will be no borrowers on a coronavirus forbearance plan as of the
closing date and forbearance requests have significantly declined,
Fitch did not increase its loss expectation to address the
potential for writedowns due to reimbursement of servicer
advances.
High-Quality Mortgage Pool (Positive): The pool consists of very
high-quality 30- and 15-year fixed-rate fully amortizing Safe
Harbor Qualified Mortgage (SHQM) loans to borrowers with strong
credit profiles, relatively low leverage, and large liquid
reserves. The loans are seasoned an average of seven months. The
pool has a weighted average (WA) original FICO score of 774, which
is indicative of very high credit-quality borrowers. Approximately
83.8% of the loans have a borrower with an original FICO score
above 750. In addition, the original WA CLTV ratio of 69.1%
represents substantial borrower equity in the property and reduced
default risk.
Low Operational Risk (Neutral): Operational risk is well controlled
for in this transaction. AIG has strong operational practices and
is an 'Above Average' aggregator. The aggregator has experienced
senior management and staff, strong risk management and corporate
governance controls, and a robust due diligence process. Primary
and master servicing functions will be performed by Cenlar FSB and
Wells Fargo Bank, N.A., rated 'RPS2'/Negative and 'RMS1-'/Negative,
respectively. If the primary servicer does not advance delinquent
P&I, Wells Fargo Bank (AA-/F1+) will be obligated to advance such
amounts to the trust.
Third-Party Due Diligence Results (Positive): Third-party due
diligence was performed on 100% of loans in the transaction by AMC
Diligence, LLC (AMC) and Edge Mortgage Advisory Company, LLC
(EdgeMac), assessed as 'Acceptable - Tier 1' and 'Acceptable - Tier
3', respectively, by Fitch. The results of the review identified no
material exceptions. Credit exceptions were supported by mitigating
factors and compliance exceptions were primarily TRID related and
cured with subsequent documentation. Fitch applied a credit for the
high percentage of loan level due diligence, which reduced the
'AAAsf' loss expectation by 19bps.
Top Tier Representation and Warranty Framework (Positive): The
loan-level representation, warranty and enforcement (RW&E)
framework is consistent with Tier I quality. Fitch reduced its loss
expectations by 17bps at the 'AAAsf' rating category as a result of
the Tier 1 framework and the 'A' Fitch-rated counterparty
supporting the repurchase obligations of the RW&E providers.
Straightforward Deal Structure (Neutral): The mortgage cash flow
and loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained.
CE Floor (Positive): To mitigate tail risk, which arises as the
pool seasons and fewer loans are outstanding, a subordination floor
of 1.25% of the original balance will be maintained for the
certificates. Additionally, the stepdown tests do not allow
principal prepayments to subordinate bondholders in the first five
years following deal closing.
Geographic Concentration (Neutral): The pool is geographically
diverse, and, as a result, no geographic concentration penalty was
applied. Approximately 38% of the pool is located in California,
which is in line with other recent Fitch-rated transactions. The
top three metropolitan statistical areas (MSAs) account for 25.7%
of the pool. The largest MSA concentration is in the San Francisco
MSA (9.6%), followed by the Los Angeles MSA (9.6%) and the Seattle
MSA (6.5%).
Extraordinary Expense Treatment (Neutral): The trust provides for
expenses, including indemnification amounts and costs of
arbitration, to be paid by the net WA coupon of the loans, which
does not affect the contractual interest due on the certificates.
Furthermore, the expenses to be paid from the trust are capped at
$300,000 per annum, which can be carried over each year, subject to
the cap until paid in full.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper 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 analyses was conducted at the state and national levels
to assess the effect of higher MVDs for the subject pool as well as
lower MVDs, illustrated by a gain in home prices.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
This defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the
model-projected 38.8% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to negative MVDs at the national level, or
in other words positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth of
10%. Excluding the senior class, which is already rated 'AAAsf',
the analysis indicates there is potential positive rating migration
for all of the rated classes. Specifically, a 10% gain in home
prices would result in a full category upgrade for the rated class
excluding those being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up- and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Fitch has added a Coronavirus Sensitivity Analysis that that
includes a prolonged health crisis resulting in depressed consumer
demand and a protracted period of below-trend economic activity
that delays any meaningful recovery to beyond 2021. Under this
severe scenario, Fitch expects the ratings to be impacted by
changes in its sustainable home price model due to updates to the
model's underlying economic data inputs. Any long-term impact
arising from coronavirus disruptions on these economic inputs will
likely affect both investment and speculative grade ratings.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by AMC Diligence, LLC and Edge Mortgage Advisory Company,
LLC. The third-party due diligence described in Form 15E focused on
credit, compliance, and property valuation for each loan and is
consistent with Fitch criteria. The due diligence companies
performed a review on 100% of the loans. The results indicate high
quality loan origination practices that are consistent with
non-agency prime RMBS. Fitch considered this information in its
analysis and, as a result, Fitch made the following adjustment to
its analysis: loans with due diligence received a credit in the
loss model. This adjustment reduced the 'AAAsf' expected losses by
19 bps.
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
PSMC 2020-3 has an ESG Relevance Score of '4'[+] for Transaction
Parties & Operational Risk due to well-controlled operational risk
that includes strong R&W framework, transaction due diligence
results, an 'Above Average' aggregator, and an 'Above Average'
master servicer, all of which resulted in a reduction in the
expected losses. This has a positive impact on the credit profile
and is relevant to the ratings in conjunction with other factors.
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.
AMSR TRUST 2020-SFR5: DBRS Finalizes B(low) Rating on Class G Certs
-------------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Single-Family Rental Pass-Through Certificates issued by AMSR
2020-SFR5 Trust (AMSR 2020-SFR5):
-- $131.4 million Class A at AAA (sf)
-- $50.4 million Class B at AAA (sf)
-- $17.5 million Class C at AA (high) (sf)
-- $23.0 million Class D at A (high) (sf)
-- $40.5 million Class E-1 at BBB (high) (sf)
-- $21.9 million Class E-2 at BBB (low) (sf)
-- $48.2 million Class F at BB (low) (sf)
-- $43.8 million Class G at B (low) (sf)
The AAA (sf) rating on the Class A and B Certificates reflect
69.35% and 57.60% of credit enhancement, respectively, provided by
subordinated notes in the pool. The AA (high) (sf), A (high) (sf),
BBB (high) (sf), BBB (low) (sf), BB (low) (sf), and B (low) (sf)
ratings reflect 53.52%, 48.15%, 38.70%, 33.60%, 22.36%, and 12.14%
of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The AMSR 2020-SFR5 certificates are supported by the income streams
and values from 2,226 rental properties. The properties are
distributed across 15 states and 44 metropolitan statistical areas
(MSAs) in the U.S. DBRS Morningstar maps an MSA based on the ZIP
code provided in the data tape, which may result in different MSA
stratifications than those provided in offering documents. As
measured by broker price opinion value, 63.4% of the portfolio is
concentrated in three states: Texas (24%), Georgia (22.2%), and
Florida (17.2%). The average value is $196,754. The average age of
the properties is roughly 31 years. The majority of the properties
have three or more bedrooms. The Certificates represent a
beneficial ownership in an approximately five-year, fixed-rate,
interest-only loan with an initial aggregate principal balance of
approximately $428.7 million.
The Sponsor intends to satisfy its risk-retention obligations under
the U.S. Risk Retention Rules by Class I, which is 8.1% of the
initial total issuance balance, either directly or through a
majority-owned affiliate.
DBRS Morningstar finalized the provisional ratings for each class
of certificates by performing a quantitative and qualitative
collateral, structural, and legal analysis. This analysis uses DBRS
Morningstar's single-family rental subordination model and is based
on DBRS Morningstar's published Single-Family Rental methodology
and criteria. DBRS Morningstar developed property-level stresses
for the analysis of single-family rental assets. DBRS Morningstar
assigned the provisional ratings to each class based on the level
of stresses each class can withstand and whether such stresses are
commensurate with the applicable rating level. DBRS Morningstar's
analysis includes estimated base-case net cash flows (NCFs) by
evaluating the gross rent, concession, vacancy, operating expenses,
and capital expenditure data. The DBRS Morningstar NCF analysis
resulted in a minimum debt service coverage ratio of higher than
1.0 times.
Notes: All figures are in U.S. dollars unless otherwise noted.
ANCHORAGE CREDIT 12: Moody's Rates $18MM Class E Notes 'Ba3'
------------------------------------------------------------
Moody's Investors Service assigned ratings to six classes of notes
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"), Definitive Rating Assigned Aaa (sf)
US$30,000,000 Class A-2 Senior Secured Floating Rate Notes due 2038
(the "Class A-2 Notes"), Definitive Rating Assigned Aaa (sf)
US$41,250,000 Class B Senior Secured Fixed Rate Notes due 2038 (the
"Class B Notes"), Definitive Rating Assigned Aa3 (sf)
US$15,000,000 Class C Mezzanine Secured Deferrable Fixed Rate Notes
due 2038 (the "Class C Notes"), Definitive Rating Assigned A3 (sf)
US$15,000,000 Class D Mezzanine Secured Deferrable Fixed Rate Notes
due 2038 (the "Class D Notes"), Definitive Rating Assigned Baa3
(sf)
US$18,000,000 Class E Junior Secured Deferrable Fixed Rate Notes
due 2038 (the "Class E Notes"), Definitive Rating Assigned 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 obligations, up to
15.0% of the portfolio may consist of second lien loans, and up to
5.0% of the portfolio may consist of letters of credit. The
portfolio is 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 issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in August 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $300,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 3154
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.
APRES STATIC 1: Fitch Assigns B-sf Rating on Class E-R Notes
------------------------------------------------------------
Fitch Ratings has assigned the following ratings and Rating
Outlooks to the refinancing notes of Apres Static CLO 1, Ltd.
RATING ACTIONS
Apres Static CLO 1, Ltd.
Class A-1 03835JAA1; LT PIFsf Paid In Full; previously at AAAsf
Class A-1-R; LT AAAsf New Rating
Class A-2 03835JAC7; LT PIFsf Paid In Full; previously at AA+sf
Class A-2-R; LT AAsf New Rating
Class B 03835JAE3; LT PIFsf Paid In Full; previously at Asf
Class B-R; LT Asf New Rating
Class C 03835JAG8; LT PIFsf Paid In Full; previously at BBBsf
Class C-R; LT BBB-sf New Rating
Class D 03835KAA8; LT PIFsf Paid In Full; previously at BBsf
Class D-R; LT BB-sf New Rating
Class E 03835KAC4; LT PIFsf Paid In Full; previously at B+sf
Class E-R; LT B-sf New Rating
Class X; LT AAAsf New Rating
TRANSACTION SUMMARY
Apres Static CLO 1, Ltd. (the issuer) is an arbitrage cash flow
collateralized loan obligation (CLO) serviced by ArrowMark Colorado
Holdings LLC, which originally closed in March 2019. The CLO's
secured notes will be refinanced in whole on Oct. 15, 2020 with
proceeds from the issuance of new secured notes. The new secured
notes and existing subordinated notes will provide financing on a
static portfolio of approximately $400.0 million of primarily first
lien senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality (Negative): The portfolio's average credit
quality is 'B'/'B-', which is in line with that of recent CLOs.
Issuers rated in the 'B' rating category denote a highly
speculative credit quality; however, the notes benefit from
appropriate credit enhancement and standard U.S. CLO structural
features.
Asset Security (Positive): The purchased portfolio consists of
98.5% first lien senior secured loans, and has a weighted average
recovery assumption of 76.7%.
Portfolio Composition (Positive): The largest three industries
comprise 37.2% of the portfolio balance in aggregate, while the top
five obligors represent 6.6% of the portfolio balance in aggregate.
The level of diversity required by industry, obligor and geographic
concentrations is in line with that of other recent U.S. CLOs.
Portfolio Management (Neutral): The transaction does not have a
reinvestment period and discretionary sales are not permitted.
Fitch's analysis was based on the purchased portfolio factoring in
the stress scenarios described in the "Coronavirus Causing Economic
Shock" key rating driver below, with consideration given for a
stressed scenario incorporating potential maturity amendments on
the underlying loans.
Cash Flow Analysis (Positive): Fitch used a customized proprietary
cash flow model to replicate the principal and interest waterfalls
and assess the effectiveness of various structural features of the
transaction. Each class of notes was able to withstand default
rates in excess of its respective rating hurdle.
Coronavirus Causing Economic Shock: Fitch has made assumptions
about the spread of the coronavirus and the economic impact of
related containment measures. Fitch has applied two additional
stress scenarios to the indicative portfolio that envisage negative
rating migration as a result of business disruptions from the
coronavirus. The first scenario applies a one-notch downgrade (with
a CCC- floor) for all assets in the indicative portfolio with a
Negative Rating Outlook. The total portfolio exposure to these
assets is 38.9%. The second scenario assumes a 5% increase in the
indicative portfolio's PCM rating default rates (RDR) for all
rating levels. Under both of these stresses, the class X, A-1-R,
A-2-R, B-R, C-R, D-R and E-R notes can withstand default rates
above their respective PCM hurdle rates.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Upgrade scenarios are not applicable to the class X and A-1-R
notes, as these notes are in the highest rating category of
'AAAsf'. Variability in key model assumptions, such as increases in
recovery rates and decreases in default rates, could result in an
upgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics; results under these sensitivity scenarios are 'AAAsf' for
class A-2-R notes, between 'AA+sf' and 'A+sf' for class B-R notes,
'A+sf' for class C-R notes, and between 'A+sf' and 'BBB+sf' for
class D-R notes and 'BBB+sf' for the class E-R notes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
a metric. The results under these sensitivity scenarios are 'AAAsf'
for class X, and ranged between 'AAAsf' and 'BBB+sf' and for class
A-1-R, 'AA+sf' and 'BB+sf' and for class A-2-R, 'Asf' and 'CCCsf'
for class B-R, 'BBB- sf' and a level below 'CCCsf' for class C-R,
'BB-sf' and a level below 'CCCsf' for class D-R, and 'B+sf' and a
level below 'CCCsf' for class E-R notes.
Fitch added a sensitivity analysis that contemplates a more severe
and prolonged economic stress caused by a re-emergence of the
coronavirus in the major economies before a halting recovery begins
in 2Q21. The lowest passing ratings for class X, A-1-R, A-2-R, B-R,
C-R, D-R and E-R notes in the down common scenario were 'AAA',
'AA+', 'A' 'BB+', 'B+', a level below 'CCC' and a level below
'CCC', respectively. This sensitivity was not used to derive
Fitch's rating action.
ASHFORD HOSPITALITY 2018-KEYS: DBRS Cuts Rating on F Certs to CCC
-----------------------------------------------------------------
vDBRS Limited downgraded five ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2018-KEYS issued by Ashford
Hospitality Trust 2018-KEYS as follows:
-- Class C to A (high) (sf) from AA (low) (sf)
-- Class D to A (low) (sf) from A (sf)
-- Class E to BBB (low) (sf) from BBB (sf)
-- Class X-EXT to B (low) (sf) from B (sf)
-- Class F to CCC (sf) from B (low) (sf)
DBRS Morningstar confirmed the ratings for Class A at AAA (sf) and
Class B at AA (high) (sf). DBRS Morningstar also designated Class F
as having Interest in Arrears, reflective of the $544,191.56 in
interest shortfalls outstanding as of the September 2020 reporting.
DBRS Morningstar has also maintained Classes A, B, C, D, E, and
X-EXT 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
The subject transaction is collateralized by six loans, which are
not cross-collateralized. The senior mortgage loan proceeds of
$982.0 million along with mezzanine debt of $288.2 million
refinanced existing debt of $1,067.0 million, funded $14.1 million
of upfront reserves and $25.6 million in closing costs, and
facilitated a $163.4 million cash-equity distribution. The loans
are interest only (IO) throughout the 24-month initial terms with
five one-year extension options. The loans are secured by a total
of 34 hotel properties located across 16 states with the largest
concentration by allocated loan balance in California at 34.7%. The
hotels are flagged by various brands owned by Marriott
International, Hyatt Hotels Corporation, and Hilton Hotels &
Resorts with a combined total room count of 7,270 keys, consisting
of 19 full-service hotels with 4,767 keys; 10 select-service hotels
with 1,160 keys; and five extended-stay hotels with 893 keys.
The loan sponsor is Ashford Hospitality Trust, Inc. (Ashford
Hospitality Trust), a well-established owner and operator of
approximately 120 hotel assets across the United States. The
sponsor acquired or constructed the hotels between 1998 and 2015
with most assets acquired between 2003 and 2007. The sponsor
invested approximately $227.7 million ($29,256 per key) between
2013 and 2017 with $26.7 million ($3,677 per key) budgeted for
2018, as noted at issuance. The loan transferred to special
servicing on June 17, 2020, for balloon payment/maturity default.
According to servicer commentary, the special servicer is in
discussions with the borrower regarding the terms of a potential
forbearance. The fully extended maturity date is June 2025.
The coronavirus pandemic has been particularly challenging for the
sponsor given the impact to travel and corresponding sharp declines
in hotel demand. According to its Q2 2020 financials, Ashford
Hospitality Trust reported a $215.3 million (or $20.85 per share)
loss, which was reported to be far above analysts' expectations.
Financial struggles have contributed to the sharp decline in share
value, which has fallen more than 90% since the beginning of the
year. Overall, DBRS Morningstar considers the collateral properties
for the subject transaction to be in established suburban or
peripheral urban areas with generally stable demand sources.
However, increased risk factors from issuance are evident and
include the sponsor's outsize exposure to the drop in hotel demand
and corresponding financial difficulties, the high DBRS Morningstar
LTV derived as part of this review (and further described below),
and the sizable interest shortfall on the lowest rated class. As
such, downgrades were warranted.
DBRS Morningstar has requested updated figures for occupancy,
average daily rate (ADR), and revenue per available room (RevPAR),
but to date, not much has been provided beyond the April 2019
reports that showed a trailing 12-month weighted-average occupancy
rate, ADR, and RevPAR for the portfolio of 77.9%, $164.83, and
$128.37, respectively. The figures at issuance for occupancy, ADR,
and RevPAR were 79.1%, $159.73, and $126.35, respectively. The
servicer reported a September 2020 occupancy rate for the portfolio
of 30.7%. Prior to the pandemic the portfolio displayed healthy
performance with a YE2018 debt service coverage ratio of 2.59 times
(x) compared with 1.99x at issuance.
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 $117.9
million and DBRS Morningstar applied a cap rate of 9.5%, which
resulted in a DBRS Morningstar Value of $1,241 million, a variance
of 26.3% from the appraised value of $1,683 million at issuance.
The DBRS Morningstar Value implies an LTV of 79.1% compared with
the LTV of 62.1% 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 portfolio's historical performance and the
geographic diversity of the portfolio across multiple states.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis totalling 2.00%
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 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 B, C, D, and E 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 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.
ATRIUM HOTEL 2018-ATRM: DBRS Confirms B(low) Rating on Cl. F Certs
------------------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2018-ATRM
issued by Atrium Hotel Portfolio Trust 2018-ATRM.
-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
-- Class X-NCP at A (low) (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-NCP
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 $635.0 million mortgage loan is secured by the fee and
leasehold interests in a portfolio of 24 limited-service,
extended-stay, and full-service hotels, totalling 5,734 keys across
12 different states in the United States. The 24 collateral assets
were acquired by the sponsor, Atrium, as part of a 35-hotel
portfolio and with other various assets, out of a bankruptcy
reorganization. The subject financing of $635.0 million and $112.4
million of equity from the sponsor retired approximately $672.2
million of existing debt and established an upfront reserve of
$61.9 million. The upfront reserve includes a $16.0 million ($2,790
per key) upfront property improvement plan (PIP) reserve and a
$44.6 million delayed advance holdback for the allocated loan
amount (ALA) of the Embassy Suites – San Marcos. The delayed
advanced holdback is in relation to a $1.5 million mortgage loan
held by the City of San Marcos, Texas, and secured by the property.
The sponsor for this loan is Atrium Hotels, one of the largest
private owners and operators of full-service hotels in the United
States.
The subject portfolio of 16 full-service hotels, four extended-stay
hotels, and four limited-service hotels are all
cross-collateralized and cross-defaulted and operate under
franchise agreements with either Hilton Hotels & Resorts or
Marriott International, except for one property that operates
independently. The portfolio benefits from its granularity as only
one property represents more than 10.0% of the ALA, while the
largest concentration of collateral resides in Texas (three hotels;
948 keys; 22.3% of the ALA), with no other state having more than
20.0% of the ALA. Prior ownership had invested $119.5 million
($20,836 per key) of capital expenditures across the collateral
portfolio since 2011, including $29.2 million ($5,099 per key) and
$30.4 million ($5,308 per key) injected in the portfolio in 2016
and 2017, respectively. The majority of assets will be required to
go through PIP renovations as a result of the change in ownership
that is estimated at $101.0 million for the portfolio. In addition
to the $16.0 million upfront PIP reserve, the sponsor will be
required to make monthly deposits equal to $40.0 million ($3.3
million per month) for the first year of the loan term and is
required to make further deposits thereafter.
According to the June 2020 reporting, the portfolio reported a
year-to-date occupancy, average daily rate, and revenue per
available room (RevPAR) of 50.0%, $128, and $65, respectively. In
comparison, the portfolio reported YE2019 operating figures of
68.3%, $132, and $91 and YE2018 operating figures of 70.4%, $130,
and $93, respectively. In May 2020, the borrower entered into a
standstill agreement that allowed for the use of reserve funds for
debt service payments beginning in May 2020 and was granted a
waiver of deposits into the reserve funds. Both accommodations were
set to continue through July 2020; however, the borrower requested
and was granted an additional 30-day extension period. Following
the end of the accommodation period, the borrower is required to
repay the amounts used from the reserve funds for debt service and
operating expenses in 12 equal monthly installments. The loan has
been extended beyond its initial maturity date to June 2021 as the
borrower provided an interest rate cap agreement to the lender that
was established at issuance as a maturity extension provision.
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 $72.9
million and DBRS Morningstar applied a cap rate of 10.02%, which
resulted in a DBRS Morningstar Value of $$728.0 million, a variance
of 27.6% from the appraised value of $1,005 million at issuance.
The DBRS Morningstar Value implies an LTV of 87.2% compared with
the LTV of 63.2% 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 portfolio's track record of achieving strong RevPAR
penetration figures over 100% and the geographic diversity of the
portfolio across multiple states.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis totalling 1.50%
to account for cash flow volatility, property quality, and market
fundamentals. DBRS Morningstar also made other negative adjustments
to account for the weak release price of 105% for the first 10% of
the pool.
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 DRS 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 market value declines 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.
Classes X-NCP 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.
BALBOA CAPITAL XIV 2019-1: Moody's Raises Class D Notes to Ba1(sf)
------------------------------------------------------------------
Moody's Investors Service upgraded nine notes in BCC Funding XIV
LLC, Series 2018-1 (BCC 2018-1) and BCC Funding XVI LLC, Series
2019-1 (BCC 2019-1). The transactions are securitizations of small
and mid-ticket equipment loans and leases serviced by Balboa
Capital Corporation.
Issuer: BCC Funding XIV LLC, Series 2018-1
Equipment Contract Backed Notes, Series 2018-1, Class A-2, Upgraded
to Aaa (sf); previously on Oct 9, 2019 Upgraded to Aa1 (sf)
Equipment Contract Backed Notes, Series 2018-1, Class B, Upgraded
to Aaa (sf); previously on Oct 9, 2019 Upgraded to Aa2 (sf)
Equipment Contract Backed Notes, Series 2018-1, Class C, Upgraded
to Aa1 (sf); previously on Mar 3, 2020 Upgraded to A1 (sf)
Equipment Contract Backed Notes, Series 2018-1, Class D, Upgraded
to A1 (sf); previously on Mar 3, 2020 Upgraded to Baa1 (sf)
Equipment Contract Backed Notes, Series 2018-1, Class E, Upgraded
to Baa3 (sf); previously on Mar 3, 2020 Upgraded to Ba1 (sf)
Issuer: BCC Funding XVI LLC, Series 2019-1
Equipment Contract Backed Notes, Series 2019-1, Class A-2, Upgraded
to Aaa (sf); previously on Oct 17, 2019 Definitive Rating Assigned
Aa2 (sf)
Equipment Contract Backed Notes, Series 2019-1, Class B, Upgraded
to Aa2 (sf); previously on Oct 17, 2019 Definitive Rating Assigned
A1 (sf)
Equipment Contract Backed Notes, Series 2019-1, Class C, Upgraded
to A2 (sf); previously on Oct 17, 2019 Definitive Rating Assigned
Baa2 (sf)
Equipment Contract Backed Notes, Series 2019-1, Class D, Upgraded
to Ba1 (sf); previously on Oct 17, 2019 Definitive Rating Assigned
Ba2 (sf)
RATINGS RATIONALE
The rating actions were prompted by the continuous buildup of
credit enhancement driven by the sequential payment structure,
overcollateralization, and a non-declining reserve account. In
addition, these pools do not have a material proportion of
borrowers who have received a payment deferral.
The difficult operating environment for small businesses as a
result of the coronavirus outbreak and the government measures put
into place to contain it was taken into account for the BCC
transactions through various sensitivities modeled around the
expected lifetime loss.
The lifetime cumulative net loss (CNL) expectation for BCC 2018-1
and BCC 2019-1 have been increased to 5.00% and 4.50%,
respectively, from 4.00% at the closing for both transactions. The
loss at a Aaa stress is 34.00% for both transactions.
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.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating ABS Backed by Equipment Leases and Loans"
published in July 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the notes if, given its expectations of
portfolio losses, levels of credit enhancement are consistent with
higher ratings. In sequential pay structures, such as the ones in
these transactions, credit enhancement grows as a percentage of the
collateral balance as collections pay down senior notes.
Prepayments and interest collections directed toward note principal
payments will accelerate this build of enhancement. Moody's
expectation of pool losses could decline as a result of a lower
number of obligor defaults. Portfolio losses also depend greatly on
the US macroeconomy, the equipment markets, and changes in
servicing practices.
Down
Moody's could downgrade the notes if, given its expectations of
portfolio losses, levels of credit enhancement are consistent with
lower ratings. Credit enhancement could decline if excess spread is
not sufficient to cover losses in a given month. Moody's
expectation of pool losses could rise as a result of a higher
number of obligor defaults or deterioration in the value of the
equipment securing an obligor's promise of payment. Portfolio
losses also depend greatly on the US macroeconomy, the equipment
markets, and poor servicer performance. Other reasons for
worse-than-expected performance include error on the part of
transaction parties, inadequate transaction governance, and fraud.
BARINGS CLO 2020-I: S&P Assigns BB- (sf) Rating to Class E Notes
----------------------------------------------------------------
S&P Global Ratings assigned its ratings to Barings CLO Ltd.
2020-I's fixed- and floating-rate notes.
The note issuance is a CLO transaction backed by primarily broadly
syndicated speculative-grade (rated 'BB+' and lower) senior secured
term loans that are governed by collateral quality tests.
The ratings reflect:
-- The diversification of the collateral pool.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
RATINGS ASSIGNED
Barings CLO Ltd. 2020-I
Class Rating Amount (mil. $)
A-1 AAA (sf) 214.00
A-2 AAA (sf) 10.00
B AA (sf) 42.00
C (deferrable) A (sf) 21.00
D (deferrable) BBB- (sf) 17.50
E (deferrable) BB- (sf) 12.25
Subordinated notes NR 33.30
NR--Not rated.
BBCMS MORTGAGE 2020-BID: DBRS Finalizes BB Rating on HRR Certs
--------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of Commercial Mortgage Pass-Through Certificates, Series
2020-BID issued by BBCMS 2020-BID Mortgage Trust:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (high) (sf)
-- Class HRR at BB (sf)
-- Class X-CP at AAA (sf)
-- Class X-EXT at A (low) (sf)
All trends are Stable.
The Class X-CP and X-EXT Certificates are interest-only (IO)
classes whose balances are notional.
The BBCMS 2020-BID Mortgage Trust single-asset/single-borrower
transaction is collateralized by the borrower's fee-simple interest
in a Class A office building in the Upper East Side submarket of
Manhattan, New York. DBRS Morningstar takes a positive view on the
credit characteristics of the collateral, which has served as the
global headquarters and primary North American auction house for
Sotheby's for the past 40 years.
The building benefits from the long-term tenancy of Sotheby's,
which executed a brand new 15-year triple-net (NNN) lease with
three, 10-year extension options concurrently with the closing of
the mortgage loan. In addition to having been at the property since
1980, Sotheby's has also invested more than $50 million in its
space in 2018 and 2019 alone. Furthermore, to the extent Sotheby's
space needs change, the property is ideally located to take
advantage of captive demand from a cluster of major medical office
space users including New York-Presbyterian/Weill Cornell Hospital
and the Hospital for Special Surgery.
The property benefits from a substantial floor value based on its
desirable location on the Upper East Side. The appraiser's
concluded land value was approximately $485 million, or at least
$1,100 psf, which covers the entire whole loan balance, including
the $60 million mezzanine loan, and provides additional downside
protection.
The borrower is primarily using whole loan proceeds to refinance
existing debt on the property held by BNP Paribas, and is not
returning any equity to itself as a part of the transaction. DBRS
Morningstar views cash-neutral refinancings more favorably than
when the sponsor withdraws significant equity, which results in
reduced skin in the game.
The transaction also benefits from an upfront interest reserve of
approximately $16.7 million, which was funded by the borrower at
close. The reserve represents approximately 12 months of debt
service on the mortgage loan, assuming zero cash flow was available
from the property to pay debt service (based on the identical Libor
cap and floor strike rate of 0.25%).
The property is entirely leased to a single tenant, Sotheby's,
which executed a new 15-year NNN lease in conjunction with the
mortgage loan. In the event that Sotheby's were unable to meet its
obligations under the terms of the lease, the sponsor (also an
affiliate) would need to lease a significant amount of space. While
DBRS Morningstar believes this scenario is unlikely during the
five-year fully extended loan term, and medical offices provide a
logical downside hedge, we concluded that tenant improvement
allowances for the space were consistent with medical office
conversion.
Despite its long history and prominent position in the global
auction industry, Sotheby's raised significant doubt regarding its
ability to operate as a going concern in its 2019 annual report and
reported a loss of $71.2 million for YE2019. Furthermore, Sotheby's
reported an operating loss of $77.2 million for the six months
ended June 30, 2020, and like many other businesses, has
experienced disruptions in its operations attributable to the
ongoing Coronavirus Disease (COVID-19) pandemic. It was also
reported that, in response to the pandemic, the firm had furloughed
approximately 12% of its staff and reduced employee pay by 20% for
its remaining employees in the U.S. and the UK.
The mortgage loan is IO through the five-year fully extended term
and does not benefit from deleveraging through amortization.
Classes X-CP and X-EXT are IO certificates that reference a single
rated tranche. The IO rating generally mirrors the lowest-rated
applicable reference obligation tranche adjusted upward by one
notch if senior in the waterfall. The IO rating on the Class X-EXT
mirrors the rating of Class D, adjusted upward by one notch because
of its seniority in the waterfall to A (low) (sf), based on its
entitlement to certain “additional interest” amounts
attributable to the Class A, B, C, and D certificates.
Notes: All figures are in U.S. dollars unless otherwise noted.
BCC FUNDING 2020-1: Moody's Gives (P)B2 Rating on Class E Notes
---------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to the notes
to be issued by BCC Funding XVII LLC, Series 2020-1 (BCC 2020-1).
BCC 2020-1 is Balboa Capital Corporation's (BCC) first transaction
of the year. The notes will be backed by a pool of small- and
mid-ticket equipment loans and leases that are originated by BCC,
who is also the servicer of the collateral pool and administrator
for the transaction.
The complete rating actions are as follows:
Issuer: BCC Funding XVII LLC, Series 2020-1
Equipment Contract Backed Notes, Series 2020-1, Class A-2, Assigned
(P)Aaa (sf)
Equipment Contract Backed Notes, Series 2020-1, Class B, Assigned
(P)Aa3 (sf)
Equipment Contract Backed Notes, Series 2020-1, Class C, Assigned
(P)Baa2 (sf)
Equipment Contract Backed Notes, Series 2020-1, Class D, Assigned
(P)Ba2 (sf)
Equipment Contract Backed Notes, Series 2020-1, Class E, Assigned
(P)B2 (sf)
RATINGS RATIONALE
The ratings of the notes are based on the credit quality of the
underlying equipment contract pool and its expected performance,
the strength of the capital structure, and the experience and
expertise of BCC as the servicer of the collateral pool. The rating
action also considered the heightened risk and continued global
economic disruption caused by the COVID-19 pandemic.
Moody's cumulative net loss expectation for the BCC 2020-1
collateral pool is 4.25%, and the loss at a Aaa stress is 34.00%.
The cumulative net loss expectation for BCC 2020-1 is 25 basis
points higher than the initial cumulative net loss expectation for
the 2019-1 pool, and the loss at a Aaa stress is 4.00% higher than
that for the 2019-1 pool. Moody's based its cumulative net loss
expectation and loss at a Aaa stress for the BCC 2020-1 pool on the
credit quality of the underlying collateral; the historical
securitization performance and managed portfolio performance of
similar collateral; the ability of BCC to perform the servicing
functions; and its expectations for the macroeconomic environment
during the life of the transaction. Additionally, this is the first
time Moody's assigned a (P)Aaa (sf) rating to a BCC transaction.
Moody's considered the difficult operating environment for the
small business obligors in the pool stemming from the coronavirus
pandemic through additional sensitivity testing. In one of its
sensitivities, Moody's overweighed the performance of historical
recessionary periods in determining its expected loss.
At transaction closing, the Class A-2, Class B, Class C, Class D
and Class E notes will benefit from 35.00%, 17.00%, 13.00%, 9.00%
and 6.50% of hard credit enhancement, respectively. Hard credit
enhancement for the notes will consist of initial
overcollateralization of 5.00% of the initial pool balance and
building to a target level of 9.50% of current pool balance,
subject to a floor of 2.00% of the initial pool balance, a
non-declining reserve account of 1.50% of the initial pool balance,
and subordination for Class A, B, C, and D notes. The notes will
also benefit from excess spread.
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.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating ABS Backed by Equipment Leases and Loans"
published in July 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the ratings on the notes if levels of credit
protection are greater than necessary to protect investors against
then-current expectations of loss. Losses could fall below Moody's
original expectations as a result of a lower number of obligor
defaults or slower depreciation in the value of the equipment that
secure the obligors' promise of payment. As the primary drivers of
performance, positive changes in the US macro economy and the
performance of various sectors in which the obligors operate could
also affect the ratings.
Down
Moody's could downgrade the ratings on the notes if levels of
credit protection are insufficient to protect investors against
then-current expectations of portfolio losses. Losses could rise
above Moody's original expectations as a result of a higher number
of obligor defaults or an acceleration of the depreciation in the
value of the equipment that secure the obligor's promise of
payment. Transaction performance also depends greatly on the health
of the macroeconomic environment and the various sectors in which
the obligors operate. Other reasons for worse-than-expected
performance include poor servicing, error on the part of
transaction parties, and inadequate transaction governance.
BCC FUNDING XVII: DBRS Assigns Prov. B Rating on Class E Notes
--------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes (the Notes) to be issued by BCC Funding XVII LLC (the
Issuer):
-- $68,770,000 Class A-1 Notes at R-1 (high) (sf)
-- $71,944,000 Class A-2 Notes at AAA (sf)
-- $38,088,000 Class B Notes at A (high) (sf)
-- $8,464,000 Class C Notes at BBB (high) (sf)
-- $8,464,000 Class D Notes at BB (high) (sf)
-- $5,290,000 Class E Notes at B (sf)
The provisional ratings are based on DBRS Morningstar's review of
the following analytical considerations:
(1) Transaction capital structure, proposed ratings, and
sufficiency of available credit enhancement, which includes
overcollateralization (OC), subordination, and amounts held in the
reserve account, to support the DBRS Morningstar-projected
cumulative net loss (CNL) assumption under various stressed cash
flow scenarios.
(2) 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 were last updated on September
10, 2020, and are reflected in DBRS Morningstar's rating analysis.
(3) DBRS Morningstar adjusted its expected CNL assumption for the
transaction in consideration of its moderate scenario outlined in
the commentary, with the moderate scenario serving as the primary
anchor for current ratings. The moderate scenario remains
predicated on a more rapid return of confidence and a steady
recovery heading into 2021. This moderate scenario primarily
considers two economic measures: declining GDP growth and increased
unemployment levels for the year. For commercial asset classes, the
GDP growth rate is intended to provide the basis for measurement of
performance expectations.
-- The expected CNL of 4.60% used by DBRS Morningstar in the cash
flow analysis was assessed using the actual static pool performance
data (by origination channel, key equipment types, and original
term bands) for Balboa Capital Corporation (Balboa Capital) and
taking into account the expected asset pool's collateral mix with
respect to origination channels, equipment types, and amount of
originations with obligors with less than two years of business
history, as well as the original term profile of the collateral.
-- Cash flow assumptions assign no credit to seasoning of the
collateral (approximately seven months for the initial discounted
pool balance).
(4) The proposed concentration limits mitigating the risk of
material migration in the collateral pool's composition during the
approximately three-month prefunding period.
(5) DBRS Morningstar deems Balboa Capital to be an acceptable
originator and servicer of equipment-backed leases and loans. In
addition, Vervent, Inc. (Vervent), which is an experienced servicer
of equipment lease-backed securitizations, will be the backup
servicer for the transaction.
-- The transaction includes a CNL trigger event, the breach of
which is considered an Event of Servicing Termination and may cause
servicing to be transferred to Vervent.
(6) The expected collateral for the transaction is granular with
respect to obligor, vendor, and geographical concentrations. More
than 79% of the obligors (by aggregate statistical discounted
contract balance) have been in business for six or more years and
approximately 41% have been in business for 16 or more years. The
weighted-average Small Business Scoring Service credit score for
the businesses in the expected collateral pool will be at least
195.5. In addition, obligations comprising approximately 67.9% of
an aggregate statistical discounted contract balance are supported
by personal guarantees, and the payments on obligations accounting
for approximately 94.2% are collected through automated clearing
house.
(7) The legal structure and presence of legal opinions that will
address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Balboa
Capital, 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."
Balboa Capital provides equipment and working capital financing to
small- and mid-size companies in the United States. It originates
leases and loans through four principal channels: (1) vendor
financing through partnerships with equipment vendors, (2)
small-ticket originations through direct calling, (3) larger
small-ticket direct originations to middle-market obligors and (4)
a recently initiated broker channel. This transaction will include
up to 2.60% of the aggregate statistical discounted contract
balance of working capital loans.
The rating on the Class A-1 Notes reflects 69.0% of initial hard
credit enhancement (as a percentage of collateral balance) provided
by the subordinated notes in the pool (62.5%), the reserve account
(1.5%), and OC (5.0%). The rating on the Class A-2 Notes reflects
35.0% of initial hard credit enhancement provided by the
subordinated notes in the pool (28.5%), the reserve account (1.5%),
and OC (5.0%). The ratings on the Class B, Class C, Class D, and
Class E Notes reflect 17.0%, 13.0%, 9.0%, and 6.50% of initial hard
credit enhancement, respectively.
Notes: All figures are in U.S. dollars unless otherwise noted.
BEAR STEARNS 2003-PWR2: Fitch Affirms D Rating on Class N Certs
---------------------------------------------------------------
Fitch Ratings has affirmed three classes of Bear Stearns Commercial
Mortgage Securities Trust, commercial mortgage pass-through
certificates, series 2003-PWR2 (BSCMS 2003-PWR2).
RATING ACTIONS
Bear Stearns Commercial Mortgage Securities Trust 2003-PWR2
Class L 07383FWR5; LT AAAsf Affirmed; previously at AAAsf
Class M 07383FWS3; LT AAAsf Affirmed; previously at AAAsf
Class N 07383FWT1; LT Dsf Affirmed; previously at Dsf
KEY RATING DRIVERS
3 Times Square; Low Leverage Loan with Upcoming Maturity: The
remaining loan in the pool, 3 Times Square, is secured by an
883,405 sf, 30-story office building located in Manhattan's Times
Square. The property's top tenants include Reuters (now Refinitiv;
80% of the NRA), BMO Harris Bank (17.6% of the NRA) and JPMorgan
(1.9% of the NRA). Most of the top tenants roll in 2021 (98% of the
NRA), which is co-terminus with the loan's upcoming maturity date
in November 2021. The property is 100% occupied as of June 2020
with a NOI debt service coverage ratio (DSCR) of 1.82x. As of the
October 2020 remittance, the loan had a total loan psf of $11. Per
the master servicer, the borrower remains current on their loan
payments, has not requested payment relief yet and all tenants have
continued to pay rent in a timely fashion during the ongoing
pandemic.
High Credit Enhancement (CE): As of the October 2020 remittance,
the pool's aggregate principal balance has been reduced by 99.1% to
$10.1 million from $1.1 billion at issuance. The transaction has
experienced a total of $12.0 million (1.1% of the original pool
balance). CE is expected to continue to improve as the remaining
loan is fully amortizing and is expected to mature in November
2021. Cumulative interest shortfalls totaling $642K are affecting
classes N through P.
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 Stable Outlook on classes L and M reflect
the collateral quality of the remaining loan, low leverage (3%) and
low loan psf of $11.
Highly Concentrated Pool: The pool is highly concentrated with one
loan remaining whose major tenant lease expirations are co-terminus
with the loan's upcoming maturity. Despite the concentration, the
loan is fully amortizing, lowly levered and is considered high
quality and well located.
Coronavirus Impact: The loan has a minimal concentration of retail
tenants including BMO Harris Bank, JP Morgan Chase, Steve Madden,
and Cingular Wireless, which are currently open and no tenants have
asked for coronavirus-related rent relief.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- Further rating changes are not expected as only one fully
amortizing, low-leverage loan remains in the pool.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- Downgrades are not expected due to the low leverage of the
remaining loan.
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.
BENCHMARK 2018-B7: Fitch Affirms B-sf Rating on Class G-RR Certs
----------------------------------------------------------------
Fitch Ratings has affirmed 15 classes of Benchmark 2018-B7 (BMARK
2018-B7) Mortgage Trust commercial mortgage pass-through
certificates, series 2018-B7.
RATING ACTIONS
Benchmark 2018-B7
Class A-1 08162TAX1; LT AAAsf Affirmed; previously at AAAsf
Class A-2 08162TAY9; LT AAAsf Affirmed; previously at AAAsf
Class A-3 08162TBA0; LT AAAsf Affirmed; previously at AAAsf
Class A-4 08162TBB8; LT AAAsf Affirmed; previously at AAAsf
Class A-M 08162TBD4; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 08162TAZ6; LT AAAsf Affirmed; previously at AAAsf
Class B 08162TBE2; LT AA-sf Affirmed; previously at AA-sf
Class C 08162TBF9; LT A-sf Affirmed; previously at A-sf
Class D 08162TAG8; LT BBBsf Affirmed; previously at BBBsf
Class E 08162TAJ2; LT BBB-sf Affirmed; previously at BBB-sf
Class F 08162TAL7; LT BB-sf Affirmed; previously at BB-sf
Class G-RR 08162TAN3; LT B-sf Affirmed; previously at B-sf
Class X-A 08162TBC6; LT AAAsf Affirmed; previously at AAAsf
Class X-D 08162TAC7; LT BBB-sf Affirmed; previously at BBB-sf
Class X-F 08162TAE3; LT BB-sf Affirmed; previously at BB-sf
KEY RATING DRIVERS
Increase in Loss Expectations: While the overall pool performance
remains relatively stable from issuance, loss expectations have
increased due to the transfer of three loans (4.1%) to special
servicing and the designation of 14 loans (25.2%) as Fitch Loans of
Concern (FLOCs).
The largest FLOC is Hotel Erwin (3.9%), a 119-key hotel in Venice
Beach, CA where the property reported a TTM occupancy rate of 60.1%
and a TTM RevPAR of $173 in the June 2020 STR report compared with
79.5% and $233 at issuance. The borrower has requested payment
relief due to coronavirus pandemic hardships and the special
servicer is currently reviewing the request. An additional NOI
stress was applied to address the expected declines in performance
due to the coronavirus pandemic.
Courtyard at the Navy Yard (3.4%) is a 212-key hotel in
Philadelphia, PA. The property reported a TTM occupancy of 53.4%
and TTM RevPAR of $95 in July 2020 compared with 78.0% and $134 at
issuance. The borrower has requested payment relief due to
coronavirus pandemic hardships and the special servicer is
currently reviewing the request. An additional NOI stress was
applied to address the expected declines in performance due to the
coronavirus pandemic.
710 Bridgeport (3.3%) is a flex/R&D property in Shelton, CT where
the second-largest tenant, A to Z Supply (28.3% NRA) vacated prior
to their November 2027 lease expiration, reducing occupancy to 72%
as of 2Q 2020. The borrower is working to re-tenant the vacant
space.
Smaller FLOCs include Castleton Commons & Square (2.9%), a retail
property in Indianapolis, IN. that has been 30 days delinquent
since May and an additional cash flow stress was applied due to the
coronavirus pandemic and upcoming tenant rollover; three hotels
where an additional cash flow stress was applied due to the
coronavirus pandemic; three loans in special servicing for payment
default due to the coronavirus pandemic; and four retail properties
where an additional cash flow stress was applied due to the
coronavirus pandemic.
