/raid1/www/Hosts/bankrupt/TCR_Public/210221.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, February 21, 2021, Vol. 25, No. 51
Headlines
AFFIRM ASSET 2021-A: DBRS Gives Prov. B Rating on Class E Notes
BANK 2017-BNK4: Fitch Affirms B- Rating on 2 Tranches
BANK 2021-BNK31: Fitch Assigns Final 'B-sf' Rating on Cl. G Certs
BBCMS MORTGAGE 2021-C9: Fitch to Rate Class J-RR Certs 'B-sf'
BENCHMARK 2021-B23: Fitch Gives Final 'B-sf' Rating on 2 Tranches
BX COMMERCIAL 2018-BIOA: Fitch Affirms B- Rating on 2 Tranches
BX COMMERCIAL 2021-IRON: DBRS Gives Prov. B(low) Rating on 2 Cls.
CFMT 2021-HB5: DBRS Gives Prov. BB Rating on Class M4 Notes
COLT 2021-2R: Fitch Assigns Final B Rating on Class B-2 Certs
COMM 2012-CCRE3: Fitch Lowers Rating on 2 Tranches to 'C'
CROSSROADS ASSET 2021-A: DBRS Finalizes BB Rating on Class E Notes
DEEPHAVEN RESIDENTIAL 2021-1: S&P Assigns 'B-' Rating on B-2 Notes
FLAGSHIP CREDIT 2021-1: S&P Assigns BB- (sf) Rating on Cl. E Notes
FLAGSTAR MORTGAGE 2021-1: Fitch to Give B+(EXP) Rating on B-5 Certs
FLAGSTAR MORTGAGE 2021-1: Moody's Gives (P)B2 Rating on B-5 Certs
FLATIRON CLO 17: Moody's Rates $18MM Class E-R Notes 'Ba3 (sf)'
FORTRESS CREDIT X: S&P Assigns Prelim BB-(sf) Rating on E Notes
FREDDIE MAC 2017-K63: Fitch Affirms BB+ Rating on Class C Certs
FREDDIE MAC 2021-HQA1: Moody's Gives (P)Ba2 Rating to 10 Tranches
FREDDIE MAC 2021-HQA1: S&P Assigns Prelim B- Rating on B-1B Notes
GOLUB CAPITAL 41(B)-R: S&P Assigns BB-(sf) Rating on Cl. E-R Notes
GS MORTGAGE 2016-GS2: Fitch Downgrades Class F Certs to 'CCC'
GS MORTGAGE 2019-GC42: DBRS Confirms B(high) Rating on G-RR Certs
GULF STREAM 3: S&P Assigns Prelim BB- (sf) Rating on Cl. D Notes
J.P. MORGAN 2014-DSTY: S&P Cuts Class X-B Certs Rating to 'CCC'
JP MORGAN 2004-CIBC10: Moody's Affirms C on Class X-1 Certs
JP MORGAN 2014-C22: Fitch Lowers Rating on 2 Tranches to 'CCC'
JP MORGAN 2021-3: Fitch Assigns B(EXP) Rating on Class B-5 Debt
KEY COMMERCIAL 2018-S1: DBRS Confirms B Rating on Class F Certs
KEY COMMERCIAL 2019-S2: DBRS Confirms B Rating on Class F Certs
LOANCORE 2021-CRE4: DBRS Finalizes B(low) Rating on Class G Notes
MADISON PARK XVII: Moody's Raises Class E-R Notes to 'Ba3'
MFA 2021-INV1: DBRS Finalizes B Rating on Class B-2 Certificates
MILL CITY 2021-NMR1: DBRS Finalizes B(high) Rating on 3 Classes
MORGAN STANLEY 2014-C16: Fitch Lowers Rating on Cl. E Debt to 'CC'
PARK AVENUE 2017-1: S&P Assigns BB- (sf) Rating on Class D-R Notes
REGIONAL MANAGEMENT 2021-1: DBRS Gives Prov. BB Rating on D Notes
SARATOGA INVESTMENT 2013-1: Moody's Gives '(P)Ba3' on E-R-3 Notes
TIAA SEASONED 2007-C4: Fitch Lowers Rating on E Debt to CCC
TOWD POINT 2020-3: Fitch Assigns B Rating on 10 Tranches
VCP CLO II: DBRS Gives Prov. BB(low) Rating on Class E Notes
VENTURE 41: S&P Assigns BB- (sf) Rating on $22.5MM Class E Notes
VERUS SECURITIZATION 2021-1: S&P Assigns B(sf) Rating on B-2 Notes
WELLS FARGO 2015-C29: Fitch Lowers Rating on Class F Certs to 'B-'
WELLS FARGO 2016-C34: DBRS Cuts Rating on 2 Classes of Certs to CCC
WELLS FARGO 2017-RB1: Fitch Affirms B- Rating on 2 Tranches
WELLS FARGO 2021-SAVE: Moody's Rates Class E Certs 'Ba2 (sf)'
WFRBS COMMERCIAL 2013-C11: Fitch Lowers Class F Certs to 'B-'
[*] S&P Takes Various Actions on 26 Classes From Five US RMBS Deals
[*] S&P Takes Various Actions on 46 Classes From Six US RMBS Deals
[*] S&P Takes Various Actions on 70 Classes From Seven RMBS Deals
*********
AFFIRM ASSET 2021-A: DBRS Gives Prov. B Rating on Class E Notes
---------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following notes to
be issued by Affirm Asset Securitization Trust 2021-A (Affirm
2021-A):
-- $407,200,000 Class A Notes at AA (sf)
-- $30,270,000 Class B Notes at A (sf)
-- $21,010,000 Class C Notes at BBB (sf)
-- $22,510,000 Class D Notes at BB (sf)
-- $19,010,000 Class E Notes at B (sf)
The provisional ratings on the notes are based on DBRS
Morningstar's review of the following considerations:
(1) The transaction's 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: January 2021 Update," published on January
28, 2021. DBRS Morningstar initially published macroeconomic
scenarios on April 16, 2020, which have been regularly updated. The
scenarios were last updated on January 28, 2021, and are reflected
in DBRS Morningstar's rating analysis.
(2) 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
factors in increasing success in containment during the first half
of 2021, enabling the continued relaxation of restrictions.