Coronavirus Exposure: The pool contains seven loans (16.9%) secured
by hotels with a weighted-average NOI DSCR of 2.22x. Retail
properties account for 28.9% of the pool balance and have
weighted-average NOI DSCR of 1.94x. Cash flow disruptions continue
as a result of property and consumer restrictions due to the spread
of the coronavirus. Fitch's base case analysis applied an
additional NOI stress to six hotel loans and nine retail/mixed use
loans due to their vulnerability to the pandemic. These additional
stresses contributed to the Negative Outlooks on classes E, F, X-D,
X-F and G-RR.
Minimal Change to Credit Enhancement: As of the September 2020
distribution date, the pool's aggregate balance has been reduced by
0.49% to $1.62 billion, from $1.68 billion at issuance. Twenty-one
full-term, interest-only loans account for 54.2% of the pool, and
18 loans representing 24.1% of the pool are partial interest only.
One interest-only ARD loan represents 3.4% of the pool and the
remainder of the pool consists of eleven balloon loans representing
18.4% of the pool. Interest shortfalls are currently affecting
class J-RR.
Credit Opinion Loans: At issuance, Fitch considered five loans
(22.7%) to have investment-grade characteristics. These include
Dumbo Heights Portfolio (BBB-sf), Moffett Towers - Buildings E, F
and G (BBB-sf), Aventura Mall (Asf), Aon Center (BBB-sf), and
Workspace (Asf).
RATING SENSITIVITIES
The revision to Outlook Negative from Stable on classes E and X-D
and the affirmation of the Negative Outlooks on classes F, X-F, and
G-RR reflect the potential for a near-term rating change should the
performance of the FLOCs deteriorate. It also reflects concerns
with hotel and retail properties due to decline in travel and
commerce as a result of the pandemic. The Stable Outlooks on all
other classes reflects the overall stable performance of the
remainder of the pool. Factors that could, individually or
collectively, lead to positive rating action/upgrade: Sensitivity
factors that lead to upgrades would include stable to improved
asset performance coupled with paydown and/or defeasance. Upgrades
of classes B and C would only occur with significant improvement in
credit enhancement and/or defeasance, but would be limited should
the deal be susceptible to a concentration whereby the
underperformance of particular loan(s) could cause this trend to
reverse. An upgrade to classes, D, E, and X-D would also consider
these factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration. Classes
would not be upgraded above 'Asf' if there is a likelihood for
interest shortfalls. An upgrade to the F, X-F, and G-RR categories
is not likely until the later years in a transaction and only if
the performance of the remaining pool is stable and/or if there is
sufficient credit enhancement, which would likely occur when the
senior classes payoff and if the non-rated classes are not eroded.
While uncertainty surrounding the coronavirus pandemic continues,
upgrades are not likely. Factors that could, individually or
collectively, lead to negative rating action/downgrade: Sensitivity
Factors that lead to downgrades include an increase in pool level
losses from underperforming or specially serviced loans. Downgrades
to the senior classes, A-1, A-2, A-3, A-4, A-SB, X-A, A-M, B and C
are not likely due to the high credit enhancement, but may occur at
'AAAsf' or 'AAsf' should interest shortfalls occur. Downgrades to
classes D, E and X-D would occur should overall pool losses
increase and/or one or more large loans have an outsized loss which
would erode credit enhancement. Downgrades to F, X-F and G-RR would
occur should loss expectations increase due to an increase in
specially serviced loans or an increase in the certainty of a high
loss on a specially serviced loan. The Negative Outlooks may be
revised back to Stable if performance of the FLOCs improves and/or
properties vulnerable to the pandemic stabilize once the health
crisis subsides. In addition to its baseline scenario, Fitch also
envisions a downside scenario where the health crisis is prolonged
beyond 2021; should this scenario play out, Fitch expects that a
greater percentage of classes may be assigned a Negative Outlook,
or those with Negative Outlooks will be downgraded one or more
categories.
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.
BRAEMAR HOTELS 2018-PRME: DBRS Confirms BB Rating on Class E Certs
------------------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of the
Commercial Mortgage Pass-Through Certificates, Series 2018-PRME
issued by Braemar Hotels & Resorts Trust 2018-PRME:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (sf)
-- Class F 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 portfolio is secured by four full-service hotels,
managed under two different brands and three different flags in
four different cities: Seattle (361 keys; 31.0% of allocated loan
amount), San Francisco (410 keys; 26.7% of allocated loan amount),
Chicago (415 keys; 22.9% of allocated loan amount), and
Philadelphia (499 keys; 19.4% of allocated loan amount). The $370.0
million subject mortgage loan with $65.0 million of mezzanine debt
refinanced $344.3 million of existing debt, returned approximately
$65.7 million of sponsor equity, and funded escrows and reserves of
$20.0 million. The sponsor for this loan is Braemar Hotels &
Resorts (BHR), formerly known as Ashford Hospitality Prime, which
is a publicly traded real estate investment trust (REIT) that was
spun off from the larger Ashford Hospitality Trust. The sponsor
focuses investments in full-service luxury hotels and resorts in
major gateway markets. BHR provided a business update for Q3 2020,
reporting that it had 12 hotels in operation in August 2020 that
reported an occupancy, average daily rate (ADR), and revenue per
available room (RevPAR) of 30.3%, $304, and $92, respectively. Per
BHR's Q2 2020 earnings update, the sponsor reported that the
comparable RevPAR decreased 91.8% to approximately $19 during the
quarter. As of market close on October 6, 2020, the REIT reported a
market capitalization of $85.5 million.
The portfolio has a combined room count of 1,685 keys with
management provided by Marriott International (Marriott) and
AccorHotel Group. The portfolio operates under three flags:
Courtyard by Marriott (two hotels; 46.2% of the total loan amount),
Marriott (one hotel; 31.0% of the total loan amount), and Sofitel
(one hotel; 22.9% of the total loan amount). Each property was
renovated within the two years prior to issuance. In 2019, the two
Courtyard by Marriott hotels underwent major renovations that
converted them to the Autograph Collection, one of Marriott's
luxury brands. The estimated costs of the conversion were $29.6
million ($72,525 per key) for the Courtyard San Francisco Downtown
and $17.2 million ($34,419 per key) for the Courtyard Philadelphia
Downtown. The renovations focused on improvements to the guest
rooms, meeting rooms, lobby, common areas, restaurant, meeting
space, and exteriors.
The loan was transferred to the special servicer in April 2020 as
the sponsor was unable to make its April 2020 debt service payment.
In June 2020, the sponsor agreed to a modification that included
the waiver of deposits into the furniture, fixtures, and equipment
(FF&E) reserve account and any other FF&E reserve account from
April 2020 to January 2021. In addition to the loan modification,
the sponsor exercised its option to extend the loan to June 2021.
According to the March 2020 operating statement analysis report,
the portfolio reported a trailing three-month ended March 2020
occupancy, ADR, and RevPAR of 77.8%, $244, and $192, respectively.
The portfolio reported YE2019 operating figures of 81.9%, $242, and
$201; and YE2018 figures of 83.3%, $243, and $203. From 2018 to
2019, net cash flow (NCF) decreased 11.7%, primarily driven by a
11.8% decline in food and beverage revenue and a 3.5% increase in
departmental expenses.
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 $38.8 million and DBRS
Morningstar applied a cap rate of 8.68%, which resulted in a DBRS
Morningstar Value of $422.7 million, a variance of 61.1% from the
appraised value of $692.0 million at issuance. The DBRS Morningstar
Value implies an LTV of 87.5% compared with the LTV of 53.5% 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 the asset quality of the collateral and premier
locations of the assets within top-ranked metropolitan statistical
areas.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling
2.75% 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.
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.
BRAVO RESIDENTIAL 2020-RPL2: Fitch to Rate Class B-2 Debt 'B(EXP)'
------------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed notes
to be issued by BRAVO Residential Funding Trust 2020-RPL2 (BRAVO
2020-RPL2).
RATING ACTIONS
BRAVO 2020-RPL2
Class A-1; LT AAA(EXP)sf Expected Rating
Class A-2; LT AA(EXP)sf Expected Rating
Class A-3; LT AA(EXP)sf Expected Rating
Class A-4; LT A(EXP)sf Expected Rating
Class A-5; LT BBB(EXP)sf Expected Rating
Class AIOS; LT NR(EXP)sf Expected Rating
Class B; LT NR(EXP)sf Expected Rating
Class B-1; LT BB(EXP)sf Expected Rating
Class B-2; LT B(EXP)sf Expected Rating
Class B-3; LT NR(EXP)sf Expected Rating
Class B-4; LT NR(EXP)sf Expected Rating
Class B-5; LT NR(EXP)sf Expected Rating
Class M-1; LT A(EXP)sf Expected Rating
Class M-2; LT BBB(EXP)sf Expected Rating
Class PRA; LT NR(EXP)sf Expected Rating
Class SA; LT NR(EXP)sf Expected Rating
Class X; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The transaction is expected to close on Oct. 30, 2020. The notes
are supported by one collateral group that consists of 2,149
seasoned performing loans (SPLs) and re-performing loans (RPLs)
with a total balance of approximately $393.1 million, which
includes $43.8 million, or 11.1%, of the aggregate pool balance in
noninterest-bearing deferred principal amounts,
KEY RATING DRIVERS
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage, SPLs and RPLs. A total of 4.8%
of the pool was 30 days delinquent as of the statistical
calculation date, and 17% of loans are current but have had recent
delinquencies or incomplete 24 month pay strings. A total of 78% of
the loans have been paying on time for the past 24 months. Roughly
90% has been modified.
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 reallocate principal to pay interest
on the 'AAAsf'- and 'AAsf'-rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
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.
Expected Payment Forbearance and Deferrals Related to Coronavirus
(Negative): To account for the potential for cash flow disruptions,
Fitch assumed deferred payments on a minimum of 40% of the pool for
the first six months of the transaction at all rating categories
with a reversion to its standard delinquency and liquidation timing
curve by month 10. The 40% assumption is based on observed peak
delinquencies for legacy Alt-A collateral. Under these assumptions
the 'AAAsf'- and 'AAsf'-classes did not incur any shortfalls and
are expected to receive timely payments of interest. The cash flow
waterfall providing for principal otherwise distributable to the
lower-rated bonds to pay timely interest to the 'AAAsf' and 'AAsf'
bonds and availability of excess spread also mitigate the risk of
interest shortfalls. The 'Asf'- through 'Bsf'-rated classes
incurred temporary interest shortfalls that were ultimately
recovered.
Representation Framework (Negative): The reps and warranties (R&W)
framework is generally consistent with Tier 2 quality. The
framework contains an optional breach review for loans that have
been liquidated with a realized loss which is triggered at the
discretion of the controling holder. However, 25% of the aggregate
bond holders may also initiate a review. Loan level R&Ws also
include knowledge qualifiers without a clawback provision. In
addition to qualifying as Tier 2, the framework is subject to a
one-year sunset from the close of the transaction, at which point
any potential claim would be made whole through a breach reserve
account. The aggregate adjustment resulted in a 227-bps addition to
the expected losses at the 'AAAsf'-rating stress.
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 analyses were conducted at the state and national
levels to assess the effect of higher MVDs for the subject pool as
well as lower MVDs, illustrated by a gain in home prices.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
This defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the
model-projected 37.1% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to negative MVDs at the national level, or
in other words, positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth of
10%. Excluding the senior class, which is already rated 'AAAsf',
the analysis indicates there is potential positive rating migration
for all of the rated classes. Specifically, a 10% gain in home
prices would result in a full category upgrade for the rated class
excluding those being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up- and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Fitch has added a Coronavirus Sensitivity Analysis that includes a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delays
any meaningful recovery to beyond 2021. Under this severe scenario,
Fitch expects the ratings to be impacted by changes in its
sustainable home price model due to updates to the model's
underlying economic data inputs. Any long-term impact arising from
coronavirus disruptions on these economic inputs will likely affect
both investment and speculative grade ratings.
CRITERIA VARIATION
Fitch's analysis incorporated one criterion variation from the
"U.S. RMBS Rating Criteria."
The variation relates to the tax/title review. The tax/title review
was outdated (over
six months ago) on 100% of the reviewed loans by loan count.
Approximately 99% of lien searches were performed within at least
12 months of the transaction closing date, and the remaining 1%
were performed about 18 months from the closing date. The servicer
has a responsibility in line with the transaction documents to
advance these payments to maintain the trust's interest and
position in the loans.
There was no rating impact
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E ("Form 15E") as
prepared by SitusAMC, LLC (AMC) and Opus Capital Markets
Consultants (Opus). The third-party due diligence described in Form
15E focused on a regulatory compliance review that tested for
applicable federal, state and local high-cost loan and/or
anti-predatory laws, as well as the Truth In Lending Act (TILA) and
Real Estate Settlement Procedures Act (RESPA) as well as an updated
tax, title and lien search. Fitch considered this information in
its analysis and, as a result, Fitch made the following
adjustment(s) to its analysis:
-- 40 loans had an indeterminate HUD1 and were located in Freddie
Mac's 'Do Not Purchase List' and received a 100% loss severity;
-- 110 loans had an indeterminate HUD1 and were not located in
Freddie Mac's 'Do Not Purchase List' and received a 5% loss
severity increase;
-- 312 loans has outstanding tax or liens that were added to the
model loss severity
This/These adjustment(s) resulted in a 50bps increase to the
'AAAsf'-expected loss.
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.
BRAVO RESIDENTIAL 2020-TAC1: Fitch Rates Class B5 Debt 'Bsf'
------------------------------------------------------------
Fitch Ratings has assigned final ratings to BRAVO Residential
Funding Trust 2020-TAC1 (BRAVO 2020-TAC1).
RATING ACTIONS
Bravo 2020-TAC1
Class A1; LT AAAsf New Rating; previously at AAA(EXP)sf
Class AIO; LT AAAsf New Rating; previously at AAA(EXP)sf
Class AIOS; LT NRsf New Rating; previously at NR(EXP)sf
Class B1; LT AAsf New Rating; previously at AA(EXP)sf
Class B1A; LT AAsf New Rating; previously at AA(EXP)sf
Class B1IO; LT AAsf New Rating; previously at AA(EXP)sf
Class B2; LT Asf New Rating; previously at A(EXP)sf
Class B2A; LT Asf New Rating; previously at A(EXP)sf
Class B2IO; LT Asf New Rating; previously at A(EXP)sf
Class B3; LT BBBsf New Rating; previously at BBB(EXP)sf
Class B4; LT BBsfNew Rating; previously at BB(EXP)sf
Class B5; LT Bsf New Rating; previously at B(EXP)sf
Class B6; LT NRsf New Rating; previously at NR(EXP)sf
Class FB; LT NRsf New Rating; previously at NR(EXP)sf
Class SA; LT NRsf New Rating; previously at NR(EXP)sf
TRANSACTION SUMMARY
Fitch Ratings has assigned final ratings to the following 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 closed 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 $201,869 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 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. Most 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.
Most of the loans in the affected 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 haircut 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 temporary interest 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 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 the rated
classes.
Factors that could, individually or collectively, lead to 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'. 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.
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. Most 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, most 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.
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
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.
BUSINESS JET 2020-1: S&P Assigns Prelim BB (sf) Rating to C Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Business Jet
Securities 2020-1 LLC's class A, B, and C fixed-rate notes.
The note issuance is an asset-backed securities (ABS) transaction.
Upon closing, the proceeds of the issuance will be deposited into
an escrow account and are expected to be used to acquire the
aircraft loans and leases subject to certain conditions by Dec. 15,
2020. Upon acquisition, the collateral will consist of 56 loans and
leases related to 55 aircraft, the corresponding security or
ownership interests in the underlying aircraft, and shares and
beneficial interests in entities that directly and indirectly
receive aircraft portfolio cash flows, among others.
The preliminary ratings are based on information as of Oct. 16,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The likelihood of timely interest on the class A notes
(excluding the post-anticipated repayment date (ARD) additional
interest or deferred post-ARD additional interest) on each payment
date; the timely interest on the class B notes (excluding the
post-ARD additional interest or deferred post-ARD additional
interest) when class A notes are no longer outstanding on each
payment date; and the ultimate payment of interest and principal on
the class A, B, and C notes on or before the legal final maturity
at the respective rating stress ('A', 'BBB', and 'BB',
respectively).
-- The approximately 67% loan-to-value (LTV; based on the
aggregate asset value) on the class A notes, the 77% LTV on the
class B notes, and the 82% LTV on the class C notes.
-- A fairly diversified and young portfolio of business jets that
are either on loan, finance lease, or operating lease to corporates
or high net worth individuals.
-- The scheduled amortization profile, which is a straight line
over 12.5 years for the class A and B notes and six years for the
class C notes. However, the amortization of all classes will switch
to full turbo after year six.
-- The transaction's debt service coverage ratios (DSCRs), net
loss trigger, and utilization trigger, which, if failed, will
result in sequential turbo amortization of the notes. The
transaction's LTV test (class A notes balance divided by aggregate
asset value), which, if failed, will result in turbo amortization
of the class A notes until the test is brought back to compliance.
-- The subordination of class C notes' interest and principal to
the class A and B notes' interest and principal. The sequential
partial sweep payments to the class A and B notes: for the first 48
payment dates from the closing date, 22.5% of remaining available
funds after all payments, and from the 49th payment date to and
including the 72nd payment date, 25.0%. A liquidity reserve
account, which is available to cover senior expenses and interest
on the class A and B notes.` The amount available will equal nine
months of interest on the class A and B notes, fully funded upon
the acquisition of the assets.
-- The class c interest reserve account, which will be funded in
the payment priority subject to available amounts in an amount
equal to $4,000,000, and provided that no late/early amortization
event has occurred within six months of the closing date, in an
amount equal to nine months of interest. The deposit of the note
issuance's gross proceeds into the escrow account, together with
additional funds to pay interest scheduled to accrue on the notes
from the closing date to Dec. 15, 2020.
PRELIMINARY RATINGS ASSIGNED
Business Jet Securities 2020-1 LLC
Class Rating Amount (mil. $)
A A (sf) 426.4
B BBB (sf) 63.6
C BB (sf) 31.8
BX COMMERCIAL 2020-FOX: Fitch to Rate $98.3MM Class F Certs B-sf
----------------------------------------------------------------
Fitch Ratings has issued a presale report on BX Commercial Mortgage
Trust 2020-FOX commercial mortgage pass-through certificates,
series 2020-FOX and expects to rate the transaction and assign
Rating Outlooks as follows:
-- $365,600,000 class A 'AAAsf'; Outlook Stable;
-- $41,900,000 class B 'AA-sf'; Outlook Stable;
-- $39,700,000 class C 'A-sf'; Outlook Stable;
-- $53,700,000 class D 'BBB-sf'; Outlook Stable;
-- $82,700,000 class E 'BB-sf'; Outlook Stable;
-- $98,300,000 class F 'B-sf'; Outlook Stable.
The following classes are not expected to be rated:
-- $22,500,000 class G;
-- $37,100,000a class HRR;
-- $0 class R.
(a) Non-offered horizontal risk retention interest.
TRANSACTION SUMMARY
The expected ratings are based on information provided by the
issuer as of Oct. 22, 2020. All classes are expected to be
privately placed and pursuant to rule 144A.
The certificates represent the beneficial ownership interest in a
trust that will hold a two-year, floating-rate, interest-only
$741.5 million mortgage loan with three one-year options. The
mortgage is secured by the fee-simple interest in 80 multi- and
single-tenanted industrial properties, three data centers, two land
parcels and one office property, containing 9.9 million sf, located
in eight states.
The bond certificates will follow a sequential-pay structure;
however, so long as there is no event of default, any voluntary
prepayments (up to the first 35% of the loan), including property
releases, will be applied to the certificates on a pro rata basis.
The deal is scheduled to close on Nov. 2, 2020.
Proceeds from the $741.5 million mortgage loan, together with two
mezzanine loans totaling $128.5 million, will be used to repay
approximately $566.9 million of existing debt, fund a $56.62
million holdback reserve relating to the 11100 Iberia Street
property, fund an upfront unfunded obligations reserve of
approximately $5.4 million and return approximately $226.5 million
of equity to the sponsor.
Coronavirus Impact: On March 11, 2020, the World Health
Organization characterized the coronavirus outbreak as a pandemic.
Among the traditional U.S. CMBS property types, Fitch considers
hotel and retail to have the greatest downside risk, in light of
the pandemic, although all property types will have greater
vulnerability to disruptions caused by the virus. The pool's
collateral consists of 80 primarily industrial properties, three
data centers, two cold storage facilities, two land/parking
properties and one office property, and the subject loan has no
exposure to neither the hotel nor retail asset asset-types. Rent
collections averaged 97% from April through September 2020.
KEY RATING DRIVERS
High Fitch Stressed Leverage. Fitch's DSCR and LTV on the trust
debt are 0.77x and 115.1%, respectively. In addition to the trust
debt, there is a $128.5 million mezzanine loan, which results in a
Total Debt Fitch DSCR and LTV of 0.66x and 135.0%, respectively.
The trust loan amount of $741.5 million represents approximately
63.9% of the appraised value of $1.16 billion.
Portfolio Diversity: The portfolio exhibits strong geographic
diversity with 86 properties (9.9 million sf) located across eight
states and 13 individual industrial submarkets. The largest 20
properties (by base rent per the rent roll) total 47.7% of NRA and
48.6% of base rent. The portfolio also exhibits significant tenant
diversity as it features over 145 distinct tenants. The largest
tenant within the portfolio, Amazon (guaranteed by parent
Amazon.com, Inc., rated A+/Positive by Fitch) represents
approximately 20.6% of the property NRA and 27.8% of annual base
rent. No other tenant represents more than 2.3% of the portfolio
NRA or 4.1% of base rent. The properties are leased to tenants
across a broad range of industries, including internet retail
(Amazon), engineering (Smiths Detection), medical product
manufacturing (Teleflex), oil & gas equipment and services
(Oceaneering, Gilbarco) shipping (Fedex), food production and
distribution (Nate's Fine Foods) and publishing (Scholastic).
Major Market Locations: Approximately 61.1% of the portfolio NRA is
located in the Baltimore, MD (29.0% of NRA), Chicago, IL (20.8%)
and the Inland Empire, CA (11.3%) MSAs, and the remaining
properties are located across numerous large U.S. metro areas:
Sacramento, CA (7.2%), Philadelphia, PA (3.0%) and Orlando, FL
(1.2%). The properties are predominately clustered around major
interstates and thoroughfares within each market and benefit from
close proximity to numerous transportation networks. The
portfolio's weighted average population density within a 10-mile
radius is approximately 0.9 million.
Institutional Sponsorship: The loan is sponsored by certain
parallel partnerships comprising the real estate investment fund
commonly known as Blackstone Real Estate Partners VIII, which is
owned by affiliates of The Blackstone Group, Inc. Blackstone is one
of the world's leading investment firms, with $564.0 billion of
assets under management as of June 30, 2020 across real estate
funds, private equity funds, credit and insurance businesses and
hedge fund solutions. Blackstone's real estate portfolio included
approximately 398.9 million sf of U.S. industrial assets as of
2Q20.
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.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Improvement in cash flow increases property value and capacity to
meet its debt service obligations. Class A is rated at the highest
rating level and cannot be upgraded further. A 20% increase in
Fitch's NCF indicate the following model implied rating
sensitivities: class B from 'AA-sf' to 'AAAsf'; class C from 'A-sf'
to 'AA+sf'; and class D from 'BBB-sf' to 'A+sf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Declining cash flow decreases property value and capacity to meet
its debt service obligations. A 20% decline in Fitch's NCF indicate
the following model implied rating sensitivities: class A from
'AAAsf' to 'BBB+sf'; class B from 'AA-sf' to 'BB+sf'; class C from
'A-sf' to 'BB-sf'; and class D from 'BBB-sf' to 'Bsf'. The presale
report includes a detailed explanation of additional stresses and
sensitivities.
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 Ernst & Young LLP. 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'.
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.
BX TRUST 2017-CQHP: DBRS Cuts Rating on Class F Certs to B(low)
---------------------------------------------------------------
DBRS, Inc. downgraded the ratings on the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2017-CQHP
(the Certificates) issued by BX Trust 2017-CQHP:
-- Class D to A (low) (sf) from A (sf)
-- Class E to BB (high) (sf) from BBB (low) (sf)
-- Class F to B (low) (sf) from B (high) (sf)
-- Class X-EXT to A (sf) from A (high) (sf)
DBRS Morningstar also confirmed the ratings on all other classes of
Certificates as follows:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
DBRS Morningstar maintains all classes 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
The transaction is collateralized by a single loan secured by a
portfolio of hospitality properties in four cities. The portfolio
comprises four Club Quarters brand-managed boutique hotels totaling
1,228 keys located across four major U.S. cities: San Francisco
(346 keys; 39.4% of allocated loan amount), Chicago (429 keys;
26.4% of allocated loan amount), Boston (178 keys; 18.2% of
allocated loan amount), and Philadelphia (275 keys; 16.0% of
allocated loan amount). The underlying trust loan is interest-only
(IO) throughout the term and was structured with a two-year initial
term with three 12-month extension options. The borrower exercised
the first of its three extension options, extending the maturity
date to November 2020.
The sponsor for this loan is Blackstone Real Estate Partners VII,
L.P. (Blackstone), which purchased the portfolio in February 2016
from Masterworks Development Corporation, an affiliate of Club
Quarters. Blackstone, one of the largest real estate private equity
firms in the world with roughly $167 billion in real estate assets
under management, has a current real estate–owned portfolio that
consists of office, retail, hotel, industrial, and residential
properties, according to the company's website.
The loan transferred to special servicing in June 2020 due to
imminent monetary default. The borrower ceased making debt service
payment effective April 2020 and requested coronavirus-related
relief. The borrower's request for a modification was declined by
the special servicer. Blackstone is now attempting to transition
the properties to the mezzanine lender, which is currently
marketing the mezzanine note for sale. The hotels, which rely
heavily on commercial segmentation due to the brand's focus on
business travel and member-driven corporate demand, has severely
been impacted by coronavirus pandemic that caused an economic
shutdown both domestically and internationally.
According to the YE2019 financials, the loan reported a debt
service coverage ratio (DSCR) of 2.44 times (x), compared to the
YE2018 DSCR of 2.47x and DBRS Morningstar Term DSCR at issuance of
2.50x. The YE2019 net cash flow (NCF) decline was mainly attributed
to an increase in capital expenditure but when comparing the net
operating income (NOI), the YE2019 figure was $32.3 million, which
is slightly above the DBRS Morningstar NOI of $32.2 million. In
terms of the performance metrics, the portfolio reported a YE2019
occupancy rate of 87.0%, average daily rate (ADR) of $182.41, and
revenue per available room (RevPAR) of $159.53. At issuance, the
portfolio reported an occupancy rate of 90.9%, ADR of $166.42, and
RevPAR of $151.23. However, when examining each individual
property, some reported RevPAR declines from issuance, including
the Chicago property (the second-largest property by allocated loan
balance). At issuance, that property reported an occupancy rate of
82.5%, ADR of $148.08, and RevPAR of $122.12. In comparison, the
YE2018 RevPAR declined to $103.17 because of a decrease in
occupancy to 69.3%. By YE2019, occupancy rebounded to 78.5% with an
ADR of $146.73 and RevPAR of $115.19.
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 $29.3 million and DBRS
Morningstar applied a cap rate of 9.04%, which resulted in a DBRS
Morningstar Value of $323.6 million, a variance of 27.1% from the
appraised value of $444.0 million at issuance. The DBRS Morningstar
Value implies an LTV of 84.6% compared with the LTV of 61.6% 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 portfolio's geographic diversity across four primary
markets.
DBRS Morningstar made a negative qualitative adjustment for cash
flow volatility and positive qualitative adjustment for market
fundamentals totaling 0.75% to the final LTV sizing benchmarks used
for this rating analysis.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating MVDs
consistent with the projections in the "Global Macroeconomic
Scenarios: September Update"
(https://www.dbrsmorningstar.com/research/366542) to estimate the
impact of coronavirus-related changes in asset performance on a
tranche-by-tranche basis for the subject transaction. The scenarios
included subjecting the most recent appraised collateral value to
generalized CRE asset value decline projections with an assumption
of approximately 45% under the moderate scenario. In cases where
the rated debt exceeded the scenario value, DBRS Morningstar
assumed that a principal writedown had occurred to account for the
difference. Because of the reverse-sequential allocation of losses
in commercial mortgage-backed security (CMBS) transactions, DBRS
Morningstar's analysis considered the most subordinate certificate
first and, if a complete principal writedown of the certificate had
occurred during the scenario, DBRS Morningstar repeated the
analysis for the second-most subordinate certificate and so on
until the rated debt no longer exceeded the scenario value.
Under the moderate scenario, the cumulative rated debt through
Class F exceeded the value under the Coronavirus Impact Analysis
and therefore DRS Morningstar presumes that the economic stress
from coronavirus had affected the class.
The DBRS Morningstar ratings assigned to Classes A, B, C, D, E, and
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. 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.
Classes X-EXT is IO certificate 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.
CANTOR COMMERCIAL 2016-C7: Fitch Lowers Rating on 2 Tranches to CCC
-------------------------------------------------------------------
Fitch Ratings has downgraded four classes and affirmed 10 classes
of Cantor Commercial Real Estate (CFCRE) Commercial Mortgage Trust
2016-C7 commercial mortgage pass-through certificates. The Rating
Outlook for class D has been revised to Negative from Stable.
RATING ACTIONS
CFCRE 2016-C7
Class A-1 12532BAA5; LT AAAsf Affirmed; previously at AAAsf
Class A-2 12532BAC1; LT AAAsf Affirmed; previously at AAAsf
Class A-3 12532BAD9; LT AAAsf Affirmed; previously at AAAsf
Class A-M 12532BAE7; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 12532BAB3; LT AAAsf Affirmed; previously at AAAsf
Class B 12532BAF4; LT AA-sf Affirmed; previously at AA-sf
Class C 12532BAG2; LT A-sf Affirmed; previously at A-sf
Class D 12532BAL1; LT BBB-sf Affirmed; previously at BBB-sf
Class E 12532BAN7; LT B-sf Downgrade; previously at BB-sf
Class F 12532BAQ0; LT CCCsf Downgrade; previously at B-sf
Class X-A 12532BAH0; LT AAAsf Affirmed; previously at AAAsf
Class X-B 12532BAJ6; LT AA-sf Affirmed; previously at AA-sf
Class X-E 12532BAW7; LT B-sf Downgrade; previously at BB-sf
Class X-F 12532BAY3; LT CCCsf Downgrade; previously at B-sf
KEY RATING DRIVERS
Increase in Loss Expectations: The downgrades reflect increased
loss expectations on the pool primarily due to the deteriorating
performance of the eight Fitch Loans of Concern (FLOCs; 19.5% of
the pool), including four specially serviced loans (7.1%), as well
as concerns over the overall impact of the coronavirus pandemic on
the pool.
Fitch Loans of Concern: Eight loans (19.5%) have been designated as
FLOCs. The largest FLOC is the 681 Fifth Avenue loan (10.1%), which
is secured by an 82,573-sf mixed use building located in New York,
NY. Per the March 2020 rent roll, the property was 66% occupied.
Tommy Hilfiger (27% of net rentable area [NRA]; approximately 85%
of the base rent) vacated in April 2019, prior to the May 2023
lease expiration but continues to pay rent. The servicer reported
interest-only (IO) NOI debt service coverage ratio (DSCR) was 1.44x
at YE 2019, which is a decline from 1.64x at YE 2018.
The second largest FLOC is the Library Hotel loan (4.6%), which is
secured by a 60-room full-service hotel property located in New
York, NY, approximately two blocks from Grand Central Terminal
along Madison Avenue. The loan transferred to special servicing in
July 2020 due to a monetary default, as a result of the coronavirus
pandemic. The hotel was closed for several months due to the
pandemic, but has now reportedly re-opened. The borrower has not
been responsive to recent special servicer requests. As of YE 2019,
the servicer reported NOI DSCR was 1.50x, a decline from 1.83x at
YE 2018. The loan began amortizing in late 2018.
The third largest FLOC is the Kirlin Industries loan (2.1%), which
is secured by a 95,000-sf industrial warehouse located in
Rockville, MD. The single-tenant Kirlin Industries had a lease
expiration in 2029, however, the tenant vacated in March 2020 well
before its lease expiration. A cash trap was triggered; however,
the tenant has not paid rent since February 2020. According to the
servicer, the tenant has filed for bankruptcy protection and is in
the process of dissolving the company. Fitch has an outstanding
request for a leasing update and is awaiting a response. The loan
remains current. Fitch will continue to monitor the loan.
The next largest FLOC is the 2500 Sweetwater Springs loan (1.6%),
which is secured by a 175,600-sf warehouse/distribution property
located in Spring Valley, CA. Occupancy at the property declined in
2019 due to two large tenants vacating at their lease expiration.
Walmart Stores signed a temporary lease for three months in the
fourth quarter of 2019 and vacated at years end. The property's
largest tenant (27.6% NRA) has a lease expiration in December 2020.
Fitch has an outstanding request with the servicer for a leasing
update and is awaiting a response.
The next two FLOCs combine for approximately (1.8%) and are secured
by single tenant Shopko stores located in Neenah, WI and Winona,
MN. Shopko filed for bankruptcy in January 2019, and subsequently
vacated both properties and ceased paying rent. Both loans
transferred to special servicing in 2019 after payment defaults.
According to the servicer, foreclosure actions have been filed.
Fitch will continue to monitor the resolution of the loan.
The remaining FLOC is the Orchards Shopping Center loan (0.5%),
which is secured by a 67,807-sf retail center located in
Collinsville, IL. The loan transferred to special servicing in
November 2019 for non-monetary default, after the borrower did not
comply with the lockbox trigger. According to servicer updates,
foreclosure is being pursued.
Alternative Loss Consideration: Fitch performed an additional
sensitivity scenario that assumed potential outsized losses of 20%
on the current balance of 681 Fifth Avenue loan. This scenario
contributes to the Negative Rating Outlook on class D.
Coronavirus Impact: Fitch expects significant economic impacts to
certain hotels, retail and multifamily properties from the
coronavirus pandemic due to the related reductions in travel and
tourism, temporary property closures and lack of clarity at this
time on the potential duration of the impacts. Loans collateralized
by retail properties and mixed-use properties with a retail
component account for 21 loans (48.3% of pool). Loans secured by
hotel properties account for four loans (19.6%), while two loans
(11.7%) are secured by a multifamily property. Fitch's base case
analysis applied additional stresses to eight retail loans and
three hotel loans due to their vulnerability to the coronavirus
pandemic; this analysis contributed to the downgrades and Negative
Outlooks.
Minimal Change to Credit Enhancement (CE): As of the September 2020
distribution date, the pool's aggregate principal balance was
reduced by 3.2% to $631.8 million from $652.9 million at issuance.
There has been $2.98 million in realized losses to date to the
non-rated class G and interest shortfalls are currently affecting
this class. Twelve loans (33.3%) are full-term IO, and three loans
(4.1%) remain in their partial IO periods. Only one loan (0.3%) is
scheduled to mature in 2021, while all remaining loans mature in
2026.
RATING SENSITIVITIES
The Negative Outlooks on classes D, E, and the IO class X-E reflect
concerns over the FLOCs, including four specially serviced loans as
well as the impact of the coronavirus pandemic on the loans in the
pool. The Stable Outlooks on classes A-1, A-2, A-3, A-SB, A-M, B
and C and IO classes X-A and X-B reflect the substantial CE to the
classes and senior position in the capital stack.
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, particularly on the FLOCs, coupled with
paydown and/or defeasance. Upgrades of the 'AA-sf' and 'A-sf'
category would likely occur with significant improvement in CE
and/or defeasance; however, adverse selection and increased
concentrations or the underperformance of particular loan(s) could
cause this trend to reverse. Classes would not be upgraded above
'Asf' if there is likelihood for interest shortfalls. The 'BBB-sf",
'B-sf' and 'CCCsf' are unlikely to be upgraded absent significant
performance improvement and substantially higher recoveries than
expected on the specially serviced loans/assets.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
Sensitivity factors that could lead to downgrades include an
increase in pool level losses from underperforming or specially
serviced loans/assets. Downgrades to classes A-1, A-2, A-SB, A-3,
and A-M, are not expected given the position in the capital
structure, but may occur should interest shortfalls affect these
classes. Downgrades to classes B, C and the classes on Negative
Outlook are possible should performance of the FLOCs fail to
stabilize or continue to decline and additional loans transfer to
special servicing and/or further losses 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, Fitch expects that those classes
with Negative Rating Outlooks may be downgraded by more than one
category.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was provided or reviewed in relation
to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
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.
CEDAR FUNDING XII: S&P Assigns Prelim BB- (sf) Rating to E Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Cedar
Funding XII CLO Ltd./Cedar Funding XII CLO LLC's floating-rate
notes.
The note issuance is a CLO transaction backed primarily by senior
secured loans, cash, and eligible investments, with a minimum of
80% of the loan borrowers required to be based in the U.S.
The preliminary ratings are based on information as of Oct. 16,
2020. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The diversification of the collateral pool, which consists
primarily of broadly syndicated speculative-grade (rated 'BB+' and
lower) senior secured term loans that are governed by collateral
quality tests;
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
PRELIMINARY RATINGS ASSIGNED
Cedar Funding XII CLO Ltd./Cedar Funding XII CLO LLC
Class Rating Amount (mil. $)
X AAA (sf) 3.50
A AAA (sf) 217.00
B AA (sf) 49.00
C (deferrable) A (sf) 21.00
D (deferrable) BBB- (sf) 21.00
E (deferrable) BB- (sf) 10.50
Subordinated notes NR 35.05
NR--Not rated.
CFCRE TRUST 2018-TAN: DBRS Lowers Rating on Class E Certs to BB
---------------------------------------------------------------
DBRS Limited downgraded the ratings on the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2018-TAN
issued by CFCRE Trust 2018-TAN (the Trust):
-- Class B to AA (sf) from AAA (sf)
-- Class C to A (high) (sf) from AA (low) (sf)
-- Class D to A (low) (sf) from A (high) (sf)
-- Class E to BB (sf) from BBB (low) (sf)
-- Class F to BB (low) (sf) from BB (high) (sf)
-- Class HRR to B (high) (sf) from BB (sf)
-- Class X to A (sf) from AA (low) (sf)
DBRS Morningstar also confirmed the rating on the following class:
-- Class A at AAA (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, HRR, and X
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. 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 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 is secured by a 411-key oceanfront hotel located
on the island of Aruba. The hotel is situated on a 10.1-acre site
on the northern end of the island along Palm Beach, a two-mile
strip of beach known for its white sand and turquoise waters where
the majority of upscale hotels on the island reside. The subject is
part of a larger Marriott campus that includes the Marriott Aruba
Surf Club, Marriott Aruba Ocean Club, and two timeshare projects
totalling 1,200 keys. The collateral includes nine food and
beverage outlets, 93,269 square feet (sf) of meeting space, two
outdoor pools, a fitness centre, and four retail stores.
Additionally, included in the collateral is the 17,000-sf Stellaris
Casino, the largest casino on the island, featuring 523 slot
machines and 27 gaming tables. The property has undergone $51.9
million ($126,192 per key) in renovations since 2010, including a
complete overhaul of the property to comply with Marriott brand
standards.
Mortgage loan proceeds of $195.0 million and sponsor equity of
$10.0 million refinanced existing debt of $159.5 million and funded
the sponsor buyout of Five Mile Capital Partners LLC (Five Mile)
and Caribbean Property Group (CPG) for $38.5 million. The subject
is currently encumbered by a ground lease with the Government of
Aruba, which has an initial expiration date in 2052; however, the
lessor has a statutory obligation to enter into a new lease when
the ground lease expires. The sponsor for this loan represents a
joint venture between DLJ Real Estate Investment Partners (DLJ) and
MetaCorp International (MetaCorp). DLJ is a private equity real
estate investment firm and MetaCorp is a real estate company based
in Aruba. After a loan maturity default in October 2012, when total
outstanding debt was approximately $230.0 million, Five Mile, DLJ,
and MetaCorp converted their respective mezzanine debt into a
majority equity interest in February 2013. The property was
previously 100.0% owned by CPG, which retained its remaining equity
stake (11.6%) when ownership took over the property and refinanced
the senior and mezzanine loan of $160.0 million with a $160.0
million mortgage in December 2013. Given the need to liquidate
their funds, both Five Mile and CPG were forced to sell their
positions in the property at a valuation significantly below the
as-is concluded market value at the time.
According to the Aruba Hotel and Tourism Authority (AHATA), the
government of Aruba announced that as of June 10, 2020, the country
re-opened its borders as it was closed in early March 2020 given
the ongoing coronavirus pandemic. The country followed a phased
re-opening plan that permitted entrants from different countries
and regions throughout June and July 2020. According to data
compiled by the AHATA for 19 hotels in Aruba through August 2020,
year-to-date occupancy and revenue per available room (RevPAR) were
reported at 29.1% and $101, respectively, with those figures down
57.2% and 60.0%, respectively. Occupancy was reported at less than
1.0% for April through June 2020.
According to an update from June 2020, the hotel was scheduled to
open in July 2020. The property was expected to achieve an
occupancy of around 30% for the months of August through October
2020, with that performance largely dependent on the borders
re-opening for the United States of America on July 10, 2020. Per
the March 2020 STR report, the subject reported a trailing
three-month occupancy, average daily rate, and RevPAR of 73.0%
(-20.9%), $633 (+1.9%) and $462 (-19.3%), respectively. From 2018
to 2019, the property reported a 5.7% increase in effective gross
income that facilitated a 14.6% increase in net cash flow (NCF)
year over year.
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 $26.2 million and DBRS
Morningstar applied a cap rate of 10.50%, which resulted in a DBRS
Morningstar Value of $249.4 million, a variance of 20.8% from the
appraised value of $$315.0 million at issuance. The DBRS
Morningstar Value implies an LTV of 78.2% compared with the LTV of
61.9% 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.
At issuance, DBRS Morningstar applied a stressed cap rate in its
analysis to account for the sovereign risk associated with Aruba.
Key challenges that exist in the market include weak growth
prospects, limited economic diversification, and relatively high
debt levels for a small island economy. Aruba's credit rating does
benefit from its long-standing institutional relationship with the
Netherlands (rated AAA with a Stable trend by DBRS Morningstar).
Given that an internal assessment performed by DBRS Morningstar
showed Aruba as having low investment-grade characteristics, DBRS
Morningstar maintained its cap rate stress with the October 2020
surveillance review. Additionally, DBRS Morningstar considered the
high barriers to entry that exist in Aruba and historically strong
performance relative to its competitive set.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling
2.50% 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 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 DRS Morningstar presumes that the economic stress
from coronavirus had affected the class.
The DBRS Morningstar ratings assigned to Classes C, D, E, F, and
HRR 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. 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 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.
COLLEGE AVENUE 2017-A: DBRS Confirms BB on Class C Notes
--------------------------------------------------------
DBRS, Inc. confirmed its ratings on all classes of securities
included in three College Ave transactions.
The Ratings are:
College Ave Student Loans 2017-A, LLC
Action Rating
------ ------
Class A-1 Confirmed AAA(high)(sf)
Class A-2 Confirmed AA(high)(sf)
Class B Confirmed A(sf)
Class C Confirmed BB(sf)
College Ave Student Loans 2018-A, LLC
Class A-1 Notes Confirmed AAA(low)(sf)
Class A-2 Notes Confirmed AA(low)(sf)
Class B Notes Confirmed A(sf)
Class C Notes Confirmed BBB(sf)
College Ave Student Loans 2019-A, LLC
Class A-1 Notes Confirmed AAA(sf)
Class A-2 Notes Confirmed AAA(sf)
Class B Notes Confirmed AA(sf)
Class C Notes Confirmed A(sf)
Class D Notes Confirmed BBB(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.
-- Transaction capital structure, current ratings, and form and
sufficiency of available credit enhancement.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
-- The credit quality of the collateral pool and historical
performance as of September 2020.
-- The collateral performance to date and DBRS Morningstar's
assessment of future performance, including upward revisions to the
initial base case default assumptions consistent with the expected
unemployment levels in the moderate scenario.
COMM 2010-C1: Moody's Confirms B3 Rating on Class G Certs
---------------------------------------------------------
Moody's Investors Service affirmed the rating on one class and
confirmed the ratings on five classes in COMM 2010-C1 Mortgage
Trust, Commercial Mortgage Pass-Through Certificates, Series
2010-C1 as follows:
Cl. C, Affirmed Aa1 (sf); previously on Jun 23, 2020 Affirmed Aa1
(sf)
Cl. D, Confirmed at A3 (sf); previously on Jun 23, 2020 A3 (sf)
Placed Under Review for Possible Downgrade
Cl. E, Confirmed at Ba1 (sf); previously on Jun 23, 2020 Downgraded
to Ba1 (sf) and Remained On Review for Possible Downgrade
Cl. F, Confirmed at B1 (sf); previously on Jun 23, 2020 Downgraded
to B1 (sf) and Remained On Review for Possible Downgrade
Cl. G, Confirmed at B3 (sf); previously on Jun 23, 2020 Downgraded
to B3 (sf) and Remained On Review for Possible Downgrade
Cl. XW-B*, Confirmed at B1 (sf); previously on Jun 23, 2020
Downgraded to B1 (sf) and Remained On Review for Possible
Downgrade
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on one P&I class was affirmed because the transaction's
key metrics, including Moody's loan-to-value (LTV) ratio and
Moody's stressed debt service coverage ratio (DSCR), are within
acceptable ranges. The ratings on four P&I classes were confirmed
due to the significant deal paydowns and the transaction's key
metrics of the remaining loan in the pool, including Moody's
loan-to-value (LTV) ratio and Moody's stressed debt service
coverage ratio (DSCR), are within acceptable ranges. The deal has
paid down 88% since securitization and as a result the P&I classes
have experienced a significant increase in credit support.