-- DBRS Morningstar's projected losses include an additional
stress due to the potential impact of the coronavirus. The DBRS
Morningstar cumulative net loss (CNL) assumption is 5.56% based on
the worst-case loss pool constructed giving consideration to the
concentration limits present in the structure.
(3) The transaction's form and sufficiency of available credit
enhancement.
-- Subordination, overcollateralization, amounts held in the
Reserve Account, the Yield Supplement Overcollateralization Amount,
and excess spread create credit enhancement levels that are
commensurate with the proposed ratings.
-- Transaction cash flows are sufficient to repay investors under
all AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) stress scenarios
in accordance with the terms of the Affirm 2021-A transaction
documents.
(4) Inclusion of structural elements featured in the transaction
such as the following:
-- Eligibility criteria for receivables that are permissible in
the transaction.
-- Concentration limits designed to maintain a consistent profile
of the receivables in the pool.
-- Performance-based Amortization Events that, when breached, will
end the revolving period and begin amortization.
(5) The experience, sourcing, and servicing capabilities of Affirm,
Inc. (Affirm).
(6) The experience, underwriting, and origination capabilities of
Cross River Bank (CRB) and Celtic Bank.
(7) The ability of Nelnet Servicing to perform duties as a Backup
Servicer.
(8) The annual percentage rate charged on the loans and CRB and
Celtic Bank's status as the true lender.
-- All loans in the initial pool included in Affirm 2021-A are
originated by originating banks, CRB and Celtic Bank, New Jersey
and Utah, respectively, state-chartered Federal Deposit Insurance
Corporation -insured banks.
-- Loans originated by Affirm Loan Services LLC (ALS) utilize
state licenses and registrations and interest rates are within each
state's respective usury cap.
-- Loans originated by CRB are all within the New Jersey state
usury limit of 30.00%.
-- Loans originated by Celtic Bank are all within the Utah state
usury limit of 36.00%.
-- Loans may be in excess of individual state usury laws; however,
CRB and Celtic Bank as the true lenders are able to export rates
that preempt state usury rate caps.
-- Loans originated to borrowers in states with active litigation
(Second Circuit (New York, Connecticut, Vermont) and Colorado) are
either excluded from the pool or limited to each state's respective
usury cap.
-- Loans originated to borrowers in Iowa will be eligible to be
included in the Receivables to be transferred to the Trust. These
loans will be originated under the ALS entity using Affirm's state
license in Iowa.
-- Loans originated to borrowers in West Virginia will be eligible
to be included in the Receivables to be transferred to the Trust.
Affirm has the required licenses and registrations that will enable
it to operate the bank partner platform in West Virginia.
-- Under the loan sale agreement, Affirm is obligated to
repurchase any loan if there is a breach of representation and
warranty that materially and adversely affects the interests of the
purchaser.
(9) Affirm 2021-A provides for Class E Notes with an assigned
rating of B (sf). While the DBRS Morningstar "Rating U.S.
Structured Finance Transactions" methodology does not set forth a
range of multiples for this asset class for the B (sf) level, the
analytical approach for this rating level is consistent with that
contemplated by the methodology. The typical range of multiples
applied in the DBRS Morningstar stress analysis for a B (sf) rating
is 1.00 times (x) to 1.25x.
(10) The legal structure and expected legal opinions that will
address the true sale of the unsecured consumer loans, the
nonconsolidation of the trust, and that the trust has a valid
perfected security interest in the assets and consistency with the
DBRS Morningstar "Legal Criteria for U.S. Structured Finance."
Notes: All figures are in U.S. dollars unless otherwise noted.
BANK 2017-BNK4: Fitch Affirms B- Rating on 2 Tranches
-----------------------------------------------------
Fitch Ratings has affirmed 16 classes of BANK 2017-BNK4 commercial
mortgage pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
BANK 2017-BNK4
A-1 06541FAW9 LT AAAsf Affirmed AAAsf
A-2 06541FAX7 LT AAAsf Affirmed AAAsf
A-3 06541FAZ2 LT AAAsf Affirmed AAAsf
A-4 06541FBA6 LT AAAsf Affirmed AAAsf
A-S 06541FBD0 LT AAAsf Affirmed AAAsf
A-SB 06541FAY5 LT AAAsf Affirmed AAAsf
B 06541FBE8 LT AA-sf Affirmed AA-sf
C 06541FBF5 LT A-sf Affirmed A-sf
D 06541FAJ8 LT BBB-sf Affirmed BBB-sf
E 06541FAL3 LT BB-sf Affirmed BB-sf
F 06541FAN9 LT B-sf Affirmed B-sf
X-A 06541FBB4 LT AAAsf Affirmed AAAsf
X-B 06541FBC2 LT A-sf Affirmed A-sf
X-D 06541FAA7 LT BBB-sf Affirmed BBB-sf
X-E 06541FAC3 LT BB-sf Affirmed BB-sf
X-F 06541FAE9 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Stable Performance and Loss Expectations: Overall pool performance
and loss expectations have remained stable since issuance. Fitch's
current ratings and Outlooks incorporate a base case loss of 5.00%.
Fitch has designated 13 loans (32.1% of pool) as Fitch Loans of
Concern, including three specially serviced loans (8.3%), all of
which are new transfers since June 2020 due to the coronavirus
pandemic.
Fitch Loans of Concern: The largest contributor to Fitch's overall
loss expectations and the largest increase in loss since the prior
rating action is the second largest loan in the pool, The Summit
Birmingham (6.3% of pool). The loan is secured by a 688,032-sf
lifestyle center located in Birmingham, AL, anchored by Belk (23.8%
of NRA; lease expiry in January 2023), RSM US (5.2%; October 2021)
and Barnes & Noble (3.7%; February 2023). YE 2019 NOI fell 3.5%
from 2018. The property was 93% occupied as of the October 2020
rent roll. Upcoming lease rollover includes 11.7% of NRA in 2021,
8.0% in 2022 and 34.7% in 2023. The servicer-reported TTM September
2020 NOI DSCR was 1.65x, compared with 1.75x at YE 2019.
The next largest increase in loss since the prior rating action is
the DoubleTree Greenway Houston (3.7%), which is secured by a
388-room full-service hotel located in Houston, TX. The loan
transferred to special servicing in June 2020 for payment default
as a result of the coronavirus pandemic. The special servicer is
currently negotiating with the borrower regarding next steps. TTM
September 2020 occupancy, ADR, and RevPAR were 45.2%, $118, and
$53, respectively, down from 71.2%, $132, and $94, respectively, as
of YE 2019 and 68.5%, $144, and $99, respectively, at issuance. The
hotel was outperforming its competitive set in all terms of RevPAR
as of TTM September 2020, with respective occupancy and RevPAR
penetration ratios of 111% and 106%; ADR penetration was 96.7%.
The next largest increase in loss since the prior rating action is
the Best Western - Hannaford, OH loan (0.6%), which is secured by a
79-room limited service hotel located in Cincinnati, OH. The loan
transferred to special servicing in August 2020 for payment default
as a result of the coronavirus pandemic. The special servicer and
the obligor parties are currently engaged in discussions relating
to a short-term forbearance agreement. The loan reported negative
cash flow for the YTD June 2020 period. The hotel reported YTD June
2020 occupancy, ADR, and RevPAR of 32.2%, $74, and $24,
respectively, down from 62.3%, $90, and $56 as of YE 2019.
Minimal Change to Credit Enhancement: As of the January 2021
distribution date, the pool's aggregate principal balance has paid
down by 2.7% to $981 million from $1 billion at issuance. Thirteen
loans (49.9% of pool) are full-term, interest-only, and four loans
(3.1%) still have a partial interest-only component during their
remaining loan term, compared with 13 loans (19.3%) at issuance.
There have been no realized losses since issuance.
Additional Stresses Applied due to Coronavirus Pandemic: Loans
secured by hotel, retail, and multifamily properties represent
19.1% of the pool (eight loans), 20.7% (16 loans) and 2.0% (three
loans), respectively.
The hotel loans have an average weighted average (WA) NOI DSCR of
2.33x and can withstand an average 57.1% decline to NOI before DSCR
falls below 1.00x. The retail loans have a WA NOI DSCR of 1.78x and
can withstand an average 43.9% decline to NOI before DSCR falls
below 1.00x. The multifamily loans have a WA NOI DSCR of 1.66x and
can withstand an average 39.8% decline to NOI before DSCR falls
below 1.00x.
Fitch's analysis applied additional coronavirus-related stresses on
all eight hotel loans (19.1%), four retail loans (8.4%) and one
mixed use loan (Key Center Cleveland; 3.9%) with a hotel component
to account for potential cash flow disruptions due to the
coronavirus pandemic. These additional stresses contributed to the
Negative Outlooks on classes F and X-F.
RATING SENSITIVITIES
The Negative Outlooks on classes F and X-F reflect the potential
for downgrade due to performance concerns on the FLOCs and from
reduced economic activity as a result of the coronavirus pandemic.
The Stable Outlooks on all other classes reflect the overall stable
performance of the pool and expected continued amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Factors that could lead to upgrades include stable to improved
asset performance coupled with paydown and/or defeasance.
Upgrades of classes B, X-B, and C may occur with significant
improvement in credit enhancement (CE) and/or defeasance;
however, it is not likely unless the performance of the FLOCs
stabilize or improve.
-- An upgrade to classes D and X-D would also take into account
these factors but would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if there were 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 CE, which would likely
occur when the senior classes pay off and if the non-rated
classes are not eroded.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Factors that could lead to downgrades include an increase in
pool level losses from underperforming or specially serviced
loans. Downgrades to classes A-1, A-2, A-3, A-4, A-SB, X-A, A
S, and B are not likely due to their position in the capital
structure, but may occur should interest shortfalls occur.
-- Downgrades to classes C, X-B, D, and X-D could occur if
overall pool losses increase significantly and/or one or more
large loans had an outsized loss that eroded CE. Downgrades to
classes E, X-E, F, and X-F could occur if performance of the
FLOCs or loans susceptible to the coronavirus pandemic do not
stabilize and/or additional loans default or transfer to
special servicing. The Negative Outlooks on classes F and X-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 in which the health crisis is prolonged beyond
2021; should this scenario play out, classes with Negative Outlooks
will be downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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.
BANK 2021-BNK31: Fitch Assigns Final 'B-sf' Rating on Cl. G Certs
-----------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks on
BANK 2021-BNK31, commercial mortgage pass-through certificates
series 2021-BNK31.
Fitch has assigned the following:
-- $24,155,000 Class A-1 'AAAsf'; Outlook Stable
-- $27,859,000 Class A-SB 'AAAsf'; Outlook Stable
-- $252,000,000a Class A-3 'AAAsf'; Outlook Stable
-- $0a Class A-3-1 'AAAsf'; Outlook Stable
-- $0a Class A-3-2 'AAAsf'; Outlook Stable
-- $0ab Class A-3-X1 'AAAsf'; Outlook Stable
-- $0ab Class A-3-X2 'AAAsf'; Outlook Stable
-- $297,934,000ab Class A-4 'AAAsf'; Outlook Stable
-- $0a Class A-4-1 'AAAsf'; Outlook Stable
-- $0a Class A-4-2 'AAAsf'; Outlook Stable
-- $0ab Class A-4-X1 'AAAsf'; Outlook Stable
-- $0ab Class A-4-X2 'AAAsf'; Outlook Stable
-- $601,948,000b Class X-A 'AAAsf'; Outlook Stable
-- $166,611,000b Class X-B 'A-sf'; Outlook Stable
-- $94,592,000a Class A-S 'AAAsf'; Outlook Stable
-- $0a Class A-S-1 'AAAsf'; Outlook Stable
-- $0a Class A-S-2 'AAAsf'; Outlook Stable
-- $0ab Class A-S-X1 'AAAsf'; Outlook Stable
-- $0ab Class A-S-X2 'AAAsf'; Outlook Stable
-- $37,622,000a Class B 'AA-sf'; Outlook Stable
-- $0a Class B-1 'AA-sf'; Outlook Stable
-- $0a Class B-2 'AA-sf'; Outlook Stable
-- $0ab Class B-X1 'AA-sf'; Outlook Stable
-- $0ab Class B-X2 'AA-sf'; Outlook Stable
-- $34,397,000a Class C 'A-sf'; Outlook Stable
-- $0a Class C-1 'A-sf'; Outlook Stable
-- $0a Class C-2 'A-sf'; Outlook Stable
-- $0ab Class C-X1 'A-sf'; Outlook Stable
-- $0ab Class C-X2 'A-sf'; Outlook Stable
-- $37,622,000bc Class X-D 'BBB-sf'; Outlook Stable
-- $17,199,000bc Class X-F 'BB-sf'; Outlook Stable
-- $8,599,000bc Class X-G 'B-sf'; Outlook Stable
-- $21,499,000c Class D 'BBBsf'; Outlook Stable
-- $16,123,000c Class E 'BBB-sf'; Outlook Stable
-- $17,199,000c Class F 'BB-sf'; Outlook Stable
-- $8,599,000c Class G 'B-sf'; Outlook Stable.