The rating on one IO class was confirmed based on the credit
quality of the referenced classes.
This action concludes the reviews 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 or amortization, 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 remaining loan or interest
shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating Large Loan
and Single Asset/Single Borrower CMBS" published in September 2020.
The methodologies used in rating interest-only classes were
"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 October 13, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 85% to $104 million
from $857 million at securitization. The certificates are
collateralized by one mortgage loan that is in special servicing
and has now passed its original loan maturity date. All other loans
have paid off in full at or before their maturity dates and the
trust has not experienced any realized losses.
The specially serviced loan is the Fashion Outlets of Niagara Falls
loan, which is secured by an enclosed fashion outlet center located
in Niagara, New York. The property is located approximately five
miles east of Niagara Falls and the Canadian border. The loan
sponsor is Macerich, which purchased the property in 2011 for $200
million and assumed the loan. As of March 2020, the property was
92% leased, compared to 91% as of March 2018. Property performance
has deteriorated since 2018 and net operating income (NOI) declined
17% from 2017 to 2019, driven primarily by a $3.4 million decrease
in revenues. However, the property's 2019 NOI was nearly 29% higher
than underwritten levels in 2010. Furthermore, the loan has
amortized 15% since securitization. The center has benefited from
its proximity to the Canadian border and Canadian visitors account
for a significant portion of demand; however, the property has been
impacted significantly by the coronavirus pandemic and the
resulting US-Canadian border closure to non-essential traffic. Due
to the coronavirus's impact on the property and broader retail
market the borrower failed to pay off at its maturity date and has
requested a 3-year loan extension. The loan is last paid through
its September 2020 payment date and the special servicer indicated
they are evaluating the borrower's request. Moody's LTV and
stressed DSCR are 131% and 1.03X, respectively.
COMM 2014-CCRE21: Fitch Lowers Rating on Class E Certs to B-sf
--------------------------------------------------------------
Fitch Ratings has downgraded three and affirmed eight classes of
Deutsche Bank Securities, Inc.'s COMM 2014-CCRE21 Mortgage Trust
pass-through certificates (COMM 2014-CCRE21).
RATING ACTIONS
COMM 2014-CCRE21
Class A-3 12592RBF5; LT AAAsf Affirmed; previously AAAsf
Class A-M 12592RBJ7; LT AAAsf Affirmed; previously AAAsf
Class A-SB 12592RBE8; LT AAAsf Affirmed; previously AAAsf
Class B 12592RBK4; LT AA-sf Affirmed; previously AA-sf
Class C 12592RBM0; LT A-sf Affirmed; previously A-sf
Class D 12592RAL3; LT BBsf Downgrade; previously BBB-sf
Class E 12592RAN9; LT B-sf Downgrade; previously BB+sf
Class PEZ 12592RBL2; LT A-sf Affirmed; previously A-sf
Class X-A 12592RBH1; LT AAAsf Affirmed; previously AAAsf
Class X-B 12592RAA7; LT AA-sf Affirmed; previously AA-sf
Class X-C 12592RAC3; LT BBsf Downgrade; previously BBB-sf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades of classes D, E and X-C
and Negative Rating Outlook revisions of classes B, C, X-B and PEZ
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 17 loans (39% of the pool
balance) as FLOCs, which includes seven loans (22%) in special
servicing. Five of these loans (16.2%) have transferred to special
servicing since the last review due to hardships related to the
ongoing coronavirus pandemic. Outside of the specially serviced
loans, 10 loans (17.2%) are considered FLOCs due to significant
upcoming rollover, declining performance and/or potential
performance declines as a result of the coronavirus pandemic.
Specially Serviced Loans: The largest specially serviced loan is
the $48.0 million Kings Shops (7.20% of the pool), secured by a by
a 69,023-sf retail center within the 1,150-acre master-planned
Waikoloa Beach Resort community in Waikoloa, HI. Property
performance has declined since issuance, with year- end (YE) 2019
NOI 24% below the issuers NOI. Occupancy has fluctuated most
recently declining to 77% as of June 2020 from 91% at YE 2019, due
to the departure of Macy's, which previously occupied the 10,008-sf
anchor space, and vacated at its 1/31/2020 lease expiration. The
property faces significant near-term rollover risks with leases for
33% of the NRA scheduled to expire by year end 2021. The loan went
into payment default in June 2020, and the borrower has requested
coronavirus relief. Per servicer updates, the borrower has stated
it is unable to cover shortfalls due to cash flow issues resulting
from the effects of the pandemic. The loan transferred to special
servicing in September 2020, and the servicer is gathering
information to work towards resolution. Fitch anticipates the
property to be impacted further in the near term by the coronavirus
pandemic and its impact to tourism in Hawaii.
The second largest specially serviced loan is the $32.0 million
Hilton College Station (4.8%), which is secured by a 303-room
full-service Hilton in College Station, TX, less than 1-mile from
Texas A&M University. The loan transferred to special servicing in
August 2019 for low debt service coverage ratio (DSCR) and
significant under performance, including past due liabilities and
an incomplete Hilton PIP. The loan went into payment default in
November 2019, and the lender REO was completed in June 2020. Per
the August 2020 STR report, occupancy declined to 31.5% compared to
54.7% at TTM December 2019. The hotel remains under the existing
Hilton Franchise Agreement with an expiration date of Oct. 29,
2029, with no significant outstanding PIP items remaining under the
Hilton agreement. Fitch's base case loss reflects further
performance decline, and potential disruptions to stabilizing the
property as a result of the coronavirus pandemic.
Minimal Changes to Credit Enhancement: As of the October 2020
distribution date, the pool's aggregate principal balance has paid
down by 19.2% to $666.3 million from $824.8 million at issuance.
Interest shortfalls are currently affecting classes G, H and J.
Three loans (2.4%) have been defeased. All of the remaining
non-specially serviced loans are scheduled to mature in 2024.
Coronavirus Exposure: The pool contains six loans (18.4%) secured
by hotels with a weighted-average NOI DSCR of 2.63x. Retail
properties account for 14 loans (25%) and have weighted average NOI
DSCR of 1.73x. Cash flow disruptions continue as a result of
property and consumer restrictions due to the spread of the
coronavirus. Fitch's base case analysis applied an additional NOI
stress to two hotel and six retail loans due to their vulnerability
to the coronavirus pandemic. These additional stresses contributed
to the Negative Outlooks on classes B, C, D, E, X-B, X-C and PEZ.
RATING SENSITIVITIES
The Negative Outlooks on classes B, C, D, E, X-B, X-C and PEZ and
the downgrades of classes D, E and X-C reflects performance
concerns with the specially serviced assets/loans and FLOCs, which
are primarily secured by hotel and retail properties, given the
decline in travel and commerce as a result of the coronavirus
pandemic.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that could lead to upgrades would include stable to
improved asset performance, coupled with additional paydown and/or
defeasance. Upgrades to the 'AA-sf' rated class are not expected
but would likely occur with significant improvement in credit
enhancement (CE) and/or defeasance and/or the stabilization to the
properties impacted from the coronavirus pandemic. The Outlooks on
classes B, C, D, E, X-B, X-C and PEZ may be revised back to Stable
should the performance of the FLOCs improve and/or properties
vulnerable to the coronavirus stabilize once the pandemic is over.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Downgrades to the senior 'AAAsf' classes are not likely due to the
high credit enhancement and expected continued amortization.
However, should loss expectations on the specially serviced loans
be higher than expected and/or performance of the FLOCs fail to
stabilize/improve, further Outlook revisions and downgrades are
possible. Classes impacted by interest shortfalls cannot be rated
higher than 'Asf'; classes may be downgraded if interest shortfalls
are incurred. Further downgrades to classes B, C, D, E, X-B, X-C
and PEZ would occur should loss expectations increase and/or if the
loans susceptible to the coronavirus pandemic not 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, downgrades to the senior classes
could occur and classes with Negative 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.
COMM 2016-CCRE28: Fitch Affirms Bsf Rating on Class F Certs
-----------------------------------------------------------
Fitch Ratings has affirmed 14 classes and downgraded three classes
of COMM 2016-CCRE28 Mortgage Trust, commercial mortgage
pass-through certificates. The Rating Outlooks for two classes have
been revised to Negative from Stable.
RATING ACTIONS
COMM 2016-CCRE28
Class A-1 12593YBA0; LT PIFsf Paid In Full; previously at AAAsf
Class A-2 12593YBB8; LT AAAsf Affirmed; previously at AAAsf
Class A-3 12593YBD4; LT AAAsf Affirmed; previously at AAAsf
Class A-4 12593YBE2; LT AAAsf Affirmed; previously at AAAsf
Class A-HR 12593YBF9; LT AAAsf Affirmed; previously at AAAsf
Class A-M 12593YBK8; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 12593YBC6; LT AAAsf Affirmed; previously at AAAsf
Class B 12593YBL6; LT AA-sf Affirmed; previously at AA-sf
Class C 12593YBM4; LT A-sf Affirmed; previously at A-sf
Class D 12593YBN2; LT BBBsf Affirmed; previously at BBBsf
Class E 12593YAL7; LT BBB-sf Affirmed; previously at BBB-sf
Class F 12593YAN3; LT Bsf Downgrade; previously at BB-sf
Class G 12593YAQ6; LT CCCsf Downgrade; previously at B-sf
Class X-A 12593YBH5; LT AAAsf Affirmed; previously at AAAsf
Class X-C 12593YAC7; LT BBB-sf Affirmed; previously at BBB-sf
Class X-D 12593YAE3; LT Bsf Downgrade; previously at BB-sf
Class X-HR 12593YBJ1; LT AAAsf Affirmed; previously at AAAsf
Class XP-A 12593YBG7; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Loss Expectations Driven by Increase in Fitch Loans of Concern: The
downgrades and Negative Outlook revisions reflect an increase in
Fitch's loss expectations since the last rating action, largely
attributable to performance concerns related to the coronavirus
pandemic. Fitch has designated 18 Fitch Loans of Concern (FLOCs;
42.1%), including seven specially serviced loans (15.2%), six of
which are new transfers since the start of the coronavirus
pandemic. Six of the of the FLOCs (30.4% of the pool) are in the
top 15. Fitch's review was done as of the September 2020 remittance
date.
Fitch Loans of Concern and Specially Serviced Loans: The largest
FLOC, Promenade Gateway (6.2%), is a mixed-use property in Santa
Monica, CA consisting of 131,470 square feet of office, retail and
multifamily space. The largest tenants include Luma Pictures (23.6%
of Retail/Office NRA, 11/2029 LXD), AMC Theater, which is currently
closed due to coronavirus restrictions (21.9%, 10/2024 LXD), 1453
Third St. Promenade, a WeWork Entity, (14.0%, 3/35 LXD) and
Lululemon (6.2%, 5/2021 LXD). Despite the strong location, Fitch
applied a 15% NOI HC to reflect low multifamily occupancy (69% as
of April 2020), the continued closure of the AMC theater and other
retail stresses due to coronavirus and exposure to WeWork. The
stress was applied to June 2020 YTD NOI to capture current tenancy
with expenses adjusted to be in line with the prior year.
The second largest FLOC is the AG Lifetime Fitness Portfolio
(6.2%), which is secured by 10 single-tenant Lifetime Fitness
Centers in nine markets throughout the U.S. including NJ, MA, IL,
MN, OH (x2), AL, VA, GA, and MO. The full-service health clubs were
built-to-suit by the tenant between 2007 and 2015 and range in size
from 103,647 sf to 214,646 sf. The facilities were closed due to
the mandatory government shutdowns related to the coronavirus
pandemic but have all reopened. LifeTime has paid 100% of their
rent in 2020. Fitch applied a 25% haircut to the 2019 NOI to
reflect the combination of single-tenant risk and a
coronavirus-related stress.
The third biggest FLOC and largest specially serviced Loan is
Equitable City Center (5.7%), a multi-level retail property in the
Koreatown neighborhood of Los Angeles, CA. Occupancy has decreased
from 87% at year-end 2019 to 70% as of August 2020. The largest
tenants include H-Mart (20.1% NRA, 2/2030 LXD), Thomas J. Yi (9.2%
of NRA; 07/2029) and Seung Ae (6.0%, 2/2025) with no other tenant
representing more than 3.5% of the NRA. The sponsor, David Y. Lee,
is the largest landlord in the Koreatown submarket, owning 26
office buildings as of issuance. The loan transferred to special
servicing in August 2020 due to payment default and is currently
90+ days past due. The borrower has requested a long-term
forbearance due to low rent collections caused by the pandemic. The
servicer is currently reviewing to determine the workout strategy
going forward. Fitch has applied a 20% coronavirus-related stress
on the YE 2019 NOI to reflect the drop-in occupancy and
pandemic-related issues.
The fourth largest FLOC is the Hyatt Regency St. Louis at the Arch
(5.3%), a 910-key full-service hotel in St. Louis, MO, located
immediately across the street from the St Louis Arch and one block
north of Busch Stadium. The hotel has several dining establishments
with Food & Beverage Revenue accounting for 33% of EGI in 2019. The
property performed at a steady rate prior to the pandemic with
occupancy ranging from 66% to 69% and RevPAR ranging from $93.97 to
$101.30, while continually underperforming its competitive set
according to provided STR reports. Fitch modeled the loan with a
40% haircut to YE 2019 NOI to reflect the impact of the
coronavirus, the negative outlook for hotels as a property type,
and the continued underperformance compared to the hotel's
competitive set. Fitch also applied a sensitivity to the loan,
which assumed a 25% loss on the loan's maturity balance, to reflect
the potential for outsized losses given declining performance. This
sensitivity contributed to the Negative Outlooks on classes E and
F.
The fifth largest FLOC and second largest specially serviced loan
is the Equity Inns Portfolio (4.1%), secured by a combination of
fee and leasehold interests in 21 hotel properties across 13 states
totaling 2,690 rooms. Portfolio occupancy has remained steady at
75% in 2019, compared with 74% in 2018, 77% in 2017 and 75% in
2016. The loan transferred to Special Servicing in May 2020 for
Imminent Balloon/Maturity Default. A loan modification closed on
August 2020, and forbearance has been granted along with a two-year
extension to October 2022, with an additional six-month extension
option. The loan, which had been interest only, will begin to be
paid down in October 2021. The Special Servicer has reported plans
to return the loan to the Master Servicer. Fitch applied a 26%
coronavirus-related stress to the YE 2019 NOI.
Holiday Inn Fort Worth North Fossil Creek (1.2%), a 126-room
full-service Holiday Inn in Fort Worth, TX, transferred to Special
Servicing in February 2018 due to imminent monetary default with a
history of DSCR below 1.0x (0.19x in 2019). The servicer is working
to stabilize the asset and evaluate potential timing for placing
the hotel on the market. Fitch applied a 30% stress to the most
recent appraised value.
The remaining 12 FLOCs (13.4%) include four hotels (4.5%) and seven
retail properties (8.3%), all of which have received
pandemic-related stresses.
Coronavirus Exposure: The rating actions can be largely attributed
to the social and market disruption caused by the effects of the
coronavirus pandemic and related containment measures. Of
particular concern is the underlying pool's exposure to retail and
hotel property types. Fitch expects negative economic impact to
certain hotels and retail properties due to the recent and sudden
reductions in travel and tourism, temporary property closures and
lack of clarity on the potential duration of the pandemic. The
pandemic has prompted the closure of several hotel properties in
gateway cities, as well as malls, entertainment venues and
individual stores. Those that have since reopened are likely to
experience limited operation and reduced foot traffic
Sixteen of the loans are backed by retail properties (23.7% of the
pool), including three (14.8%) in the top 15. Hotel properties
account for eight loans (16.6% of the pool), including two (9.4%)
in the top 15. Six loans (11.7%) are secured by multifamily
properties, including two (8.9%) in the top 15. Fitch's base case
analysis applied additional stresses to six hotel loans and seven
retail loans due to their vulnerability to the coronavirus
pandemic. These additional stresses contributed to the downgrade of
classes F, G and X-D and the Negative Outlooks on classes E, F, X-C
and X-D.
Credit Enhancement Improvement/Amortization: As of the September
2020 distribution date, the pool's aggregate principal balance has
been paid down by 5.5% to $970.0 million from $1,026.8 million at
issuance. Of the current pool, eleven loans (22.9%) are full-term
interest-only, and five loans (16.5%) have a partial-term
interest-only period remaining. Three loans (4.1%) have been
defeased.
RATING SENSITIVITIES
The Stable Outlooks on classes A-2 through D reflect the overall
stable performance of the majority of the pool and expected
continued amortization. The Negative Outlooks on classes E and 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 two specially
serviced loans.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that could lead to upgrades would include
stable to improved asset performance, coupled with additional
paydown and/or defeasance. Upgrades to the 'Asf' and 'AAsf' rated
classes are not expected but would likely occur with significant
improvement in CE and/or defeasance and/or the stabilization to the
properties impacted from the coronavirus pandemic. Upgrades of the
'BBB-sf' and below-rated classes are considered unlikely and would
be limited based on the sensitivity to concentrations or the
potential for future concentrations. Classes would not be upgraded
above 'Asf' if there is a likelihood of interest shortfalls. An
upgrade to the 'Bsf' and 'CCCsf' rated classes is not likely unless
the performance of the remaining pool stabilizes and the senior
classes pay off.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool-level losses from underperforming or specially serviced
loans/assets. Downgrades to the 'AAAsf' through 'Asf' rated classes
are not likely due to the position in the capital structure, but
may occur should interest shortfalls occur. Downgrades to 'BBBsf',
'BBB-sf' and 'Bsf' rated classes are possible if performance of the
FLOCs continues to decline, if loans susceptible to the coronavirus
pandemic do not stabilize, and/or if further loans transfer to
special servicing. The Outlooks on classes E and F may be revised
back to Stable if performance of the FLOCs improves and/or
properties vulnerable to the coronavirus stabilize once the
pandemic is over.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, classes with Negative Outlooks will
be downgraded one or more categories.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was provided or reviewed.
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.
CONN'S RECEIVABLES 2020-A: Fitch Rates Class C Notes 'Bsf'
----------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to the notes
issued by Conn's Receivables Funding 2020-A, LLC, which consists of
notes backed by retail loans originated by Conn Appliances, Inc. or
Conn Credit Corporation, Inc. and serviced by Conn Appliances,
Inc.
The social and market disruption caused by the coronavirus and
related containment measures have negatively affected the U.S.
economy. This scenario is captured under the derivation of Fitch's
base case default assumption of 30%, which is increased from 25%
for Conn's 2019-B.
RATING ACTIONS
Conns Receivables Funding 2020-A, LLC
Class A; LT BBBsf New Rating; previously at BBB(EXP)sf
Class B; LT BBsf New Rating; previously at BB(EXP)sf
Class C; LT Bsf New Rating; previously at B(EXP)sf
KEY RATING DRIVERS
Coronavirus Pressure Continues: The baseline (rating) scenario
assumes an initial activity bounce in 3Q20 followed by a slower
recovery trajectory from 4Q20 onward amid high unemployment rates
and further pullback in private-sector investment. The U.S. is
expected to suffer a hit to GDP growth through 2025. Under this
scenario, portfolio delinquencies and defaults are expected to
increase from recent historical levels, driven by continued high
unemployment and loss of income from containment measures. Fitch
derived its base case default assumptions of 30%, in part, to
reflect expected weakening performance stemming from challenging
macroeconomic conditions.
A coronavirus downside (sensitivity) scenario is provided in Rating
Sensitivities.
Subprime Collateral Quality: The Conn's 2020-A receivables pool has
a weighted average FICO score of 609 and 10.4% of the loans have
scores below 550 or no score. Fitch applied 2.2x, 1.5x and 1.2x
stresses to the 30% default assumption at the 'BBBsf', 'BBsf' and
'Bsf' levels, respectively. The default multiple reflects the high
absolute level of Conn's historical securitized and managed pool
defaults, the variability of default performance in recent years
and the high geographical concentration of the portfolio.
Rating Cap at 'BBBsf': The rating cap reflects the subprime credit
risk profile of the customer base, higher loan defaults in recent
years, the high concentration of receivables from Texas, recent
disruption in servicing contributing to increased defaults in
recent securitized vintages and servicing collection risk (albeit
reduced in recent years) due to a portion of customers making
in-store payments.
Payment Structure — Sufficient CE: Initial hard credit
enhancement (CE) totals 55.85%, 39.21% and 23.15% for class A, B
and C notes, respectively. Initial CE is sufficient to cover
Fitch's stressed cash flow assumptions for all classes.
Adequate Servicing Capabilities: Conn Appliances, Inc. has a long
track record as an originator, underwriter, and servicer. The
credit risk profile of the entity is mitigated by the backup
servicing provided by Systems & Services Technologies, Inc., which
committed to a servicing transition period of 30 days. Fitch
considers all parties to be adequate servicers for this pool at the
assigned rating levels. Fitch evaluated the servicers' business
continuity plan as adequate to minimize disruptions in the
collection process during the pandemic.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and consideration
for potential upgrades. If the defaults are 20% less than the
projected base case default rate, the expected ratings for the
subordinate notes could be upgraded by up to one rating category.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Unanticipated increases in the frequency of defaults or chargeoffs
could produce loss levels higher than the base case, and would
likely result in declines of CE and remaining net loss coverage
levels available to the notes. Decreased CE may make certain
ratings on the notes susceptible to potential negative rating
actions, depending on the extent of the decline in coverage.
Fitch conducts sensitivity analysis by stressing a transaction's
initial base case default assumption by an additional 10% and 25%,
and examining the rating implications. These increases of the base
case default rate are intended to provide an indication of the
rating sensitivity of the notes to unexpected deterioration of
performance.
A more prolonged disruption from the pandemic is accounted for in
the downside stress of a 50% increase in the base case default rate
and could result in downgrades of up to one rating category for the
class A notes and downgrades into distressed rating categories for
the subordinate notes.
-- Default increase 10%: class A 'BBB-sf'; class B 'BBsf'; class
C below 'CCCsf';
-- Default increase 25%: class A 'BB+sf'; class B 'B+sf'; class C
below 'CCCsf';
-- Default increase 50%: class A 'BB-sf'; class B below 'CCCsf';
-- Recoveries decrease to 0%: class A 'BBBsf'; class B 'BBsf';
class C 'Bsf'.
During the sensitivity analysis, Fitch examines the magnitude of
the multiplier compression by projecting the expected cash flows
and loss coverage levels over the life of investments under higher
than the initial base case default assumptions. Fitch models cash
flows with the revised default estimates while holding constant all
other modeling assumptions.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with third-party due diligence information from
Ernst & Young LLP. The third-party due diligence focused on
comparing certain information with respect to a sample of loans
from the statistical data file. Fitch considered this information
in its analysis, and the findings did not have an impact on its
analysis. A copy of the ABS Due Diligence Form-15E received by
Fitch in connection with this transaction may be obtained through
the link contained on the bottom of the related rating action
commentary.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties, and
enforcement mechanisms (RW&Es) that are disclosed in the offering
document and which relate to the underlying asset pool is available
by clicking the link to the Appendix. The appendix also contains a
comparison of these RW&Es to those Fitch considers typical for the
asset class as detailed in the Special Report titled
'Representations, Warranties and Enforcement Mechanisms in Global
Structured Finance Transactions'.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CPA AUTO 2018-1: DBRS Keeps BB(low) on Class A Notes Under Review
-----------------------------------------------------------------
DBRS, Inc. maintained the Under Review with Negative Implications
status on its ratings on the following classes of securities
included in four CPS Auto Receivables Trust transactions and on CPS
Auto Securitization Trust 2018-1:
-- CPS Auto Receivables Trust 2016-A, Series 2016-A, Class F,
rated BB (low) (sf)
-- CPS Auto Receivables Trust 2016-D, Series 2016-D, Class E,
rated BB (sf)
-- CPS Auto Receivables Trust 2017-A, Series 2017-A, Class E rated
BB (sf)
-- CPS Auto Receivables Trust 2018-C, Class E Notes, rated BB
(sf)
-- CPS Auto Securitization Trust 2018-1, Class A Notes, rated BB
(low) (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 stimulus
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 CNL assumptions consistent with the expected unemployment
levels in the moderate scenario.
-- The transactions' current form and sufficiency of available
credit enhancement benefitting the notes. The level of credit
enhancement in the form of overcollateralization, amounts held in
reserve, and subordination has grown for senior classes as the
transactions have amortized due to the sequential pay nature of the
transactions. However, the credit enhancement has not grown at the
same rate for the most subordinated class of notes in these
transactions. The available credit enhancement including excess
spread may be insufficient to support the DBRS Morningstar
projected remaining cumulative net loss (CNL) (including an
adjustment for the moderate scenario) assumption at a multiple of
coverage commensurate with the current rating on the Class F notes
from Series 2016-A and the Class E notes from Series 2016-D,
2017-A, and 2018-C. DBRS Morningstar maintained the Under Review
with Negative Implications status on its rating.
-- Performance on these transactions has improved over the last
several months as a result of improved consumer behavior due to the
stimulus from the CARES Act, however uncertainty of future
performance remains. DBRS Morningstar will continue to evaluate
performance of the transactions and the potential effects of
further stimulus packages and any updates to the moderate
scenario.
-- The CPS Auto Securitization Trust 2018-1 transaction is secured
by the assets of the issuer, including subordinated residual
interests from several CPS Auto Receivables Trusts. The performance
of this transaction is dependent on the performance of the
underlying trusts' ability to generate excess spread. The
underlying trusts include Series 2016-A, 2016-D, and 2017-A. Given
the Under Review with Negative Implications status on the ratings
of the subordinated class from these series, DBRS Morningstar
maintained the Under Review with Negative Implications status on
its rating.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
When placing a rating 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.
CSAIL 2018-C14: Fitch Affirms B-sf Rating on 2 Tranches
-------------------------------------------------------
Fitch Ratings has affirmed 15 classes of CSAIL 2018-C14 Commercial
Mortgage Trust commercial mortgage pass-through certificates. The
Rating Outlook has been revised to Negative from Stable on four
classes.
RATING ACTIONS
CSAIL 2018-C14
Class A-1 12596GAW9; LT AAAsf Affirmed; previously at AAAsf
Class A-2 12596GAX7; LT AAAsf Affirmed; previously at AAAsf
Class A-3 12596GAY5; LT AAAsf Affirmed; previously at AAAsf
Class A-4 12596GAZ2; LT AAAsf Affirmed; previously at AAAsf
Class A-S 12596GBD0; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 12596GBA6; LT AAAsf Affirmed; previously at AAAsf
Class B 12596GBE8; LT AA-sf Affirmed; previously at AA-sf
Class C 12596GBF5; LT A-sf Affirmed; previously at A-sf
Class D 12596GAG4; LT BBBsf Affirmed; previously at BBBsf
Class E 12596GAJ8; LT BBB-sf Affirmed; previously at BBB-sf
Class F 12596GAL3; LT BB-sf Affirmed; previously at BB-sf
Class G 12596GAN9; LT B-sf Affirmed; previously at B-sf
Class X-A 12596GBB4; LT AAAsf Affirmed; previously at AAAsf
Class X-F 12596GAA7; LT BB-sf Affirmed; previously at BB-sf
Class X-G 12596GAC3; LT B-sf Affirmed; previously at B-sf
KEY RATING DRIVERS
Increased Loss Expectations: While the majority of the pool has
exhibited stable performance since issuance, loss expectations have
increased primarily due to an increase in the number of Fitch Loans
of Concern (FLOCs) and coronavirus-related performance concerns.
Fitch designated 11 loans (23.9% of pool) as FLOCs, including five
specially serviced loans (10.9%).
Fitch Loans of Concern: The largest FLOC, Continental Towers
(7.8%), is secured by a 910,717-sf suburban office property located
in Rolling Meadows, IL. Physical occupancy decreased to 61.8% as of
the June 2020 rent roll from 85.5% at YE 2019 after Komatsu America
(11.6% of NRA); Ceannate Corp. (8.2%), Lincoln National Life
Insurance Co. (2.7%) and Fifth Third Bank (2.6%) vacated during
1Q20. These four tenants occupied 25% of the NRA and contributed
approximately 33% of the total rental revenues. The master servicer
previously advanced $2.6 million in taxes on behalf of the
borrower, which has yet to be reimbursed. The loan had $5.3 million
in total reserves as of September 2020, including $4.5 million in
leasing reserves. The servicer-reported NOI debt service coverage
ratio (DSCR) was 2.61x as of YE 2019.
The second largest FLOC, the specially serviced Sheraton Grand
Nashville Downtown (3.9%), is secured by a 482-key full-service
hotel located in downtown Nashville, TN. The loan transferred to
special servicing in June 2020 due to payment default; the loan is
90+ days delinquent as of September 2020. The borrower submitted a
loan modification request which is currently under review by the
servicer. As of the TTM May 2020 STR report, occupancy, ADR, RevPAR
decreased to 62%, $223 and $138, respectively, from 79.8%, $232 and
$185 at YE 2019. The STR report also noted that 125 new hotels
totaling 16,749 rooms are currently either in the planning stages
or under construction in the Nashville market. The
servicer-reported NOI DSCR was 2.81x as of YE 2019.
The third largest FLOC, the specially serviced Holiday Inn FiDi
(3.3%), is secured by a 40-story, 492-key full-service hotel
located in the Financial District of Manhattan. The loan
transferred to special servicing in May 2020 at the borrower's
request due to imminent monetary default; the loan is 90+ days
delinquent as of September 2020. The borrower has begun discussions
with the servicer regarding a possible loan modification and has
also requested a six-month forbearance which is under review. As of
TTM March 2020, the servicer-reported occupancy, ADR, RevPAR and
NOI DSCR were 81.8%, $179, $156 and 2.26x, respectively. The hotel
reopened for business in June 2020.
The remaining eight FLOCs outside of the top 15 include five hotel
loans (5.6%) and three retail loans (3.4%) that have experienced
significant performance deterioration due to the coronavirus
pandemic. The Utah Hotel Portfolio loan (1.9%), which is secured by
a portfolio of four hotels located throughout Utah, transferred to
special servicing in July 2020 due to payment default caused by the
coronavirus pandemic; the loan is 60 days delinquent. The remaining
two specially serviced loans, South Carolina Grocery Portfolio and
New Market Crossing (combined, 1.8%), are secured by four
grocery-anchored shopping centers in North and South Carolina,
transferred in May 2020 due to imminent monetary default caused by
the coronavirus pandemic; both retail loans have been brought
current by the borrower and are pending return to the master
servicer.
Minimal Change in Credit Enhancement (CE): As of the September 2020
distribution date, the pool's aggregate principal balance has been
paid down by 0.5% to $766.8 million from $770.2 million at
issuance. No loans have paid off or defeased since issuance. There
have been no realized losses since issuance. Eighteen loans (50.4%)
are full-term interest-only and 11 loans (26.8%) remain in their
partial-interest-only periods (compared with 15 loans [37.2%] at
issuance). The transaction is scheduled to pay down by 6.4% of the
original pool balance prior to maturity. Loan maturities are
concentrated in 2028 (87.0%), with 12.4% in 2023 and 0.7% in 2027.
Cumulative interest shortfalls totaling $100,323 and $5,283 are
currently impacting the non-rated class NR and class VRR,
respectively.
Coronavirus Exposure: Ten loans (19.8%) are secured by hotel
properties. The weighted average (WA) NOI DSCR for the hotel loans
is 2.71x; these hotel loans could sustain a decline in NOI of 58.1%
before NOI DSCR falls below 1.0x. Thirteen loans (19.7%) are
secured by retail properties. The WA NOI DSCR for the retail loans
is 2.14x; these retail loans could sustain a decline in NOI of
51.1% before DSCR falls below 1.0x. Seven loans (16.1%) are secured
by multifamily properties, including two loans (5.1%) secured by
senior housing properties. The WA NOI DSCR for the multifamily
loans is 1.71x; these multifamily loans could sustain a decline in
NOI of 40.8% before DSCR falls below 1.0x. Fitch applied additional
stresses to seven hotel loans, three retail loans and both senior
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 F and G.
One loan, Country Inn & Suites Jacksonville (2.5%), was granted
coronavirus relief, which allowed the transfer of $70,679 from FF&E
reserves to pay the May 2020 and June 2020 debt service.
Credit Opinion Loans: Two loans (6.9%) were given investment-grade
credit opinions at issuance; The Greystone (5.5%) received an
investment-grade credit opinion of 'BBBsf*' and 20 Times Square
(1.4%) received an investment-grade credit opinion of 'Asf*'.
RATING SENSITIVITIES
The Rating Outlooks on classes F and G and interest-only classes
X-F and X-G were revised to Negative from Stable to reflect the
potential for further downgrade due to concerns surrounding the
ultimate impact of the coronavirus pandemic and the performance
concerns associated with the FLOCs. The Stable Rating Outlooks on
classes A-1 through E and the interest-only class X-A reflect the
increasing CE, 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:
Sensitivity factors that lead to upgrades would include stable to
improved asset performance coupled with pay down and/or defeasance.
Upgrades of the 'Asf' and 'AAsf' categories would likely occur with
significant improvement in CE and/or defeasance; however, adverse
selection, increased concentrations and further underperformance of
the FLOCs or loans expected to be negatively affected by the
coronavirus pandemic could cause this trend to reverse. Upgrades to
the 'BBBsf' category would also consider these factors, but would
be limited based on sensitivity to concentrations or the potential
for future concentration. Classes would not be upgraded above 'Asf'
if there is likelihood for interest shortfalls. Upgrades to the
'Bsf' and 'BBsf' categories are not likely until the later years in
a transaction and only if the performance of the remaining pool is
stable and/or properties vulnerable to the coronavirus return to
pre-pandemic levels, and there is sufficient credit enhancement to
the classes.
Factors that Could, Individually or Collectively, Lead to a
Negative Rating Action/Downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool level losses from underperforming or specially serviced loans.
Downgrades to the 'Asf', 'AAsf' and 'AAAsf' categories are not
likely due to the position in the capital structure, but may occur
at the 'AAsf' and 'AAAsf' categories should interest shortfalls
occur. Downgrades to the 'BBBsf' category would occur should
overall pool losses increase significantly, additional loans
transfer to special servicing or performance of the FLOCs
deteriorate further. Downgrades to the 'Bsf' and 'BBsf' categories
would occur should losses from specially serviced loans be larger
than expected or the loans vulnerable to the coronavirus pandemic
not stabilize.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
further negative rating actions, including downgrades or additional
Negative Rating Outlook revisions.
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.
CSMC 2020-FACT: Moody's Assigns (P)B3 Rating on Class F Certs
-------------------------------------------------------------
Moody's Investors Service assigned provisional ratings on seven
classes of CMBS securities, issued by CSMC 2020-FACT, Commercial
Mortgage Pass-Through Certificates, Series 2020-FACT:
Cl. A, Assigned (P)Aaa (sf)
Cl. B, Assigned (P)Aa3 (sf)
Cl. C, Assigned (P)A3 (sf)
Cl. D, Assigned (P)Baa3 (sf)
Cl. E, Assigned (P)Ba3 (sf)
Cl. F, Assigned (P)B3 (sf)
Cl. X-CP*, Assigned (P)Aaa (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The certificates are collateralized by a first-lien mortgage on the
fee simple interest in The Factory, a 1.1 million SF mixed-use
office property located in Long Island City, NY. The ratings are
based on the collateral and the structure of the transaction.
The Factory is a mixed-use creative office property spanning 1.1
million square feet across 10 stories offering large floorplates
and high ceilings while boasting historic character, all features
desired by many TAMI (technology, advertising, media, and
information technology) tenants. Built in 1920 as a build-to-suit
for Macy's to serve as a furniture warehouse for their Manhattan
retail stores, the property has undergone numerous improvements
over the years including recent renovations totaling $92.5 million
by the sponsor to complete the redevelopment of the historic
warehouse into a creative office property.
As part of the redevelopment, the sponsor converted floors from
industrial use to creative office and completed a full facade
restoration as well as a renovation of the lobby resulting in a
18,000 SF open concept venue with F&B vendors and shared seating.
Large, double-hung windows on four sides provide natural light.
Most of the windows are operable. Sponsorship completed the
replacement of over 2,200 windows with double-pane thermal units
and frames of aluminum with thermal break.
Parking is located on the lower level and accessed on the southeast
side of the building on 31st Street. The garage is monitored by an
attendant; however, the spaces are 'self-park'. There is currently
parking for up to 190 vehicles. The property is well-situated
within the Long Island City office market with excellent access to
LIRR and the 7, E, M, and G subway lines. Sponsorship also provides
a complimentary shuttle service for tenants to expedite commutes
between the Property and nearby public transportation.
Recent capital improvements have included: facade repair and
restoration, window replacement, lobby renovation, elevator
modification, fire alarm replacements, electrical upgrades, and
other improvements. Amenities include a tenant lounge and coffee
bar known as the Breakroom @ Factory, along. The Factory
Sponsorship has also added several tenants to the property,
offering nearby shopping to employees of other tenants and the
general public.
Moody's approach to rating this transaction involved the
application of both its Large Loan and Single Asset/Single Borrower
CMBS methodology and its IO Rating methodology. The rating approach
for securities backed by a single loan compares the credit risk
inherent in the underlying collateral with the credit protection
offered by the structure. The structure's credit enhancement is
quantified by the maximum deterioration in property value that the
securities are able to withstand under various stress scenarios
without causing an increase in the expected loss for various rating
levels. In assigning single borrower ratings, Moody's also
considers a range of qualitative issues as well as the
transaction's structural and legal aspects.
The credit risk of commercial real estate loans is determined
primarily by two factors: 1) the probability of default, which is
largely driven by the DSCR, and 2) and the severity of loss in the
event of default, which is largely driven by the LTV of the
underlying loan.
The whole loan first mortgage balance of $300,000,000 represents a
Moody's LTV of 125.3%. The Moody's First Mortgage Actual DSCR is
1.91X and Moody's First Mortgage Actual Stressed DSCR is 0.78X.
Moody's also grades properties on a scale of 0 to 5 (best to worst)
and considers those grades when assessing the likelihood of debt
payment. The factors considered include property age, quality of
construction, location, market, and tenancy. The Factory received a
property quality grade of 1.50.
Notable strengths of the transaction include: location, recent
capital improvements, tenant strength, limited lease roll over, and
sponsorship.
Notable concerns of the transaction include: effects of
coronavirus, new supply, and interest only amortization profile.
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating Large Loan
and Single Asset/Single Borrower CMBS" published in September 2020.
The methodologies used in rating interest-only classes were
"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.
Moody's approach for single borrower and large loan multi-borrower
transactions evaluates credit enhancement levels based on an
aggregation of adjusted loan level proceeds derived from its
Moody's loan level LTV ratios. Major adjustments to determining
proceeds include leverage, loan structure, and property type. These
aggregated proceeds are then further adjusted for any pooling
benefits associated with loan level diversity, other concentrations
and correlations.
Moody's analysis considers the following inputs to calculate the
proposed IO rating based on the published methodology: original and
current bond ratings and credit estimates; original and current
bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and IO type corresponding to
an IO type as defined in the published methodology.
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 may
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously anticipated. Factors that may cause an
upgrade of the ratings include significant loan pay downs or
amortization, an increase in the pool's share of defeasance or
overall improved pool performance. Factors that may cause a
downgrade of the ratings include a decline in the overall
performance of the pool, loan concentration, increased expected
losses from specially serviced and troubled loans or interest
shortfalls.
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 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.
CSMC TRUST 2017-CHOP: DBRS Confirms BB(low) Rating on Cl. E Certs
-----------------------------------------------------------------
DBRS, Inc. confirmed the ratings on all classes of the Commercial
Mortgage Pass-Through Certificates, Series 2017-CHOP issued by CSMC
Trust 2017-CHOP as follows:
-- Class A at AAA (sf)
-- Class X-EXT at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
The trends for Classes A, B, and X-EXT are Negative because the
underlying collateral continues to face performance challenges
associated with the Coronavirus Disease (COVID-19) global pandemic.
Classes A, B, and X-EXT 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, and E the Under
Review with Negative Implications, given 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 subject transaction originally closed in June 2017, with an
original trust balance of $780 million, with $79.1 million of
borrower equity contributed at issuance. The collateral consists of
the fee and leasehold interests in a portfolio of 48
select-service, limited-service, and extended-stay hotels, totaling
6,401 keys, located in 21 different states across the United
States. The hotels operate under eight different flags across three
hotel brands that include Marriott, Hilton, and Hyatt. Sponsorship
is provided by a joint venture between Colony NorthStar, Inc. and
Chatham Lodging Trust. The sponsor acquired the collateral assets
in 2014 from Inland American Real Estate Trust as part of a larger
$1.1 billion hotel portfolio, which included four additional hotel
assets that are not collateral for the subject loan. Since 2009,
the portfolio has received roughly $201.0 million ($31,400 per key)
of capital improvements, of which approximately $109.3 million
($17,084 per key) was contributed by the sponsor following the 2014
acquisition of the portfolio.
The assets are managed by Island Hospitality Management (Island)
and Marriott International, Inc. (Marriott). Island manages 34 of
the hotels in the portfolio (4,370 keys; 65.5% of the total loan
amount), and Marriott manages 14 hotels in the portfolio (2,031
keys; 34.5% of the total loan amount). The underlying trust loan is
interest-only (IO) throughout the term, structured with a two-year
initial term with three 12-month extension options. The borrower
previously exercised one of three extension options available,
extending the maturity date to June 2020.
The loan transferred to special servicing in April 2020 due to
imminent monetary default. The borrower ceased making debt service
payments effective March 2020 and submitted a relief request to the
servicer as a result of the impact to hotel traffic amid the
coronavirus pandemic. According to the September 2020 servicer
commentary, the servicer and borrower were unable to agree on
modification terms and the servicer is now pursuing the appointment
of a receiver for all of the properties, to which the borrower has
agreed. According to published reports released as of September
2020, the sponsor, Colony NorthStar, Inc., has agreed to sell five
of its six hospitality portfolios to Highgate, a real estate
investment and hospitality management company, in a transaction
valued at $2.8 billion. However, the portfolio that backs the
subject transaction was not part of the sale.
Prior to the coronavirus pandemic, the performance of the portfolio
had been stable from origination through YE2019, when the
consolidated operating statement analysis report provided by the
servicer showed three properties were reporting debt service
coverage ratios (DSCRs) of less than 1.0 times (x), but the
weighted-average DSCR of the portfolio as a whole increased to
1.81x from 1.75x at YE2018 and has increased from the DBRS
Morningstar issuance figure of 1.19x. The three properties with
DSCRs of less than 1.0x at YE2019 include the Courtyard Houston
Northwest, the Residence Inn Houston Westchase, and the Homewood
Suites Cleveland Solon with DSCRs of 0.91x, 0.95x, and 0.98x,
respectively, which represent changes from 1.78x, 0.94x, and 1.69x,
respectively, at YE2018.
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 $58.3
million and DBRS Morningstar applied a cap rate of 9.5%, which
resulted in a DBRS Morningstar Value of $613.3 million, a variance
of 34.8% from the appraised value of $941 million at issuance. The
DBRS Morningstar Value implies an LTV of 127.2% compared with the
LTV of 82.9% 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 the pool's geographic concentration across 41 markets
and middle-tier hotel flags.
DBRS Morningstar made no qualitative adjustments to the final LTV
sizing benchmarks used for this rating analysis.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating MVDs
consistent with the projections in the "Global Macroeconomic
Scenarios: September 10th 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 ratings assigned to Classes C, D, and E, 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. 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 IO certificate 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.
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.
CWALT INC 2005-62: Moody's Lowers Rating on Cl. 2-X-1 Certs to C
----------------------------------------------------------------
Moody's Investors Service downgraded the ratings of four bonds from
three US residential mortgage backed transactions (RMBS), backed by
Option ARM loans issued by multiple issuers. The ratings of the
affected tranches are sensitive to loan performance deterioration
due to the pandemic.
Complete rating actions are as follows:
Issuer: CWALT, Inc. Mortgage Pass-Through Certificates, Series
2005-62
Cl. 2-X-1*, Downgraded to C (sf); previously on Feb 13, 2019
Upgraded to Ca (sf)
Issuer: HarborView Mortgage Loan Trust 2005-15
Cl. 2-A1A1, Downgraded to B2 (sf); previously on Jun 7, 2016
Upgraded to Ba3 (sf)
Cl. 2-A1A2, Downgraded to B2 (sf); previously on Jun 7, 2016
Upgraded to Ba3 (sf)
Issuer: HarborView Mortgage Loan Trust 2006-4
Cl. X-1*, Downgraded to C (sf); previously on Feb 13, 2019 Upgraded
to Ca (sf)
*Reflects Interest Only Classes
RATINGS RATIONALE
The rating downgrades on classes 2-A1A1 and 2-A1A2 from HarborView
Mortgage Loan Trust 2005-15 reflect a decline in their available
credit enhancement. These bonds have loss support from Cl. 2-A1B
which has written down by $ 2.46 million over the last eight
months. The rating downgrades on the interest-only tranches reflect
the loss on the underlying linked bonds. The rating actions also
reflect the recent performance as well as Moody's updated loss
expectations on the underlying pools. In light of the current
macroeconomic environment, Moody's revised loss expectations based
on the extent of performance deterioration of the underlying
mortgage loans, resulting from a slowdown in economic activity and
increased unemployment due to the coronavirus outbreak.