The following classes are not rated by Fitch:
-- $27,948,084bc Class X-H
-- $27,948,084c Class H
-- $45,259,320.22cd RR Interest.
(a) Exchangeable Certificates. Classes A-3, A-4, A-S, B, and C are
exchangeable certificates. Each class of exchangeable certificates
may be exchanged for the corresponding classes of exchangeable
certificates, and vice versa. The dollar denomination of each of
the received classes of certificates must be equal to the dollar
denomination of each of the surrendered classes of certificates.
Class A-3 may be surrendered (or received) for the received (or
surrendered) classes A-3-1, A-3-2, A-3-X1 and A-3-X2. Class A-4 may
be surrendered (or received) for the received (or surrendered)
classes A-4-1, A-4-2, A-4-X1 and A-4-X2. Class A-S may be
surrendered (or received) for the received (or surrendered) classes
A-S-1, A-S-2, A-S-X1 and A-S-X2. Class B may be surrendered (or
received) for the received (or surrendered) classes B-1, B-2, B-X1
and B-X2. Class C may be surrendered (or received) for the received
(or surrendered) classes C-1, C-2, C-X1 and C-X2. The ratings of
the exchangeable classes would reference the ratings on the
associated referenced or original classes.
(b) Notional amount and interest only.
(c) Privately-placed and pursuant to Rule 144a.
(d) Non-offered vertical credit risk retention interest.
The ratings are based on information provided by the issuer as of
Feb. 11, 2021.
Since Fitch published its presale on Jan. 25, 2021, the class
balances for class A-3 and A-4 have been finalized. At the time
that the expected ratings were published, the initial certificate
balances of classes A-3 and A-4 were unknown and expected to be
approximately $549,934,000 in aggregate, subject to a 5% variance.
The final class balances for classes A-3 and A-4 are $252,000,000
and $297,934,000, respectively.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 61 loans secured by 126
commercial properties with an aggregate principal balance of
$905,186,404 as of the cutoff date. The loans were contributed to
the trust by Wells Fargo Bank, National Association, Morgan Stanley
Mortgage Capital Holdings LLC, Bank of America, National
Association and National Cooperative Bank, N.A.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 35.3% of the properties
by balance, cash flow analyses of 89.1% of the pool and asset
summary reviews on 100% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus pandemic may have an adverse impact on near-term
revenue (i.e., bad debt expense, rent relief) and operating
expenses (i.e., sanitation costs) for some properties in the pool.
Delinquencies may occur in the coming months as forbearance
programs are put in place, although the ultimate impact on credit
losses will depend heavily on the severity and duration of the
negative economic impact of the coronavirus pandemic, and to what
degree fiscal interventions by the U.S. federal government can
mitigate the impact on consumers. Per the offering documents, all
of the loans are current and are not subject to any forbearance
requests.
KEY RATING DRIVERS
Better Than Average Fitch Leverage: Overall, the pool's Fitch debt
service coverage ratio (DSCR) of 1.53x is higher than the 2020 and
2019 averages of 1.32x and 1.26x, respectively. The pool's Fitch
LTV of 98.5% is below the 2020 and 2019 averages of 99.6% and
103.0%, respectively. Excluding the cooperative loans, the pool's
Fitch DSCR and LTV are 1.33x and 102.3%, respectively.
Investment Grade Credit Opinion Loans and Co-op Loans: Two loans
representing 12.7% of the pool by balance have credit
characteristics consistent with investment-grade obligations on a
stand-alone basis. 605 Third Avenue (8.8% of the pool) received a
stand-alone credit opinion of 'BBB-sf' and McDonald's Global HQ
(3.8% of the pool) received a stand-alone credit opinion of 'Asf'.
Additionally, the pool contains 17 loans, representing 6.6% of the
pool, that are secured by residential cooperatives and exhibit
leverage characteristics significantly lower than typical conduit
loans. The weighted average (WA) Fitch DSCR and LTV for the co-op
loans are 4.27 and 43.8%, respectively.
Below-Average Mortgage Coupons: The pool's weighted average (WA)
mortgage rate is 3.21%, which is well below historical levels. The
WA mortgage rate is below the 2020 average mortgage rate of 3.62%
and well below the 2019 average of 4.27%. Fitch accounted for
increased refinance risk in a higher interest rate environment by
incorporating an interest rate sensitivity that assumes an interest
rate floor of 5% for the term risk of most property types, 4.5% for
multifamily properties and 6.0% for hotel properties, in
conjunction with Fitch's stressed refinance constants, which were
9.76% on a WA basis.
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 a
negative rating action/downgrade:
-- Declining cash flow decreases property value and capacity to
meet its debt service obligations. The table below indicates
the model implied rating sensitivity to changes in one
variable, Fitch NCF:
Original Rating:
'AAAsf'/'AA-sf'/'A-sf'/'BBBsf'/'BBB-sf'/'BB-sf'/'B-sf';
10% NCF Decline:
'A+sf'/'BBB+sf'/'BBB-sf'/'BB+sf'/'Bsf'/'CCCsf'/'CCCsf';
20% NCF Decline:
'BBB+sf'/'BBB-sf'/'BB-sf'/'CCCsf'/'CCCsf'/'CCCsf'/'CCCsf';
30% NCF Decline:
'BBB-sf'/'BBsf'/'CCCsf'/'CCCsf'/'CCCsf'/'CCCsf'/'CCCsf'.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- Improvement in cash flow increases property value and capacity
to meet its debt service obligations. The table below
indicates the model implied rating sensitivity to changes to
the same one variable, Fitch NCF:
Original Rating:
'AAAsf'/'AA-sf'/'A-sf'/'BBBsf'/'BBB-sf'/'BB-sf'/'B-sf';
20% NCF Increase:
'AAAsf'/'AAAsf'/'AA+sf'/'A+sf'/'A-sf'/'BBBsf'/'BBB-sf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Deloitte & Touche LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis and it did not
have an effect on Fitch's analysis or conclusions. A copy of the
ABS Due Diligence Form 15-E received by Fitch in connection with
this transaction may be obtained via the link at the bottom of the
related rating action commentary.
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.
BBCMS MORTGAGE 2021-C9: Fitch to Rate Class J-RR Certs 'B-sf'
-------------------------------------------------------------
Fitch Ratings has issued a presale report on BBCMS Mortgage Trust
2021-C9, commercial mortgage pass-through certificates, Series
2021-C9.
TRANSACTION SUMMARY
Fitch expects to rate the transaction and assign Rating Outlooks as
follows:
-- $25,700,000 class A-1 'AAAsf'; Outlook Stable;
-- $4,500,000 class A-2 'AAAsf'; Outlook Stable;
-- $120,000,000a class A-4 'AAAsf'; Outlook Stable;
-- $371,000,000a class A-5 'AAAsf'; Outlook Stable;
-- $34,474,000 class A-SB 'AAAsf'; Outlook Stable;
-- $555,674,000b class X-A 'AAAsf'; Outlook Stable;
-- $136,934,000b class X-B 'A-sf'; Outlook Stable;
-- $66,482,000 class A-S 'AAAsf'; Outlook Stable;
-- $36,714,000 class B 'AA-sf'; Outlook Stable;
-- $33,738,000e class C 'A-sf'; Outlook Stable;
-- $8,335,000ce class D 'BBBsf'; Outlook Stable;
-- $14,487,000cd class E-RR 'BBBsf'; Outlook Stable;
-- $17,861,000cd class F-RR 'BBB-sf'; Outlook Stable;
-- $9,923,000cd class G-RR 'BB+sf'; Outlook Stable;
-- $8,930,000cd class H-RR 'BB-sf'; Outlook Stable;
-- $7,938,000cd class J-RR 'B-sf'; Outlook Stable.
The following classes are not expected to be rated by Fitch:
-- $33,738,305cd class K-RR.
(a) The initial certificate balances of the class A-4 and A-5
certificates are unknown and expected to be $491,000,000 in
aggregate, subject to a 5% variance. The certificate balances will
be determined based on the final pricing of those classes of
certificates. The expected class A-4 balance range is $0 to
$240,000,000, and the expected class A-5 balance range is
$251,000,000 to $491,000,000.
(b) Notional amount and interest only.
(c) Privately-placed and pursuant to Rule 144a.
(d) The class E-RR, class F-RR, class G-RR, class H-RR, class J-RR
and class K-RR certificates collectively are the "eligible
horizontal residual interest".
(e) The initial certificate balances of classes C, D and E-RR are
subject to change based on final pricing of all certificates and
the final determination of the class E-RR, class F-RR, class G-RR,
class H-RR, class J-RR and class K-RR.
The expected ratings are based on information provided by the
issuer as of Feb. 10, 2021.
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 57 loans secured by 87
commercial properties having an aggregate principal balance of
$793,820,306 as of the cut-off date. The loans were contributed to
the trust by Barclays Capital Real Estate Inc., Societe Generale
Financial Corporation, Starwood Mortgage Capital LLC, KeyBank
National Association, LMF Commercial LLC and BSPRT CMBS Finance
LLC. The Master Servicer and the Special Servicer is expected to be
Midland Loan Services, a Division of PNC Bank, National
Association.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 37.7% of the properties
by balance, cash flow analyses of 86.8% of the pool, and asset
summary reviews on 100% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus (which causes COVID-19) pandemic may have an adverse
impact on near-term revenue (i.e. bad debt expense, rent relief)
and operating expenses (i.e. sanitation costs) for some properties
in the pool. Delinquencies may occur in the coming months as
forbearance programs are put in place, although the ultimate impact
on credit losses will depend heavily on the severity and duration
of the negative economic impact of the coronavirus pandemic, and to
what degree fiscal interventions by the U.S. federal government can
mitigate the impact on consumers. Per the offering documents, all
of the loans are current and are not subject to any forbearance
requests.
KEY RATING DRIVERS
Fitch Leverage Exceeds that of Recent Transactions: The pool has
higher leverage than other recent Fitch-rated multiborrower
transactions. The pool's Fitch loan-to-value (LTV) of 105.9% is
higher than the 2020 average of 99.6% and the 2019 average of
103.0%. The pool's Fitch debt service coverage ratio (DSCR) of
1.29x is lower than the 2020 average of 1.32x and higher than the
2019 average of 1.26x.
Investment-Grade Credit Opinion Loans: One loan, representing 7.3%
of the pool, received an investment-grade credit opinion. This is
considerably below the 2020 and 2019 averages of 24.5% and 14.2%,
respectively. MGM Grand & Mandalay Bay (7.3% of the pool) received
a stand-alone credit opinion of 'BBB+sf'.
High Multifamily Exposure and Low Retail and Hotel Exposure: Loans
secured by traditional multifamily properties represent 24.2% of
the pool by balance, including two of the top four loans. The total
multifamily concentration is higher than the 2020 and 2019 averages
of 16.3% and 16.9%, respectively. Loans secured by multifamily
properties have a lower probability of default in Fitch's
multiborrower model, all else being equal. Loans secured by retail
properties represent 7.1% of the pool by balance, which is lower
than the 2020 and 2019 averages of 16.3% and 23.6%, respectively,
and loans secured by hotel properties represent 8.0% of the pool by
balance, which is lower than that 2020 and 2019 averaged of 9.2%
and 12.0%, respectively. Fitch considers the hotel and retail asset
types to have the greatest downside risk among all of the
commercial asset types, in light of the pandemic.
Above Average Amortization: The pool is scheduled to amortize by
8.9% of the initial pool balance prior to maturity, which is above
the 2020 and 2019 averages of 5.3% and 5.9%, respectively.
Twenty-two loans (50.6% of the pool) are full-term interest only
(IO) loans, 18 loans (25.6% of the pool) are partial IO loans, and
the remaining 18 loans (31.2% of the pool) provide for amortization
through the term of the related underlying mortgage loan. None of
the underlying mortgage loans fully amortize over their respective
terms.