Specifically, Moody's has observed an increase in delinquencies,
payment forbearance, and payment deferrals since the start of
pandemic, which could result in higher realized losses.
Its analysis considers the current proportion of loans granted
payment relief in each individual transaction. Moody's identified
these loans based on a review of loan level cashflows over the last
few months. In cases where loan level data is not available,
Moody's assumed that the proportion of borrowers enrolled in
payment relief programs would be equal to levels observed in
transactions of comparable asset quality. Based on its analysis,
the proportion of borrowers that are currently enrolled in payment
relief plans varied greatly, ranging between approximately 4% and
25% among RMBS transactions issued before 2009. In its analysis,
Moody's assumes these loans to experience lifetime default rates
that are 50% higher than default rates on the performing loans.
In addition, for borrowers unable to make up missed payments
through a short-term repayment plan, servicers will generally defer
the forborne amount as a non-interest-bearing balance, due at
maturity of the loan as a balloon payment. Its analysis considered
the impact of six months of scheduled principal payments on the
loans enrolled in payment relief programs being passed to the trust
as a loss. The magnitude of this loss will depend on the proportion
of the borrowers in the pool subject to principal deferral and the
number of months of such deferral. The treatment of deferred
principal as a loss is credit negative, which could incur
write-downs on bonds when missed payments are deferred.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous, and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Principal Methodologies
The principal methodology used in rating all deals except
interest-only classes was "US RMBS Surveillance Methodology"
published in July 2020. The methodologies used in rating
interest-only classes were "US RMBS Surveillance Methodology"
published in July 2020 and "Moody's Approach to Rating Structured
Finance Interest-Only (IO) Securities" published in February 2019.
In addition, Moody's publishes a weekly summary of structured
finance credit ratings.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the 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.
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 expectations as a
result of a higher number of obligor defaults or deterioration in
the value of the mortgaged property securing an obligor's promise
of payment. Transaction performance also depends greatly on the US
macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions.
An IO bond may be upgraded or downgraded, within the constraints
and provisions of the IO methodology, based on lower or higher
realized and expected loss due to an overall improvement or decline
in the credit quality of the reference bonds.
ELLINGTON FINANCIAL 2020-2: Fitch to Rate Class B-2 Debt B(EXP)
---------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage backed
securities issued by Ellington Financial Mortgage Trust 2020-2
(EFMT 2020-2).
RATING ACTIONS
Ellington Financial Mortgage Trust 2020-2
Class A-1; LT AAA(EXP)sf Expected Rating
Class A-2; LT AA(EXP)sf Expected Rating
Class A-3; LT A(EXP)sf Expected Rating
Class A-IO-S; LT NR(EXP)sf Expected Rating
Class B-1; LT BB(EXP)sf Expected Rating
Class B-2; LT B(EXP)sf Expected Rating
Class B-3; LT NR(EXP)sf Expected Rating
Class M-1; LT BBB(EXP)sf Expected Rating
Class R; LT NR(EXP)sf Expected Rating
Class X; LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The EFMT 2020-2 certificates are supported by 490 loans with a
balance of $219.73 million as of the cutoff date. This will be the
first Ellington Financial Mortgage Trust transaction rated by
Fitch.
The certificates are secured mainly by nonqualified mortgages
(Non-QM) as defined by the Ability to Repay (ATR) rule.
Approximately 92.6% of the loans were originated by LendSure
Financial Services, Inc. (LFS), a joint venture between LFS and
Ellington Financial, Inc. (EFC). The remaining 7.4% of loans were
originated two third party originators. Rushmore Loan Management
Services LLC, will be the servicer, and Wells Fargo Bank, N.A. will
be the Master Servicer for the transaction.
Of the pool, 73.4% of the loans are designated as Non-QM, and the
remaining 26.6% are investment properties not subject to ATR.
KEY RATING DRIVERS
Revised GDP Due to the Coronavirus: The coronavirus and the
resulting containment efforts have resulted in revisions to Fitch's
GDP estimates for 2020. Its 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' ratings and below.
Liquidity Stress for Payment Forbearance (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 40% of the pool for the first six months
of the transaction at all rating categories, with a reversion to
its standard delinquency and liquidation timing curve by month 10.
This assumption is based on observations of past-due payments
following Hurricane Maria in Puerto Rico.
Expanded Prime Credit Quality (Mixed): The collateral consists of
fully-amortizing, interest-only, fixed and adjustable-rate mortgage
loans with original terms to maturity of 15 to 40 years. The pool
is seasoned approximately 18 months in aggregate according to
Fitch. Generally, all of the loans were originated through a broker
channel (92%). The borrowers in this pool have strong credit
profiles (720 FICO) and relatively low leverage (73.7% sLTV). In
addition, the pool contains loans of particularly large size.
Thirty-seven loans are over $1 million, and the largest is $2.64
million. Approximately 4% consists of borrowers with prior credit
events in the past seven years.
Payment Forbearance (Mixed): Of the borrowers, Fitch considered
2.6% as still being on a coronavirus plan or on a coronavirus
repayment plan. The majority of the borrowers that were on a plan
either continued to make their payments while on the plan, are on a
repayment plan, the borrower repaid in full prior forborne amounts
or the amount of the forborne amount under the plan was deferred
and the borrower is making their payments.
Fitch considered the 2.6% of the borrowers on a coronavirus
repayment plan or on an active forbearance/deferral plan as being
current since they are cash flowing (either making their payments
under a repayment plan, continuing to make payments even though
they are on a forbearance plan or had a deferral and are making
payments again).
For the borrowers that have repaid their plan in full, are
continuing to make their payments even if they are under a
forbearance plan, had the unpaid amount deferred and are making
payments, or are on a repayment plan and cash flowing were treated
as clean current. Fitch did not apply a PD penalty for these loans
due to their prior coronavirus-related delinquency status, since
the borrower showed the ability and willingness to repay the prior
missed payments and become contractually current.
If the servicer will continue to advance during the forbearance
period. Recoveries of advances will be repaid either from
reinstated or repaid amounts from loans where borrowers are on a
repayment plan. For loans with deferrals of missed payments, the
servicer can recover advances from the principal portion of
collections, which may result in a mismatch between the loan
balance and certificate balance. While this may increase realized
losses, the 3.77% of excess spread as of the closing date should be
available to absorb these amounts and reduce the potential for
writedowns.
If the borrower does not resume making payments, the loan will
likely become modified and the advancing party will be reimbursed
from available funds at the time of modification. Fitch increased
its loss expectations by adding 0.036% to the model output loss in
all rating categories to address the potential for writedowns due
to reimbursements of servicer advances. In addition, there is 3.77%
excess spread as of the closing date that will be available to
cover any writedowns due to reimbursements of servicer advances.
Bank Statement Loans Included (Negative): Approximately 56% of the
pool (256 loans) comprises self-employed borrowers underwritten to
a bank statement program (46.6% was underwritten to a 24-month bank
statement program and 9.4% to a 12-month bank statement program)
for verifying income, which is not consistent with Appendix Q
standards and Fitch's view of a full documentation program. A key
distinction between this pool and legacy Alt-A loans is that these
loans adhere to underwriting and documentation standards required
under the CFPB's Ability to Repay Rule, which reduces the risk of
borrower default arising from lack of affordability,
misrepresentation or other operational quality risks due to rigor
of the rule's mandates with respect to the underwriting and
documentation of the borrower's ability to repay.
High Investor Property Concentration (Negative): Of the pool, 26.6%
comprises investment properties. Specifically, 64.4% of the
investor loans were underwritten using the borrower's credit
profile, while the remaining 35.6% were originated through the
originators' investor cash flow program that targets real estate
investors qualified on a debt service coverage ratio (DSCR) basis.
The borrowers of the non-DSCR investor properties in the pool have
strong credit profiles, with a WA FICO of 720 (as calculated by
Fitch) and a Fitch calculated original CLTV of 70.0% and DSCR loans
have a WA FICO of 717 (as calculated by Fitch) and a Fitch
calculated original CLTV of 61.4%. Fitch increased the PD by
approximately 2.0x for the cash flow ratio loans (relative to a
traditional income documentation investor loan) to account for the
increased risk.
Foreign National Concentration (Negative): Fitch considered 43
loans (6.9%) in the pool as being made to non-permanent residents.
(If the co-borrower is a U.S. citizen or permanent resident Fitch
does not count those loans as loans to non-permanent residents;
three loans in the pool fell into this category. ) Compared to the
overall pool, the foreign national loans have a WA FICO of 692 (as
calculated by Fitch) vs. 720 (as calculated by Fitch) an original
CLTV of 65.4% vs. 69.2%., an average monthly income of $11,379 vs.
$12, 261 and average balance of $354,204 vs. $448,432. Fitch
assumed no income or employment verification for these loans, a 650
FICO for any missing values and no liquid reserves.
Loan Concentration (Negative): Although the number of loans is 490,
the Weighted Average Number of loans (WAN) is 287. The WAN accounts
for both the number of loans in the pool and the distribution of
loan balances. Fitch applies additional PD penalties for pools that
have a WAN of less than 300. As a result, the 'AAAsf' expected loss
was increased by 0.21% to account for the loan concentration risk.
Geographic Concentration (Negative): Approximately 45% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in Los Angeles MSA
(17.4%) followed by the San Francisco MSA (10%) and the Miami/Ft.
Lauderdale MSA (7.7%). The top three MSAs account for 35.2% of the
pool. As a result, the 'AAAsf' expected loss was increased by 0.06%
to account for the geographic concentration risk.
Modified Sequential Payment Structure (Neutral): The structure
distributes collected principal pro rata among the class A notes
while shutting out the subordinate bonds from principal until all
three classes are reduced to zero. To the extent that either the
cumulative loss trigger event or the delinquency trigger event
occurs in a given period, principal will be distributed
sequentially to the class A-1, A-2 and A-3 bonds until they are
reduced to zero.
Stop Advance Structure (Mixed): The transaction has a stop advance
feature where the servicer will advance delinquent P&I up to 180
days and has the option to advance on coronavirus delinquent loans.
While the limited advancing of delinquent P&I benefits the pool's
projected loss severity, it reduces liquidity. To account for the
reduced liquidity of a limited advancing structure, principal
collections are available to pay timely interest to the 'AAAsf',
and 'AAsf' rated bonds. Fitch expects 'AAAsf' and 'AAsf' rated
bonds to receive timely payments of interest and all other bonds to
receive ultimate interest. Additionally, as of the closing date,
the deal benefits from approximately 377 bps of excess spread,
which will be available to cover shortfalls prior to any
writedowns.
The servicer Rushmore Loan Management Services LLC (Rushmore) will
provide P&I advancing on delinquent loans (Rushmore may provide P&I
advancing on the loans on a coronavirus forbearance plan). If
Rushmore is not able to advance, the master servicer (Wells Fargo
Bank) will advance P&I on the certificates.
The interest remittance amount defined term includes accrued
interest received from liquidation proceeds, but because of the
servicer's allocation of liquidation proceeds to principal first,
this will not cause additional losses and writedowns to the
subordinated classes.
R&W Framework (Negative): The R&W framework for this transaction is
classified as a Tier 2 due to the lack of an automatic review for
loans other than those with ATR realized losses. The R&W are being
provided by EF Holdco WRE Assets LLC, which does not have a
financial public credit opinion or public rating from Fitch. Fitch
increased its loss expectations 88 bps at the 'AAAsf' rating
category to account for the limitations of the Tier 2 framework and
the counterparty risk
Moderate Operational Risk (Negative): Operational risk is
adequately controlled for in this transaction. Ellington Management
Group, LLC employs an effective acquisition operation with strong
management, an experienced team and risk management framework.
Fitch assessed Ellington as an 'Average' aggregator. Primary and
master servicing functions will be performed by Rushmore Servicing
and Wells Fargo, rated 'RPS2 and 'RMS1-', respectively. The
sponsor's retention of at least 5% of the bonds (sponsor is holding
the B-3, X, certificates and initially the A-IO-S certificates)
helps ensure an alignment of interest between issuer and investor.
Third-Party Due Diligence (Positive): Third-party due diligence was
performed on 100% of loans in the transaction by SitusAMC (Tier 1),
and Evolve Mortgage Services (Tier 3) TPR firms. The due diligence
results are in line with industry averages and 99% were graded 'A'
or 'B'. Loan exceptions graded 'B' either had strong mitigating
factors or were accounted for in Fitch's loan loss model resulting
in no additional adjustments. The model credit for the high
percentage of loan level due diligence combined with the
adjustments for loan exceptions reduced the 'AAAsf' loss
expectation by 42 bps.
No Exposure to Hurricane Laura, Hurricane Sally or Hurricane Delta
(Positive): There are no loans located in the FEMA individual
assistance area for Hurricane Delta, Hurricane Laura or Hurricane
Sally in the pool.
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.
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.
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 7.4% base case sMVD. 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 two or more full categories, excluding the 'BBBsf' which would
lower by one category.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Fitch has added a coronavirus sensitivity analysis that 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) as
prepared by SitusAMC, and Evolve Mortgage Services. 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 adjustments to its analysis. Based on the results
of the 100% due diligence performed on the pool, the overall
expected loss was reduced by 0.42%.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the loans. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." The sponsor,
EF Holdco WRE Assets LLC, engaged SitusAMC, and Evolve to perform
the review. Loans reviewed under these engagements were given
compliance, credit and valuation grades and assigned initial grades
for each subcategory.
An exception and waiver report were provided to Fitch, indicating
the pool of reviewed loans has a number of exceptions and waivers.
Fitch determined that the exceptions and waivers do not materially
affect the overall credit risk of the loans due to the presence of
compensating factors such as having liquid reserves or FICO above
guideline requirements or LTV or DTI lower than guideline
requirement. Therefore, no adjustments were needed to compensate
for these occurrences.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. The loan-level
information Fitch received was provided in the American
Securitization Forum's (ASF) data layout format. The ASF data tape
layout was established with input from various industry
participants, including rating agencies, issuers, originators,
investors and others, to produce an industry standard for the
pool-level data in support of the U.S. RMBS securitization market.
The data contained in the data tape layout were populated by the
due diligence company and no material discrepancies were noted.
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.
FAIRSTONE FINANCIAL 2020-1: Moody's Rates Class D Notes 'Ba3'
-------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to the
series 2020-1 notes issued by Fairstone Financial Issuance Trust I
(FFIT I, 2020-1). This is the second publicly rated consumer
loan-backed ABS transaction sponsored by Fairstone Financial Inc.
(Fairstone; B1). The notes will be backed by a pool of personal
loans primarily originated through Fairstone's branch network.
Fairstone is also the servicer and administrator of the
transaction.
The complete rating actions are as follows:
Issuer: Fairstone Financial Issuance Trust I, Series 2020-1
CAD245,000,000, 2.509%, Series 2020-1 Class A Notes, Definitive
Rating Assigned Aa2 (sf)
CAD44,380,000, 3.735%, Series 2020-1 Class B Notes, Definitive
Rating Assigned A2 (sf)
CAD38,590,000, 5.162%, Series 2020-1 Class C Notes, Definitive
Rating Assigned Ba1 (sf)
CAD23,140,000, 6.873%, Series 2020-1 Class D Notes, Definitive
Rating Assigned Ba3 (sf)
RATINGS RATIONALE
The ratings are based on the quality of the underlying collateral
and its expected performance, the strength of the capital
structure, and the experience and expertise of Fairstone as the
servicer.
Moody's cumulative net loss expectation for the FFIT 2020-1 pool is
19.0%. Moody's based its cumulative net loss expectation on an
analysis of the credit quality of the underlying collateral; the
historical performance of similar collateral, including
securitization performance and managed portfolio performance; the
reinvestment criteria stipulated in the transaction document during
the revolving period; the ability of Fairstone to perform the
servicing functions; and current expectations for the macroeconomic
environment during the life of the transaction.
At closing, the Class A notes, Class B notes, Class C notes and
Class D notes benefit from 37.50%, 26.00%, 16.00% and 10.00% of
hard credit enhancement, respectively. Hard credit enhancement for
the notes consists of a combination of non-declining
overcollateralization, a non-declining reserve account and
subordination. The notes will also benefit from excess spread,
which is estimated by the issuer to be at least 22% per annum.
The transaction has an initial revolving period of three years
during which cash collections in the principal distribution account
will be used to purchase additional loans from Fairstone instead of
paying down the notes. An early amortization event can terminate
the revolving period and cause amortization of the notes before the
end of the revolving period. An early amortization would be
triggered by the following events: (a) the average loss ratio
exceeds the loss ratio trigger; (b) the FFIT 2020-1 note balance is
greater than zero at the end of the revolving period, (c) a pool
deficiency exists on three consecutive settlement dates, (d) the
cash reserve is less than the required amount for two consecutive
business days, (e) the pool concentration limits remain unsatisfied
for three consecutive settlement dates, (f) replacement backup
servicing agreement is not in place within 90 business days, (g)
failure to pay series principal and interest (h) insolvency of the
issuer, (i) series specific breach of rep and warranty, (j) failure
to observe or perform any material covenant or condition; or (k) a
servicer default occurs.
Operational risk exists in this transaction due to the
decentralized nature of the loan servicing obligations, the
reliance on Fairstone to continue to provide service and support to
its borrowers through its branch system, and the challenges
involved in transitioning servicing to a replacement servicer, if
required. These characteristics constrain the notes from achieving
the highest investment grade ratings at the time of deal closing.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
consumer assets from the current weak Canadian economic activity
and a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. Specifically, for
Canadian personal loan ABS, performance will weaken due to the
unprecedented spike in the unemployment rate, which may limit
borrowers' income and their ability to service debt. Furthermore,
borrower assistance programs to affected borrowers, such as payment
deferrals, may adversely impact scheduled cash flows to
bondholders. As a result, the degree of uncertainty around its
forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's
Approach to Rating Consumer Loan-Backed ABS" published in July
2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the ratings of the notes if losses accumulate
below its original expectations as a result of better composition
of the collateral type and risk level than the reinvestment
criteria, better than expected improvements in the economy, changes
to servicing practices that enhance collections or refinancing
opportunities that result in prepayments.
Down
Moody's could downgrade the ratings of the notes if pool losses
exceed its expectations. Losses may increase, for example, due to
performance deterioration stemming from a downturn in the Canadian
economy, deficient servicing, errors on the part of transaction
parties, inadequate transaction governance and fraud.
GS MORTGAGE 2018-HULA: DBRS Confirms B(low) Rating on Cl. G Certs
-----------------------------------------------------------------
DBRS, Inc. confirmed the ratings on all classes of the Commercial
Mortgage Pass-Through Certificates, Series 2018-HULA issued by GS
Mortgage Securities Corporation Trust 2018-HULA as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
DBRS Morningstar has also maintained all classes 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
The subject transaction originally closed in July 2018, with an
original trust balance of $350 million. The transaction is backed
by the Four Seasons Resort Hualālai, a luxury hotel and resort
located on the Big Island of Hawaii. The collateral consists of a
243-key resort spread across 39 acres, a private membership club,
and at issuance, 250 acres of residential resort community. With
the exception of the residential lots, the collateral is subject to
a ground lease. The underlying land is owned by the Trustees of the
Estate of Bernice Pauahi Bishop. The ground lease expires in
December 2061, with no renewal options. The borrower pays a minimum
rent of $4.2 million and a percentage of revenue through December
2026.
Loan proceeds of $450.0 million were used to retire outstanding
debt of $373.3 million (includes the $300.0 million commercial
mortgage-backed security (CMBS) mortgage loan securitized in GSCCRE
2015-HULA), to return $62.2 million of equity to the sponsor and
cover reserves as well as closing and origination costs. Total
financing includes an additional $100 million B-note held outside
the trust.
The resort has experienced a large decline in performance in recent
years due to the eruption of the Kilauea volcano in 2018. The
disruption in tourism on the island has caused net cash flow (NCF)
to decline by 30% from DBRS Morningstar's assumed NCF at issuance.
While the property was more than 50 miles away from the volcano and
not physically impacted, many already-booked guests cancelled or
postponed their trip to the resort.
The hotel experienced sharp declines in tourism for most of 2018
and through the first half of 2019. According to multiple news
reports, the island as a whole has experienced decreases in
occupancy and average daily rate (ADR), which has resulted in lower
revenue per available room (RevPAR) in the first half of 2019,
compared with the year prior. However, it is noteworthy that, even
with the market challenges, the subject continues to drastically
outperform its competitive set in terms of ADR and RevPAR,
consistent with its elite brand and offerings as the only high-end
luxury resort on the island. It is DBRS Morningstar's opinion that
the true competitive set for the subject consists of luxury resorts
found on Hawaii's other islands.
The hotel's website states that in light of the latest coronavirus
guidelines and the uncertainty of the re-opening of the state to
travelers, Four Seasons Resort Hualalai will be focusing on a
property-wide renovation and is accepting reservations for stays
from December 1, 2020, onward.
According to the trailing 12-month March 2020 STR report, the
property's occupancy, ADR, and RevPAR were 75%, $1,285, and $936,
respectively, compared to the competitive set average reported
figures of 78.0%, $407, and $318, respectively. These figures for
the subject represent a 2% increase in occupancy, a 1% increase in
ADR, and a 12% increase in RevPAR compared with the prior year.
According to annualized YE2019 financials, the debt service
coverage ratio was 1.07 times (x) compared with 1.25x at YE2018,
representing a 8.0% decline in NCF since the prior period. While
revenue slightly improved in 2019, the decline over the prior
period was primarily fueled by an increase in operating expenses.
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 $28 million and DBRS
Morningstar applied a cap rate of 8.52%, which resulted in a DBRS
Morningstar Value of $328.7 million, a variance of 54.3% from the
appraised value of $718.6 million at issuance. The DBRS Morningstar
Value implies an LTV of 105% compared with the LTV of 48.1% on the
appraised value at issuance.
The cap rate DBRS Morningstar applied is at the middle end of the
range of DBRS Morningstar Cap Rate Ranges for lodging properties,
reflecting property's excellent quality and strong sponsorship and
management.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 10%
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 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 ratings assigned to Classes B, C, D, E, and 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. 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.
Classes X-NCP is interest-only (IO) certificate 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.
GS MORTGAGE 2020-PJ5: DBRS Gives Prov. B Rating on Class B5 Notes
-----------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Mortgage Pass-Through Certificates, Series 2020-PJ5 (the
Certificates) to be issued by GS Mortgage-Backed Securities Trust
2020-PJ5:
-- $351.5 million Class A-1 at AAA (sf)
-- $351.5 million Class A-2 at AAA (sf)
-- $36.2 million Class A-3 at AAA (sf)
-- $36.2 million Class A-4 at AAA (sf)
-- $263.6 million Class A-5 at AAA (sf)
-- $263.6 million Class A-6 at AAA (sf)
-- $87.9 million Class A-7 at AAA (sf)
-- $87.9 million Class A-8 at AAA (sf)
-- $387.6 million Class A-9 at AAA (sf)
-- $387.6 million Class A-10 at AAA (sf)
-- $387.6 million Class A-X-1 at AAA (sf)
-- $351.5 million Class A-X-2 at AAA (sf)
-- $36.2 million Class A-X-3 at AAA (sf)
-- $263.6 million Class A-X-5 at AAA (sf)
-- $87.9 million Class A-X-7 at AAA (sf)
-- $19.2 million Class B at BBB (sf)
-- $7.4 million Class B-1 at AA (sf)
-- $7.4 million Class B-1-A at AA (sf)
-- $7.4 million Class B-1-X at AA (sf)
-- $7.0 million Class B-2 at A (sf)
-- $7.0 million Class B-2-A at A (sf)
-- $7.0 million Class B-2-X at A (sf)
-- $4.8 million Class B-3 at BBB (sf)
-- $4.8 million Class B-3-A at BBB (sf)
-- $4.8 million Class B-3-X at BBB (sf)
-- $2.3 million Class B-4 at BB (sf)
-- $1.9 million Class B-5 at B (sf)
Classes A-X-1, A-X-2, A-X-3, A-X-5, A-X-7, B-1-X, B-2-X, B-3-X, and
B-X are interest-only certificates. The class balances represent
notional amounts.
Classes A-1, A-2, A-4, A-6, A-8, A-9, A-10, A-X-2, B-1, B-2, B,
B-3, and B-X are exchangeable certificates. These classes can be
exchanged for combinations of exchange certificates as specified in
the offering documents.
Classes A-1, A-2, A-5, A-6, A-7, and A-8 are super-senior
certificates. These classes benefit from additional protection from
the senior support certificates (Classes A-3 and A-4) with respect
to loss allocation.
The AAA (sf) ratings on the Certificates reflect 6.25% of credit
enhancement provided by subordinated certificates. The AA (sf), A
(sf), BBB (sf), BB (sf), and B (sf) ratings reflect 4.45%, 2.75%,
1.60%, 1.05%, and 0.60% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This securitization is a portfolio of first-lien fixed-rate prime
residential mortgages funded by the issuance of the Certificates.
The Certificates are backed by 480 loans with a total principal
balance of $413,476,699 as of the Cut-Off Date (October 1, 2020).
The originators for the mortgage pool are United Shore Financial
Services, LLC (43.8%), CrossCountry Mortgage, LLC (24.6%), and
various other originators, each comprising less than 6.0% of the
mortgage loans. Goldman Sachs Mortgage Company is the Sponsor and
the Mortgage Loan Seller of the transaction. For certain
originators, the related loans were sold to MAXEX Clearing LLC
([]%) and SG Capital Partners LLC ([]%) and were subsequently
acquired by the Mortgage Loan Seller.
NewRez LLC doing business as Shellpoint Mortgage Servicing will
service all mortgage loans within the pool. Wells Fargo Bank, N.A.
(rated AA with a Negative trend by DBRS Morningstar) will act as
the Master Servicer, Securities Administrator, and Custodian. U.S.
Bank Trust National Association will serve as Delaware Trustee.
Pentalpha Surveillance LLC will serve as the representations and
warranties (R&W) File Reviewer.
The pool consists of fully amortizing fixed-rate mortgages with
original terms to maturity of primarily 30 years and a
weighted-average loan age of six months. Approximately 14.7% of the
pool are conforming, high-balance mortgage loans that were
underwritten using an automated underwriting system designated by
Fannie Mae or Freddie Mac and were eligible for purchase by such
agencies. The remaining 85.3% of the pool are traditional,
nonagency, prime jumbo mortgage loans. Details on the underwriting
of conforming loans can be found in the Key Probability of Default
Drivers section of the associated presale.
For this transaction, as permitted by the Coronavirus Aid, Relief,
and Economic Security Act, signed into law on March 27, 2020, 23
loans (4.1% of the pool) had been granted forbearance plans because
the borrowers reported financial hardship related to the
Coronavirus Disease (COVID-19) pandemic. These forbearance plans
allow temporary payment holidays, followed by repayment once the
forbearance period ends. As of the Cut-Off Date, all 23 loans
satisfied their forbearance plans and are current. Furthermore,
none of the loans in the pool are on active coronavirus forbearance
plans.
The transaction employs a senior-subordinate, shifting-interest
cash flow structure that is enhanced from a precrisis structure.
Coronavirus Pandemic Impact
The coronavirus pandemic and the resulting isolation measures have
caused an economic contraction, leading to sharp increases in
unemployment rates and income reductions for many consumers. DBRS
Morningstar anticipates that delinquencies may arise in the coming
months for many residential mortgage-backed securities (RMBS) asset
classes, some meaningfully.
The prime mortgage sector is a traditional RMBS asset class that
consists of securitizations backed by pools of residential home
loans originated to borrowers with prime credit. Generally, these
borrowers have decent FICO scores, reasonable equity, and robust
income and liquid reserves.
As a result of the coronavirus, DBRS Morningstar expects increased
delinquencies and loans on forbearance plans, slower voluntary
prepayment rates, and a potential near-term decline in the values
of the mortgaged properties. Such deteriorations may adversely
affect borrowers' ability to make monthly payments, refinance their
loans, or sell properties in an amount sufficient to repay the
outstanding balance of their loans.
In connection with the economic stress assumed under its moderate
scenario (see "Global Macroeconomic Scenarios: September Update,"
published on September 10, 2020), for the prime asset class, DBRS
Morningstar assumes a combination of higher unemployment rates and
more conservative home price assumptions than what DBRS Morningstar
previously used. Such assumptions translate to higher expected
losses on the collateral pool and correspondingly higher credit
enhancement.
In the prime asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes that this sector should have low
intrinsic credit risk. Within the prime asset class, loans
originated to (1) self-employed borrowers or (2) higher
loan-to-value (LTV) ratio borrowers may be more sensitive to
economic hardships resulting from higher unemployment rates and
lower incomes. Self-employed borrowers are potentially exposed to
more volatile income sources, which could lead to reduced cash
flows generated from their businesses. Higher LTV borrowers, with
lower equity in their properties, generally have fewer refinance
opportunities and therefore slower prepayments. In addition,
certain pools with elevated geographic concentrations in densely
populated urban metropolitan statistical areas may experience
additional stress from extended lockdown periods and the slowdown
of the economy.
The ratings reflect transactional strengths that include
high-quality credit attributes, well-qualified borrowers,
satisfactory third-party due-diligence review, structural
enhancements, and 100% current loans.
The ratings reflect transactional weaknesses that include their R&W
framework, borrowers on forbearance plans, entities lacking
financial strength or securitization history, and servicer's
financial capability.
Notes: All figures are in U.S. dollars unless otherwise noted.
HOME RE 2020-1: Moody's Assigns (P)B2 Rating on Class B-1 Notes
---------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to five
classes of mortgage insurance credit risk transfer notes issued by
Home Re 2020-1 Ltd.
Home Re 2020-1 Ltd. (the issuer) is the third transaction issued
under the Home Re program to date and the first such issue in 2020,
which transfers to the capital markets the credit risk of private
mortgage insurance (MI) policies issued by Mortgage Guaranty
Insurance Corporation (MGIC, 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.
As of the cut-off date, no mortgage loan has been reported to the
ceding insurer as in two payment loan default or as subject to
forbearance. To the extent, based on information reported on or
prior to the cut-off date, that a mortgage loan no longer satisfies
the eligibility criteria as of a date subsequent to the cut-off
date, such mortgage loan will not be removed from the offering and
the coverage for the related MI policy will continue to be provided
by the reinsurance agreement.
On the closing date, the issuer and the ceding insurer will enter
into a reinsurance agreement providing excess of loss reinsurance
on mortgage insurance policies issued by the ceding insurer on a
portfolio of residential mortgage loans. Proceeds from the sale of
the notes will be deposited into the reinsurance trust account for
the benefit of the ceding insurer and as security for the issuer's
obligations to the ceding insurer under the reinsurance agreement.
The funds in the reinsurance trust account will also be available
to pay noteholders, following the termination of the trust and
payment of amounts due to the ceding insurer. Funds in the
reinsurance trust account will be used to purchase eligible
investments and will be subject to the terms of the reinsurance
trust agreement.
Following the instruction of the ceding insurer, the trustee will
liquidate assets in the reinsurance trust account to (1) make
principal payments to the notes as the insurance coverage in the
reference pool reduces due to loan amortization or policy
termination, and (2) reimburse the ceding insurer whenever it pays
MI claims after the Class B-2H and Class B-3H coverage levels are
written off. While income earned on eligible investments is used to
pay interest on the notes, the ceding insurer is responsible for
covering any difference between the investment income and interest
accrued on the notes' coverage levels.
Transaction credit strengths include strong loan credit
characteristics, including the fact that the MI policies are
predominantly borrower-paid MI policies (96.4% by unpaid principal
balance). Transaction credit weaknesses include predominantly high
loan-to-value (LTV) ratios, as well as a limited third-party review
scope and lack of representations and warranties (R&Ws) to the
noteholders.
The complete rating actions are as follows:
Issuer: Home Re 2020-1 Ltd.
Cl. M-1A, Provisional Rating Assigned (P)Baa2 (sf)
Cl. M-1B, Provisional Rating Assigned (P)Baa3 (sf)
Cl. M-1C, Provisional Rating Assigned (P)Ba2 (sf)
Cl. M-2, Provisional Rating Assigned (P)B1 (sf)
Cl. B-1, Provisional Rating 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 2.28% losses in a base case scenario, and 17.64%
losses under a Aaa stress scenario. 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. It is the product, for all the mortgage loans covered by
MI policies, of (i) the unpaid principal balance of each mortgage
loan, (ii) the MI coverage percentage, and (iii) the existing quota
share reinsurance percentage. Reinsurance coverage percentage is
100% minus existing quota share reinsurance through unaffiliated
insurer, if any. By unpaid principal balance, approximately 26.5%
of the pool has zero quota share reinsurance, 69.5% of the pool has
30% reinsurance and 4% of the pool has 65% reinsurance. The ceding
insurer has purchased quota share reinsurance from unaffiliated
third parties, which provides proportional reinsurance protection
to the ceding insurer for certain losses.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's increased its model-derived median expected losses by 15%
(mean expected losses by 13.43%) and its Aaa losses by 5% to
reflect the likely performance deterioration resulting from a
slowdown in US economic activity in 2020 due to the COVID-19
outbreak.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's calculated losses on the pool using its US Moody's
Individual Loan Analysis (MILAN) model based on the loan-level
collateral information as of the cut-off date. Loan-level
adjustments to the model results included, but were not limited to,
adjustments for origination quality.
Collateral Description
Each mortgage loan has an insurance coverage effective date (in
force date) on or after January 1, 2020, but on or before July 31,
2020. The reference pool consists of 191,424 primes, fixed- and
adjustable-rate, one- to four-unit, first-lien fully-amortizing,
predominantly conforming mortgage loans with a total insured loan
balance of approximately $52 billion. There are 6,652 (4.8% of
total unpaid principal balance) which were not underwritten through
GSE guidelines. All loans in the reference pool had a loan-to-value
(LTV) ratio at origination that was greater than 80% with a
weighted average (WA) of 90.7% (by unpaid principal balance). The
WA LTV of 90.7% 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 and other MI CRT transactions rated by Moody's.
By unpaid principal balance, the borrowers in the pool have a WA
FICO score of 752, a WA debt-to-income ratio of 35.1% and a WA
mortgage rate of 3.5%. The WA risk in force (MI coverage percentage
net of existing reinsurance coverage) is approximately 17.5% of the
reference pool unpaid principal balance. 100% of insured loans were
covered by mortgage insurance at origination with 96.4% covered by
BPMI and 3.6% covered by LPMI based on risk in force.
It should be noted that information comes from the loan tape that
the insurer provided to us. Certain loan characteristics may differ
from the data in the loan tape because (i) the calculations reflect
its assumptions or model adjustments and/or (ii) some data in the
loan tape is weighted by the aggregate exposed principal balance of
the mortgage loans in contrast to being weighted by the unpaid
principal balance. For example, the insurer's preliminary offering
circular reflects a WA remaining term of 346 months in contrast to
Moody's model output of 341 months.
Company Overview
MGIC is an insurance company domiciled in the State of Wisconsin.
MGIC received its initial certificate of authority from the
Wisconsin Office of the Commissioner of Insurance in March 1979.
MGIC is one of the leading private mortgage insurers in the
industry. MGIC is an approved mortgage insurer of loans purchased
by Fannie Mae and Freddie Mac, and is licensed in all 50 states,
the District of Columbia and the territories of Puerto Rico and
Guam to issue private mortgage guaranty insurance. MGIC's has
$230.5 billion of insurance in force as of June 30, 2020, with more
than 4,500 originators and/or servicers utilized MGIC mortgage
insurance in the last 12 months. MGIC is the primary insurance
subsidiary of MGIC Investment Corporation, a Wisconsin corporation
whose stock trades on the New York Stock Exchange under the symbol
"MTG." MGIC Investment Corporation is a holding company which,
through MGIC, MGIC Indemnity Corporation and several other
subsidiaries, is principally engaged in the mortgage insurance
business. The insurer financial strength of the MGIC is rated "Baa1
(stable outlook)" by Moody's.
Underwriting Quality
Moody's took into account the quality of MGIC's insurance
underwriting, risk management and claims payment process in its
analysis.
Most applications for mortgage insurance are submitted to MGIC
electronically, and MGIC relies upon the lender's R&Ws that the
data submitted is true and correct when MGIC makes its insurance
decisions. At present, MGIC's underwriting guidelines are broadly
consistent with those of the GSEs. MGIC accepts the underwriting
decisions made by the GSEs' underwriting systems, subject to
certain additional limitations and requirements. MGIC had several
overlays to GSE underwriting requirements which pre-dated Covid-19.
During Covid-19, MGIC added a temporary overlay making cash-out
transactions and investment property no longer eligible for MGIC
insurance.
MGIC's primary mortgage insurance policies are issued through one
of two programs. Lenders submit mortgage loans to MGIC for
insurance either through delegated underwriting or non-delegated
underwriting program. Under the delegated underwriting program,
lenders can submit loans for insurance without MGIC re-underwriting
the loan file. MGIC issues an MI commitment based on the lender's
representation that the loan meets the insurer's underwriting
requirement. Lenders eligible under this program must be
pre-approved by MGIC's risk management group and are subject to
random and targeted internal quality control reviews. In this
transaction, approximately 69.84% of the mortgage loans were
originated under a delegated underwriting program.
Under the non-delegated underwriting program, insurance coverage is
approved after underwriting by the insurer. Some customers prefer
MGIC's non-delegated program because MGIC assumes underwriting
responsibility and will not rescind coverage if it makes an
underwriting error, subject to the terms of its master policy. MGIC
seeks to ensure that loans are appropriately underwritten through
quality control sampling, loan performance monitoring and training.
In this transaction, approximately 30.16% of the mortgage loans
were originated under a non-delegated underwriting program.
Overall, the share of delegated and non-delegated underwriting in
this pool is reflective of the corresponding percentage in MGIC's
overall portfolio (approximately 30% and 70%, respectively). MGIC
maintains a primary underwriting center in Milwaukee, Wisconsin,
along with geographically disbursed underwriters. Although MGIC's
employees conduct the substantial majority of its non-delegated
underwriting, from time-to-time, MGIC engages third parties to
assist with certain clerical functions.
As part of its ongoing quality control processes, MGIC undertakes
quality control reviews of limited samples of mortgage loans that
it insures under both delegated and non-delegated underwriting
programs. Through MGIC's quality control process, it reviews a
statistically significant sample of individual mortgages from its
customers to ensure that the loans accepted through its
underwriting processes meet MGIC's pre-determined eligibility and
underwriting criteria. The quality control process allows MGIC to
identify trends in lender underwriting and origination practices,
as well as to investigate underlying reasons for delinquencies,
defaults and claims within its portfolio that are potentially
attributable to insurance underwriting process defects. The
information gathered from the quality control process is used by
MGIC in its ongoing policy acquisitions and is intended to prevent
continued aggregation of Policies with insurance underwriting
process defects.
Submission of Claims
Unless MGIC has directed the insured to file an accelerated claim,
the master policy requires the insured to submit a claim for loss
no later than 60 days after the earliest of (i) acquiring the
borrower's title to the related property, (ii) an approved sale or
(iii) completion of the foreclosure sale of the property (under the
2014 master policy the insured may elect to file the claim after
expiration of the redemption period).
Prior to claim payment, an investigative underwriter investigates
select claims to review for origination fraud. The investigation
focuses on uncovering facts and evidence related to loan
origination and determines whether certain exclusions from the
master policy apply to a given loan or claim. When the
investigative underwriter finds issues, MGIC may rescind coverage.
When no issues are found, the investigative underwriter will close
the investigation case and release the claim for final processing.
Investigative underwriters analyze the origination documentation as
well as documentation from a variety of sources and determine if
there is a significant defect.
Third-Party Review
MGIC 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 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. There was no compliance tested due to the nature of
the review, which was to ensure the mortgage insurance application
met all applicable company guidelines. MGIC is a mono-line mortgage
insurance company not a mortgage lender.
The size of the diligence sample was determined by the third-party
diligence provider using a 95% confidence level applied to the
total pool of 191,424 mortgage loans to be covered by the
reinsurance agreement, a 2% precision interval applied to the
confidence level and a 5% error rate applied to the final result,
with the resulting number rounded up. The diligence sample
consisted of 350 mortgage loans to be covered by the reinsurance
agreement.
The scope of the third-party review is weaker than private label
RMBS transactions because it covers only a limited sample of loans
(0.18% by total loan count in the reference pool) and only includes
credit, data and valuation. In spite of the small sample size and a
limited TPR scope for Home Re 2020-1, Moody's did not make an
additional adjustment to the loss levels because (i) approximately
30% of the insured loans in the reference pool are re-underwritten
by the ceding insurer via non-delegated underwriting program, which
mitigates the risk of underwriting defects, (ii) MI claims paid
will not include legal costs associated with any TRID violations,
as the loan originators will bear these costs, and (iii) since the
insured pool is predominantly GSE loans, the GSEs will also conduct
their quality control review.
Scope and results. The third-party due diligence scope focused on
the following:
Property Valuation Review: The third-party diligence provider was
able to obtain current property valuations on 98.00% (by loan
count) of the mortgage loans in the diligence sample. An automated
Freddie Mac Home Value Explorer (HVE) valuation was ordered by the
third-party diligence provider on the entire diligence sample. In
some instances, a broker price opinion (BPO) and field review
appraisal of the relevant property was also ordered to address
certain value discrepancies. The third-party diligence provider
ordered a field review appraisal for 9 properties and 2 were
returned in the diligence review period. The mortgage loans for 7
properties that did not receive a field review in the time allotted
for the diligence review received a collateral grade of N/A.
Credit: All but one loan were rated graded A or B. One finding by
the third-party diligence provider was related to original DTI
exceeding applicable guidelines and determined to be a credit grade
"C" exception.
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. Based on the diligence sample reviewed by the third-party
diligence provider in connection with the data integrity review,
343 mortgage loans were found with no discrepancies noted and 7
mortgage loans were found with one or more discrepancies between
the source documents and the data file.
After taking into account the (i) third-party due diligence results
for credit and property valuation and (ii) the extent to which the
characteristics of the mortgage loans can be extrapolated from the
error rate and the extent to which such errors and discrepancies
may indicate an increased likelihood of MI losses, Moody's did not
make any further adjustments to its credit enhancement.
R&Ws Framework
The ceding insurer does not make any R&Ws 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 and other MI
CRT transactions that Moody's has rated. The ceding insurer will
retain the senior coverage level A-H, coverage level B-2H and the
coverage level B-3H at closing. The offered notes benefit from a
sequential pay structure. The transaction incorporates structural
features such as a 10-year bullet maturity and a sequential pay
structure for the non-senior tranches, resulting in a shorter
expected weighted average life on the offered notes.
Funds raised through the issuance of the notes are deposited into a
reinsurance trust account and are distributed either to the
noteholders, when insured loans amortize or MI policies terminate,
or to the ceding insurer for reimbursement of claims paid when
loans default. Interest on the notes is paid from income earned on
the eligible investments and the coverage premium from the ceding
insurer. Interest on the notes will accrue based on the outstanding
balance of the notes, but the ceding insurer will only be obligated
to remit coverage premium based on each note's coverage level.
Credit enhancement in this transaction is comprised of
subordination provided by mezzanine and junior tranches. The rated
Class M-1A, Class M-1B, Class M-1C, Class M-2 and Class B-1 offered
notes have credit enhancement levels of 6.15%, 4.80%, 4.00%, 3.25%
and 3.00%, respectively. The credit risk exposure of the notes
depends on the actual MI losses incurred by the insured pool. MI
losses are allocated in a reverse sequential order starting with
the coverage level B-3H. Investment deficiency amount losses are
allocated in a reverse sequential order starting with the class B-1
notes.
So long as the senior coverage level is outstanding, and no
performance trigger event occurs, the transaction structure
allocates principal payments on a pro-rata basis between the senior
and non-senior reference tranches. Principal is then allocated
sequentially amongst the non-senior tranches. Principal payments
are all allocated to the senior reference tranche when a trigger
event occurs.
A trigger event with respect to any payment date will be in effect
if the coverage level amount of coverage level A-H for such payment
date has not been reduced to zero and either (i) the preceding
three month average of the sixty-plus delinquency amount for that
payment date equals or exceeds 75.00% of coverage level A-H
subordination amount or (ii) the subordinate percentage (or with
respect to the first payment date, the original subordinate
percentage) for that payment date is less than the target CE
percentage (minimum C/E test: 8.50%).
Premium Deposit Account (PDA)
The premium deposit account will benefit the transaction upon a
mandatory termination event (e.g. the ceding insurer fails to pay
the coverage premium and does not cure, triggering a default under
the reinsurance agreement), by providing interest liquidity to the
noteholders, when combined with the income earned on the eligible
investments, of approximately 70 days while the reinsurance trust
account and eligible investments are being liquidated to repay the
principal of the notes.