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 negative
rating action/downgrade:
-- Declining cash flow decreases property value and capacity to
meet its debt service obligations. The table below indicates
the model implied rating sensitivity to changes in one
variable, Fitch NCF:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf' /
'BB+sf' / 'BB-sf' / 'B-sf'
10% NCF Decline: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf' /
'BB+sf' / 'BB-sf' / 'B-sf'
20% NCF Decline: 'Asf' / 'BBB+sf' / 'BBB-sf' / 'BBsf' / 'B-sf' /
'CCCsf' / 'CCCsf' / 'CCCsf'
30% NCF Decline: 'BBBsf' / 'BBB-sf' / 'B+sf' / 'CCCsf' / 'CCCsf' /
'CCCsf' / 'CCCsf' / 'CCCsf'
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. The table below
indicates the model implied rating sensitivity to changes to
the same one variable, Fitch NCF:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf' /
'BB+sf' / 'BB-sf' / 'B-sf'
20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AAAsf' / 'AA+sf' / 'AA-sf' /
'Asf' / 'A-sf' / 'BBB+sf'
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Ernst & Young LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis and the findings
did not have an impact on Fitch’s analysis or conclusions. A copy
of the ABS Due Diligence Form 15-E received by Fitch in connection
with this transaction may be obtained via the link at the bottom of
the related rating action commentary.
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 2021-B23: Fitch Gives Final 'B-sf' Rating on 2 Tranches
-----------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Benchmark 2021-B23 Mortgage Trust commercial mortgage pass-through
certificates series 2021-B23 as follows:
-- $21,244,000 class A-1 'AAAsf'; Outlook Stable;
-- $155,183,000 class A-2 'AAAsf'; Outlook Stable;
-- $200,000,000 class A-4A1 'AAAsf'; Outlook Stable;
-- $421,699,000 class A-5 'AAAsf'; Outlook Stable;
-- $19,922,000 class A-AB 'AAAsf'; Outlook Stable;
-- $1,181,663,000(a) class X-A 'AAAsf'; Outlook Stable;
-- $163,615,000 class A-S 'AAAsf'; Outlook Stable;
-- $59,992,000 class B 'AA-sf'; Outlook Stable;
-- $45,449,000 class C 'A-sf'; Outlook Stable;
-- $200,000,000(b) class A-4A2 'AAAsf'; Outlook Stable;
-- $105,441,000(a)(b) class X-B 'A-sf'; Outlook Stable;
-- $72,718,000(a)(b) class X-D 'BBB-sf'; Outlook Stable;
-- $32,723,000(a)(b) class X-F 'BB-sf'; Outlook Stable;
-- $14,543,000(a)(b) class X-G 'B-sf'; Outlook Stable;
-- $50,902,000(b) class D 'BBBsf'; Outlook Stable;
-- $21,816,000(b) class E 'BBB-sf'; Outlook Stable;
-- $32,723,000(b) class F 'BB-sf'; Outlook Stable;
-- $14,543,000(b) class G 'B-sf'; Outlook Stable.
The following classes are not rated by Fitch:
-- $47,267,145(a)(b) class X-H;
-- $47,267,145(b) class H;
-- $76,545,008(b)(c) combined VRR interest;
-- $12,350,008(b)(d) class 360A;
-- $16,387,000(b)(d) class 360B;
-- $16,388,000(b)(d) class 360C;
-- $7,125,000(b)(d) class 360D;
-- $2,750,000(b)(c)(d) 360RR interest.
(a) Notional amount and interest only (IO).
(b) Privately placed and pursuant to Rule 144A.
(c) Non-offered vertical credit risk retention interest.
(d) The transaction includes five classes of non-offered,
loan-specific certificates (non-pooled rake classes) related to the
companion loan of 360 Spear.
Since Fitch published its expected ratings on Jan. 25, 2021, the
balances for classes A-4A1 and A-5 were finalized. At the time the
expected ratings were published, the initial certificate balances
of classes A-4A1 and A-5 were expected to be $621,699,000 in the
aggregate, subject to a variance of plus or minus 5%. The final
class balances for classes A-4A1 and A-5 are $200,000,000 and
$421,699,000, respectively. The classes above reflect the final
ratings and deal structure.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 53 fixed-rate loans secured by
65 commercial properties having an aggregate principal balance of
$1,530,900,153 as of the cut-off date. The loans were contributed
to the trust by Citi Real Estate Funding Inc, JPMorgan Chase Bank,
National Association, German American Capital Corporation and
Goldman Sachs Mortgage Company.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 28.4% of the properties
by balance, cash flow analyses of 92.5% of the pool, and asset
summary reviews on 100% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus pandemic may have an adverse impact on near-term
revenue (i.e., bad debt expense, rent relief) and operating
expenses (i.e., sanitation costs) for some properties in the pool.
Delinquencies may occur in the coming months as forbearance
programs are put in place, although the ultimate impact on credit
losses will depend heavily on the severity and duration of the
negative economic impact of the coronavirus pandemic and to what
degree fiscal interventions by the U.S. federal government can
mitigate the impact on consumers.
Per the offering documents, all the loans are current and are not
subject to any ongoing forbearance requests; however, the sponsors
for two loans, JW Marriott Nashville (2.3% of the pool), and Hotel
Zaza Houston Museum District (1.3%) have negotiated loan
amendments/modifications. Please see the "Additional Coronavirus
Forbearance Provisions" section in page 14 of the presale report
for additional information.
KEY RATING DRIVERS
Lower Fitch Leverage Than Recent Transactions: The pool has
below-average leverage relative to other multiborrower transactions
recently rated by Fitch. The pool's trust Fitch debt service
coverage ratio (DSCR) of 1.49x is greater than the 2020 and 2019
averages of 1.32x and 1.26x, respectively. Additionally, the pool's
trust loan-to-value (LTV) of 96.3% is also below the 2020 average
of 99.6% and the 2019 average of 103.0%. Excluding credit opinion
loans, the pool's weighted average (WA) Fitch DSCR and LTV are
1.47x and 104.1%, respectively.
Credit Opinion Loans: The pool includes four loans representing
18.4% of the pool that received investment-grade credit opinions.
This falls between the 2020 and 2019 average credit opinion
concentrations of 24.5% and 14.2%, respectively. 360 Spear (6.8% of
the pool) received a credit opinion of 'BBB-sf*' on a stand-alone
basis, MGM Grand & Mandalay Bay (4.9%) received a credit opinion of
'BBB+sf*' on a stand-alone basis, The Grace Building (3.9%)
received a credit opinion of 'A-sf*' on a stand-alone basis and
First Republic Center (2.7%) received a credit opinion of 'BBB-sf*'
on a stand-alone basis.
Property Type Concentration: Loans secured by office properties
account for 61.5% of the pool's cutoff balance, which is higher
than the 2020 and 2019 averages of 41.2% and 34.2%, respectively.
While the pool is highly exposed to the office sector, several of
these properties are high-quality assets in core-markets such as
860 Washington (7.6% of the pool), 360 Spear (6.8%), The Grace
Building (3.9%) and 711 Fifth Avenue (1.8%) or are mission critical
facilities for the tenants at the property such as Pittock Block
(4.9%), Waterway Plaza (4.3%) and First Republic Center (2.7%). The
pool's retail property concentration of 11.0% is below the 2020 and
2019 averages of 16.3% and 23.6%, respectively, and the pool's
hotel concentration of 9.0% is in-line with the 2020 average of
9.2% and below the 2019 average of 12.0%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf'
/'BB-sf' / 'B-sf';
20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AA+sf' / 'A+sf' / 'A-sf' /
'BBBsf' / 'BBB-sf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf'
/'BB-sf' / 'B-sf';
10% NCF Decline: 'A+sf' / 'BBB+sf' / 'BBB-sf' / 'BB+sf' / 'BB-sf'
/'CCCsf' / 'CCCsf';
20% NCF Decline: 'BBB+sf' / 'BBB-sf' / 'BB+sf' / 'CCCsf' / 'CCCsf '
/ 'CCCsf' / 'CCCsf';
30% NCF Decline: 'BBB-sf' / 'BBsf' / 'CCCsf' / 'CCCsf'/ 'CCCsf' /
'CCCsf' / 'CCCsf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Ernst & Young LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis and it did not
have an effect on Fitch's analysis or conclusions.
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 COMMERCIAL 2018-BIOA: Fitch Affirms B- Rating on 2 Tranches
--------------------------------------------------------------
Fitch Ratings has affirmed BX Commercial Mortgage Trust 2018-BIOA
Commercial Mortgage Pass-Through Certificates, Series 2018-BIOA.
DEBT RATING PRIOR
---- ------ -----
BX Commercial Mortgage Trust 2018-BIOA
A 056057AA0 LT AAAsf Affirmed AAAsf
B 056057AG7 LT AA-sf Affirmed AA-sf
C 056057AJ1 LT A-sf Affirmed A-sf
D 056057AL6 LT BBB-sf Affirmed BBB-sf
E 056057AN2 LT BB-sf Affirmed BB-sf
F 056057AQ5 LT B-sf Affirmed B-sf
HRR 056057AS1 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Stable Performance: The affirmations reflect the stable performance
of the underlying pool. Fitch's cash flow is stable at 1.3% below
the Fitch cash flow at issuance. Fitch's cash flow is $110.6
million and based on rental income reported on the June 2020 rent
roll and the TTM ended June 2020 servicer reported expenses. The
slight decline is due to an increase in expenses as revenues have
continued to grow due to contractual rental increases. As of the
June 2020 rent rolls, the portfolio is 94.3% leased compared to
94.0% at issuance, based on the January 2018 rent rolls.
Approximately 6.7% of the NRA is scheduled to roll in 2021. Per the
servicer, the TTM June 2020 trust NCF debt service coverage ratio
was 4.25x.
High-Quality Assets in Strong Locations: The portfolio is
collateralized by 26 lab office properties and one multifamily
property located in highly desirable and in-fill life science
submarkets with a total of approximately 4.1 million sf. The
portfolio properties are located in three different states and four
distinct markets. The largest individual state concentration is
California with a total of 58.1% by allocated loan amount. The
California exposure is split between the San Diego (25.4%) and San
Francisco (32.7%) markets. Additionally, 37.4% of allocated loan
amount is derived from properties located in the Cambridge area of
Boston. The portfolio received a weighted average (WA) Fitch
property quality grade of 'A−'/'B+' and 91% (as a percentage of
allocated loan amount) of the properties were built or renovated
since 2000.
Portfolio Diversity: The portfolio is collateralized by the fee
(24) and leasehold (three) interests in
27 (4.1 million sf) properties. The largest five properties by
allocated loan amount account for approximately 65.5% of the
issuer's portfolio NOI and 57.8% of total NRA. The portfolio also
exhibits significant tenant diversity as it features approximately
100 distinct tenants with no individual tenant representing more
than 5.8% of base rents (Lucid Motors USA, Inc.).
Limited Structural Features and Interest Only: Ongoing reserves for
taxes, insurance, ground rent and leasing costs will only be
collected during a cash sweep period triggered by an event of
default, a bankruptcy of the borrower or the debt yield falling
below 6.5% (6.75% during the fourth extension option and 7.00%
during the fifth extension option). In addition, the loan will be
structured as interest only during its entire term. The loan is
currently in its first extension period, which will mature in March
2021.The excess cash flow sweep may be substituted by a guaranty
from the guarantor (BRE Edison Holdings, L.P.).
Institutional Sponsorship: The loan is sponsored by Blackstone Real
Estate Partners VIII L.P., which is owned by affiliates of the
Blackstone Group, L.P. Blackstone is a global leader in real estate
investing with approximately $170 billion in assets under
management, as of Sept. 30, 2020, including more than 13 million sf
of life science properties.
Cap on Recourse Carveout Provisions: The carveout guarantors'
liability on the nonrecourse bankruptcy carveouts is limited to 10%
of the then-outstanding loan balance.
Coronavirus Exposure: Fitch views the collateral to have a limited
impact from the coronavirus pandemic due to the strong property
attributes and experienced sponsorship. Per the servicer, there
have been no coronavirus relief requests from the borrower as of
January 2021.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Significant and sustainable improvement in Fitch net cash flow
and stable or improved occupancy.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A significant decline in portfolio occupancy.
-- A significant and sustainable deterioration in Fitch net cash
flow.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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 COMMERCIAL 2021-IRON: DBRS Gives Prov. B(low) Rating on 2 Cls.
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2021-IRON to
be issued by BX Commercial Mortgage Trust 2021-IRON:
-- Class A at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
-- Class HRR at B (low) (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)
All trends are Stable.
The Class X-CP and X- NCP certificates are interest-only (IO)
classes whose balances are notional.