On the closing date, the ceding insurer will establish a cash and
securities account (the PDA) but no initial deposit amount will be
made to the account by the ceding insurer unless the premium
deposit event is triggered. The premium deposit event will be
triggered (1) with respect to any class of notes, if the rating of
that class of notes exceeds the insurance financial strength (IFS)
rating of the ceding insurer or (2) with respect to all classes of
notes, if the ceding insurer's IFS rating falls below Baa2. If the
note ratings exceed that of the ceding insurer, the insurer will be
obligated to deposit into and maintain in the premium deposit
account the required PDA amount (see next paragraph) only for the
notes that exceeded the ceding insurer's rating. If the ceding
insurer's rating falls below Baa2, it will be obligated to deposit
the required PDA amount for all classes of notes.
The required PDA amount for each class of notes and each month is
equal to the excess, if any, of (i)(a) the coupon rate of the note
multiplied by (b) the applicable funded percentage, (c) the
coverage level amount for the coverage level corresponding to such
class of notes and (d) a fraction equal to 70/360, over (ii) two
times the investment income collected (but not yet distributed) on
the eligible investments.
Moody's believes the requirement that the PDA be funded only upon a
rating trigger event does not establish a linkage between the
ratings of the notes and the IFS rating of the ceding insurer
because, 1) the required PDA amount is small relative to the entire
deal, 2) the risk of PDA not being funded could theoretically occur
only if the ceding insurer suddenly defaults, causing a rating
downgrade from investment grade to default in a very short period,
which is a highly unlikely scenario, and 3) even if the insurer
becomes insolvent, there would be a strong incentive for the
insurer's insolvency regulator to continue to make the interest
payments to avoid losing reinsurance protection provided by the
deal.
Claims Consultant
To mitigate risks associated with the ceding insurer's control of
the trust account and discretion to unilaterally determine the MI
claims amounts (i.e. ultimate net losses), the ceding insurer will
engage 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-3H and the
coverage level B-2H have been written down. The claims consultant
will review on a quarterly basis a sample of claims paid by the
ceding insurer covered by the reinsurance agreement. In verifying
the amount, the claims consultant will apply a permitted variance
to the total paid loss for each MI Policy of +/- 2%. The claims
consultant will provide a preliminary report to the ceding insurer
containing results of the verification. If there are findings that
cannot be resolved between the ceding insurer and the claims
consultant, the claims consultant will increase the sample size. A
final report will be delivered by the claim's consultant to the
trustee, the issuer and the ceding insurer. The issuer will be
required to provide a copy of the final report to the noteholders
and the rating agencies.
Unlike RMBS transactions where there is typically some level of
independent third-party oversight by the trustee, the master
servicer and/or the securities administrator, MI CRT transactions
typically do not have such oversight. As noted, the ceding insurer
not only has full control of the trust account but can also
determine, at its discretion, the MI claims amount. The ceding
insurer will then direct the trustee to withdraw the funds to
reimburse for the claims paid. Since the trustee is not required to
verify the MI claims amount, there could be a scenario where funds
are withdrawn from the reinsurance trust account in excess of the
amounts necessary to reimburse the ceding insurer. As such, Moody's
believes the claims consultant in this transaction will provide the
oversight to mitigate such risks.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Methodology
The principal methodology used in these ratings was "Moody's
Approach to Rating US RMBS Using the MILAN Framework" published in
April 2020.
IMPERIAL FUND 2020-NQM1: DBRS Finalizes B(high) Rating on B1 Certs
------------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Mortgage Pass-Through Certificates, Series 2020-NQM1 (the
Certificates) 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 raise 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 all of the 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 month;
(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.
INTOWN HOTEL 2018-STAY: DBRS Confirms B Rating on Class G Certs
---------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2018-STAY issued by InTown Hotel
Portfolio Trust 2018-STAY as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)
These trends for Classes A, B, C, X-NCP, and D are Negative because
the underlying collateral continues to face performance challenges
associated with the Coronavirus Disease (COVID-19) global pandemic.
The ratings for these classes have been removed from Under Review
with Negative Implications, where they were placed on March 27,
2020.
DBRS Morningstar has also maintained Classes E, F, and G 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 $471.0 million mortgage loan is secured by the fee interest in
a portfolio of 85 economy, extended-stay hotels, totalling 10,764
keys. All of the hotels in the portfolio operate under the InTown
Suites flag. The brand is owned by the loan sponsor, Starwood
Capital Group Global LP (Starwood), which has substantial
experience in the hotel sector and maintains considerable financial
wherewithal. Starwood acquired the collateral assets in 2013 when
it purchased the InTown Suites platform for $770.0 million from
Kimco Realty Corporation and in 2015 when it acquired the remaining
50 extended-stay properties from Mount Kellett Capital Management.
Today, Starwood owns all 189 InTown Suites.
Although somewhat concentrated in the southeast region, the
portfolio is geographically diverse and relatively granular, as the
85 hotel assets are located across 18 states. Texas has the highest
concentration by allocated loan balance and number of hotels at
30.3% and 27, respectively. The next-largest state concentration is
Florida, with eight hotels, which represents 12.7% of the total
loan amount by allocated balance. Given the diverse nature of the
portfolio, no single hotel represents greater than 2.1% of the
allocated loan balance.
The loan sponsor, Starwood, has considerable experience in the
hotel sector and has been the sole owner of the InTown Suites brand
since 2015. The properties are wholly operated by sponsor
affiliates, which allows for increased economic efficiencies, given
the firm's vertical integration. The properties are also not
subject to brand-mandated property improvement plans.
Since acquiring the portfolio in 2013 and 2015, Starwood has
invested roughly $75.5 million ($7,010 per key) of capital
expenditures across the collateral portfolio; of that, Starwood
spent $41.8 million ($3,883 per key) in 2015 and 2016 across 42
properties. The remaining assets have only received light updates
as needed. As the full effect of the renovations at the 42
properties is realized, Starwood will determine if the remaining 43
should receive the same, partial, or none of the same upgrades. The
portfolio has an average age of 20 years and many of the properties
DBRS Morningstar inspected were generally dated, with some
exhibiting deferred maintenance, resulting in low curb appeal.
The portfolio has a long historical background of high occupancy,
with a 10-year average of 83.7% and a 10-year average revenue per
available room (RevPAR) of $26.78. The weighted-average occupancy,
average daily rate, and RevPAR for these properties at issuance was
80.9%, $48.53, and $39.03, respectively, compared with the
trailing-12 months ended September 2018 figures of 82.2%, $50.58,
and $41.42, respectively.
As of the July 2020 reporting, 42 units across seven properties
were down because of fire, ceiling, or water damage posing life
safety issues. Two properties had minor deferred maintenance.
According to the borrower, all units were repaired and back in
service as of August 2020.
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 $57.7
million and DBRS Morningstar applied a cap rate of 10.71%, which
resulted in a DBRS Morningstar Value of $538.6 million, a variance
of 30.1% from the appraised value of $770.0 million at issuance.
The DBRS Morningstar Value implies an LTV of 87.5% compared with
the LTV of 61.2% 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 portfolio's age and concentration in tertiary and
suburban markets.
DBRS Morningstar made negative qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis totalling
-2.00% to account for property quality and market fundamentals as
most properties are over 20 years old are located in tertiary or
suburban markets.
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 is insulated
from loss.
The DBRS Morningstar ratings assigned to Classes 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.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2017-FL11: DBRS Confirms BB(low) Rating on Class E Certs
------------------------------------------------------------------
DBRS Limited confirmed the ratings on the following classes of the
Commercial Mortgage Pass-Through Certificates, Series 2017-FL11
issued by J.P. Morgan Chase Commercial Mortgage Securities Trust
2017-FL11
(the Issuer):
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (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. 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 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
At issuance, the subject transaction was backed by seven
floating-rate mortgages secured by 20 commercial properties with a
total mortgage loan amount of $519.1 million, which were divided up
into two collateral groups. Collateral Group A consists of six
loans secured by 19 commercial properties with a collective
mortgage balance of $496.6 million, and Collateral Group B
represents a $22.5 million junior companion loan secured by the
Park Hyatt Beaver Creek. The pooled certificates in this
transaction (Classes A, B, C, D, E, F, X-CP, X-EXT, and VRR
Interest) are backed by Collateral Group A, while the nonpooled
certificates (Classes BC and BC-RR Interest) are backed by
Collateral Group B. The DBRS Morningstar analysis of this
transaction incorporates only Collateral Group A, and the nonpooled
certificates are not rated by DBRS Morningstar.
As of the September 2020 remittance, five of the original six loans
remain in the trust with an aggregate principal balance $383.5
million, representing a collateral reduction of 22.8% since
issuance because of one loan repayment. All remaining loans in the
trust are structured with two-year terms and three one-year
extension options. The loans are all secured by properties located
in core suburban markets. In addition to loan size concentration,
the transaction has a high concentration of hotel exposure (44.2%
of the current trust balance) as well as exposure to a loan secured
by a Houston office property (23.2% of the current trust balance);
the performance declines that some of these loans were already
experiencing prior to the coronavirus have since exacerbated.
There are currently three loans on the servicer's watchlist (70.4%
of the current trust balance): Cooper Hotel Portfolio (Prospectus
ID#2; 27.2% of the trust balance), The Centre at Purchase
(Prospectus ID#3; 24.2% of the trust balance), and Bank of America
Campus (Prospectus ID#4; 19.0% of the trust balance). The Cooper
Hotel Portfolio loan has had significant performance declines from
issuance. The other two loans have upcoming loan maturities. The
borrower for the Centre at Purchase loan has requested its
extension, which is currently in process with the servicer. The
requested maturity extension for the Bank of America Campus loan
has been executed, with the maturity date now in August 2021 and
the loan is expected to be removed the servicer's watchlist in the
near term.
As of the trailing 12-month June 2020 reporting, the Cooper Hotel
Portfolio loan's in-place debt service coverage ratio (DSCR) was
reported at 0.31 times (x) a significant decline from the YE2019
in-place DSCR of 1.52x and the DBRS Morningstar DSCR at issuance of
2.85x. The loan was set to mature in September 2020 and is required
to meet certain debt yield requirements in order to exercise the
option. Given the recent performance figures, it seems unlikely the
threshold will be met, which could require a loan modification or
other action by the servicer in the event of a maturity default. At
issuance, DBRS Morningstar assigned an investment-grade shadow
rating to this loan, reflective of the strong credit
characteristics; however, the loan has experienced sustained cash
flow declines since issuance that were primarily attributed to
rising expenses and disruption to bookings as hotel renovations
were completed at various points in the first few years of the loan
term. Given the diminished outlook for improvement amid the effects
of the pandemic, DBRS Morningstar removed the shadow rating with
this review.
In addition to the increased risks with the Cooper Hotel Portfolio,
there are two remaining collateral loans in special servicing
(Prospectus ID#5, Hyatt Regency Jacksonville Riverfront
(Jacksonville), 17.0% of the trust balance; and Prospectus ID#6,
One Westchase Center, 12.3% of the trust balance). The Jacksonville
loan was transferred in August 2020 when the borrower requested
debt relief ahead of the scheduled September 2020 maturity date.
The loan remains current as of the September 2020 remittance, and
the special servicer continues to work with the borrower to
determine a workout strategy. The hotel was closed at issuance
because of damage sustained during Hurricane Irma. The last few
years of reported revenue per available room figures showed strides
in getting occupancy and room rates back to pre-hurricane levels;
however, the impact to travel amid the pandemic has undoubtedly
stunted those trends. The borrower's commitment to keeping the loan
current and proactively working with the servicer to resolve the
outstanding issues are considered positive signs for the near- to
medium-term outlook, and DBRS Morningstar will monitor the loan for
developments.
One Westchase Center was transferred to the special servicer in May
2020 for an anticipated maturity default at the scheduled October
2020 maturity date. The collateral for the loan is a Class A office
property in Houston which has historically struggled with low
rental rates relative to market and rent abatements that have kept
in-place cash flows low as compared with the Issuer's figures from
issuance. The special servicer reports that the mezzanine lender is
expected to take over the borrower and assume the senior debt, with
other loan modifications, including a maturity extension, to be
processed in conjunction with those developments.
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 $44.1
million and DBRS Morningstar applied a cap rate of 9.2%, which
resulted in a DBRS Morningstar Value of $479.7 million, a variance
of 34.3% from the appraised value of $730.1 million at issuance.
The DBRS Morningstar Value implies an LTV of 80.6% compared with
the LTV of 52.9% 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 and office
properties, reflecting the diversification by asset type and the
core suburban location of all the properties.
DBRS Morningstar made no qualitative adjustments to the final LTV
sizing benchmarks used for this rating analysis.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating 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 20.6% 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 ratings assigned to Classes B and C were lower
than those results implied by the LTV sizing benchmarks when MVDs
are assumed under the Coronavirus Impact Analysis given the
loan-level event risk, particularly as it pertains to the
substantial hotel and Houston office concentrations. The trends on
these classes are Negative as DBRS Morningstar continues to monitor
the evolving economic impact of coronavirus-induced stress on the
transaction.
Notes: All figures are in U.S. dollars unless otherwise noted.
JPMCC COMMERCIAL 2016-JP4: Fitch Affirms BB- Rating on Cl. E Certs
------------------------------------------------------------------
Fitch Ratings has affirmed 12 classes and revised the Outlook of
one class of JPMCC Commercial Mortgage Securities Trust 2016-JP4
commercial mortgage pass-through certificates.
RATING ACTIONS
JPMCC 2016-JP4
Class A-2 46645UAR8; LT AAAsf Affirmed; previously AAAsf
Class A-3 46645UAS6; LT AAAsf Affirmed; previously AAAsf
Class A-4 46645UAT4; LT AAAsf Affirmed; previously AAAsf
Class A-S 46645UAX5; LT AAAsf Affirmed; previously AAAsf
Class A-SB 46645UAU1; LT AAAsf Affirmed; previously AAAsf
Class B 46645UAY3; LT AA-sf Affirmed; previously AA-sf
Class C 46645UAZ0; LT A-sf Affirmed; previously A-sf
Class D 46645UAC1; LT BBB-sf Affirmed; previously BBB-sf
Class E 46645UAE7; LT BB-sf Affirmed; previously BB-sf
Class X-A 46645UAV9; LT AAAsf Affirmed; previously AAAsf
Class X-B 46645UAW7; LT AA-sf Affirmed; previously AA-sf
Class X-C 46645UAA5; LT BBB-sf Affirmed; previously BBB-sf
KEY RATING DRIVERS
Increased Loss Expectations/Specially Serviced Loans: While the
majority of the pool continues to exhibit stable performance,
Fitch's loss expectations have increased since the last rating
action, primarily due to continued performance declines surrounding
the Fitch Loans of Concern (FLOCs; 23.7% of pool). The FLOCs
include two specially serviced loans (3.7%), which are new
transfers since the last rating action in October 2019, and four
non-specially serviced top 15 loans (17.2%).
The largest non-coronavirus specific specially serviced loan, The
Franklin Marketplace loan (1.8%), transferred to special servicing
in September 2020 for imminent default. The loan is secured by a
223,434-sf anchored community shopping center located in
Philadelphia, PA (15 miles northwest of the Central Business
District), experienced significant performance decline following
the December 2018 closure of Brightwood Career Institute (16.8% of
NRA). Occupancy declined to 65% at YTD June 2020, compared with
83.0% at issuance. The NOI debt service coverage ratio (DSCR)
declined to 0.89x for the first half of 2020, compared with 1.62x
at issuance and 1.31x at YE 2018. A cash trap is in place.
The second specially serviced loan is the Dick's Sporting Goods
Portfolio (1.8%), which consists of 264,338 square feet of retail
space within five single tenant Dick's retail centers (244,251 SF)
and one PetSmart center (20,087 SF) located in New Hampshire (3),
Illinois (1), Indiana (1) and Kansas (1). The loan was transferred
to Special Servicing in April 2020 for imminent default as the
borrower failed to make the full April payment. The borrower
subsequently brought the loan current and is requesting a loan
modification. As of YTD March 2020, the collateral's occupancy and
NOI DSCR were 100.0% and 2.68x, respectively compared with 100.0%
and 1.64x at YE 2019. Both loans remain current. Of the remaining
FLOCs, four (17.2%) are in the top 15.
As of the September 2020 distribution period, there are nine loans
(19.9%) on the servicer's watchlist for low occupancy and/or low
NOI DSCR.
Fitch Loans of Concern: The largest FLOC, Riverway (6.4%), is
secured by a four-building property totaling 869,120-sf suburban
office located in Rosemont, IL (1.5 miles from O'Hare International
Airport). The property consists of three office buildings and one
10,409 sf daycare center. Large tenants include U.S. Foods, Inc.
(38.1% of NRA; through September 2023), Culligan International
Company (6.5% of NRA; 0.4% expires December 2020, remainder through
Dec. 13, 2026), Appleton GRP LLC (4.3%; July 2021) and First Union
Rail Corporation (3.8%; January 2024). Physical occupancy decreased
to 66.5% as of the June 2020 rent roll from 91.0% at YE 2019 after
Central States Pension Fund (21.9%) vacated the property upon lease
expiration in December 2019. Additionally, The NPD Group Inc (4.4%)
also vacated the property after its lease expired in early 2020. As
a result, the servicer-reported NOI DSCR fell to 0.79x as of YTD
June 2020 from 1.60x at YE 2019. Cash management is currently in
place as Central States Pension Fund's lease expiration triggered a
major tenant cash flow sweep.
Summit Malll (5.4%), a non-specially serviced loan, was flagged as
a FLOC for declining tenant sales and overall regional mall
concerns. The Summit Mall loan (5.4% of pool) is secured by a
528,234-sf portion of an approximately 777,000-sf regional mall
located in the secondary market of Fairlawn, OH with exposure to
weaker anchors, including a non-collateral Dillard's and a
collateral Macy's. Macy's has been reporting declining sales since
issuance and has an upcoming scheduled lease expiration in October
2020 for which the tenant has yet to provide renewal notice.
Collateral occupancy was 90.2% as of June 2020, compared with 87.4%
at YE 2019, and 92.3% at issuance. The servicer-reported NOI DSCR
remains strong at 4.19x for the six months ended June 2020,
compared with 4.51x at YE 2019. According to the September 2019
tenant sales report, inline sales for comparable tenants less than
10,000 sf were projected at $357 psf for YE 2019 (excluding Apple),
down from $365 psf at YE 2018 and $379 psf at the time of issuance.
Sales for Macy's were projected to be $119 psf ($23.3 million
gross) for YE 2019, down from $123 psf ($24.1 million) at YE 2018
and $146 psf ($28.6 million) at issuance.
The third largest FLOC, Everett Plaza (2.7%), is secured by a
124,268-sf anchored retail property located in Everett, WA (24
miles north of Seattle's CBD). The property is shadow anchored by a
Walmart Supercenter and is located across the street from Everett
Mall (676,880sf shopping center anchored by Sears, Burlington,
Regal Stadium 16 Cinemas and LA Fitness). Vacancy at the subject
spiked after Pier 1 Imports, Inc. (8.1% of NRA), declared
bankruptcy in February 2020 and closed its outlet at this location.
As June 2020, the property reported an occupancy of 73.7% compared
with 81.8% at YE 2019. As a result, the servicer-reported NOI DSCR
fell to 0.98x as of YTD June 2020 from 1.24x at YE 2019. The
borrower has posted a $640,000 letter of credit with master
servicer in order to cure cash management triggered by the closure
of the Pier One store at the property.
Bilmar Beach Resort (2.5%) is a 165-key full-service hotel located
on Treasure Island, a barrier island located adjacent to St.
Petersburg, FL. The hotel is currently unflagged with no branding
agreement for the resort. The property is managed by Clearview
Hotel Capital. This loan has been flagged as a FLOC given the
potential for significant decline in property performance as a
result of the coronavirus pandemic. The loan remains current. As of
YTD June 2020, subject occupancy and NOI DSCR were 66.4% and 1.74x,
respectively, compared with 75.8% and 2.61x at YE 2019.
The remaining four FLOCs (6.5%) are all outside of the top 15 and
include two specially serviced loans. The remaining two FLOCs,
Twelve Oaks (1.7%), a grocery anchored 105,445 sf retail property
located in Savannah, GA and Timbergrove Heights (1.0%), a 95-unit
multifamily property located in Houston, TX, were flagged due to
coronavirus-related performance concerns.
Exposure to Coronavirus Pandemic: Five loans (15.7%) are secured by
hotel properties. The weighted average NOI DSCR for all the hotel
loans is 2.83x. These hotel loans could sustain a weighted average
decline in NOI of 64.1% before DSCR falls below 1.00x. Eighteen
loans (39.0%) are secured by retail properties. The weighted
average NOI DSCR for all performing retail loans is 2.11x. These
retail loans could sustain a weighted average decline in NOI of
43.5% before DSCR falls below 1.00x. Fitch's base case analysis
applied additional stresses to four hotel loans (5.3%) and ten
retail loans (11.0%) given the significant declines in
property-level cash flow in the short term as a result of the
decrease in travel and tourism and property closures from the
coronavirus pandemic. These additional stresses contributed to the
Negative Outlooks on classes D and E.
Minimal Change in Credit Enhancement: There has been minimal change
to credit enhancement since issuance. As of the September 2020
distribution date, the pool's aggregate balance has been reduced by
7.9% to $918.8 million from $997.6 million at issuance. Since
issuance, one loan (1.6% of original pool) prepaid with yield
maintenance and one loan (0.6%) was fully-defeased. Of the
remaining 37 loans in the pool, eight (36.3%) are full-term
interest-only, twelve (29.6%) are partial, ten (20.5%) have started
amortizing and the remaining seventeen (34.1%) are amortizing.
RATING SENSITIVITIES
The Stable Rating Outlooks on classes A-1 through C, X-A, and X-B
reflect the overall stable performance of the majority of the pool
and expected continued amortization. The Negative Rating Outlooks
on classes D, E and X-C reflect the potential for further downgrade
due to concerns surrounding the ultimate impact of the coronavirus
pandemic and the performance concerns associated with the FLOCs,
which include two specially serviced loans.
Factors that Could, Individually or Collectively, Lead to a
Positive Rating Action/Upgrade:
Sensitivity factors that lead to upgrades would include stable to
improved asset performance coupled with pay down and/or defeasance.
Upgrades of the 'A-sf' and 'AA-sf' categories would likely occur
with significant improvement in credit enhancement and/or
defeasance; however, adverse selection, increased concentrations
and further underperformance of the FLOCs or loans expected to be
negatively affected by the coronavirus pandemic could cause this
trend to reverse. Upgrades to the 'BBB-sf' and below-rated classes
are considered unlikely and would be limited based on sensitivity
to concentrations or the potential for future concentrations.
Classes would not be upgraded above 'Asf' if there is a likelihood
of interest shortfalls. An upgrade to the 'BBsf' rated classes is
not likely absent significant performance improvement on the FLOCs
and only if the performance of the remaining pool is stable and/or
if there is sufficient credit enhancement, which would likely occur
when the non-rated class is not eroded and the senior classes pay
off.
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 classes, rated 'AA-sf' through 'AAAsf',
are not likely due to their position in the capital structure and
the high credit enhancement; however, downgrades to these classes
may occur should interest shortfalls occur or if a high proportion
of the pool defaults and expected losses increase significantly.
Downgrades to the classes rated 'BBB-sf' and below would occur if
the performance of the FLOCs continues to decline or fails to
stabilize, should loans susceptible to the coronavirus pandemic not
stabilize and/or should loans transfer to special servicing.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
further negative rating actions, including downgrades or additional
Negative Rating Outlook revisions.
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.
LENDMARK FUNDING 2020-2: DBRS Gives Prov. BB Rating on Cl. D Notes
------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following notes to
be issued by Lendmark Funding Trust 2020-2 (Lendmark 2020-2 or the
Issuer):
-- $197,950,000 Class A rated AA (sf)
-- $13,310,000, Class B rated A (sf)
-- $11,850,000 Class C rated BBB (high) (sf)
-- $26,890,000 Class D rated BB (high) (sf)
The provisional ratings are based on a review by DBRS Morningstar
of the following analytical considerations:
-- 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, the DBRS Morningstar-projected cumulative
net loss (CNL) includes an assessment of the expected impact on
consumer behavior. The DBRS Morningstar CNL assumption is 10.80%.
-- 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, 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.
-- Transaction capital structure and form and sufficiency of
available credit enhancement.
-- Credit enhancement is in the form of overcollateralization,
subordination, amounts held in the reserve fund, and excess spread.
Credit enhancement levels are sufficient to support DBRS
Morningstar's stressed projected finance yield, principal payment
rate, and charge-off 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 principal by the
legal final maturity date.
-- Lendmark's capabilities with regard to originations,
underwriting and servicing.
-- DBRS Morningstar has performed an operational review of
Lendmark and considers the entity to be an acceptable originator
and servicer of unsecured personal loans with an acceptable back-up
servicer.
-- Lendmark's senior management team has considerable experience
and a successful track record within the consumer loan industry.
-- The credit quality of the collateral and performance of
Lendmark's consumer loan portfolio. DBRS Morningstar has used a
hybrid approach in analyzing the Lendmark portfolio that
incorporates elements of static pool analysis employed for assets,
such as consumer loans, and revolving asset analysis, employed for
such assets as credit card master trusts.
-- The weighted-average (WA) remaining term of the initial
collateral pool is approximately 47 months.
-- The WA current BEACON of the initial pool is approximately
614.
-- Lendmark's finance yield has averaged approximately 27.00%
since 2017. The WA coupon (WAC) of the pool is 25.93% and the
transaction includes a Reinvestment Criteria Event if the WAC is
less than 24.50%.
-- The DBRS Morningstar base-case assumption for the finance yield
is 24.50%.
-- DBRS Morningstar applied a finance yield haircut of 8.00% for
Class A, 6.00% for Class B, 4.67% for Class C, and 2.67% for Class
D. While these haircuts are lower than the range described in the
DBRS Morningstar "Rating U.S. Credit Card Asset-Backed Securities"
methodology, the fixed-rate nature of the underlying loans, lack of
interchange fees, and historical yield consistency support these
stressed assumptions.
-- Principal payment rates for Lendmark's portfolio, as estimated
by DBRS Morningstar, have generally averaged between 3.0% and 5.0%
over the prior several years.
-- The DBRS Morningstar base-case assumption for the principal
payment rate is 3.15%.
-- DBRS Morningstar applied a payment rate haircut of 40.00% for
Class A, 35.00% for Class B, 31.67% for Class C, and 23.33% for
Class D.
-- Charge-off rates on the Lendmark portfolio have generally
ranged between 5.00% and 10.00% over the prior several years.
-- The DBRS Morningstar base-case assumption for the charge-off
rate is 10.80%.
-- DBRS Morningstar has increased the base-case charge-off
assumption rate to 10.80% for the Series 2020-2 transaction, which
contrasts with the charge-off rate of 9.80% for the 2019-2
transaction. The increase in the assumption is due to the expected
economic impact of the coronavirus pandemic.
-- The legal structure and presence of legal opinions that will
address the true sale of the assets to the Issuer, the
non-consolidation of the special-purpose vehicle with Lendmark,
that the trust has a valid first-priority security interest in the
assets, and is consistent with the DBRS Morningstar "Legal Criteria
for U.S. Structured Finance."
Notes: All figures are in U.S. dollars unless otherwise noted.
MARGARITAVILLE BEACH 2019-MARG: DBRS Confirms B Rating on G Certs
-----------------------------------------------------------------
DBRS, Inc. confirmed the ratings on the following classes of the
Commercial Mortgage Pass-Through Certificates, Series 2019-MARG
issued by Margaritaville Beach Resort Trust 2019-MARG:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class X-EXT at AA (low) (sf)
-- Class D at A (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. DBRS Morningstar also discontinued the
rating on Class X-CP as it was paid out with the August 2020
remittance.
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 originally closed in May 2019 at an original trust
balance of $161.5 million, including an $18.5 million mezzanine
loan held outside the trust. The transaction is backed by the
leasehold interest in a AAA Four Diamond-rated luxury resort in
Hollywood, Florida, situated on 6.2 acres of beachfront property
between the Atlantic Ocean and the intracoastal Stranahan River.
The collateral is subject to a 99-year term ground lease between
the City of Hollywood and the borrower. The ground lease, which
commenced in July 2013 and will expire in July 2112, calls for a
minimum guaranteed annual rent of $1,000,000, with rent increases
of 15.0% on every fifth anniversary of the commencement date.
The resort offers 349 guest rooms, each featuring a private terrace
with an ocean/intracoastal view; 30,000 square feet (sf) of
indoor/outdoor event space; an adult-only pool; two family-friendly
pools; a surf simulator; an 11,000-sf spa; eight branded food and
beverage outlets; and 465 parking spaces. The property benefits
from its proximity to two major airports: Fort Lauderdale-Hollywood
International Airport located 7.5 miles north and Miami
International Airport located 23.4 miles south.
The sponsor, KSL Capital Partners, LLC, purchased the resort for
$194.0 million in April 2018 from the developer, Starwood Capital
Group, which built the property and opened Margaritaville Hollywood
Beach Resort for business in 2015. Loan proceeds of $180.0 million
were used to retire outstanding debt of $123.6 million and return
$49.3 million of equity to the sponsor ($78.8 million of implied
sponsor equity remains in the deal). At issuance, the loan was
structured with $1.98 million of upfront reserves to cover a room
configuration project that the sponsor completed in 2019.
Despite the coronavirus pandemic, the loan is current and the
sponsor has not requested any coronavirus-related relief. As of the
YE2019 financials, the trust loan reported a debt service coverage
ratio (DSCR) of 1.74 times (x), down from the issuer's assumed DSCR
of 1.81x at issuance. This can be attributed to a 5.3% decline in
effective gross income, softened by a reciprocal 4.2% decrease in
total operating expenses, combining for a total 8.8% decline in net
cash flow (NCF) when comparing the YE2019 figures with the
issuer's. The resort is currently open but subject to the county's
coronavirus-related regulations.
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 $15.6 million and DBRS
Morningstar applied a cap rate of 9.9%, which resulted in a DBRS
Morningstar Value of $174.2 million, a variance of 29.7% from the
appraised value of $248 million at issuance. The DBRS Morningstar
Value implies an LTV of 92.7% compared with the LTV of 65.1% 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 leasehold interest as well as the hotel's above
average-quality and strong sponsorship and management.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totaling 2.50%
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% 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 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.
MCA FUND III: DBRS Assigns Provisional BB Rating to Class C Notes
-----------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the Class
A Notes, the Class B Notes, and the Class C Notes (together, the
Notes) to be issued by MCA Fund III Holding LLC pursuant to the MCA
Fund III Offering Circular dated as of October 6, 2020, provided by
Barclays Capital Inc., CMFG Life Insurance Company, and MEMBERS
Capital Advisors, Inc. and their affiliates to DBRS Morningstar:
-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (sf)
The provisional ratings on the Class A Notes, the Class B Notes,
and the Class C Notes address the ultimate payment of interest and
the ultimate payment of principal on or before the Final Maturity
Date (as defined in the Offering Circular referenced above).
The Notes are backed by a portfolio of limited partnership
interests in leveraged buyout, mezzanine debt, secondaries, and
venture capital private equity funds. Each class of Notes is able
to withstand a percentage of tranche defaults from a Monte Carlo
asset analysis commensurate with its respective rating.
The rating reflects the following:
(1) The Offering Circular dated October 6, 2020.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the management capabilities
of MEMBERS Capital Advisors, Inc. as Investment Manager.
(6) 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. The scenarios were last updated on
September 10, 2020, and are reflected in DBRS Morningstar's rating
analysis.
Notes: All figures are in U.S. dollars unless otherwise noted.
MCA FUND III: Fitch Assigns BB(EXP) Rating on Class C Debt
----------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
MCA Fund III Holding, LLC. (MCA Fund III).
RATING ACTIONS
MCA Fund III Holding, LLC
Class A; LT A(EXP)sf Expected Rating; previously at
Class B; LT BBB(EXP)sf Expected Rating; previously at
Class C; LT BB(EXP)sf Expected Rating; previously at
TRANSACTION SUMMARY
MCA Fund III is a private equity collateralized fund obligation (PE
CFO) managed by MEMBERS Capital Advisors, Inc., an affiliate of
CMFG Life Insurance Company (CMFG). The transaction consists of
approximately $574.7 million net asset value (NAV) of funded
commitments and $189.7 million of unfunded capital commitments.
Final ratings are contingent on the receipt of final documents
conforming to information already received.
KEY RATING DRIVERS
Loan-to-Value: The A, B, and C notes will make up approximately
40.0%, 57.5%, and 70.0% of cumulative NAV at issuance, providing a
sufficient level of credit enhancement at the indicated rating
levels. While the cumulative loan-to-value (LTV) of the B notes is
above Fitch's limit of 50% for investment-grade ratings, Fitch has
taken into account the capital contributions expected to be made by
CMFG, which will increase the NAV, as well as other considerations
described in greater detail in the presale report. The ratings of
the class B and C notes reflect their subordination and the lower
level of credit enhancement available to these classes. The
transaction includes step-down LTV-based triggers to de-lever.
Stressed Cash Flow Analysis: Fitch measured the ability of the
structure to withstand weak performance in its underlying funds in
combination with adverse market cycles. Class A notes are expected
to be rated 'Asf', class B notes are expected to be rated 'BBBsf',
and class C notes are expected to be rated 'BBsf' reflecting their
ability to withstand fourth-quartile-, third-quartile-, and
all-quartile-level performance, respectively, in the underlying
funds under Fitch's scenario analysis.
Liquidity: The transaction's liquidity position is strong, as CMFG
will be funding capital calls, one distribution period's interest
for the class A and B notes will be reserved, and interest payments
on the notes are deferrable if cash flow is insufficient. The
remaining liquidity needs of the structure are relatively small and
expected to be covered by distributions from the underlying funds,
particularly the transaction's income producing funds, even in a
weak market environment.
Reliance on CMFG for Capital Calls: Fitch believes the reliance on
CMFG to fund capital calls is integral to the performance of the
transaction, especially in the early periods when unfunded
commitments are higher. While CMFG's credit profile is currently
not acting as a constraint on MCA Fund III's ratings, a
deterioration in Fitch's assessment of the credit quality of CMFG
may lead to a downgrade of the notes, absent other mitigants.
Portfolio Composition: The portfolio of PE fund interests is
diversified by strategy, vintage, managers, funds, underlying
holdings and sectors. The portfolio comprises 64 commingled funds,
two commingled co-investment funds, and five co-investments managed
by 57 fund managers as of June 30, 2020. On a look-through basis
the portfolio has 1,336 underlying investments.
Transaction Manager and Sponsor: Fitch believes that MCA has the
capabilities and resources required to manage this transaction.
Fitch also believes that the sponsor and noteholders' interests are
sufficiently aligned, as the sponsor and its affiliates are
expected to hold the class C notes and the equity stake
(approximately 42.5% of NAV) issued by MCA Fund III, which absorb
any losses before the A and B class noteholders. CMFG may also
retain a portion of the class A and class B notes. This transaction
is CMFG's third PE CFO since 2014.
Counterparty Exposure: In addition to MCA Fund III's reliance on
CMFG to fund capital calls, certain structural features of the
transaction involve reliance on other counterparties, such as the
account banks. The ratings of the notes could be negatively
affected in the event that key counterparties fail to perform their
duties. In the case of the account bank, Fitch believes this risk
is mitigated by counterparty rating requirements and replacement
provisions in the transaction documents that align with Fitch's
criteria.
Asset Isolation and Legal Structure: Fitch expects that the issuer
will be structured as a special-purpose, bankruptcy-remote entity,
the issuer will have 100% member interests in the AssetCo and the
assets held by the issuer will have been transferred to it as a
true sale. The assets held by AssetCo were acquired by AssetCo over
time, largely through primary fund commitments, using funds that
had been contributed to AssetCo by CMFG. Fitch has not yet received
legal opinions on the transaction, but expects the opinions to
address true sale, non-consolidation and other items customary for
similar transactions.
Rating Cap at 'Asf' Category: Fitch has a rating cap at the 'Asf'
category for PE CFO transactions, driven by the less proven nature
of the PE CFO asset class relative to other structured finance
asset classes, the uncertainty related to investment performance
and the timing of cash flows, the variability of asset valuations,
and lags in performance reporting. A secondary rating cap at the
'Asf' category also applies to the MCA Fund III notes related to
the fact that interest payments are deferrable.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating actions/upgrades include:
The ratings of class B and C notes may be upgraded if they pass
Fitch's 'Asf' and 'BBBsf' modelling scenarios, respectively, with
sufficient cushion, and the LTVs decrease.
Factors that could, individually or collectively, lead to negative
rating actions/upgrades include:
The ratings of the notes may be downgraded if cash flows
materialize at levels lower than modeled in Fitch's stress
scenarios. A material decline in NAV that, in Fitch's view, would
indicate insufficient forthcoming cash distributions to support the
notes could also lead to rating downgrades.
The ratings of class A, B and C notes may be downgraded if they
fail Fitch's 'Asf', 'BBBsf', and 'BBsf' modelling scenarios,
respectively, on a sustained basis.
A ratings downgrade of a counterparty may also materially affect
the ratings of the notes, given the reliance of the issuer on
counterparties to provide functions, including any provider of the
bank accounts, as discussed. A deterioration in Fitch's assessment
of the credit quality of CMFG could lead to a downgrade of the
class A notes, absent other mitigants as described. If CMFG is
replaced as the counterparty responsible for funding capital calls,
the credit quality of the replacement counterparty could serve as a
constraint on the ratings of the MCA Fund III notes.
Fitch relied in its analysis on the legal documentation and
opinions for the transaction. If any relevant party to the
transaction does not follow its responsibilities and procedures as
described in the documentation, the ratings on the notes may be
affected.
CRITERIA VARIATION
Fitch's analysis of the class B note issuance included a variation
from Fitch's criteria, "Exposure Draft: Private Equity
Collateralized Fund Obligations Rating Criteria", as it relates to
the 50% LTV limit for investment-grade ratings. While the class B
notes' LTV is above 50%, Fitch's expected 'BBBsf' rating for the
class B notes was based on the factors outlined in the section of
the presale titled," Structural Features: Class B Notes Rating
Above the 50% LTV Investment Grade Threshold". The expected rating
of the class B notes would have been 'BBsf' if Fitch did not apply
this criteria variation.
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.
DATA ADEQUACY
As the timing and size of the cash flows is uncertain, Fitch used
historical private equity fund performance data from a well-known
third-party data provider, which covers all performance quartiles
of the various fund strategies and vintages ranging from 1990 to
2019, to model expected distributions, capital calls and NAVs of
the underlying funds.
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 was not
prepared for this transaction. Offering Documents for this market
sector typically do not include RW&Es that are available to
investors and that relate to the asset pool underlying the trust.
Therefore, Fitch credit reports for this market sector will not
typically include descriptions of RW&Es.
MELLO WAREHOUSE 2020-1: Moody's Gives (P)Ba1 Rating on Cl. E Debt
-----------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to five
classes of residential mortgage-backed securities (RMBS) issued by
Mello Warehouse Securitization Trust 2020-1. The ratings range from
(P)Aaa (sf) to (P)Ba1 (sf). The securities are backed by a
revolving pool of newly originated first-lien, fixed rate and
adjustable rate, residential mortgage loans which are eligible for
purchase by Fannie Mae, Freddie Mac or in accordance with the
criteria of Ginnie Mae for the guarantee of securities backed by
mortgage loans to be pooled in connection with the issuance of
Ginnie Mae securities. The pool may also include FHA Streamline
mortgage loans or VA-IRRR mortgage Loans, which may have limited
valuation and documentation. The collateral pool balance is
$300,000,000.
The complete rating action are as follows.
Issuer: Mello Warehouse Securitization Trust 2020-1
Cl. A, Assigned (P)Aaa (sf)
Cl. B, Assigned (P)Aa2 (sf)
Cl. C, Assigned (P)A2 (sf)
Cl. D, Assigned (P)Baa2 (sf)
Cl. E, Assigned (P)Ba1 (sf)
RATINGS RATIONALE
Moody's bases its Aaa expected losses of 28.40% and base case
expected losses of 4.83% on a scenario in which loanDepot does not
pay the aggregate repurchase price to pay off the notes at the end
of the facility's two-year revolving term, and the repayment of the
notes will depend on the credit performance of the remaining static
pool of mortgage loans. To assess the credit quality of the static
pool, Moody's created a hypothetical adverse pool based on the
facility's eligibility criteria, which includes no more than 5% (by
unpaid balance) adjustable-rate mortgage (ARM) loans. Loans which
are subject to payment forbearance, a trial modification, or
delinquency are ineligible to enter the facility. Moody's analyzed
the pool using its US MILAN model and made additional pool level
adjustments to account for risks related to (i) a weak
representation and warranty enforcement framework (ii) existence of
compliance findings related to the TILA-RESPA Integrated Disclosure
(TRID) Rule in third-party diligence reports from prior Mello
Warehouse Securitization Trust transactions, which have raised
concerns about potential losses owing to TRID for the loans in this
transaction. The final rating levels are based on Moody's
evaluation of the credit quality of the collateral as well as the
transaction's structural and legal framework. If the notes are not
repaid at the two-year repo agreement term or loanDepot otherwise
defaults on its obligations as repo seller under the master
repurchase agreement (MRA), the ratings on the notes will only
reflect the credit of the mortgage loans backing the notes.
Collateral Description:
The mortgage loans will be newly originated, first-lien, fixed-rate
and adjustable rate mortgage loans that also comply with the
eligibility criteria set forth in the master repurchase agreement.
The aggregate principal balance of the purchased loans at closing
will be $300,000,000. Per the transaction documents, the mortgage
pool will have a minimum weighted average FICO of 730 and a maximum
weighted average LTV of 82%.
The ultimate composition of the pool of mortgage loans remaining in
the facility at the end of the two-year term upon default of
loanDepot is unknown. Moody's modeled this risk through evaluating
the credit risk of an adverse pool constructed using the
eligibility criteria. In generating the adverse pool: 1) Moody's
assumed the worst numerical value from the criteria range for each
loan characteristic. For example, the credit score of the loans is
not less than 620 and the weighted average credit score of the
purchased mortgage loans is not less than 730; the maximum
debt-to-income ratio is 50% in the adverse pool (per eligibility
criteria); 2) Moody's assumed risk layering for the loans in the
pool within the eligibility criteria. For example, loans with the
highest LTV also had the lowest FICO to the extent permitted by the
eligibility criteria; 3) Moody's took into account the specified
restrictions in the eligibility criteria such as the weighted
average LTV and FICO; 4) Since these loans are eligible for
purchase by the agencies, Moody's also took into account the
specified restrictions in the underwriting criteria. For example,
no more than 97% LTV for fixed rate purchased loans and 95% for
adjustable rate purchase loans.
The transaction allows the warehouse facility to include up to 50%
(was 25% in prior Mello Warehouse Securitization Trust
transactions) of mortgage loans (by outstanding principal balance)
whose collateral documents have not yet been delivered to the
custodian (wet loans). This transaction is more vulnerable to the
risk of losses owing to fraud from wet loans during the time it
does not hold the collateral documents. There are risks that a
settlement agent will fail to deliver the mortgage loan files after
receipt of funds, or the sponsor of the securitization, either by
committing fraud or by mistake, will pledge the same mortgage loan
to multiple warehouse lenders. However, its analysis has considered
several operational mitigants to reduce such risks, including (i)
collateral documents must be delivered to the custodian within 10
business days following a wet loan's funding or it becomes
ineligible, (ii) the transaction will only fund a wet loan if the
closing of the mortgage loan is handled by a settlement agent
(covered by errors and omissions insurance policy) who will provide
a closing protection letter to the repo seller (except for attorney
closings in the State of New York), (iii) the repo seller maintains
a fidelity bond in place, naming the issuer as an additional
insured party, in the event of fraud in connection with the closing
of the wet loans, (iv) the repo seller has acquired services of an
independent third party fraud detection and verification vendor,
PitchPoint Solutions Inc. (settlement agent vendor), to verify
credentials of settlement agents and the bank accounts for wires in
connection with the funding of such wet loans, and (v) Deutsche
Bank National Trust Company (Baa1), a highly rated independent
counterparty, act as the mortgage loan custodian. Moody's views
these mitigants as adequate measures to prevent the likelihood of
fraud by the settlement agent or the sponsor.
The loans will be originated and serviced by loanDepot.com, LLC.
U.S. Bank National Association will be the standby servicer.
Moody's considers the overall servicing arrangement for this pool
to be adequate. At the transaction closing date, the servicer
acknowledges that it is servicing the purchased loans for the joint
benefit of the issuer and the indenture trustee.
Transaction Structure:
Its analysis of the securitization structure includes reviewing
bankruptcy remoteness, assessing the ability of the indenture
trustee to take possession of the collateral in an event of
default, conformity of the collateral with the eligibility criteria
as well as allocation of funds to the notes.
The transaction is structured as a master repurchase agreement
between loanDepot (the repo seller) and the Mello Warehouse
Securitization Trust 2020-1 (the trust or issuer). The U.S.
Bankruptcy Code provides repurchase agreements, security contracts
and master netting agreements a "safe harbor" from the Bankruptcy
Code automatic stay. Due to this safe harbor, in the event of a
bankruptcy of loanDepot, the issuer will be exempt from the
automatic stay and thus, the issuer will be able to exercise
remedies under the master repurchase agreement, which includes
seizing the collateral.
During the revolving period, the repo seller's obligations will
include making timely payments of interest accrued on the notes as
well as the aggregate monthly fees. Failure to make such payments
will constitute a repo trigger event whereby the indenture trustee
will seize the collateral and terminate the repo agreement. It is
expected that the notes will not receive payments of principal
until the expected maturity date or after the occurrence and
continuance of an event of default under the indenture unless the
repo seller makes an optional prepayment. In an event of default,
principal will be distributed sequentially amongst the classes.
Realized losses will be allocated in a reverse sequential order.
In addition, since the pool may consist of both fixed rate and
adjustable rate mortgages, the transaction may be exposed to
potential risk from interest rate mismatch. To account for the
mismatch, Moody's assumed a stressed LIBOR curve by increasing the
one-month LIBOR rate incrementally for a certain period until it
reaches the maximum allowable interest rate as described in the
transaction documents.
Ongoing Due Diligence
During the revolving period, Clayton Services LLC (or a qualified
successor diligence provider appointed by the repo seller) will
conduct ongoing due diligence every 90 days on 100 randomly
selected loans (other than wet loans). The first review will be
performed 30 days following the closing date. In previous
transactions, three diligence reviews were conducted over the life
of the transaction. Moody's did not make any adjustments for the
reduction in the diligence frequency because the diligence results
for prior transactions have been stable and in-line with
expectation since the program's inception in 2016. The scope of the
review will include credit underwriting, regulatory compliance,
valuation and data integrity.
Because Moody's analysis is based on a scenario in which the
facility terms out, due diligence reviews provide some control on
the credit quality of the collateral. The due diligence framework
in this transaction combined with the collateral eligibility
controls help mitigate the risks of adverse selection in this
transaction.
While the due diligence review will provide some validation on the
quality of the loans, it may not be fully representative of the
collateral quality of the facility at all times. This is mainly due
to the frequency of the due diligence review, the revolving nature
of the collateral pool, and that the review will be conducted on a
sample basis. Also, by the time the due diligence review is
completed, some of the sampled loans may no longer be in the pool.
Representation and Warranties
For a mortgage loan to qualify as an eligible mortgage loan, the
loan must meet representations and warranties described in the
repurchase agreement. The substance of the representations and
warranties are consistent with those in its published criteria for
representations and warranties for U.S. RMBS transactions. After a
repo event of default, which includes the repo seller or buyer's
failure to purchase or repurchase mortgage loans from the facility,
the repo seller or buyer's failure to perform its obligations or
comply with stipulations in the master repurchase agreement,
bankruptcy or insolvency of the buyer or the repo seller, any
breach of covenant or agreement that is not cured within the
required period of time, as well as the repo seller's failure to
pay price differential when due and payable pursuant to the master
repurchase agreement, a delinquent loan reviewer will conduct a
review of loans that are more than 120 days delinquent to identify
any breaches of the representations and warranties provided by the
underlying sellers. Loans that breach the representations and
warranties will be put back to the repo seller for repurchase.
While the transaction has the above described representation and
warranties enforcement mechanism, in the amortization period, after
an event of default where the repo seller did not pay the notes in
full, it is unlikely that the repo seller will repurchase the
loans. In addition, the noteholders (holding 100% of the aggregate
principal amount of all notes) may waive the requirement to appoint
such delinquent loan reviewer.
Elevated social risks associated with the COVID-19
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's has not made any adjustments related to COVID-19 for this
transaction because (i) loans that are subject to payment
forbearance or a trial modification are ineligible to enter the
facility, and the repo seller must repurchase loans in the facility
that become subject to forbearance, (ii) delinquent loans are
ineligible to enter the facility, and (iii) loans are unlikely to
be modified while in the facility due to the seasoning constraint
specified in the eligibility criteria. The repo seller will be
required to repurchase any loans that do not meet the "eligible
loan" criteria.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings 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 the state of the housing
market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above its original expectations as
a result of a weaker collateral composition than that in the
adverse pool, financial distress of any of the counterparties.
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.
NOVASTAR MORTGAGE 2006-MTA1: Moody's Lowers Class X Debt to C
-------------------------------------------------------------
Moody's Investors Service downgraded the rating of Class X issued
by NovaStar Mortgage Funding Trust Series 2006-MTA1. The collateral
backing this deal consists of Option ARM mortgage loans.
Complete rating actions are as follows:
Issuer: NovaStar Mortgage Funding Trust Series 2006-MTA1
Cl. X*, Downgraded to C (sf); previously on Oct 27, 2017 Confirmed
at Caa3 (sf)
*Reflects Interest Only Classes
RATINGS RATIONALE
The downgrade of the rating to C(sf) reflects the nonpayment of
interest for an extended period of more than 12 months. The rating
action also reflects the recent performance as well as Moody's
updated loss expectations on the underlying pools. In light of the
current macroeconomic environment, Moody's revised loss
expectations based on the extent of performance deterioration of
the underlying mortgage loans, resulting from a slowdown in
economic activity and increased unemployment due to the coronavirus
outbreak. Specifically, Moody's has observed an increase in
delinquencies, payment forbearance, and payment deferrals since the
start of pandemic, which could result in higher realized losses.
Its analysis considers the current proportion of loans granted
payment relief in each individual transaction. Moody's identified
these loans based on a review of loan level cashflows over the last
few months. In cases where loan level data is not available,
Moody's assumed that the proportion of borrowers enrolled in
payment relief programs would be equal to levels observed in
transactions of comparable asset quality. Based on its analysis,
the proportion of borrowers that are currently enrolled in payment
relief plans varied greatly, ranging between approximately 4% and
25% among RMBS transactions issued before 2009. In its analysis,
Moody's assumes these loans to experience lifetime default rates
that are 50% higher than default rates on the performing loans.
In addition, for borrowers unable to make up missed payments
through a short-term repayment plan, servicers will generally defer
the forborne amount as a non-interest-bearing balance, due at
maturity of the loan as a balloon payment. Its analysis considered
the impact of six months of scheduled principal payments on the
loans enrolled in payment relief programs being passed to the trust
as a loss. The magnitude of this loss will depend on the proportion
of the borrowers in the pool subject to principal deferral and the
number of months of such deferral. The treatment of deferred
principal as a loss is credit negative, which could incur
write-downs on bonds when missed payments are deferred.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous, and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Principal Methodologies
The methodologies used in rating interest-only classes were "US
RMBS Surveillance Methodology" published in July 2020, and "Moody's
Approach to Rating Structured Finance Interest-Only (IO)
Securities" published in February 2019.
In addition, Moody's publishes a weekly summary of structured
finance credit ratings and methodologies.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the 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.
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 expectations as a
result of a higher number of obligor defaults or deterioration in
the value of the mortgaged property securing an obligor's promise
of payment. Transaction performance also depends greatly on the US
macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions.
An IO bond may be upgraded or downgraded, within the constraints
and provisions of the IO methodology, based on lower or higher
realized and expected loss due to an overall improvement or decline
in the credit quality of the reference bonds.
OAKTOWN RE 2020-2: DBRS Gives Prov. B(low) Rating on Class M2 Notes
-------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the Mortgage
Insurance-Linked Notes, Series 2020-2 (the Notes) to be issued by
Oaktown Re V Ltd. (OMIR 2020-2 or the Issuer):
-- $69.7 million Class M-1A at BBB (low) (sf)
-- $78.8 million Class M-1B at BB (low)(sf)
-- $78.8 million Class M-2 at B (low) (sf)
The BBB (low) (sf), BB (low) (sf), and B (low) (sf) ratings reflect
4.85%, 3.55%, and 2.25% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
OMIR 2020-2 is National Mortgage Insurance Corporation's (NMI; the
ceding insurer) fourth-rated mortgage insurance (MI)-linked note
transaction. Payments to 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 that 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 87,967 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 on or after July 2019.
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 claims are settled with respect to 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 the 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
6.25% from 6.00%. The delinquency test will be satisfied if the
three-month average of 60+ days delinquency percentage is below 75%
of the subordinate percentage. Unlike earlier rated NMI MILN
transactions where the delinquency test is satisfied when the
delinquency percentage falls below a fixed threshold, this
transaction incorporates a dynamic delinquency test. Interest
payments are funded via (1) premium payments that the ceding
insurer must make under the Reinsurance Agreement and (2) earnings
on eligible investments.
On the Closing Date, the ceding insurer will establish a cash and
securities account, the premium deposit account. In case of the
ceding insurer's default in paying coverage premium payments to the
Issuer, the amount available in this account will be used to make
interest payments to the noteholders. The presence of this account
mitigates certain counterparty exposure that the trust has to the
ceding insurer. Unlike prior OMIR 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 October 25, 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.
NMI will act as 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 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 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 pandemic, 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. 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, 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.
OAKTOWN RE V: Moody's Assigns (P)B3 Rating on Class B-1 Notes
-------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to four
classes of mortgage insurance credit risk transfer notes issued by
Oaktown Re V Ltd.
Oaktown Re V Ltd. is the second transaction issued under the
Oaktown Re program in 2020, which transfers to the capital markets
the credit risk of private mortgage insurance (MI) policies issued
by National Mortgage Insurance Corporation (NMI, 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, Oaktown Re V 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-2coverage 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: Oaktown Re V Ltd.
Cl. M-1A, Assigned (P)Baa2 (sf);
Cl. M-1B, Assigned (P)Ba1 (sf);
Cl. M-2, Assigned (P)B1 (sf);
Cl. B-1, Assigned (P)B3 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expects this insured pool's aggregate exposed principal
balance to incur 1.79% losses in a base case scenario, and 15.59%
losses under a Aaa stress scenario. The aggregate exposed principal
balance is the product, for all the mortgage loans covered by MI
policies, of (i) the unpaid principal balance of each mortgage
loan, (ii) the MI coverage percentage, and (iii) the reinsurance
coverage percentage. Reinsurance coverage percentage is 100% minus
existing quota share reinsurance through unaffiliated insurer, if
any. The existing quota share reinsurance applies to about 98.7% of
unpaid principal balance of the reference pool, covering
approximately 21% of risk in force. The ceding insurer has
purchased quota share reinsurance from unaffiliated third parties,
which provides proportional reinsurance protection to the ceding
insurer for certain losses.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's increased its model-derived median expected losses by 15%
(mean expected losses by 13.20%) 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 reporting date on or
after July 1, 2019, but on or before September 30, 2020. The
reference pool consists of 87,967 prime, majority fixed -rate, one-
to four-unit, first-lien fully-amortizing, predominantly conforming
mortgage loans with a total insured loan balance of approximately
$30.8 billion. All loans in the reference pool had a loan-to-value
(LTV) ratio at origination that was greater than or equal to 80%,
with a weighted average of 90.7%. The borrowers in the pool have a
weighted average FICO score of 763, a weighted average
debt-to-income ratio of 33.0% and a weighted average mortgage rate
of 3.2%. The weighted average risk in force (MI coverage percentage
net of existing reinsurance coverage) is approximately 19.7% 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 90.7% 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 and slightly lower than recent
comparable Mortgage Insurance CRT transactions. 100% of insured
loans were covered by mortgage insurance at origination with 98.7%
covered by BPMI and 1.3% covered by LPMI based on risk in force.
Underwriting Quality
Moody's took into account several key qualitative factors during
the ratings process, including qualities of NMI's insurance
underwriting, risk management and claims payment process, as well
as the scope and results of the independent third-party due
diligence review.
Mortgage insurance underwriting
Lenders submit mortgage loans to NMI for insurance either through
delegated underwriting or non-delegated underwriting program. Under
the delegated underwriting program, lenders can submit loans for
insurance without NMI re-underwriting the loan file. NMI issues an
MI commitment based on the lender's representation that the loan
meets the insurer's underwriting requirement. Lenders eligible
under this program must be pre-approved by NMI'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. NMI performs independent validation of the entire
loan file (underwriting file and closing package) on most of the
mortgage loans underwritten through delegated program. As of June
2020, approximately 67% of the loans in NMI's overall portfolio are
insured through delegated underwriting, of which 59% were subject
to post-close validation and 33% through non-delegated
underwriting. NMI broadly follows the GSE underwriting guidelines
via DU/LP, subject to certain additional limitations and
requirements. NMI performs an internal quality assurance review on
a sample basis of delegated and non-delegated underwritten loans.
NMI utilizes third party vendors in the quality assurance reviews
as well as re-verifications and investigations. Vendors must meet
stringent approval requirements. 10% of all third party reviewed
loans deemed as having no findings, are evaluated by NMI's staff to
ensure accuracy.
Third-Party Review
NMI engaged AMC Diligence, LLC (AMC) 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
356 of the total loans in the initial reference pool as of August
2020, or 0.40% by loan count). Once the sample size was determined,
the files were selected randomly to meet the final sample count of
356 files out of a total of 31,008 loan files available for
sampling.
In spite of the small sample size and a limited TPR scope for
Oaktown Re V Ltd., Moody's did not make an additional adjustment to
the loss levels because, (1) Approximately 34.1% of the insured
loans were re-underwritten by the ceding insurer through the
non-delegated underwriting channel, 57.6% of the insured loans were
underwritten through delegated channels and were subject to
post-close validation by approved underwriting vendors, (2) the
underwriting quality of the insured loans is monitored under the
GSEs' stringent quality control system, and (3) MI policies will
not cover any costs related to compliance violations.
In addition, the TPR available sample does not cover a subset of
pool that have MI coverage reporting date after August 2020,
representing 20.0% 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-August 2020 subset and the
pre-August 2020 subset, including the percentage of loans with MI
policies underwritten through non-delegated underwriting program,
which ceding insurer requires full loan file and performs
independent re-underwriting and quality assurance. Moody's took
this into consideration in its TPR review.
Scope and results. The third-party due diligence scope focuses on
the following:
Appraisals: The third-party diligence provider also reviewed
property valuation on 356 loans in the sample pool. The third-party
review concluded a property grade of A for 354 loans. For those
loans with property grade A, an AVM was first ordered on all loans,
in which 6 AVMs returned no results due to insufficient property
information. The AVM variance is calculated as difference between
AVM value and the lesser of original appraisal or sales price. If
the resulting negative variance of the AVM was greater than 10%, or
if no results were returned, a BPO was ordered on the property. If
the resulting value of the BPO was less than 90% of the value
reflected on the original appraisal a field review was ordered on
the property. Within these grade A loans, all the appraisal values
are supported by secondary valuation within a 10% variance. Loans
qualified with a property inspection waiver were excluded from a
BPO or a field review.
In addition, two mortgage loans received a "C" property grade as
the secondary valuation obtained resulted in a value that was
greater than 10% of the appraisal value. Moody's did not make
additional adjustment to these loans given Moody's used the lower
of original appraisal and purchase price as property value in its
analysis.
Credit: The third-party diligence provider reviewed credit on 356
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 NMI. For GSE eligible
mortgage loan files, the review of the Automated Underwriting
System (AUS) output was also performed. Per the TPR report, 352
loans have credit grade A, three loans have credit grade C and one
loan has grade D. These grade C exceptions were due to GSE
requirement not being met and grade D exception was due to
insufficient documentation provided to due diligence provider from
the lender or servicer. Moody's did not make adjustment to its
losses for these exceptions because these were all GSE eligible
loans underwritten to full documentation. Such exceptions will
likely to be cured after transaction closing.
Data integrity: The third-party review firm was provided a data
file with loan level data, which was audited against origination
documents to determine the accuracy of data found within the data
tape. A total of 16 data fields were reviewed against the loan
files to confirm the integrity of data tape information. As the TPR
report suggests, there is one discrepancy finding under original
loan amount column and one discrepancy under representative FICO.
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 coverage
level A and coverage level B-2. 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 notes, resulting in a shorter expected
weighted average life on the 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.
Credit enhancement in this transaction is comprised of
subordination provided by junior notes. The rated M-1A, M-1B, M-2
and B-1 offered notes have credit enhancement levels of 4.85%,
3.55%, 2.25% and 2.00%, 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: 6.25%).
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 Consolidated Analytics, Inc., 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 claim's consultant to the trustee, the issuer and the ceding
insurer. The issuer will be required to provide a copy of the final
report to the noteholders and the rating agencies.
Unlike RMBS transactions where there is typically some level of
independent third-party oversight by the trustee, the master
servicer and/or the securities administrator, MI CRT transactions
typically do not have such oversight. As noted, the ceding insurer
not only has full control of the trust account but can also
determine, at its discretion, the MI claims amount. The ceding
insurer will then direct the trustee to withdraw the funds to
reimburse for the claims paid. Since the trustee is not required to
verify the MI claims amount, there could be a scenario where funds
are withdrawn from the reinsurance trust account in excess of the
amounts necessary to reimburse the ceding insurer. As such, Moody's
believes the claims consultant in this transaction will provide the
oversight to mitigate such risks.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Methodology
The principal methodology used in these ratings was "Moody's
Approach to Rating US RMBS Using the MILAN Framework" published in
April 2020.
REPUBLIC FINANCE 2019-A: DBRS Confirms BB Rating on Class C Notes
-----------------------------------------------------------------
DBRS, Inc. confirmed its ratings on the following classes of
securities issued by Republic Finance Issuance Trust 2019-A:
-- Class A Notes, confirmed at A (sf)
-- Class B Notes, confirmed at BBB (sf)
-- Class C 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 stimulus
were also incorporated into the analysis.
-- The level of hard credit enhancement in the form of
overcollateralization, subordination, and amounts held in reserve
fund available in the transaction. Hard credit enhancement and
estimated excess spread are sufficient to support the DBRS
Morningstar current rating levels listed above.
-- The collateral performance to date and DBRS Morningstar's
assessment of future performance, including upward revisions to the
expected charge off assumptions consistent with the expected
unemployment levels in the moderate scenario.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
SEQUOIA MORTGAGE 2020-4: Fitch to Rate Class B4 Certs BB-(EXP)
--------------------------------------------------------------
Fitch Ratings expects to assign ratings to the residential
certificates to be issued by Sequoia Mortgage Trust 2020-4.
RATING ACTIONS
Sequoia Mortgage Trust 2020-4
Class A-IO24; LT AAA(EXP)sf Expected Rating
Class A-IO25; LT AAA(EXP)sf Expected Rating
Class A-IO26; LT AAA(EXP)sf Expected Rating
Class A1; LT AAA(EXP)sf Expected Rating
Class A10; LT AAA(EXP)sf Expected Rating
Class A11; LT AAA(EXP)sf Expected Rating
Class A12; LT AAA(EXP)sf Expected Rating
Class A13; LT AAA(EXP)sf Expected Rating
Class A14; LT AAA(EXP)sf Expected Rating
Class A15; LT AAA(EXP)sf Expected Rating
Class A16; LT AAA(EXP)sf Expected Rating
Class A17; LT AAA(EXP)sf Expected Rating
Class A18; LT AAA(EXP)sf Expected Rating
Class A19; LT AAA(EXP)sf Expected Rating
Class A2; LT AAA(EXP)sf Expected Rating
Class A20; LT AAA(EXP)sf Expected Rating
Class A21; LT AAA(EXP)sf Expected Rating
Class A22; LT AAA(EXP)sf Expected Rating
Class A23; LT AAA(EXP)sf Expected Rating
Class A24; LT AAA(EXP)sf Expected Rating
Class A3; LT AAA(EXP)sf Expected Rating
Class A4; LT AAA(EXP)sf Expected Rating
Class A5; LT AAA(EXP)sf Expected Rating
Class A6; LT AAA(EXP)sf Expected Rating
Class A7; LT AAA(EXP)sf Expected Rating
Class A8; LT AAA(EXP)sf Expected Rating
Class A9; LT AAA(EXP)sf Expected Rating
Class AIO1; LT AAA(EXP)sf Expected Rating
Class AIO10; LT AAA(EXP)sf Expected Rating
Class AIO11; LT AAA(EXP)sf Expected Rating
Class AIO12; LT AAA(EXP)sf Expected Rating
Class AIO13; LT AAA(EXP)sf Expected Rating
Class AIO14; LT AAA(EXP)sf Expected Rating
Class AIO15; LT AAA(EXP)sf Expected Rating
Class AIO16; LT AAA(EXP)sf Expected Rating
Class AIO17; LT AAA(EXP)sf Expected Rating
Class AIO18; LT AAA(EXP)sf Expected Rating
Class AIO19; LT AAA(EXP)sf Expected Rating
Class AIO2; LT AAA(EXP)sf Expected Rating
Class AIO20; LT AAA(EXP)sf Expected Rating
Class AIO21; LT AAA(EXP)sf Expected Rating
Class AIO22; LT AAA(EXP)sf Expected Rating
Class AIO23; LT AAA(EXP)sf Expected Rating
Class AIO3; LT AAA(EXP)sf Expected Rating
Class AIO4; LT AAA(EXP)sf Expected Rating
Class AIO5; LT AAA(EXP)sf Expected Rating
Class AIO6; LT AAA(EXP)sf Expected Rating
Class AIO7; LT AAA(EXP)sf Expected Rating
Class AIO8; LT AAA(EXP)sf Expected Rating
Class AIO9; LT AAA(EXP)sf Expected Rating
Class B1; LT AA-(EXP)sf Expected Rating
Class B2; 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 NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 350 loans with a total balance of
approximately $304.36 million as of the cutoff date. The pool
consists of prime fixed-rate mortgages acquired by Redwood
Residential Acquisition Corp. (Redwood) from various mortgage
originators. Distributions of principal and interest and loss
allocations are based on a senior-subordinate, shifting-interest
structure.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The pool consists of very
high-quality 30-year, 25-year and 20-year, fixed-rate, fully
amortizing loans to borrowers with strong credit profiles,
relatively low leverage and large liquid reserves. The pool has a
weighted average (WA) original model FICO score of 775 and an
original WA combined loan to value (CLTV) ratio of 71%. All the
loans in the pool consist of Safe Harbor Qualified Mortgages
(SHQM).
Interest Reduction Risk (Negative): The transaction incorporates a
structural feature unique to Redwood's program for loans more than
120 days delinquent (a stop-advance loan). Unpaid interest on
stop-advance loans reduces the amount of interest that is
contractually due to bondholders in reverse-sequential order. While
this feature helps limit cash flow leakage to subordinate bonds, it
can result in interest reductions to rated bonds in high-stress
scenarios.
Low Operational Risk (Neutral): The operational risk is well
controlled for in this transaction. Redwood is assessed as an
'Above Average' aggregator. The aggregator has a robust sourcing
strategy and maintains experienced senior management and staff,
strong risk management and corporate governance controls, and a
robust due diligence process. Primary and master servicing
functions will be performed by entities rated 'RPS2' and 'RMS2+',
respectively.
Credit Enhancement Floor (Positive): To mitigate tail risk, which
arises as the pool seasons and fewer loans are outstanding, a
subordination floor of 0.75% of the original balance will be
maintained for the certificates. The floor is sufficient to protect
against the five largest loans defaulting at Fitch's 'AAAsf'
average loss severity of 39%.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper MVDs than assumed at the MSA level.
The implied rating sensitivities are only an indication of some of
the potential outcomes and do not consider other risk factors that
the transaction may become exposed to or that may be considered in
the surveillance of the transaction. Sensitivity analyses was
conducted at the state and national levels to assess the effect of
higher MVDs for the subject pool as well as lower MVDs, illustrated
by a gain in home prices.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
This defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the
model-projected 37.1% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to negative MVDs at the national level, or
in other words positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth of
10%. Excluding the senior class, which is already rated 'AAAsf',
the analysis indicates there is potential positive rating migration
for all of the rated classes. Specifically, a 10% gain in home
prices would result in a full category upgrade for the rated class
excluding those being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up- and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Fitch has added a Coronavirus Sensitivity Analysis that includes a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delays
any meaningful recovery to beyond 2021. Under this severe scenario,
Fitch expects the ratings to be impacted by changes in its
sustainable home price model due to updates to the model's
underlying economic data inputs. Any long-term impact arising from
coronavirus disruptions on these economic inputs will likely affect
both investment and speculative grade ratings.
SG RESIDENTIAL 2020-2: Fitch to Rate Class B-2 Certs 'B(EXP)'
-------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by SG Residential Trust 2020-2 (SGR 2020-2).
RATING ACTIONS
SGR 2020-2
Class A-1; LT AAA(EXP)sf Expected Rating
Class A-2; LT AA(EXP)sf Expected Rating
Class A-3; LT A(EXP)sf Expected Rating
Class A-IO-S; LT NR(EXP)sf Expected Rating
Class B-1; LT BB(EXP)sf Expected Rating
Class B-2; LT B(EXP)sf Expected Rating
Class B-3; LT NR(EXP)sf Expected Rating
Class M-1; LT BBB(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch Ratings expects to rate the residential mortgage-backed
certificates to be issued by SG Residential Mortgage Trust 2020-2,
Mortgage-Backed Certificates, Series 2020-2 (SGR 2020-2) as
indicated. The certificates are supported by 212 loans with a
balance of $109.36 million as of the cutoff date. This will be the
first Fitch-rated transaction issued by SG Capital Partners.
The certificates are secured mainly by nonqualified mortgages
(Non-QM) as defined by the Ability to Repay (ATR) rule.
Approximately 70% of the loans were originated by ClearEdge, one of
SG Capital's wholesale originators. The remaining 30% of loans were
originated by a variety of other captive wholesale originators that
each contributed less than 10% to the pool. Select Portfolio
Servicing, will be the servicer and Nationstar Mortgage LLC will be
the Master Servicer for the transaction.
Of the pool, 75% comprises loans designated as Non-QM, and the
remaining 25% are investment properties not subject to ATR.
KEY RATING DRIVERS
Revised GDP Due to the Coronavirus (Negative): The ongoing
coronavirus pandemic and resulting containment efforts have
resulted in revisions to Fitch's GDP estimates for 2020. Fitch's
current baseline Global Economic Outlook for U.S. GDP growth is
-4.6% for 2020, down from 1.7% for 2019. To account for the
baseline macroeconomic scenario and increase in loss expectations,
the Economic Risk Factor (ERF) default variable for the 'Bsf' and
'BBsf' rating categories has been increased from floors of 1.0 and
1.5, respectively, to 2.0.
Liquidity Stress for Payment Forbearance (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 40% of the pool for the first six months
of the transaction at all rating categories, with a reversion to
its standard delinquency and liquidation timing curve by month 10.
This assumption is based on observations of past-due payments
following Hurricane Maria in Puerto Rico. As of the cutoff date,
the issuer confirmed that no loans were on an active pandemic
relief plan.
Nonprime Credit Quality (Mixed): The collateral consists of 30-year
FRM and five-year ARM fully amortizing loans, seasoned
approximately 10 months in aggregate. Approximately 77% of the pool
was originated through a broker channel. The borrowers in this pool
have strong credit profiles (715 WA FICO) and relatively low
leverage (75.3% sLTV) as determined by Fitch. In addition, the pool
contains some concentration of loans of particularly large size.
Thirty loans are over $1 million and the largest is $2.54 million.
Payment Forbearance (Mixed): Fitch considered 47 loans (25.8% by
balance) were previously put on pandemic relief plans and had their
payment deferred. No loans are currently on active plans. Of the
loans that were previously on a COVID relief plan, 24.4% have made
their payments after the deferral expiration date and are current.
One loan in the pool (0.2%) did not make its September payment and
is delinquent.
Fitch considered borrowers who made their payments after the
deferral expiration date as current for the deferral period while
the borrowers who were not cash flowing post deferral were treated
as delinquent.
SG Capital will be allocating the deferred balance to a non-rated
class. Fitch included the deferrals as a junior lien in its
analysis.
Loss Concentration (Negative): The pool contains 212 loans with a
weighted average (WA) count of 129. As a result, a 3.23% penalty
was added to the 'AAA' loss to account for loan concentration.
Bank Statement Loans Included (Negative): Approximately 68.2% of
the pool (126 loans) was made to self-employed borrowers
underwritten to a bank statement program (38.5% was underwritten to
a 24-month bank statement program and 29.7% to a 12-month bank
statement program) for verifying income, which is not consistent
with Appendix Q standards and Fitch's view of a full documentation
program. A key distinction between this pool and legacy Alt-A loans
is that these loans adhere to underwriting and documentation
standards required under the CFPB's Ability to Repay Rule (Rule),
which reduces the risk of borrower default arising from lack of
affordability, misrepresentation or other operational quality risks
due to rigor of the Rule's mandates with respect to the
underwriting and documentation of the borrower's ability to repay.
High Investor Property Concentration (Negative): 25.1% of the pool
comprises investment properties., which were underwritten to the
borrower's credit attributes. 4.7% of the pool consists of loans to
non-permanent residents that were treated as investor loans. The
borrowers of the U.S. resident investor properties in the pool have
strong credit profiles, with a WA FICO of 743 (as calculated by
Fitch) and an original CLTV of 68.2% and the non-permanent resident
loans have a WA FICO of 650 (as calculated by Fitch) and an
original CLTV of 65.4%. There are no investor cash flow loans in
the pool.
Geographic Concentration (Negative): Approximately 66% of the pool
is concentrated in California with moderate MSA concentration. The
largest MSA concentration is in Los Angeles MSA (35.6%) followed by
the San Francisco MSA (13.6%) and the Miami MSA (8.2%). The top
three MSAs account for 57.3% of the pool. As a result, there was a
1.16x adjustment for geographic concentration resulting in a 1.31%
penalty at AAA.
Modified Sequential Payment Structure (Neutral): The structure
distributes collected principal pro rata among the class A notes
while shutting out the subordinate bonds from principal until all
three classes are reduced to zero. To the extent that either the
cumulative loss trigger event or the delinquency trigger event
occurs in a given period, principal will be distributed
sequentially to the class A-1, A-2 and A-3 bonds until they are
reduced to zero.
Stop Advance Structure (Mixed): The transaction has a stop advance
feature where the servicer will advance delinquent P&I up to 180
days. While the limited advancing of delinquent P&I benefits the
pool's projected loss severity (LS), it reduces liquidity. To
account for the reduced liquidity of a limited advancing structure,
principal collections are available to pay timely interest to the
'AAAsf', 'AAsf' and 'Asf' rated bonds. Fitch expects 'AAAsf' and
'AAsf' rated bonds to receive timely payments of interest and all
other bonds to receive ultimate interest. Additionally, as of the
closing date, the deal benefits from approximately 323 bps of
excess spread, which will be available to cover shortfalls prior to
any writedowns.
The servicer Select Portfolio Servicing (SPS) will provide P&I
advancing on delinquent loans (even the loans on a coronavirus
forbearance plan). If SPS is not able to advance, the master
servicer (Nationstar Mortgage LLC) will advance P&I on the
certificates and if Nationstar is not able to advance, the
securities administrator (Citibank) will advance P&I on the
certificates, in each case, based on the applicable advancing
party's recoverability determination.
Low Operational Risk (Positive): Operational risk is adequately
controlled for in this transaction. Prior to the suspension of SG
Capital's correspondent aggregation business in March 2020, the
company employed an effective acquisition operation with strong
management, an experienced underwriting team and risk management
framework. Fitch assessed SG Capital as an 'Average' aggregator.
ClearEdge Lending is assessed as an 'Average' originator. Primary
servicing functions will be performed by Select Portfolio
Servicing, rated an RPS1- servicer by Fitch and master servicing
will be performed by Nationstar Mortgage LLC, rated an 'RMS2+'
servicer. The sponsor's retention of at least 5% of the bonds helps
ensure an alignment of interest between issuer and investor. The
'AAA' loss was reduced by 2.66% due to the low operational risk of
a RPS1- servicer and 70% of the pool originated by an 'Average'
originator.
R&W Framework (Negative): The R&W framework for this transaction is
classified as a Tier 2 due to the lack of an automatic review for
loans other than those with ATR realized losses. The R&W are being
provided by SG Capital Mortgage LLC, which does not have a
financial credit opinion or public rating from Fitch. Fitch
increased its loss expectations 156 bps at the 'AAAsf' rating
category to account for the limitations of the Tier 2 framework and
the counterparty risk.
Third-Party Due Diligence (Positive): Third-party due diligence was
performed on 100% of loans in the transaction by SitusAMC (Tier 1),
Clayton Services (Tier 1), and IngletBlair (Tier 2) TPR firms. The
due diligence results are in line with industry averages and 99%
were graded 'A' or 'B'. Loan exceptions graded 'B' either had
strong mitigating factors or were accounted for in Fitch's loan
loss model resulting in no additional adjustments. The model credit
for the high percentage of loan level due diligence combined with
the adjustments for loan exceptions reduced the 'AAAsf' loss
expectation by 41 bps.
No Exposure to Hurricane Laura, Hurricane Sally or Hurricane Delts
(Positive): There are no loans located in the FEMA individual
assistance area for Hurricane Delta, Hurricane Laura or Hurricane
Sally in the pool.
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.
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.
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 5.6% base case sMVD. 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 two or more full categories, excluding the 'BBBsf' which would
lower by one category.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Fitch has added a coronavirus sensitivity analysis that 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") as
prepared by SitusAMC, Clayton, and Inglet Blair. The third-party
due diligence described in Form 15E focused 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 100% due diligence performed on the pool, the
overall expected loss was reduced by 0.41%.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the loans. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." The sponsor,
SG Capital LLC, engaged SitusAMC, Clayton, and Inglet Blair to
perform the review. Loans reviewed under these engagements were
given compliance, credit and valuation grades and assigned initial
grades for each subcategory.
An exception and waiver report were provided to Fitch, indicating
the pool of reviewed loans has a number of exceptions and waivers.
Fitch determined that the exceptions and waivers do not materially
affect the overall credit risk of the loans due to the presence of
compensating factors such as having liquid reserves or FICO above
guideline requirements or LTV or DTI lower than guideline
requirement. Therefore, no adjustments were needed to compensate
for these occurrences.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. The loan-level
information Fitch received was provided in the American
Securitization Forum's (ASF) data layout format. The ASF data tape
layout was established with input from various industry
participants, including rating agencies, issuers, originators,
investors and others, to produce an industry standard for the
pool-level data in support of the U.S. RMBS securitization market.
The data contained in the data tape layout were populated by the
due diligence company and no material discrepancies were noted.
SKOPOS AUTO 2018-1: DBRS Confirms BB Rating on Class D Notes
------------------------------------------------------------
DBRS, Inc. confirmed, upgraded, discontinued, or maintained the
Under Review with Negative Implications status on its ratings on
the following classes of securities included in two Skopos Auto
Receivables Trust transactions:
Skopos Auto Receivables Trust 2018-1
-- Class A Notes, discontinued due to repayment
-- Class B Notes, discontinued due to repayment
-- Class C Notes, upgraded to AA (low) (sf)
-- Class D Notes, confirmed at BB (sf)
Skopos Auto Receivables Trust 2019-1
-- Class A Notes, upgraded to AAA (sf)
-- Class B Notes, upgraded to AA (sf)
-- Class C Notes, upgraded to A (sf)
-- Class D Notes, confirmed at BB (sf)
-- Class E Notes, maintain 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 stimulus
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 CNL assumptions consistent with the expected unemployment
levels in the moderate scenario.
-- The level of hard credit enhancement in the form of
overcollateralization, subordination, and amounts held in reserve
funds has grown as the transactions have amortized because of their
sequential-pay nature. As a result, hard credit enhancement and
estimated excess spread are sufficient to support the DBRS
Morningstar-projected remaining cumulative net loss (CNL)
(including an adjustment for the moderate scenario) assumption at a
multiple of coverage commensurate with the upgraded and confirmed
ratings above.
-- For the Skopos Auto Receivables Trust 2019-1 transaction the
credit enhancement has not grown at the same rate for the Class E
Notes, which are the most subordinated notes in the transaction.
The available credit enhancement including excess spread may be
insufficient to support the DBRS Morningstar projected remaining
cumulative net loss (including an adjustment for the moderate
scenario) assumption at a multiple of coverage commensurate with
the current rating on the series 2019-1 Class E Notes. DBRS
Morningstar maintained the Under Review with Negative Implications
status on its rating.
-- Performance on these transactions has improved over the last
several months as a result of improved consumer behavior due to the
stimulus from the CARES Act, however uncertainty of future
performance remains. DBRS Morningstar will continue to evaluate
performance of the transactions and the potential effects of
further stimulus packages and any updates to the moderate
scenario.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
When placing a rating 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.
SOUTH TEXAS 2013-1: Fitch Cuts Series 2013-1 Ratings to BBsf
------------------------------------------------------------
Fitch Ratings has affirmed the ratings assigned to South Texas
Higher Education Authority (STHEA) 2012-1. The Rating Outlook
remains Negative. In addition, Fitch has downgraded the rating on
STHEA 2013-1, removed the rating from Negative Watch, and assigned
a Negative Outlook. Both trusts are comprised of Federal Family
Education Loan Program (FFELP) student loans.
RATING ACTIONS
South Texas Higher Education Authority Series 2013-1
2013-1 840555DB9; LT BBsf Downgrade; previously at Asf
South Texas Higher Education Authority Series 2012-1
Class A-2 840555CZ7; LT AAAsf Affirmed; previously at AAAsf
Class A-3 840555DA1; LT AAAsf Affirmed; previously at AAAsf
TRANSACTION SUMMARY
STHEA 2012-1 is performing as expected and passes Fitch's cash flow
model stresses for the respective ratings. The Rating Outlook was
revised to Negative from Stable on Aug. 6, 2020, following Fitch's
affirmation of the U.S. sovereign's 'AAA' Issuer Default Rating
(IDR) and revision of the Rating Outlook to Negative from Stable.
STHEA 2013-1 notes were downgraded due to increased maturity risk
from slowing payment rates and higher remaining loan term. The
rating on the notes following the downgrade is higher than the
model-implied rating under Fitch's maturity scenarios. The current
ratings reflect the degree to which Fitch's cashflow model
indicates the bonds are not paid in full by the legal final
maturity date and the time to maturity of the notes, in line with
Fitch's FFELP rating criteria. STHEA 2013-1 notes are removed from
Rating Watch Negative and a Negative Rating Outlook was assigned,
reflecting the possibility of further negative rating pressure in
the next one to two years if maturity risk for the transaction
continues to increase under Fitch's maturity scenario stresses.
Fitch placed STHEA 2013-1 notes on Rating Watch Negative on May 5,
2020 and the downgrade and following Negative Rating Outlook
assignment reflect an evaluation of the sustainable constant
default rate (sCDR) and constant prepayment rate (sCPR) assumptions
under Fitch's coronavirus baseline scenario.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral comprises 100% FFELP
loans with guaranties provided by eligible guarantors and
reinsurance provided by the U.S. Department of Education (ED) for
at least 97% of principal and accrued interest. The U.S. sovereign
rating is currently 'AAA'/Outlook Negative.
Collateral Performance: Fitch assumes a sustainable constant
default rate (sCDR) of 5.0% for 2012-1 and 6.25% for 2013-1; and a
sustainable constant prepayment rate (sCPR) of 9.0% for 2012-1 and
9.5% for 2013-1. Fitch applies the standard default timing curve in
its credit stress cash flow analysis.
The TTM levels of deferment, forbearance, and income-based
repayment (prior to adjustment) are 6.2%, 20.0%, and 21.5%,
respectively for 2012-1 and 6.5%, 20.5% and approx. 21%,
respectively for 2013-1. These levels are used as the starting
point in cash flow modelling and subsequent declines or increases
are modelled as per criteria. The borrower benefit is assumed to be
approximately 0.10% for 2012-1 and 0.08% for 2013-1, based on
information provided by the sponsor. Fitch's student loan ABS cash
flow model indicates that STHEA 2012-1 notes pay in full on or
prior to the legal final maturity dates under the 'AAAsf' rating
scenario. STHEA 2013-1 notes do not pay in full under the 'BBsf'
maturity scenario, but the failure was deemed immaterial at this
rating level.
Payment Structure: Credit enhancement (CE) is provided by excess
spread and overcollateralization. As of Oct. 2020, distribution,
reported total parity is approximately 121.0% for 2012-1 and 118.0%
for 2013-1. Liquidity support is provided by a reserve accounts
sized at the greater of 0.5% of the outstanding bond balance and
$500,000. No cash can be released from the trusts until all the
notes are paid in full.
Basis and Interest Rate Risk: Basis risk for these transactions
arises from any rate and reset frequency mismatch between interest
rate indices for SAP and the securities. As of the the most recent
collection date, most of the trust student loans and all the notes
are indexed to three month and one-month LIBOR. Fitch applies its
standard basis and interest rate stresses to this transaction as
per criteria.
Operational Capabilities: Day-to-day servicing for the trust's
entire portfolio is performed by Edfinancial Services. Fitch
believes Edfinancial to be an acceptable servicer of FFELP student
loans due to their long servicing history.
Coronavirus Impact: Fitch's baseline (rating) scenario assumes an
initial activity bounce in 3Q20 followed by a slower recovery
trajectory from 4Q20 onward amid high unemployment and further
pullback in private-sector investment. To assess the sCPR and sCDR
assumptions, Fitch assumed a decline in payment rates and an
increase in defaults to previous recessionary levels for two years
and then a return to recent performance for the remainder of the
life of the transactions. To reflect this analysis, Fitch revised
the sCDR and maintained the sCPR for STHEA 2012-1 and maintained
both the sCDR and sCPR for STHEA 2013-1 in cash flow modeling.
The risk of negative rating actions will increase under Fitch's
coronavirus downside (sensitivity) scenario, which contemplates a
more severe and prolonged period of stress with a halting recovery
beginning in 2Q21. As a downside sensitivity reflecting this
scenario, Fitch increased the default rate, IBR and remaining term
assumptions by 50%.
RATING SENSITIVITIES
'AAAsf' rated tranches of most FFELP securitizations will likely
move in tandem with the U.S. sovereign rating given the strong
linkage to the U.S. sovereign, by nature of the reinsurance
provided by the Department of Education. Aside from the U.S.
sovereign rating, defaults, basis risk and loan extension risk
account for most of the risk embedded in FFELP student loan
transactions.
This section provides insight into the model-implied sensitivities
the transactions face when one assumption is modified, while
holding others equal. Fitch conducts credit and maturity stress
sensitivity analysis by increasing or decreasing key assumptions by
25% and 50% over the base case. The credit stress sensitivity is
viewed by stressing both the base case default rate and the basis
spread. The maturity stress sensitivity is viewed by stressing
remaining term, IBR usage and prepayments. The results should only
be considered as one potential outcome, as the transaction is
exposed to multiple dynamic risk factors and should not be used as
an indicator of possible future performance.
South Texas Higher Education Authority Series 2012-1
Factors that could, individually or collectively, lead to positive
rating action/upgrade
Notes are already at highest attainable rating
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Credit Stress Rating Sensitivity
-- Default increase 25%: class A 'AAAsf';
-- Default increase 50%: class A 'AAAsf';
-- Basis Spread increase 0.25%: class A 'AAAsf';
-- Basis Spread increase 0.5%: class A 'AAAsf'.
Maturity Stress Rating Sensitivity
-- CPR decrease 25%: class A 'AAAsf';
-- CPR decrease 50%: class A 'AAAsf';
-- IBR Usage increase 25%: class A 'AAAsf';
-- IBR Usage increase 50%: class A 'AAAsf';
-- Remaining Term increase 25%: class A 'AAAsf';
-- Remaining Term increase 50%: class A 'AAAsf'.
For the downside coronavirus sensitivity scenario, Fitch assumed a
50% increase in defaults, IBR and remaining term. Under this
scenario, there was no change to the ratings.
South Texas Higher Education Authority Series 2013-1
Credit Stress Rating Sensitivity
-- Default decrease 25%: class A 'AAAsf'
-- Basis Spread decrease 0.25%: class A 'AAAsf'
Maturity Stress Rating Sensitivity
-- CPR increase 25%: class A 'BBBsf'
-- IBR Usage decrease 25%: class A 'Asf'
-- Remaining Term decrease 25%: class A 'Asf'
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Credit Stress Rating Sensitivity
-- Default increase 25%: class A 'AAAsf';
-- Default increase 50%: class A 'AAAsf';
-- Basis Spread increase 0.25%: class A 'CCCsf';
-- Basis Spread increase 0.5%: class A 'CCCsf'.
Maturity Stress Rating Sensitivity
-- CPR decrease 25%: class A 'CCCsf';
-- CPR decrease 50%: class A 'CCCsf';
-- IBR Usage increase 25%: class A 'CCCsf';
-- IBR Usage increase 50%: class A 'CCCsf';
-- Remaining Term increase 25%: class A 'CCCsf';
-- Remaining Term increase 50%: class A 'CCCsf'.
For the downside coronavirus sensitivity scenario, Fitch assumed a
50% increase in defaults, IBR and remaining term. Under this
scenario, the ratings are sensitive primarily to the maturity
scenario stresses.
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.
THORNBURG MORTGAGE 2006-5: Moody's Cuts Class A-1 Debt to 'Caa1'
----------------------------------------------------------------
Moody's Investors Service downgraded the ratings of two bonds from
two US residential mortgage backed transactions (RMBS), backed by
subprime and prime mortgages issued by multiple issuers. The
ratings of the affected tranches are sensitive to loan performance
deterioration due to the pandemic.
The complete rating actions are as follows:
Issuer: Thornburg Mortgage Securities Trust 2006-5
Cl. A-1, Downgraded to Caa1 (sf); previously on Jun 16, 2015
Downgraded to B3 (sf)
Issuer: WaMu Mortgage Pass-Through Certificates, Series 2002-AR2
Cl. B-1, Downgraded to B2 (sf); previously on Dec 13, 2012
Downgraded to Ba3 (sf)
RATINGS RATIONALE
The rating actions reflect the recent performance as well as
Moody's updated loss expectations on the underlying pools.
Considering the current macroeconomic environment, Moody's revised
loss expectations based on the extent of performance deterioration
of the underlying mortgage loans, resulting from a slowdown in
economic activity and increased unemployment due to the coronavirus
outbreak. Specifically, Moody's has observed an increase in
delinquencies, payment forbearance, and payment deferrals since the
start of pandemic, which could result in higher realized losses.
Its analysis considers the current proportion of loans granted
payment relief in each individual transaction. Moody's identified
these loans based on a review of loan level cashflows over the last
few months. Based on its analysis, the proportion of borrowers that
are currently enrolled in payment relief plans varied greatly,
ranging between approximately 4% and 25% among RMBS transactions
issued before 2009. In its analysis, Moody's assumes these loans to
experience lifetime default rates that are 50% higher than default
rates on the performing loans.
In addition, for borrowers unable to make up missed payments
through a short-term repayment plan, servicers will generally defer
the forborne amount as a non-interest-bearing balance, due at
maturity of the loan as a balloon payment. Its analysis considered
the impact of six months of scheduled principal payments on the
loans enrolled in payment relief programs being passed to the trust
as a loss. The magnitude of this loss will depend on the proportion
of the borrowers in the pool subject to principal deferral and the
number of months of missed payments that are deferred. The
treatment of deferred principal as a loss is credit negative, which
could incur write-downs on bonds when missed payments are
deferred.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Its analysis has considered the effect on the performance of
residential mortgage loans from the current weak US economic
activity and a gradual recovery for the coming months. Although an
economic recovery is underway, it is tenuous, and its continuation
will be closely tied to containment of the virus. As a result, the
degree of uncertainty around its forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Principal Methodology
The principal methodology used in these ratings was "US RMBS
Surveillance Methodology" published in July 2020.
In addition, Moody's publishes a weekly summary of structured
finance credit ratings and methodologies.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the 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.
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 expectations as a
result of a higher number of obligor defaults or deterioration in
the value of the mortgaged property securing an obligor's promise
of payment. Transaction performance also depends greatly on the US
macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions.
TOWD POINT 2020-4: Fitch Assigns B-sf Rating on Class B2 Notes
--------------------------------------------------------------
Fitch Ratings has assigned final ratings to the residential
mortgage-backed notes issued by Towd Point Mortgage Trust 2020-4
(TPMT 2020-4).
RATING ACTIONS
TPMT 2020-4
Class A1; LT AAAsf New Rating; previously at AAA(EXP)sf
Class A2; LT AAsf New Rating; previously at AA(EXP)sf
Class M1; LT A-sf New Rating; previously at A-(EXP)sf
Class M2; LT BBB-sf New Rating; previously at BBB-(EXP)sf
Class B1; LT BB-sf New Rating; previously at BB-(EXP)sf
Class B2; LT B-sf New Rating; previously at B-(EXP)sf
Class B3; LT NRsf New Rating; previously at NR(EXP)sf
Class B4; LT NRsf New Rating; previously at NR(EXP)sf
Class B5; LT NRsf New Rating; previously at NR(EXP)sf
Class A2A; LT AAsf New Rating; previously at AA(EXP)sf
Class A2AX; LT AAsf New Rating; previously at AA(EXP)sf
Class A2B; LT AAsf New Rating; previously at AA(EXP)sf
Class A2BX; LT AAsf New Rating; previously at AA(EXP)sf
Class M1A; LT A-sf New Rating; previously at A-(EXP)sf
Class M1AX; LT A-sf New Rating; previously at A-(EXP)sf
Class M1B; LT A-sf New Rating; previously at A-(EXP)sf
Class M1BX; LT A-sf New Rating; previously at A-(EXP)sf
Class M2A; LT BBB-sf New Rating; previously at BBB-(EXP)sf
Class M2AX; LT BBB-sf New Rating; previously at BBB-(EXP)sf
Class M2B; LT BBB-sf New Rating; previously at BBB-(EXP)sf
Class M2BX; LT BBB-sf New Rating; previously at BBB-(EXP)sf
Class A3; LT AAsf New Rating; previously at AA(EXP)sf
Class A4; LT A-sf New Rating; previously at A-(EXP)sf
Class A5; LT BBB-sf New Rating; previously at BBB-(EXP)sf
TRANSACTION SUMMARY
The bond sizes in this rating action commentary (RAC) are
reflective of the final, closing bond sizes. The remainder of the
RAC is reflective of the data as of the statistical calculation
date.
The notes are supported by one collateral group that consists of
11,673 seasoned performing loans (SPLs) and re-performing loans
(RPLs) with a total balance of approximately $1.39 billion, which
includes $106 million, or 8%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts, as of the
statistical calculation date.
Distributions of 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: The coronavirus pandemic and the
resulting containment efforts have resulted in revisions to Fitch's
GDP estimates for 2020. Fitch's baseline global economic outlook
for U.S. GDP growth is currently a 4.6% decline for 2020, down from
1.7% growth for 2019. Fitch's downside scenario would see an even
larger decline in output in 2020 and a weaker recovery in 2021. To
account for declining macroeconomic conditions resulting from the
coronavirus 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 'BBBsf' and below.
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage, SPLs and RPLs. Of the pool,
approximately 7% were delinquent (DQ) as of the statistical
calculation date. Based on Fitch's treatment of forbearance and
deferral loans related to the coronavirus, approximately 69% of the
loans were treated as having clean payment histories for the past
two years and the remaining 24% of the loans are current but have
had recent delinquencies or incomplete 24-month pay strings.
Roughly 84% have been modified.
Expected Payment Forbearance and Deferrals Related to Coronavirus
(Negative): The outbreak of COVID-19 and widespread containment
efforts in the U.S. will result in increased unemployment and cash
flow disruptions. Mortgage payment deferrals will provide immediate
relief to affected borrowers and Fitch expects servicers to broadly
adopt this practice. The missed payments will result in interest
shortfalls that will likely be recovered, the timing of which will
depend on repayment terms; if interest is added to the underlying
balance as a non-interest-bearing amount, repayment will occur at
refinancing, property liquidation or loan maturity.
To account for the cash flow disruptions, Fitch assumed forbearance
payments on a minimum of 40% of the pool for the first six months
of the transaction at all rating categories with a reversion to its
standard delinquency and liquidation timing curve by month 10. This
assumption is based on observations of legacy Alt-A delinquencies
and past-due payments following Hurricane Maria in Puerto Rico.
Under these assumptions the 'AAAsf' and 'AAsf' classes did not
incur any shortfalls and are expected to receive timely payments of
interest. The cash flow waterfall providing for principal otherwise
distributable to the lower rated bonds to pay timely interest to
the 'AAAsf' and 'AAsf' bonds and availability of excess spread also
mitigate the risk of interest shortfalls. The 'A-sf' through 'B-sf'
rated classes incurred temporary interest shortfalls that were
ultimately recovered.
Low Operational Risk (Positive): Operational risk is well
controlled for in this transaction. FirstKey Mortgage, LLC
(FirstKey) has a well-established track record in RPL activities
and has an "above-average" aggregator assessment from Fitch. Select
Portfolio Servicing, Inc. (SPS) and Specialized Loan Servicing LLC
(SLS) will perform primary and special servicing functions for this
transaction and are rated 'RPS1-'/Outlook Negative and
'RPS2+'/Outlook Negative, respectively, for this product type. The
benefit of highly rated servicers decreased Fitch's loss
expectations by 135 bps at the 'AAAsf' rating category. The
issuer's retention of at least 5% of the bonds helps ensure an
alignment of interest between issuer and investor.
Low Aggregate Servicing Fee (Mixed): Fitch determined that the
stated aggregate servicing fee of approximately 18 bps (18 bps for
SPS and 30 bps for SLS) may be insufficient to attract subsequent
servicers under a period of poor performance and high
delinquencies. To account for the potentially higher fee needed to
obtain a subsequent servicer, Fitch's cash flow analysis assumed a
45-bp servicing fee.
Third-Party Due Diligence (Negative): A third-party due diligence
review was conducted on 85% of the loan by loan count/94% by UPB
and focused on regulatory compliance, pay history and a tax and
title lien search. The third-party due diligence was performed by
Clayton and AMC, both of which are assessed as 'Acceptable — Tier
1' TPR firms by Fitch. The results of the review indicate moderate
operational risk with approximately 14% of the reviewed loans
assigned a 'C' or 'D' grade, meaning the loans had material
violations or lacked documentation to confirm regulatory
compliance. Fitch adjusted its loss expectation at the 'AAAsf'
rating category by approximately 10 bps to account for this added
risk.
Representation Framework (Negative): Fitch considers the
representation, warranty and enforcement (RW&E) mechanism construct
for this transaction to generally be consistent with what it views
as a Tier 2 framework. The tier assessment is based primarily on
the inclusion of knowledge qualifiers in the framework and the
exclusion of several representations such as loans identified as
having unpaid taxes. The issuer is not providing R&Ws for second
liens, and therefore Fitch treated these loans as Tier 5. Fitch
increased its 'AAAsf' loss expectations by 166 bps to account for a
potential increase in defaults and losses arising from weaknesses
in the reps a well as the non-investment grade counterparty.
Limited Life of Rep Provider (Negative): FirstKey, as rep provider,
will only be obligated to repurchase a loan due to breaches prior
to the payment date in November 2021. Thereafter, a reserve fund
will be available to cover amounts due to noteholders for loans
identified as having rep breaches. Amounts on deposit in the
reserve fund as well as the increased level of subordination will
be available to cover additional defaults and losses resulting from
rep weaknesses or breaches occurring on or after the payment date
in November 2021.
No Servicer P&I Advances (Mixed): The servicers will not be
advancing delinquent monthly payments of P&I, which reduces
liquidity to the trust. P&I advances made on behalf of loans that
become delinquent and eventually liquidate reduce liquidation
proceeds to the trust. Due to the lack of P&I advancing, the
loan-level loss severity (LS) is less for this transaction than for
those where the servicer is obligated to advance P&I. Structural
provisions and cash flow priorities, together with increased
subordination, provide for timely payments of interest to the
'AAAsf' and 'AAsf' rated classes.
Sequential-Pay Structure (Positive): The transaction's cash flow is
based on a sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to reallocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
Deferred Amounts (Negative): Non-interest-bearing principal
forbearance amounts totaling $106 million (8%) of the UPB are
outstanding on 2,888 loans. Fitch included the deferred amounts
when calculating the borrower's loan-to-value ratio (LTV) and
sustainable LTV (sLTV), despite the lower payment and amounts not
being owed during the term of the loan. The inclusion resulted in a
higher probability of default (PD) and LS than if there were no
deferrals. Fitch believes that borrower default behavior for these
loans will resemble that of the higher LTVs, as exit strategies
(i.e., sale or refinancing) will be limited relative to those
borrowers with more equity in the property.
Hurricane Exposure (Negative): 28 loans in the pool (0.2% of UPB)
were identified as being located in an Individual Assistance FEMA
disaster area as a result of the recent hurricanes. In order to
protect against damages and potential losses, these loans were run
as 100% loss. This ultimately resulted in a 12-bps increase to
'AAAsf' expected loss.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. The implied rating sensitivities are only
an indication of some of the potential outcomes and do not consider
other risk factors that the transaction may become exposed to or
that may be considered in the surveillance of the transaction.
Sensitivity analysis was conducted at the state and national levels
to assess the effect of higher MVDs for the subject pool, as well
as lower MVDs illustrated by a gain in home prices.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The 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.
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 'AAAsf', the analysis indicates
there is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result in a
full category upgrade for the rated class excluding those being
assigned ratings of 'AAAsf'.
Factors that could, individually or collectively, lead to 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 38.3% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Fitch has added a coronavirus sensitivity analysis that includes a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delays
any meaningful recovery to beyond 2021. Under this severe scenario,
Fitch expects the ratings to be affected by changes in its
sustainable home price model due to updates to the model's
underlying economic data inputs. Any long-term effects arising from
disruptions related to the coronavirus on these economic inputs
will likely affect both investment- and speculative-grade ratings.
CRITERIA VARIATION
Fitch's analysis incorporated four criteria variations from the
"U.S. RMBS Rating Criteria."
The first variation relates to the tax/title review. The tax/title
review was outdated (over six months ago) on 15% of the reviewed
loans by loan count. Approximately 94% of the sample loans were
reviewed within 12 months and the remaining loans were reviewed
more than 12 month ago. Additionally, the servicers are monitoring
the tax and title status as part of standard practice and will
advance where deemed necessary to keep the first-lien position of
each loan. This variation had no rating impact.
The second variation is that a tax and title review was not
completed on 100% if the first-lien loans. Approximately 99.8% of
first liens received an updated tax and title search. The first
liens without an updated tax and title search are a relatively
immaterial amount relative to the overall pool and were treated as
second liens which receive a 100% LS. This variation had no rating
impact.
The third variation is that a due diligence compliance and data
integrity review was not completed on approximately 15% of the pool
by loan count. The sample meets Fitch's criteria for second liens
and SPL loans as 32% of the second liens and 71% of the SPL loans
were reviewed (the criteria allows for a 20% sample). Fitch defines
SPL as loans which are seasoned over 24 months, have not been
modified and have had no more one 30-day delinquency in the prior
24 months but are current as of the cutoff date. A criteria
variation was applied for the RPL loans. 69% of the pool is
categorized as RPL, and Fitch's criteria expects 100% review for
RPL loans (99% was reviewed). The loans in the pool are
predominately from a single source. For the RPL loans which did not
receive a compliance review, approximately 1% of the total RPL
population, were treated as missing HUD-1s and received the
standard indeterminate adjustment which increases the LS depending
on the state that the property is located. This variation did not
have a rating impact.
The fourth variation relates to the pay history review. For RPL
transactions, Fitch expects a pay history review to be completed on
100% of the loans and expects the review to reflect the past 24
months. The pay history sample completed on the SPL and second
liens meet's Fitch's criteria. A pay history review was either not
completed, was outdate or a pay string was not received from the
servicer for approximately 4% of the RPL loans. Roughly half of
these loans have dirty pay histories and are therefore receiving a
PD hit in Fitch's model. In addition, the loans are approximately
14 years seasoned and 69% of the pool has been paying on time for
the past 24 months. For the loans where a pay history review was
conducted, the results verified what was provided on the loan tape.
Additionally, the pay strings which were provided on the loan tape
were provided to FirstKey by the current servicer. This variation
did not have a rating impact.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
A third-party due diligence review was conducted on 85% of the loan
by loan count/94% by UPB and focused on regulatory compliance, pay
history and a tax and title lien search. The third-party due
diligence was performed by Clayton and AMC, both of which are
assessed as 'Acceptable — Tier 1' TPR firms by Fitch. AMC and
WestCor performed the tax and title review.
While the review was substantially to Fitch criteria with respect
to RPL transactions, the sample size yielded minor variations to
the criteria which resulted in various loan level adjustments for
loans that were not reviewed. However, loans that were subject to
the review received a due diligence scope that is in line with
Fitch criteria which consisted primarily of a regulatory compliance
review, pay history review, updated tax and title, and a review of
collateral files from the custodian. The sample meets Fitch's
criteria for second liens and SPLs. 31.9% of the second liens and
70.9% of the SPLs were reviewed, which meets Fitch's criteria as it
allows for a 20.0% sample to be reviewed. Fitch defines SPLs as
loans which are seasoned over 24 months, have not been modified and
have had no more than one 30-day delinquency in the prior 24 months
and are current as of the cutoff date.
A criteria variation was applied for the RPLs in the pool. 69.3% of
the pool by count is categorized as RPL by Fitch, and criteria
expects 100% review for RPL loans (instead, 98.5% was reviewed).
Fitch treated the unreviewed RPLs as high-cost uncertain and
applied the standard indeterminate adjustment for loans that do not
have a final HUD-1 to effectively test for compliance with
predatory lending regulations.
Based on the due diligence findings, Fitch made loan-level
adjustments. A total of 796 of reviewed loans, or approximately
6.8% of the total pool, received a final grade of 'D' as the loan
file did not have a final HUD-1 for compliance testing purposes.
The absence of a final HUD-1 file does not allow the TPR firm to
properly test for compliance surrounding predatory lending in which
statute of limitations does not apply. These regulations may expose
the trust to potential assignee liability in the future and create
added risk for bond investors. Fitch also applied this adjustment
to two additional graded 'C' as the compliance review was deemed to
be unreliable due to missing additional documentation. In addition
to adjustments related to the due diligence findings, Fitch applied
the missing HUD-1 adjustments to 85 loans, or approximately 0.7% of
the transaction pool, which are considered first-lien RPLs that did
not receive a regulatory compliance review. Fitch believes this
adequately captures additional risk posed to the trust by these
loans not receiving a compliance review.
The remaining 617 loans with a final grade of 'C' or 'D' reflect
missing final HUD-1 files that are not subject to predatory
lending, missing state disclosures, and other missing documents
related to compliance testing. Fitch notes that these exceptions
are unlikely to add material risk to bondholders since the statute
of limitations on these issues have expired. No adjustment to loss
expectations were made for these 617 loans.
Fitch also applied an adjustment on 692 loans that had missing
modification agreements. Each loan received a three-month
foreclosure timeline extension to represent a delay in the event of
liquidation as a result of these files not being present. Fitch
adjusted its loss expectation at the 'AAAsf' by approximately 8 bps
to reflect both missing final HUD-1 files and modification
agreements.
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by AMC, Clayton and WestCor.
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.
TRIANGLE RE 2020-1: Moody's Assigns B2 Rating on Class B-1 Notes
----------------------------------------------------------------
Moody's Investors Service assigned definitive 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 Baa3 (sf)
Cl. M-1B, Assigned Ba2 (sf)
Cl. M-1C, Assigned Ba2 (sf)
Cl. M-2, Assigned B1 (sf)
Cl. B-1, Assigned 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 primes, fixed- and
adjustable-rate, one- to four-unit, first-lien fully-amortizing,
predominantly conforming mortgage loans with a total insured loan
balance of approximately $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 most 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 0.16% 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 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.
TRTX 2019-FL3: DBRS Confirms B(low) Rating on Class G Notes
-----------------------------------------------------------
DBRS, Inc. confirmed the ratings on the following classes of notes
issued by TRTX 2019-FL3 Issuer, Ltd. (the Issuer):
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the collateral since issuance. The transaction benefits from its
pool composition as only two properties, representing 10.9% of the
cut-off pool balance, are backed by hospitality properties, which
are vulnerable to prolonged depressed cash flows amid the current
economic environment stemming from the Coronavirus Disease
(COVID-19) pandemic restrictions. In addition, 10 loans,
representing 51.0% of the cut-off pool balance, are secured by
properties in areas with a DBRS Morningstar Market Rank of 6, 7, or
8, which are characterized as urban locations, which have
historically benefitted from greater demand drivers and available
liquidity.
In its analysis of the transaction, DBRS Morningstar applied
probability of default (POD) adjustments to loans with confirmed
issues related to the stressed real estate environment caused by
the coronavirus pandemic. Because of the transitional nature of the
underlying collateral, proposed business plans that are necessary
to bring the assets to stabilization may be delayed and, in some
cases, borrowers have requested relief from the Issuer.
The initial collateral consisted of 22 floating-rate mortgage loans
secured by 98 mostly transitional real estate properties with a
cut-off pool balance totaling more than $1.23 billion, excluding
approximately $231.8 million of future funding commitments. Most
properties securing the loans are in a period of transition with
plans to stabilize and improve the assets' cash flows and values.
During the reinvestment period, the Issuer may acquire funded
reinvestment collateral interests and additional eligible loans
subject to the eligibility criteria. Per the September 2020
remittance, the trust comprises 21 loans with a current principal
balance of $1.23 billion. Since issuance, two loans—the $108.6
million 300 Lafayette loan and the $35.9 million 1525 Wilson
loan—were added to the pool during the reinvestment period. The
reinvestment period expires in October 2021, at which point the
transaction will pay sequentially.
As of the September 2020 remittance, three loans, representing
17.1% of the cut-off pool balance, are on the servicer's watchlist
with no loans in special servicing. All three loans are current and
are being monitored on the servicer's watchlist for upcoming
maturity. To date, three loans, including the pool's two
hospitality loans—Westin Charlotte (Prospectus ID#5; 5.7% of the
pool) and Hilton Garden Inn Mountain View (Prospectus ID#11; 4.9%
of the pool)—have received some form of loan modification or
forbearance because the current pandemic has significantly affected
the lodging sector. As a result, the sponsor may face additional
headwinds in the execution of its stated business plans. In
addition to the hotel loans, the 500 Station Boulevard loan
(Prospectus ID#10; 5.0% of the pool), which is backed by a
multifamily property in Aurora, Illinois, received a modification.
Both the Hilton Garden Inn Mountain View and 500 Station Boulevard
loans received forbearances allowing the borrower to defer interest
payments for between three months and six months while the Westin
Charlotte loan was modified to waive the loan-to-value ratio and
debt yield tests for both the second and third extension options.
DBRS Morningstar analyzed these loans with elevated PODs to account
for the increased credit risk.
Notes: All figures are in U.S. dollars unless otherwise noted.
UBS COMMERCIAL 2017-C6: Fitch Affirms B-sf Rating on 2 Tranches
---------------------------------------------------------------
Fitch Ratings has affirmed UBS Commercial Mortgage Trust 2017-C6
commercial mortgage pass-through certificates, series 2017-C6.
RATING ACTIONS
UBS 2017-C6
Class A-1 90276UAS0; LT AAAsf Affirmed; previously at AAAsf
Class A-2 90276UAT8; LT AAAsf Affirmed; previously at AAAsf
Class A-3 90276UAV3; LT AAAsf Affirmed; previously at AAAsf
Class A-4 90276UAW1; LT AAAsf Affirmed; previously at AAAsf
Class A-5 90276UAX9; LT AAAsf Affirmed; previously at AAAsf
Class A-BP 90276UAY7; LT AAAsf Affirmed; previously at AAAsf
Class A-S 90276UBC4; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 90276UAU5; LT AAAsf Affirmed; previously at AAAsf
Class B 90276UBD2; LT AA-sf Affirmed; previously at AA-sf
Class C 90276UBE0; LT A-sf Affirmed; previously at A-sf
Class D 90276UAJ0; LT BBB-sf Affirmed; previously at BBB-sf
Class E 90276UAL5; LT BB-sf Affirmed; previously at BB-sf
Class F 90276UAN1; LT B-sf Affirmed; previously at B-sf
Class X-A 90276UAZ4; LT AAAsf Affirmed; previously at AAAsf
Class X-B 90276UBB6; LT AA-sf Affirmed; previously at AA-sf
Class X-BP 90276UBA8; LT AAAsf Affirmed; previously at AAAsf
Class X-D 90276UAA9; LT BBB-sf Affirmed; previously at BBB-sf
Class X-E 90276UAC5; LT BB-sf Affirmed; previously at BB-sf
Class X-F 90276UAE1; LT B-sf Affirmed; previously at B-sf
KEY RATING DRIVERS
Increase in Loss Expectations: While the overall pool performance
remains stable, loss expectations have increased due to the
designation of six loans (13.1%) as Fitch Loans of Concern (FLOCs),
including four loans (6.1%) that have transferred to special
servicing since May 2020 due to the coronavirus pandemic.
Coronavirus Exposure Adds Additional Stress: The pool contains six
loans (8.3%) secured by hotels with a weighted-average NOI DSCR of
1.87x. Retail properties account for 28.6% of the pool balance and
have weighted-average NOI DSCR of 2.11x. Cash flow disruptions
continue as a result of property and consumer restrictions due to
the spread of the coronavirus. Fitch's base case analysis applied
an additional NOI stress to five hotel loans and four retail loans
due to their vulnerability to the pandemic. These additional
stresses contributed to the Negative Outlooks on classes E, X-E, F
and X-F.
Fitch Loans of Concern Driving Losses: The largest Fitch Loan of
Concern is the HRC Hotels Portfolio (4.0%), an eight-property,
694-key hotel portfolio located in Michigan and Indiana. As of YE
2019, the loan was performing at a 1.71x NOI DSCR compared to 2.03x
at YE 2018. Per the December 2019 and March 2020 STR reports, the
portfolio reported a weighted-average occupancy rate of 70.0%, ADR
of $135, and RevPAR of $93. At issuance, the portfolio reported
weighted-average in-place RevPAR of $98. Fitch's analysis included
an overall 26% stress to the YE 2019 NOI to address the expected
declines in performance due to the coronavirus pandemic.
Meridian Sunrise Village (3.0%) is a shopping center located in
Pullyap, WA where the major tenants include LA Fitness, Home Goods
and PetSmart. As of YE 2019, the property was 87% occupied and
performing at a 3.15x NOI DSCR. Home Goods (9.0% NRA) took over the
previously vacant Staples space and opened in September 2019.
Fitch's analysis included an overall 20% stress to the YE 2019 NOI
to address the expected declines in performance due to the
coronavirus pandemic.
Increase in Specially Serviced Loans: The largest specially
serviced loan is 1001 Towne (2.3%), a mixed-use property located in
Los Angeles, CA, transferred to special servicing in June 2020 for
payment default. The borrower has requested relief due to the
coronavirus pandemic and is in discussions with the special
servicer. Fitch's analysis included an overall 25% stress to the YE
2019 NOI to address the transfer to special servicing and expected
declines in performance due to the coronavirus pandemic.
Belden Park Crossing (2.2%) is a shopping center located in Canton,
OH anchored by Kohl's and Dick's Sporting Goods. The loan
transferred to special servicing in April 2020 for imminent
monetary default. The special servicer is finalizing a cash
management trigger and loan modification so that the loan can be
returned to the master servicer. Fitch's analysis included an
overall 15% stress to the YE 2019 NOI to address the transfer to
special servicing and expected declines in performance due to the
coronavirus pandemic.
The smaller specially serviced loans include a pair of cross
collateralized, cross defaulted office properties in Pensacola, FL
and El Paso, TX and a hotel in Wilmington, DE where the borrowers
have requested relief due to the coronavirus pandemic.
Minimal Change to Credit Enhancement: As of the September 2020
distribution date, the pool's aggregate principal balance has been
reduced by 1.54% to $674.2 million from $684.7 million at issuance.
Thirteen loans (41.2%) are full-term interest-only loans and ten
loans (28.5%) are partial-term interest-only, two of which (7.8%)
have begun amortizing. There are no defeased loans and interest
shortfalls are currently affecting class NR.
Investment-Grade Credit Opinion Loans: Three loans (16.2%) were
considered investment-grade credit opinion loans at issuance. The
Burbank Office Portfolio (5.9%), 111 West Jackson (4.5%), and
Yorkshire and Lexington Towers (5.9%) continue to perform in line
with Fitch's expectations at issuance.
RATING SENSITIVITIES
The Negative Outlooks on classes E, X-E, F and X-F reflect the
potential for a near-term rating change should the performance of
the specially serviced loans or FLOCs deteriorate. It also reflects
concerns with hotel and retail properties due to decline in travel
and commerce as a result of the pandemic. The Stable Outlooks on
all other classes reflects the overall stable performance of the
remainder of the pool.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that lead to upgrades would include stable to
improved asset performance coupled with paydown and/or defeasance.
Upgrades of classes B, X-B and C would only occur with significant
improvement in credit enhancement and/or defeasance, but would be
limited should the deal be susceptible to a concentration whereby
the underperformance of Fitch Loans of Concern or specially
serviced loans could cause this trend to reverse. An upgrade to
classes D and X-D would also consider these factors, but would be
limited based on sensitivity to concentrations or the potential for
future concentration. Classes would not be upgraded above 'Asf' if
there is a likelihood for interest shortfalls. An upgrade to
classes E, X-E, F and X-F is not likely until the later years in a
transaction and only if the performance of the remaining pool is
stable and/or if there is sufficient credit enhancement, which
would likely occur if class NR is not eroded and the senior classes
payoff. While uncertainty surrounding the coronavirus pandemic
continues, upgrades are not likely.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool level losses from underperforming or specially serviced loans.
Downgrades to classes, A-1, A-2, A-3, A-4, A-5, X-A, A-BP, X-BP,
A-SB, A-S, B, X-B and C are not likely due to the high credit
enhancement, but may occur at should interest shortfalls affect
these classes. Downgrades to classes D and X-D would occur should
overall pool losses increase and/or one or more large loans have an
outsized loss which would erode credit enhancement. Downgrades to
classes E, X-E, F and X-F would occur should loss expectations
increase due to an increase in specially serviced loans. The
Negative Outlooks may be revised back to Stable if performance of
the FLOCs improves and/or properties vulnerable to the pandemic
stabilize once the health crisis subsides.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, Fitch expects that a greater
percentage of classes may be assigned a Negative Outlook, or those
with Negative Outlooks will be downgraded one or more categories.
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.
VERUS SECURITIZATION 2020-5: DBRS Gives Prov. B Rating on B-2 Certs
-------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following Mortgage
Pass-Through Certificates, Series 2020-5 (the Certificates) to be
issued by Verus Securitization Trust 2020-5 (Verus 2020-5 or the
Trust):
-- $288.1 million Class A-1 at AAA (sf)
-- $25.9 million Class A-2 at AA (sf)
-- $42.5 million Class A-3 at A (sf)
-- $30.0 million Class M-1 at BBB (low) (sf)
-- $14.9 million Class B-1 at BB (low) (sf)
-- $8.6 million Class B-2 at B (sf)
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The AAA (sf) rating on the Class A-1 Certificates reflects 33.25%
of credit enhancement provided by subordinate certificates. The AA
(sf), A (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings
reflect 27.25%, 17.40%, 10.45%, 7.00%, and 5.00% of credit
enhancement, respectively.
This securitization is a portfolio of fixed- and adjustable-rate,
expanded prime and nonprime, first-lien residential mortgages
funded by the issuance of the Certificates. The Certificates are
backed by 1,098 mortgage loans with a total principal balance of
$431,632,261 as of the Cut-Off Date (October 1, 2020).
The originators for the mortgage pool are Athas Capital Group, Inc.
(Athas; 28.7%), National Mortgage Service (NMS, 21.0%), and other
originators, each comprising less than 10.0% of the mortgage loans.
The Servicers of the loans are Shellpoint Mortgage Servicing (SMS;
95.7%), Specialized Loan Servicing LLC (SLS; 2.3%), and Fay
Servicing, LLC (Fay; 2.0%)
Although the mortgage loans were originated to satisfy the Consumer
Financial Protection Bureau's (CFPB) Ability-to-Repay (ATR) rules,
they were made to borrowers who generally do not qualify for
agency, government, or private-label nonagency prime jumbo products
for various reasons. In accordance with the Qualified Mortgage
(QM)/ATR rules, 49.9% of the loans are designated as non-QM, 3.1%
are designated as QM safe harbor, and 0.3% are designated as QM
rebuttable presumption. Approximately 46.7% of the loans are made
to investors for business purposes and, hence, are not subject to
the QM/ATR rules.
The sponsor, directly or indirectly through a majority-owned
affiliate, will retain an eligible horizontal residual interest
consisting of the Class B-3 and Class XS Certificates, representing
at least 5% of the Certificates to satisfy the credit
risk-retention requirements under Section 15G of the Securities
Exchange Act of 1934 and the regulations promulgated thereunder.
On or after the earlier of (1) the Distribution Date occurring in
October 2023 or (2) the date when the aggregate stated principal
balance of the mortgage loans is reduced to 30% of the Cut-Off Date
balance, the Administrator, at the Issuer's option, may redeem all
of the outstanding Certificates at a price equal to the greater of
(A) the class balances of the related Certificates plus accrued and
unpaid interest, including any cap carryover amounts and (B) the
class balances of the related Certificates less than 90 days
delinquent with accrued unpaid interest plus fair market value of
the loans 90 days or more delinquent and real estate-owned
properties. After such purchase, the Depositor must complete a
qualified liquidation, which requires (1) a complete liquidation of
assets within the Trust and (2) proceeds to be distributed to the
appropriate holders of regular or residual interests.
The P&I Advancing Party or servicer will fund advances of
delinquent principal and interest (P&I) on any mortgage until such
loan becomes 90 days delinquent. The P&I Advancing Party or
servicer has no obligation to advance P&I on a mortgage approved
for a forbearance plan during its related forbearance period. The
Servicers, however, are obligated to make advances in respect of
taxes, insurance premiums, and reasonable costs incurred in the
course of servicing and disposing properties. The three-month
advancing mechanism may increase the probability of periodic
interest shortfalls in the current economic environment affected by
the Coronavirus Disease (COVID-19). As a large number of borrowers
may seek forbearance on their mortgages in the coming months, P&I
collections may be reduced meaningfully.
This transaction incorporates a sequential-pay cash flow structure
with a pro rata feature among the senior tranches. Principal
proceeds can be used to cover interest shortfalls on the Class A-1
and A-2 Certificates sequentially after a Trigger Event. For more
subordinated 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-2.
Unlike previously issued Verus non-QM deals (though similar to the
Verus INV shelf), 26.0% of the loans were originated under the
Property focused investment loan Debt Service Coverage Ratio (DSCR)
program and 16.8% were originated under the Property focused
investment loan program. Both programs allow for property cash
flow/rental income to qualify borrowers for income.
In contrast to other non-QM transactions, which employ a fixed
coupon for senior bonds (Class A-1, A-2, and A-3), Verus 2020-5's
senior bonds are subject to a rate update starting on the
distribution date in November 2024. From this distribution date
forward, the Class A-1, A-2, and A-3 bonds are subject to a step-up
rate (a yearly rate equal to 1.0%).
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 raise in
the coming months for many residential mortgage-backed securities
(RMBS) asset classes, some meaningfully.
The non-QM sector is a traditional RMBS asset class that consists
of securitizations backed by pools of residential home loans that
may fall outside of the CFPB's ATR rules, which became effective on
January 10, 2014. Non-QM loans encompass the entire credit
spectrum. They range from high-FICO, high-income borrowers who opt
for interest-only (IO) or higher debt-to-income (DTI) ratio
mortgages, to near-prime debtors who have had certain derogatory
pay histories but were cured more than two years ago, to nonprime
borrowers whose credit events were only recently cleared, among
others. In addition, some originators offer alternative
documentation or bank statement underwriting to self-employed
borrowers in lieu of verifying income with W-2s or tax returns.
Finally, foreign nationals and real estate investor programs, while
not necessarily non-QM in nature, are often included in non-QM
pools.
As a result of the coronavirus pandemic, 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
pandemic may not occur until a few performance cycles later, DBRS
Morningstar generally believes loans originated to (1) borrowers
with recent credit events, (2) self-employed borrowers, or (3)
higher loan-to-value ratio (LTV) borrowers may be more sensitive to
economic hardships resulting from higher unemployment rates and
lower incomes. Borrowers with prior credit events have exhibited
difficulties in fulfilling payment obligations in the past and may
revert to spotty payment patterns in the near term. Self-employed
borrowers are potentially exposed to more volatile income sources,
which could lead to reduced cash flows generated from their
businesses. Higher LTV borrowers, with lower equity in their
properties, generally have fewer refinance opportunities and
therefore slower prepayments. In addition, certain pools with
elevated geographic concentrations in densely populated urban
metropolitan statistical areas may experience additional stress
from extended lockdown periods and the slowdown of the economy.
In addition, for this transaction, as permitted by the Coronavirus
Aid, Relief, and Economic Security (CARES) Act, signed into law on
March 27, 30.8% (as of September 30, 2020) of the borrowers had
been granted forbearance or deferral plans because of financial
hardship related to the coronavirus. These forbearance plans allow
temporary payment holidays, followed by repayment once the
forbearance period ends. The Servicers, in collaboration with the
Servicing Administrator, is generally offering borrowers a
three-month payment forbearance plan. Beginning in month four, the
borrower can repay all of the missed mortgage payments at once or
opt for other loss mitigation options. Prior to the end of the
applicable forbearance period, the Servicers will contact each
related borrower to identify the options available to address
related forborne payment amounts. As a result, the Servicers, in
conjunction with or at the direction of the Servicing
Administrator, may offer a repayment plan or other forms of payment
relief, such as deferral of the unpaid P&I amounts or a loan
modification, in addition to pursuing other loss mitigation
options.
For these loans, DBRS Morningstar applied additional assumptions to
evaluate the impact of potential cash flow disruptions on the rated
tranches, stemming from (1) lower P&I collections and (2) limited
servicing advances on delinquent P&I. These assumptions include the
following:
(1) Increasing delinquencies on the AAA (sf) and AA (sf) rating
levels for the first 12 months;
(2) Increasing delinquencies on the A (sf) and below rating
levels for the first nine months;
(3) No voluntary prepayments for the first 12 months for the AAA
(sf) and AA (sf) rating levels; and
(4) No liquidation recovery for the first 12 months for the AAA
(sf) and AA (sf) rating levels.
Notes: All figures are in U.S. dollars unless otherwise noted.
WAMU COMMERCIAL 2006-SL1: Fitch Ups Rating on Class F Certs to CCC
------------------------------------------------------------------
Fitch Ratings has upgraded two, and affirmed eight, classes of WaMu
Commercial Mortgage Securities Trust 2006-SL1, small balance
commercial mortgage pass-through certificates.
RATING ACTIONS
WaMu Commercial Mortgage Securities Trust 2006-SL1
Class C 933633AE9; LT AAAsf Affirmed; previously at AAAsf
Class D 933633AF6; LT BBBsf Affirmed; previously at BBBsf
Class E 933633AG4; LT Bsf Upgrade; previously at CCCsf
Class F 933633AH2; LT CCCsf Upgrade; previously at CCsf
Class G 933633AJ8; LT Dsf Affirmed; previously at Dsf
Class H 933633AK5; LT Dsf Affirmed; previously at Dsf
Class J 933633AL3; LT Dsf Affirmed; previously at Dsf
Class K 933633AM1; LT Dsf Affirmed; previously at Dsf
Class L 933633AN9; LT Dsf Affirmed; previously at Dsf
Class M 933633AP4; LT Dsf Affirmed; previously at Dsf
KEY RATING DRIVERS
Increased Credit Enhancement: According to the September 2020
remittance report, the trust has received $2.7 million in
unscheduled principal from loans prepaying during their open period
since the last rating action. The trust has historically received
unscheduled principal due to loans repaying from the trust ahead of
their scheduled maturity dates. With scheduled monthly
amortization, class D is not anticipated to begin paying down until
2026. However, this may occur sooner with continued unscheduled
principal from prepaying loans. The pool's maturity profile is
extended. Only one loan representing 1.0% of the pool is scheduled
to mature prior to 2036.
Stable Loss Projections: As a percent of the original and
outstanding pool balances, Fitch's modeled losses on the remaining
loans are largely unchanged since the last rating action. There are
now two loans in special servicing, as one loan recently
transferred after requested debt service relief. A full loss on
both of these loans would be contained to class G, which is already
rated 'Dsf'.
Coronavirus Exposure and Pool Concentration: The social and market
disruption caused by the effects of the coronavirus pandemic and
related containment measures were not a factor in this review. The
pool is comprised almost entirely of small balance, fully
amortizing loans backed by multifamily properties, with geographic
concentration in California. Given this concentration, and because
many of the asset-level financial statements are missing or dated,
Fitch used conservative NOI haircuts and higher cap rate and
refinance constant assumptions for the pool. The resulting loan
level loss projections may be considered high relative to the
leverage points, but were deemed appropriate in testing the
durability of the ratings.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to a
Positive Rating Action/Upgrade:
Sensitivity factors that lead to upgrades include stable to
improved asset performance. Class D may be upgraded with continued
stable performance, but would be capped at 'Asf' as the bond has
previously experienced interest shortfalls. Classes E and F may be
upgraded with continued amortization or prepayments, granted pool
performance remains stable and no additional loans default.
Upgrades to the 'Dsf'-rated classes are not possible; these classes
have previously incurred principal losses.
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.
A downgrade to class C is not likely given the credit support
available. Class D may be downgraded if a significant number of
loans default. Class E may be downgraded should loans become
delinquent and Fitch's loss projections increase. A downgrade to
class F would occur if and when losses are realized.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was 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.
WELLS FARGO 2011-C3 Fitch Lowers Rating on 2 Tranches to Csf
------------------------------------------------------------
Fitch Ratings has downgraded four and affirmed three classes of
Wells Fargo Bank, N.A. Commercial Mortgage Trust, commercial
mortgage pass-through certificates, series 2011-C3 (WFRBS
2011-C3).
RATING ACTIONS
WFRBS Commercial Mortgage Trust 2011-C3
Class A-4 92935VAG3; LT AAAsf Affirmed; previously at AAAsf
Class B 92935VAN8; LT AAsf Affirmed; previously at AAsf
Class C 92935VAQ1; LT BBBsf Downgrade; previously at Asf
Class D 92935VAS7; LT CCsf Downgrade; previously at BBsf
Class E 92935VAU2; LT Csf Downgrade; previously at CCCsf
Class F 92935VAW8; LT Csf Downgrade; previously at CCsf
Class X-A 92935VAJ7; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades of classes C, D, E and
F reflect increased loss expectations on the specially serviced
regional mall loans/assets, Park Plaza, Oakdale Mall and Hampshire
Mall, which comprise 18.9% of the pool. Fitch previously modeled a
40% and 75% loss, respectively, on Park Plaza and Oakdale Mall at
the prior October 2019 rating action; however, this has now been
increased to approximately 65% and 100% due to the Park Plaza asset
becoming REO and the expected consensual transfer of title back to
the lender on Oakdale Mall. Fitch previously modeled no loss on
Hampshire Mall at the prior rating action in October 2019; however,
this has increased to approximately 45% due to the recent transfer
to special servicing and delinquent status of the loan, the sponsor
having multiple loans with upcoming maturities in special
servicing, other mall competition in the market and less certainty
surrounding workout due to the coronavirus pandemic.
Performance and Valuation Declines of Fitch Loans of Concern;
Specially Serviced Loans/Assets: Fitch designated eight loans
(27.7% of pool) as Fitch Loans of Concern, including four specially
serviced loans/assets (19.6%).
The REO Park Plaza asset (10%) is a 264,214-sf portion of a
543,038-sf regional mall located in Little Rock, AR. The loan
transferred to special servicing in June 2019 due to imminent
monetary default attributed to tenant bankruptcies and expected
upcoming vacancies. The original sponsor, CBL & Associates, turned
over the collateral back to the lender due to coronavirus related
hardships. The asset became REO in July 2020. Non-collateral
anchors at the property include two Dillard's stores (Men's &
Children and Women & Home). Collateral occupancy fell to 82.4% in
June 2020 from 94.2% in July 2019 due to multiple tenants vacating
at lease expiration, the largest were Gap and Banana Republic
(combined, 7.6% of the collateral NRA) vacating at their January
2020 lease expiration. The current largest collateral tenants
include H&M (11.1% of collateral NRA, lease expiry in January
2028), Forever 21 (9.4%, January 2023), Shoe Dept. Encore (4%,
August 2028), American Eagle Outfitters (3.3%, January 2022) and
Victoria's Secret (2.8%, January 2025). Comparable in-line tenant
sales were $291 psf (as of June 2020 TTM), down from $342 psf in
2019, $360 psf in 2018 and $389 psf in 2017. The combined sales for
the non-collateral Dillard's stores were $49.4 million ($177 psf)
in 2019, down from $53.2 million ($191 psf) in 2018 and $56.3
million ($202 psf) in 2017.
The Oakdale Mall loan (6.3%) is secured by a 706,559-sf portion of
an 860,253-sf regional mall located in Johnson City, NY. The loan,
which transferred to special servicing in June 2018, is sponsored
by Interstate Properties. The loan became REO on Oct. 8, which will
be reflected in the next month's remittance report. In July 2020,
the borrower agreed to a consensual transfer of property title. The
special servicer continues to monitor the transfer of property
title. Collateral occupancy as of August 2020 was 44%, down from
51% in August 2019, 52% in September 2018, 66% at YE 2017 and 85%
at YE 2016. The mall lost Macy's (in March 2017), Sears (in
September 2017) and Bon-Ton (in August 2018). Current anchors that
remain are J.C. Penney (ground lease; has been paying a percentage
rent in lieu of minimum base rent) and Burlington Coat Factory.
Comparable in-line tenant sales were $302 psf in 2019, compared to
$337 psf in 2018 and $339 psf in 2017.
The Hampshire Mall loan (2.6%) is secured by a 344,366-sf portion
of a 470,336-sf regional mall located in Hadley, MA. The loan
transferred to special servicing in April 2020 at the request of
the sponsor (Pyramid Companies) due to impact from the coronavirus
pandemic. The borrower's submitted proposal for coronavirus relief
is currently under review. The collateral is shadow-anchored by a
Target. The former third largest, Autobahn Indoor Speedway (9.8% of
NRA), vacated due to the coronavirus pandemic-related closures,
prior to their September 2026 lease expiration. The sponsor
identified a replacement tenant for the space that will pay a lower
rent that Autobahn was paying. The collateral includes a Cinemark
Theaters (16.2% NRA; 24.4% of total base rent; lease expiry in
November 2020), JCPenney (14.9%; November 2020), Dick's Sporting
Goods (13.1%; February 2025), Planet Fitness (5.5%; November 2027),
PiNZ (5.5%; January 2028) and also a Trader Joe's grocery store
(2.9%; January 2024). Comparable in-line tenant sales were $199 psf
for February 2020 TTM, down from $249 psf for October 2017 TTM and
$278 psf at YE 2016. The 15-screen reported sales per screen of
$388,249 for February 2020 TTM, compared with $411,000 for both
October 2017 TTM and YE 2016.
The Chandler Plaza loan (0.7%) is secured by a 48,244-sf mixed-use
property (medical office and retail) located in Chandler, AZ. The
loan transferred to special servicing in June 2020 at the
borrower's request due to the impact of the coronavirus pandemic.
The property was 100% occupied at YE 2019, with the largest tenants
including East Valley Diagnostic Imaging (26.7% of NRA), 360
Physical Therapy (19.6%), MIDC Consultants (13.7%), Anytime Fitness
(10.6%) and Sunny's Diner (9.4%).
The White Flint Plaza loan (4.1%), which is secured by a 195,001-sf
retail property located in Kensington, MD, lost its grocery anchor
(Shoppers Food Warehouse: 30.6% of NRA, 28.7% of EGI) in January
2020. Occupancy declined to 68% in March 2020 from 96.2% at YE
2019. The Meadowbrook Commons loan (2.7%), which is secured by a
173,002-sf retail property located in Freeport, NY, is expected to
lose its third largest tenant (Modell's; 13.9% of NRA, 23.9% of
EGI) due to the company disclosing plans to close all stores as
part of their Chapter 11 bankruptcy plans. Pier 1 Imports also
recently vacated the property due to store closures following their
Chapter 11 bankruptcy. The Northeast Plaza loan (0.3%) is 30 days
delinquent. The Austin Square loan (0.2%) has near-term lease
rollover concerns due to the second largest tenant, PetSmart (39.1%
of NRA), having a lease that expired in August 2020; renewal is
pending.
Increased Credit Enhancement; Significant Defeasance: Credit
enhancement has increased due to loan prepayments, scheduled
amortization and defeasance. Twenty-two loans (60.1% of pool) are
fully defeased. As of the September 2020 distribution date, the
pool's aggregate principal balance has been paid down by 47.4% to
$760.5 million from $1.45 billion at issuance. All loans are
amortizing. All loans are scheduled to mature between December 2020
and May 2021. Interest shortfalls are currently impacting class F
and the non-rated class G.
Pool Concentration; Alternative Loss Consideration: All loans are
scheduled to mature between December 2020 and May 2021. Due to the
increasing concentration of the pool, Fitch performed a
look-through analysis in its base case scenario, which grouped the
remaining loans based on the likelihood of repayment. Fitch also
factored into the analysis the three regional mall loans/assets
will likely be the last remaining assets in the pool; the
distressed ratings on classes D, E and F reflect the expectation
that losses will impact these classes.
Coronavirus Exposure: Seventeen loans (35.7%) are secured by retail
properties. These retail loans have a weighted average (WA) NOI
debt service coverage ratio (DSCR) of 1.49x and can sustain a 24.6%
decline in NOI before the WA NOI DSCR falls below 1.0x. Fitch
applied additional coronavirus-related stresses to five retail
loans (9.4%) to account for potential cash flow disruptions and
refinance concerns due to the coronavirus pandemic; this analysis
contributed to the Rating Outlook revisions to Negative from Stable
on classes B and C.
RATING SENSITIVITIES
The Negative Outlooks on classes B and C reflect the potential for
downgrades due to concerns surrounding the ultimate impact of the
coronavirus pandemic, the performance concerns associated with the
FLOCs and the high retail concentration (35.7% of pool) given
potential upcoming refinance concerns due to the coronavirus. The
Stable Outlooks on classes A-4 and X-A reflect these classes'
seniority, increasing credit enhancement and defeasance, and
expected continued amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
An upgrade of class B would only occur with significant
improvement in credit enhancement and/or defeasance and
stabilization of the FLOCs. An upgrade of class C is also not
likely until the FLOCs stabilize and/or further clarity is provided
on the refinanceability of the retail loans maturing next year, and
would be limited based on sensitivity to loan and pool
concentrations. Classes would not be upgraded above 'Asf' if there
is likelihood for interest shortfalls. Upgrades to the 'Csf' and
'CCsf' categories are not expected absent substantially higher
recoveries than expected on the specially serviced regional mall
loans/assets.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that could lead to downgrades include an
increase in pool level losses from underperforming or specially
serviced loans. Downgrades of the senior A-4 and X-A classes are
not considered likely due to the senior position in the capital
structure and high credit enhancement and defeasance, but may occur
should interest shortfalls affect these classes. A downgrade of
class B is possible should all of the loans susceptible to the
coronavirus suffer losses. A downgrade of class C is possible
should loss expectations increase significantly and/or additional
loans transfer to special servicing. Further downgrades to the
'CCsf' and 'Csf' categories would occur as losses are realized
and/or become more certain.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
further negative rating actions, including downgrades or additional
Negative Outlook revisions.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was provided or reviewed in relation
to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
WFRBS 2011-C3 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to the exposure to the sustained structural
shift in secular preferences affecting consumer trends, occupancy
trends, etc. which, in combination with other factors, affect the
ratings. The underperformance of three regional mall loans/assets,
all of which are in special servicing, contributed to the
downgrades to classes C, D, E and F and the Negative Outlooks on
classes B and C.
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.
WELLS FARGO 2011-C4: Fitch Lowers Rating on Class E Certs to B
--------------------------------------------------------------
Fitch Ratings has downgraded five classes and affirmed five classes
of Wells Fargo Bank, N.A. (WFRBS) commercial mortgage pass-through
certificates series 2011-C4.
RATING ACTIONS
WFRBS Commercial Mortgage Trust 2011-C4
Class A-4 92936CAJ8; LT AAAsf Affirmed; previously at AAAsf
Class A-FL 92936CAG4; LT AAAsf Affirmed; previously at AAAsf
Class A-FX 92936CBG3; LT AAAsf Affirmed; previously at AAAsf
Class B 92936CAS8; LT AAsf Affirmed; previously at AAsf
Class C 92936CAU3; LT Asf Downgrade; previously at A+sf
Class D 92936CAW9; LT BBBsf Downgrade; previously at A-sf
Class E 92936CAY5; LT Bsf Downgrade; previously at BBsf
Class F 92936CBA6; LT CCCsf Downgrade; previously at Bsf
Class G 92936CBC2; LT CCsf Downgrade; previously at CCCsf
Class X-A 92936CAN9; LT AAAsf Affirmed; previously at AAAsf
KEY RATING DRIVERS
Increase in Loss Expectations Due to Specially Serviced Loans: The
downgrades reflect increased loss expectations due two loans
secured by regional malls recently transferred to special
servicing. A total of 17.5% of the pool is in special servicing.
The largest specially serviced loan (and largest loan in the pool)
is Fox River Mall (14.1%), which is a 1.2 million sf (648,728 sf
collateral) regional mall located in Appleton, WI. The mall is
anchored by JC Penney, Target, Macy's, and Scheel's (collateral).
As of the trailing twelve-month (TTM) period ending June 2020,
in-line sales have decreased to $330 per square foot (psf) from
$375 psf at YE 2018 and YE 2017; sales have continued to remain
below the $385 psf reported at issuance. Anchor sales were not
available. As of YE 2019, the DSCR and occupancy were reported to
be 1.82x and 93%, respectively. The loan transferred to the special
servicer in September 2020 for imminent default and is past due for
the August and September 2020 payments. According to the servicer,
the borrower (Brookfield Properties) is expected to provide a
relief/modification request and the servicer is exploring other
alternatives in the event an agreement cannot be reached. Fitch
applied additional base case stresses in its analysis as the
property is expected to be impacted in the near term by the
coronavirus pandemic and is exposed to rollover risk (nearly 30% in
2020/21), as well as an upcoming maturity in June 2021. This
analysis includes a 30% haircut to the servicer provided year-end
2019 NOI.
The second largest specially serviced loan is the Eastgate Mall,
which is an 853,040 sf (561,250 sf collateral) regional mall
located in the suburbs of Cincinnati, OH. The mall is anchored by
Dillard's (ground lease; clearance/outlet location), JC Penney
(non-collateral), vacant Sears (non-collateral; closed in December
2019), and Kohl's (ground lease). Since issuance, sales psf have
decreased. As of 2019, total weighted-average mall sales were $327
psf compared to $330 psf in 2018 and $365 psf in 2017. Occupancy
was reported to be 94% as of March 2020. The loan transferred to
special servicing in April 2020 for imminent default at the
borrower's request due to the impact of the coronavirus pandemic.
According to the servicer, the borrower (CBL Properties) has
advised of their preference to transfer the property to the lender
via deed-in-lieu of foreclosure; the servicer is planning to pursue
a foreclosure action and request a motion to appoint a receiver in
the near term. Fitch's analysis included a haircut to the servicer
provided valuation for the property, which resulted in an
approximate 75% loss to the loan. Fitch's base case loss reflects
expectation of further performance decline and potential
disruptions to the property as a result of the coronavirus
pandemic.
In addition to the aforementioned malls, Fitch has designated seven
other Fitch Loans of Concern (FLOCs), including one other loan in
special servicing (0.9%) that is secured by a 252-unit student
housing property in Fredonia, NY. The loan transferred in November
2014 for imminent default, but the borrower continues to make
non-default rate loan payments. Occupancy as of YE 2019 was
reported to be 48%. The other FLOCs consist of four hotel loans
(5.9%), one office loan (2.2%), and one retail loan (2%); Fitch has
concerns with lease rollover and/or refinanceablilty at loan
maturities in 2021 for these loans.
Pool Concentration; Alternative Loss Consideration: There are 53
loans remaining in the pool, all of which mature between April and
July 2021. Due to the increasing concentration of the pool, Fitch
performed a look-through analysis in its base case scenario, which
grouped the remaining loans based on the likelihood of repayment.
The downgrades to classes C and D reflect this analysis and a
scenario in which the Fox River Mall and Eastgate Mall loans are
the only remaining loans in the pool. In this scenario,
approximately $30 million would need to be recovered from these two
loans to pay class C in full.
In addition to the base case scenario, Fitch applied a sensitivity
scenario that applied outsized losses to the two regional mall
loans in special servicing. A 50% loss severity was applied to the
Fox River Mall's maturity balance given declining sales, tertiary
location and upcoming maturity in June 2021 and a 100% loss
severity was applied to the current balance of the Eastgate Mall
loan given declining sales, likely REO scenario and limited
investor demand for regional mall assets.
Defeasance/Improved Credit Enhancement Since Issuance: Credit
enhancement has improved since issuance from paydown and
defeasance. Twenty-three loans (44%) are fully defeased. As of the
September 2020 distribution date, the pool's aggregate balance has
been reduced by 34.1% to $975.9 million from $1.5 billion at
issuance. Interest shortfalls are currently affecting non-rated
class H. Three loans (15.5%) are full-term interest-only and the
remaining loans are amortizing.
Coronavirus Exposure: There are four loans (5.9%) that are secured
by hotel properties and have a weighted average NOI DSCR of 2.56x.
The 15 loans (33.8%) that are secured by retail have a weighted
average NOI DSCR of 1.72x. The base case analysis applied
additional stresses to all of the hotel loans and five of the
retail loans due to their vulnerability to the coronavirus
pandemic. These additional stresses contributed to the downgrades
to classes E, F and G.
RATING SENSITIVITIES
Rating Outlooks on classes A-FL and A-4 remain Stable due to
increasing credit enhancement, continued paydown, expected payoffs
at maturity for the majority of the pool, and eventual disposition
proceeds from the defaulted loans. The Negative Outlooks on classes
B, C, D and E reflect the potential downgrade concerns as a result
of the potential losses and possibility of protracted workouts on
the two largest malls and other specially serviced loans and
FLOCs.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Upgrades to classes B, C and D are possible with significant
improvement in credit enhancement and/or defeasance but is not
likely unless the FLOCs stabilize. An upgrade to class E is
unlikely unless there is significant paydown or improvement in the
FLOCs but would be limited based on sensitivity to loan
concentrations. Classes would not be upgraded above 'Asf' if there
were a likelihood for interest shortfalls. Upgrades to the 'CCCsf'
and 'CCsf' rated classes are unlikely absent significant
performance improvement on the FLOCs and substantially higher
recoveries than expected on the specially serviced loans.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity Factors that lead to downgrades include an increase in
pool level expected losses from underperforming or specially
serviced loans. Downgrades to the senior A-3FL and A-4 classes are
not expected given the credit enhancement increase from defeasance,
expectation of continued amortization and eventual disposition
proceeds from the defaulted assets but are possible if interest
shortfalls are expected or are incurred or if expected losses
increase without additional credit enhancement. Classes that incur
interest shortfalls cannot be rated higher than 'Asf'. A downgrade
to classes B, C and D may occur with updated values for the
specially serviced loans, additional loans transfer to special
servicing, or performance deteriorates for other loans in the pool.
Further downgrades to class E would occur should loss expectations
increase due to a continued decline in performance of the FLOCs, an
increase in specially serviced loans or the disposition of a
specially serviced loan at a higher than expected loss. The
Negative Outlooks on classes B, C, D and E may be revised back to
Stable if performance of the FLOCs improves and there are better
than expected outcomes for the specially serviced loans. Classes F
and G could be further downgraded should losses become more certain
or be 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 downgrades or additional
Negative 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
The transaction has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to the pool's significant retail exposure
(33.8%), including two regional mall loans that are underperforming
as a result of changing consumer preferences in shopping, which has
a negative impact on the credit profile and is relevant to the
ratings in conjunction with other factors.
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.
WELLS FARGO 2016-C34: Fitch Cuts Rating on Class F Debt to CC
-------------------------------------------------------------
Fitch Ratings has downgraded five classes and affirmed 11 classes
of Wells Fargo Commercial Mortgage Trust 2016-C34 (WFCM 2016-C34)
commercial mortgage pass-through certificates issued by Wells Fargo
Bank, N.A.
RATING ACTIONS
WFCM 2016-C34
Class A-1 95000DBA8; LT AAAsf Affirmed; previously at AAAsf
Class A-2 95000DBB6; LT AAAsf Affirmed; previously at AAAsf
Class A-3 95000DBC4; LT AAAsf Affirmed; previously at AAAsf
Class A-3FL 95000DAG6; LT AAAsf Affirmed; previously at AAAsf
Class A-3FX 95000DAJ0; LT AAAsf Affirmed; previously at AAAsf
Class A-4 95000DBD2; LT AAAsf Affirmed; previously at AAAsf
Class A-S 95000DBF7; LT AAAsf Affirmed; previously at AAAsf
Class A-SB 95000DBE0; LT AAAsf Affirmed; previously at AAAsf
Class B 95000DBJ9; LT AA-sf Affirmed; previously at AA-sf
Class C 95000DBK6; LT BBBsf Downgrade; previously at A-sf
Class D 95000DAL5; LT Bsf Downgrade; previously at BBB-sf
Class E 95000DAN1; LT CCCsf Downgrade; previously at Bsf
Class F 95000DAQ4; LT CCsf Downgrade; previously at CCCsf
Class X-A 95000DBG5; LT AAAsf Affirmed; previously at AAAsf
Class X-B 95000DBH3; LT AA-sf Affirmed; previously at AA-sf
Class X-E 95000DAA9; LT CCCsf Downgrade; previously at Bsf
KEY RATING DRIVERS
Increase in Loss Expectations is Driven By High Concentration of
Fitch Loans of Concern: While much of the underlying collateral is
performing relatively stable, loss expectations have increased due
to an increase in the number of Fitch Loans of Concern (FLOCs) and
an increase in loss expectations from the specially serviced loans,
primarily 200 Precision & 425 Privet Portfolio and Shoppes at
Alafaya, and the slowdown in economic activity related to the
coronavirus pandemic. Twenty-seven loans (57% of pool), including
seven loans (29.5%) in special servicing, were designated as FLOCs.
As of the October 2020 distribution period, there were 23 loans
(36.3%) on the servicer's watchlist for low DSCR, requesting
coronavirus relief, high vacancy and rolling tenants. Since Fitch's
prior rating action in 2019, the specially serviced loan Wayne
Place Apartments was disposed in June 2020 with a $4.5 million
loss, in line with Fitch's expectations.
Additional Stress Applied Due to Coronavirus Exposure: Fitch
expects significant economic impacts to certain hotels, retail and
multifamily properties from the pandemic due to the related
reductions in travel and tourism, temporary property closures and
lack of clarity at this time on the potential duration of the
impacts. Loans collateralized by retail properties and mixed-use
properties with a retail component account for 34 loans (47.4% of
pool). Loans secured by hotel properties account for five loans
(15.9%), while five loans (4.5%) are secured by a multifamily
property. Fitch's base case analysis applied additional stresses to
17 retail and mixed-use loans, and five hotel loans due to their
vulnerability to the coronavirus pandemic; this analysis
contributed to the downgrades and Negative Rating Outlooks.
Increase in Specially Serviced Loans/Assets: The sixth largest loan
and specially serviced loan with the largest increase in loss since
the prior review, 200 Precision & 425 Privet Portfolio (4.1%), is
secured by two properties totaling 246,790 sf located in Horsham,
PA. 425 Privet Road is an office property that was 100% occupied by
Teva, which exercised a termination option and vacated the property
in November 2019. The loan transferred to the special servicer in
November 2019 for imminent monetary default and then defaulted in
December 2019. The tenant was subject to a $1.25 million
termination fee and the loan was structured with a full cash flow
sweep for 24 months. 200 Precision Drive is an industrial/office
property that has been 33.3% vacant since Finisar Corporation,
which accounted for 59% of annual rental income, vacated in June
2018. Occupancy for the property did increase by 13% after C&D
Technologies took on additional space in the building. The
properties' combined occupancy was 40% at Dec. 2019 and the YE 2019
NOI DSCR was 2.46x. According to Reis, Inc., the Horsham submarket
vacancy is 24.9% and average asking rent is $22.45/sf for office,
and Teva was paying $18.94/sf. Fitch's base case loss incorporates
an additional stress on a pre-pandemic valuation to address
increasing loan exposure, special servicing fees and the potential
that value may have declined in the current economic environment.
Fitch's loss equates to a recovery value of $52 psf.
The 10th largest loan, Shoppes at Alafaya (3%), is secured by a
120,639-sf retail property in Orlando, FL., approximately three
miles from the University of Central Florida. The loan was
transferred to the special servicer in October 2018 for payment
default. Occupancy at the property remains at 51% after the largest
tenant, Toys R' Us (49% of net rentable area and 44% of total
annual rent), vacated in June 2018. The property still has an
anchor tenant with Dick's Sporting Goods (42% of NRA) having a
lease that expires in January 2023. The property was built in two
separate phases with the vacant Toys R' Us outparcel on the
opposite side of the parking lot from Dick's Sporting Goods. At
issuance, there were plans for a phase 3, including multifamily and
retail, which would connect both ends of the shopping center but
construction never began. At Fitch's last rating action, a letter
of intent and a draft lease were under review for a potential
tenant to backfill the Toys R' Us space, but that does not appear
to have materialized. According to Reis, the Southeast submarket
has a retail vacancy rate of 10.5% with asking rental rates of
$22.03 psf and effective rents of $18.45 psf as of 2Q20, compared
with property rent of approximately $18.00 psf. The special
servicer continues to dual track settlement discussions with the
borrower while also pursuing foreclosure. Fitch assumed a 50% loss
on the loan.
The largest loan, Regent Portfolio (10.1%), is secured by 13
medical office buildings mostly located throughout New Jersey with
one in New York and one in Florida with a total of 352,001 sf. The
loan transferred to the special servicer in June 2019 for
delinquent payments, and the loan remains in payment default.
Approximately 50% of the portfolio at issuance was leased directly
to the sponsor or an affiliate of the sponsor. The borrower filed
Chapter 11 Bankruptcy in February 2020. The March 2020 occupancy
was 78.5% and the September 2018 NOI debt service coverage ratio
(DSCR) was 1.77x. The borrower is attempting to sell off the
individual assets and has currently sold one of the properties. The
borrower has also proposed a workout plan that is currently being
evaluated by the special servicer. At issuance, the sponsor
provided a repayment guarantee for an $8.0 million portion of the
outstanding first mortgage loan balance. Although loss expectations
for this loan remain fairly consistent with the previous rating
action, Fitch's base case loss incorporates a conservative stress
on 2019 valuations of the individual assets to address the expected
increase in loan exposure, special servicing fees and decline in
the economic environment since 2019.
The third largest loan, The Hilton & Homewood Suites Philadelphia
(6.2%) loan is secured by two hotels with 331 keys located in
Philadelphia, PA. The loan transferred to the special servicer in
July 2020 for imminent monetary default due to the coronavirus
pandemic. The Hilton and Homewood Suites shares some amenities with
each other. The loan was granted coronavirus relief through a
forbearance agreement and will be transferred back to the master
servicer. The terms include an approved PPP loan of $1.21 million,
a conversion of payments to interest only for nine months starting
in July 2020, and six months of deferred FF&E reserve payments. Per
the March 2020 STR report, the hotel was outperforming its
competitive set in terms of occupancy, ADR and RevPAR, with
respective penetration ratios of 102%, 109% and 111%. The hotel
reported TTM March 2020 occupancy, ADR and RevPAR of 68%, $167 and
$114, respectively, compared with 64%, $181 and $115 as of TTM
March 2019. Fitch's analysis included an overall 26% stress to the
YE 2019 NOI to address the expected declines in performance due to
the coronavirus pandemic.
The fifth largest loan, Marriott Monterey (4.2%), is secured by a
341-key full-service hotel that has direct access to the 41,000-sf
Monterey Conference Center via a pedestrian skybridge. The loan
transferred to the special servicer in June 2020 for imminent
monetary default due to the coronavirus pandemic and is 90+ days
delinquent. The property reported a YTD June 2020 occupancy rate of
33.4% and RevPAR of $69.53, compared with 81.6% and $196.54 as of
YTD June 2019. Modification discussions are in process as it was
decided that a forbearance would not help due to the significant
negative effects the pandemic is having on the group and conference
sector. Fitch's analysis included an overall 26% stress to the YE
2019 NOI to address the expected declines in performance due to the
coronavirus pandemic.
Increase in Fitch Loans of Concern: The largest non-specially
serviced FLOC, Shelby Town Center (4.4%), is secured by a retail
center located Shelby Township, MI, approximately 30 miles north of
the Detroit CBD with 238,229 sf. Major tenants and the center
include Marshalls, Jo-Ann Stores and Barnes & Noble. Gorman's,
which is 15% of the NRA, vacated at lease expiration in Aug. 2020,
dropping occupancy to 62%. NOI DSCR declined to 1.50x at YE 2019
from 1.86x at YE 2018. Fitch's analysis included an overall 25%
stress to the YE 2019 NOI to address Gorman's vacating and the
expected declines in performance due to the coronavirus pandemic.
The seventh-largest loan, Nolitan Hotel (3.4%), is secured by a
57-key hotel located in the NOLITA submarket of downtown Manhattan.
The borrower has requested relief and the special servicer has
agreed to provide payment relief due to hardships related to the
COVID-19 pandemic, which allows the borrower to use restaurant
reserve account funds for the payment of monthly debt service.
Additionally, funds were transferred from the restaurant reserve
account into the capital/FF&E reserve account. The restaurant
reserve balance was $1.8 million. In June 2018, a restaurant, The
Usual, was opened by Chef Alvin Cailan, but appears permanently
closed now. YE 2019 NOI DSCR was 1.53x, which reflects an occupancy
of 90% with ADR of $263 and RevPar of $236 versus the comp set
occupancy, ADR and RevPar of 85%, $317 and $268, respectively. The
TTM March 2020 NOI DSCR is 1.42x. Fitch's analysis includes an
overall 26% stress to the YE 2019 NOI to address the expected
declines in performance due to the coronavirus pandemic.
The 11th-largest loan, Embassy Plaza (2.6%), is secured by retail
center located in Tucson, AZ with 113,384 sf. During the 2019
property inspection, it was noted that Walmart Neighborhood Market
(32% NRA; lease expiration in February 2032) has been dark since
April 2019. There is no cash flow sweep or co-tenancy clauses
associated with the Walmart lease. The borrower and Wal-Mart agreed
to terminate the lease as of January 2020 and an existing tenant,
Big Lots, will move into the former Wal-Mart space. The smaller
space that Big Lots (16% of NRA) is vacating has three potential
tenants but no LOI at this point. The property was 79.3% occupied
as of July 2020, which includes Big Lots moving to Walmart's space,
leaving the former Big Lots space vacant. Approximately 10% rolls
in 2021 and 10% rolls in 2022. The YE 2019 NOI DSCR was 1.74x.
Fitch's analysis included an overall 20% stress to the YE 2019 NOI
to address the expected declines in performance due to the
coronavirus pandemic.
Minimal Change to Credit Enhancement: As of the September 2020
distribution date, the pool's aggregate principal balance paid down
by 4.8% to $669 million from $703 million at issuance. The
transaction is expected to pay down by 12.3% based on scheduled
loan maturity balances. Two loans (9.3% of pool) are full-term,
interest-only and four loans (7.7%) are partial interest-only and
have yet to begin amortizing, compared with 52.1% of the original
pool at issuance. Two loans (1.5%) have been defeased. Four loans
(14.8%) are scheduled to mature in 2021, while all remaining loans
mature in 2025 and 2026.
RATING SENSITIVITIES
The Negative Outlooks on classes A-S, X-A, B, X-B, C and D reflect
the potential for downgrades should the performance of the FLOCs,
specifically specially serviced loans, deteriorate. It also
reflects concerns with hotel and retail properties due to a decline
in travel and commerce as a result of the coronavirus pandemic. The
Stable Rating Outlooks on the super-senior classes reflect the
stable performance of the remainder of the pool, along with
expected continued amortization.
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 of
classes B, X-B and C would only occur with significant improvement
in credit enhancement and/or defeasance, but would be limited
should the deal be susceptible to a concentration whereby the
underperformance of particular loan(s) could cause this trend to
reverse. Classes would not be upgraded above 'Asf' if there is a
likelihood of interest shortfalls. While a significant portion of
the pool remains in special servicing, upgrades are unlikely. An
upgrade to class D is not likely until the later years in a
transaction and only if the performance of the remaining pool is
stable and/or if there is sufficient credit enhancement, which
would likely occur when the 'CCCsf' or below classes are not eroded
and the senior classes pay off. An upgrade to classes E, X-E and F
is extremely unlikely without significant paydown or defeasance and
the resolution of the specially serviced loans without substantial
losses.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Downgrades to the 'AAAsf' senior classes, A-1 A-2, A-3, A-3FL,
A-3FX, A-4, and A-SB may occur should loan level losses increase
further, if additional loans transfer to special servicing, or
should interest shortfalls occur. A downgrade of one category to
the junior 'AAAsf' rated class (class A-S) is possible should
expected losses for the pool increase significantly and/or should
all the loans susceptible to the coronavirus pandemic suffer
losses. Downgrades to B, C and X-B-rated classes are possible
should performance of the FLOCs continue to decline, if additional
loans transfer to special servicing and/or if loans susceptible to
the pandemic do not stabilize. Downgrades to class D would occur
should loss expectations increase due to an increase in the
certainty of losses on the specially serviced loans. The Negative
Rating Outlooks 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. Downgrades to classes E, X-E
and F would occur as losses are realized.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, Fitch expects that a greater
percentage of classes may be assigned a Negative Outlook or those
with Negative Outlooks will be downgraded one or more categories.
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.
WP GLIMCHER 2015-WPG: DBRS Assigns B(low) on Class SQ-3 Certs
-------------------------------------------------------------
DBRS Limited assigned ratings to the Commercial Mortgage
Pass-Through Certificates, Series 2015-WPG issued by WP Glimcher
Mall Trust 2015-WPG as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X at A (sf)
-- Class C at A (low) (sf)
-- Class PR-1 at BBB (low) (sf)
-- Class SQ-1 at BBB (low) (sf)
-- Class PR-2 at BB (sf)
-- Class SQ-2 at BB (low) (sf)
-- Class SQ-3 at B (low) (sf)
The trends for Classes A, B, X, and C 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 PR-1, SQ-1, PR-2, SQ-2,
and SQ-3 Under Review with Negative Implications, given the
negative impact of the coronavirus on the underlying collateral as
well as the concern surrounding Washington Prime Group's (WPG)
overall financial position.
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 will be the most affected.
LOAN/PROPERTY OVERVIEW
This transaction is backed by two uncrossed, fixed-rate,
interest-only (IO) mortgage loans totalling $200.0 million. The
loans are secured by three senior pari passu A notes totalling
$95.0 million on the fee-simple interest in Scottsdale Quarter, a
541,386 square-foot (sf) mixed-use retail centre in Scottsdale,
Arizona, and a $105.0 million loan on a portion of the fee and
leasehold interest in Pearlridge Center, a 1.14 million-sf
super-regional mall in Aiea, Hawaii, the state's largest enclosed
shopping centre. The trust loans are each paired with two senior
companion loans of $70.0 million and $120.0 million, respectively,
which were securitized in later transactions. The sponsors for both
loans are WPG, which is the successor sponsor to Glimcher Realty
Trust, and O'Connor Capital Partners. Both properties are managed
by WPG.
The Pearlridge Center loan served to refinance existing debt,
return $47.0 million of equity to the sponsor, and create a new
joint venture with Glimcher Realty Trust (now WPG) having a 51%
share and O'Connor Capital Partners acquiring a 49% share. The
mall is considered a Class B mall in a strong location. The
property is located 10 miles from downtown Honolulu in a densely
populated area with other commercial developments. Major tenants
include Macy's, Sears (on a ground lease), Bed Bath & Beyond,
and Consolidated Theatres Pearlridge. The mall was constructed in
two
phases, in 1972 and 1974, and has an unconventional property layout
with two separate buildings that are joined together by a monorail
system. In addition, there is an office building on site that is
part of the loan collateral.
The Scottsdale Quarter loan served to refinance existing debt and
recapitalized a joint venture with WP Glimcher and O'Connor Capital
Partners. Additionally, the sponsor invested $16.6 million of cash
equity with the recapitalization. The property is a Class A,
mixed-use, open-air lifestyle centre, with office space, located 17
miles northeast of Phoenix in the affluent Kierland neighbourhood
of north Scottsdale. The collateral consists of 175,875 sf of
office space with the remainder of the property comprising in-line
retail space and a theater box. Kierland is a strong retail market
with the Kierland Commons Center across Scottsdale Road and nearby
luxury hotels and golf courses. The area is a prime shopping
destination in the Scottsdale area with the region's dominant mall,
Scottsdale Fashion Square, located nine miles south of the subject.
Major tenants include H&M, Apple, Pottery Barn, and Restoration
Hardware in the retail portion of the collateral. Starwood Hotels
& Resorts is the largest office tenant. The mall was
constructed in two phases from 2009 to 2010. A third phase of
development, which was under way at issuance and is not part of the
collateral, was completed and contains residential units, hotel
rooms, and more mixed-use space including 130,000 sf of office and
96,000 sf of ground-floor retail. Historic occupancy and financial
performance at both properties have been strong. The reported 2019
net cash flow (NCF) for Pearlridge Center and Scottsdale Quarter
were reported at $22.7 million and $15.6 million, respectively.
This represents a debt service coverage ratio of 2.82 times (x) and
2.64x, respectively. However, in mid-March 2020, malls and small
shops were closed in
response to the coronavirus pandemic. The Pearlridge Center and
Scottsdale Quarter were both temporarily closed in March and
reopened in early May. Pearlridge Center closed for a second time
in late August after the governor of Hawaii enacted a
Stay-at-Home-Order for Oahu and closed the island's tourism-related
industries. The order further delayed the reopening date for the
tourism sector throughout most of September but a tiered re-opening
schedule has since been adopted that will allow the
subject to operate at limited capacity.
The borrower submitted a request for relief and forbearance for
both loans because of cash flow concerns amid the pandemic;
however, both requests were withdrawn. Both loans were added to the
servicer's watchlist in May because of coronavirus concerns, but
were removed from the watchlist shortly afterward. The loans remain
current in debt service payments with no delinquencies. However,
lease renewals in the next 12 months could pose a problem for
Scottsdale Quarter because of lingering coronavirus effects.
The property lost its second-largest tenant, iPic Theaters (8.2% of
net rentable area (NRA)) at the beginning of 2020 because of a
financial restructuring by the tenant's parent company and,
according to the June 2020 rent roll, tenants representing 19.0% of
the NRA are scheduled to roll in the next 12 months. The
property was 73.0% occupied as of June 2020.
DBRS Morningstar derived the NCFs using the latest reported
servicer NCF with an adjustment, considering ongoing collateral
performance including tenant movement and sales performance. The
resulting NCF figures were $22.3 million for Pearlridge Center and
$13.8 million for Scottsdale Quarter, and DBRS Morningstar applied
a cap rate of 7.25% for both properties, which resulted in a
pre-coronavirus DBRS Morningstar Value of $307.0 million for
Pearlridge Center and $191.0 million for Scottsdale Quarter, a
variance of 28.2% and 54.4% from the appraised values of $427.5
million and $351.0 million, respectively, at issuance. The
pre-coronavirus DBRS Morningstar Value implies an LTV of 73.3% for
Pearlridge Center and 86.4% for Scottsdale Quarter compared with
the LTVs of 52.6% and 47.0%, respectively, 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 the collateral's high property quality in developed
retail markets.
DBRS Morningstar made positive qualitative adjustments to the final
LTV sizing benchmarks used for this rating analysis, totalling 4.0%
for Pearlridge Center and 1.0% for Scottsdale Quarter to account
for cash flow volatility, property quality, and
market fundamentals.
CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher
NCF declines, resulting in stressed collateral value declines
consistent with the projections in the "Global Macroeconomic
Scenarios: September Update"
(https://www.dbrsmorningstar.com/research/366542) to estimate the
impact of coronavirus-related changes in asset performance on a
tranche-by-tranche basis for the subject transaction. The scenarios
included deducting cash flow for bankrupt retailers
and/or increased vacancy expected at the asset to arrive at a
coronavirus DBRS Morningstar Value under the moderate scenario, a
15% reduction from the pre-coronavirus DBRS Morningstar Value.
Because of the more permanent value impairment resulting from the
lost tenancy revenue stream, DBRS Morningstar's analysis
considered this value when assigning ratings.
Under the moderate scenario, the cumulative rated debt through
Class SQ-3 exceeded the value under the Coronavirus Impact Analysis
and therefore DBRS Morningstar presumes that the economic stress
from the coronavirus had affected the class.
After applying the Coronavirus Impact Analysis, DBRS Morningstar
had higher variances from the ratings assigned to Class SQ-2 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 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.
[*] DBRS Reviews 470 Classes From 90 U.S. RMBS Transactions
-----------------------------------------------------------
DBRS, Inc. reviewed 470 classes from 90 U.S. resecuritizations of
real estate mortgage investment conduits (ReREMICs) and residential
mortgage-backed security (RMBS) transactions. On Oct. 16, 2020, of
the 470 classes reviewed, DBRS Morningstar confirmed 457 ratings,
downgraded 10 ratings, placed two ratings Under Review with
Negative Implications, and discontinued one rating.
The Affected Ratings are Available at https://bit.ly/37mD7kC
The rating confirmations reflect asset performance and
credit-support levels that are consistent with the current ratings.
The rating downgrades reflect the unlikely recovery of the bonds'
principal loss amount or the transactions' negative trend in loss
activity. The Under Review with Negative Implications status
reflects the negative impact of the Coronavirus Disease (COVID-19)
on the bonds. The discontinuation reflects full repayment of
principal to bondholders.
On April 13, 2020, and May 13, 2020, DBRS Morningstar published
commentaries on the U.S. RMBS sector titled "Coronavirus Disease
(COVID-19) Fallout and the Credit Risk Exposure Mapping of U.S.
RMBS Sectors" and "Coronavirus Disease Implications for GSE CRT
Deals," respectively. In a commentary titled "Global Macroeconomic
Scenarios: September Update" published on September 10, 2020, DBRS
Morningstar provided an update on how its scenarios and views on
the coronavirus have evolved since its original commentary dated
April 16, 2020. DBRS Morningstar's moderate scenario now reflects
recent economic data and assumes that a full recovery takes
somewhat longer. This implies lower GDP growth for 2020, higher GDP
growth for 2021 (as a larger proportion of lost output is made up
in 2021 instead of Q3 and Q4 2020), and higher unemployment in 2020
carrying through to 2021.
DBRS Morningstar's rating actions are based on the following
analytical considerations:
-- Key performance measures as reflected in month-over-month
changes in delinquency (including forbearance) percentages, credit
enhancement (CE) increases since deal inception, and CE levels
relative to 30+-day delinquencies.
-- Offset of mortgage-relief initiatives via direct-to-consumer
economic aid, mortgage payment assistance, and foreclosure
suspension directives.
-- Higher unemployment rates and more conservative home-price
assumptions.
The pools backing the reviewed ReREMIC and RMBS transactions
consist of Prime, Alt-A, Option-ARM, Scratch and Dent, Second-Lien,
Subprime, and Reperforming collateral.
The ratings assigned to the securities below differ from the
ratings implied by the quantitative model. DBRS Morningstar
considers this difference to be a material deviation; however, in
this case, the ratings on the subject securities reflect a small
loan count, additional seasoning warranted to substantiate a
further upgrade, or actual deal/tranche performance that is not
fully reflected in the projected cash flows/model output.
-- Credit Suisse First Boston Mortgage Securities Corp., CSMC
Series 2009-6R, Class 1-A4
-- Credit Suisse First Boston Mortgage Securities Corp., CSMC
Series 2009-6R, Class 1-A5
-- Credit Suisse First Boston Mortgage Securities Corp., CSMC
Series 2009-6R, Class 2-A4
-- Credit Suisse First Boston Mortgage Securities Corp., CSMC
Series 2009-6R, Class 4-A4
-- CSMC Series 2010-9R, Class 49-A-4
-- CSMC Series 2015-6R, Class 2-A-1
-- CSMC Series 2015-6R, Class 4-A-1
-- Financial Asset Securities Corp. AAA Trust 2005-2, Series
2005-2, Class II-X
-- Accredited Mortgage Loan Trust 2004-4, Asset-Backed Notes,
Series 2004-4, Class M-1
-- Accredited Mortgage Loan Trust 2004-4, Asset-Backed Notes,
Series 2004-4, Class M-3
-- ACE Securities Corp. Home Equity Loan Trust, Series 2004-HE4,
Asset-Backed Pass-Through Certificates, Series 2004-HE4, Class M-2
-- C-BASS 2004-CB4 Trust, C-BASS Mortgage Loan Asset-Backed
Certificates, Series 2004-CB4, Class M-1
-- Credit Suisse First Boston Mortgage Securities Corp. Adjustable
Rate Mortgage Trust 2005-8, Adjustable Rate Mortgage-Backed
Pass-Through Certificates, Series 2005-8, Class 7-A-2
-- Credit Suisse First Boston Mortgage Securities Corp. Adjustable
Rate Mortgage Trust 2005-8, Adjustable Rate Mortgage-Backed
Pass-Through Certificates, Series 2005-8, Class 7-A-3-2
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 1-A-1
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 2-A-1
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 3-A-1
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 3-A-4
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 3-A-5
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 4-A-1
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 4-A-2
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 5-A-1
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 5-A-3
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 6-A-3
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 6-A-7
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 11-A-2
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class 11-A-3
-- J.P. Morgan Mortgage Trust 2005-A3, Mortgage Pass-Through
Certificates, Series 2005-A3, Class III-B-3
-- MASTR Adjustable Rate Mortgages Trust 2007-3, Mortgage
Pass-Through Certificates, Series 2007-3, Class 2-2A3
-- Renaissance Home Equity Loan Trust 2005-2, Home Equity Loan
Asset-Backed Notes, Series 2005-2, Class AV-3
-- Renaissance Home Equity Loan Trust 2005-2, Home Equity Loan
Asset-Backed Notes, Series 2005-2, Class AF-4
-- Renaissance Home Equity Loan Trust 2005-2, Home Equity Loan
Asset-Backed Notes, Series 2005-2, Class AF-5
-- Renaissance Home Equity Loan Trust 2005-2, Home Equity Loan
Asset-Backed Notes, Series 2005-2, Class AF-6
-- RESI Finance Limited Partnership 2003-A & RESI Finance DE
Corporation 2003-A, Real Estate Synthetic Investment Securities,
Series 2003-A, Class A5 Risk Band
-- RESI Finance Limited Partnership 2003-A & RESI Finance DE
Corporation 2003-A, Real Estate Synthetic Investment Notes, Series
2003-A, Class B1 Risk Band
-- RESI Finance Limited Partnership 2003-A & RESI Finance DE
Corporation 2003-A, Real Estate Synthetic Investment Notes, Series
2003-A, Class B2 Risk Band
-- RESI Finance Limited Partnership 2003-B & RESI Finance DE
Corporation 2003-B, Real Estate Synthetic Investment Securities,
Series 2003-B, Class A5 Risk Band
-- RESI Finance Limited Partnership 2003-B & RESI Finance DE
Corporation 2003-B, Real Estate Synthetic Investment Notes, Series
2003-B, Class B1 Risk Band
-- RESI Finance Limited Partnership 2003-B & RESI Finance DE
Corporation 2003-B, Real Estate Synthetic Investment Notes, Series
2003-B, Class B2 Risk Band
-- RESI Finance Limited Partnership 2003-C & RESI Finance DE
Corporation 2003-C, Real Estate Synthetic Investment Securities,
Series 2003-C, Class A5 Risk Band
-- RESI Finance Limited Partnership 2003-C & RESI Finance DE
Corporation 2003-C, Real Estate Synthetic Investment Notes, Series
2003-C, Class B1 Risk Band
-- RESI Finance Limited Partnership 2003-CB1 & RESI Finance DE
Corporation 2003-CB1, Real Estate Synthetic Investment Securities,
Series 2003-CB1, Class A5 Risk Band
-- RESI Finance Limited Partnership 2003-CB1 & RESI Finance DE
Corporation 2003-CB1, Real Estate Synthetic Investment Notes,
Series 2003-CB1, Class B1 Risk Band
-- RESI Finance Limited Partnership 2003-CB1 & RESI Finance DE
Corporation 2003-CB1, Real Estate Synthetic Investment Notes,
Series 2003-CB1, Class B2 Risk Band
-- RESI Finance Limited Partnership 2003-D & RESI Finance DE
Corporation 2003-D, Real Estate Synthetic Investment Securities,
Series 2003-D, Class A5 Risk Band
-- RESI Finance Limited Partnership 2004-A & RESI Finance DE
Corporation 2004-A, Real Estate Synthetic Investment Securities,
Series 2004-A, Class A5 Risk Band
-- RESI Finance Limited Partnership 2004-A & RESI Finance DE
Corporation 2004-A, Real Estate Synthetic Investment Notes, Series
2004-A, Class B1 Risk Band
-- RESI Finance Limited Partnership 2004-B & RESI Finance DE
Corporation 2004-B, Real Estate Synthetic Investment Securities,
Series 2004-B, Class A5 Risk Band
-- RESI Finance Limited Partnership 2004-B & RESI Finance DE
Corporation 2004-B, Real Estate Synthetic Investment Notes, Series
2004-B, Class B1 Risk Band
-- RESI Finance Limited Partnership 2004-C & RESI Finance DE
Corporation 2004-C, Real Estate Synthetic Investment Securities,
Series 2004-C, Class A5 Risk Band
-- RESI Finance Limited Partnership 2004-C & RESI Finance DE
Corporation 2004-C, Real Estate Synthetic Investment Notes, Series
2004-C, Class B1 Risk Band
-- RESI Finance Limited Partnership 2005-A & RESI Finance DE
Corporation 2005-A, Real Estate Synthetic Investment Securities,
Series 2005-A, Class A5 Risk Band
-- RESI Finance Limited Partnership 2005-B & RESI Finance DE
Corporation 2005-B, Real Estate Synthetic Investment Securities,
Series 2005-B, Class A5 Risk Band
-- Soundview Home Loan Trust 2008-1, Asset-Backed Certificates,
Series 2008-1, Class A-1
-- Soundview Home Loan Trust 2008-1, Asset-Backed Certificates,
Series 2008-1, Class A-2
-- Soundview Home Loan Trust 2008-1, Asset-Backed Certificates,
Series 2008-1, Class A-3
-- Soundview Home Loan Trust 2008-1, Asset-Backed Certificates,
Series 2008-1, Class A-4
-- Structured Adjustable Rate Mortgage Loan Trust, Series 2004-8,
Mortgage Pass-Through Certificates, Series 2004-8, Class 5-A6
-- TBW Mortgage-Backed Trust 2007-2, Mortgage-Backed Pass-Through
Certificates, Series 2007-2, Class A-4-B
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class AI-8
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class AI-9
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class AIII-3
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class M-1
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class M-4
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class M-5
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class M-6
-- Wells Fargo Home Equity Asset-Backed Securities 2004-2 Trust,
Home Equity Asset-Backed Certificates, Series 2004-2, Class M-7
The rating actions are the result of DBRS Morningstar's application
of its "U.S. RMBS Surveillance Methodology" published on February
21, 2020.
When DBRS Morningstar places a rating 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.
*********
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