The subject transaction is a sale-leaseback of 14 warehouse
properties to Iron Mountain Inc., a publicly-traded information
management company. The properties in the portfolio are spread
across five U.S. states and serve as secure document storage and/or
tape storage facilities for Iron Mountain's record retention and
storage clients. As a part of the transaction, Iron Mountain signed
two brand new, 10-year absolute triple net (NNN) leases covering
the properties in the portfolio. DBRS Morningstar has a favorable
view on the portfolio's functionality characteristics along with
the credit profile of the mortgage loan and the long-term NNN
leases. Although the tenant does not carry an investment-grade
rating, its legacy business has demonstrated long-term stability,
and the firm has begun branching into other value-add service areas
including data center offerings to enhance its core records
management business.
The entire portfolio consists of functional bulk warehouse product
with strong functionality metrics. The properties have a
weighted-average (WA) year built of 1990, which is slightly older
than other recently analyzed portfolios, but the office square
footage is only 5.6%, which is the lowest proportion of office
square footage that DBRS Morningstar has seen in securitized
transactions. The properties also have strong WA clear heights of
approximately 33 feet, which compare favorably with other recently
analyzed portfolios.
The portfolio benefits from its position across several
strong-performing gateway industrial markets, including the Los
Angeles, Inland Empire, Bay Area, Northern New Jersey,
Philadelphia, and Washington, D.C./Baltimore markets. Collectively,
the portfolio's markets have a WA availability rate of 7.0%, which
is below above the Q3 2020 national average of approximately 7.6%
according to C.B. Richard Ellis Econometric Advisors.
The transaction benefits from strong cash flow stability
attributable to the two absolute NNN leases that Iron Mountain
(NYSE: IRM) executed as a part of the sale-leaseback transaction
with the sponsors. The leases provide for annual escalations of
3.0%, along with the recovery of all operating expenses and capital
costs at the properties. There are no termination options during
the loan term and Iron Mountain has four successive five-year
renewal options.
Iron Mountain has occupied the majority of the properties for
almost 20 years (since approximately 2004 on a WA basis),
demonstrating the firm's long-term commitment to the portfolio's
locations. Additionally, Iron Mountain's annual customer retention
rate is approximately 98% and the customer contracts specify
maximum monthly withdrawal rates. Approximately half of the
customer media stored at Iron Mountain facilities has a storage
duration of more than 15 years; the process of systematically
emptying a property is estimated to take between one and two years,
which reduces the probability that Iron Mountain would vacate in
favor of another nearby property.
The DBRS Morningstar loan-to-value ratio on the trust loan is
significant at 99.3%. The high leverage point, combined with the
lack of amortization, could potentially result in elevated
refinance risk and/or loss severities in an event of default.
Approximately 52.5% of the portfolio's in-place base rent is
attributable to properties located in California, and more than a
third of the portfolio's base rent is generated by properties
located in the Southern California region. While many Southern
California markets continue to be among the best performing
industrial markets in the country, the transaction could have
elevated exposure if market fundamentals were to deteriorate
unexpectedly.
The portfolio is entirely dependent on lease income from Iron
Mountain and, unlike other industrial portfolios, the transaction
does not benefit from any tenant granularity or diversification
across industries. While DBRS Morningstar views it as unlikely that
Iron Mountain would elect to vacate at the end of the initial lease
term, demising and re-tenanting the entire portfolio would require
significant tenant improvement/leasing commission funds.
Furthermore, a corporate-level bankruptcy or negative credit event
at Iron Mountain could put the mortgage loan at an increased risk
of default for nonpayment.
The mortgage loan has a partial pro rata/sequential-pay structure,
which allows for pro rata paydowns for the first 30.0% of the
unpaid principal balance. DBRS Morningstar considers this structure
to be credit negative, particularly at the top of the capital
stack. Under a partial pro rata paydown structure, deleveraging of
the senior notes through the release of individual properties
occurs at a slower pace compared with a sequential-pay structure.
DBRS Morningstar applied a penalty to the transaction's capital
structure to account for the pro rata nature of certain
prepayments.
The borrower can also release individual properties, subject to
customary requirements. However, the prepayment premium for the
release of individual assets is 105.0% of the allocated loan amount
for the first 30.0% of the original principal balance of the
mortgage loan and 110.0% thereafter. DBRS Morningstar considers the
release premium to be weaker than a generally credit-neutral
standard of 115.0% and, as a result, applied a penalty to the
transaction's capital structure to account for the weak
deleveraging premium.
Notes: All figures are in U.S. dollars unless otherwise noted.
CFMT 2021-HB5: DBRS Gives Prov. BB Rating on Class M4 Notes
-----------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following
Asset-Backed Notes, Series 2021-1, to be issued by CFMT 2021-HB5,
LLC:
-- $614.0 million Class A at AAA (sf)
-- $50.7 million Class M1 at AA (low) (sf)
-- $37.0 million Class M2 at A (low) (sf)
-- $35.5 million Class M3 at BBB (low) (sf)
-- $12.3 million Class M4 at BB (sf)
The AAA (sf) rating reflects 18.1% of credit enhancement. The AA
(low) (sf), A (low) (sf), BBB (low) (sf), and BB (sf) ratings
reflect 11.3%, 6.4%, 1.6%, and 0.0% of credit enhancement,
respectively.
Other than the specified classes above, DBRS Morningstar did not
rate any other classes in this transaction.
Lenders typically offer reverse mortgage loans to people who are at
least 62 years old. Through reverse mortgage loans, borrowers have
access to home equity through a lump sum amount or a stream of
payments without periodically repaying principal or interest,
allowing the loan balance to accumulate over a period of time until
a maturity event occurs. Loan repayment is required (1) if the
borrower dies, (2) if the borrower sells the related residence, (3)
if the borrower no longer occupies the related residence for a
period (usually a year), (4) if it is no longer the borrower's
primary residence, (5) if a tax or insurance default occurs, or (6)
if the borrower fails to properly maintain the related residence.
In addition, borrowers must be current on any homeowners
association dues if applicable. Reverse mortgages are typically
nonrecourse; borrowers don't have to provide additional assets in
cases where the outstanding loan amount exceeds the property's
value (the crossover point). As a result, liquidation proceeds will
fall below the loan amount in cases where the outstanding balance
reaches the crossover point, contributing to higher loss severities
for these loans.
As of the Cut-Off Date (December 31, 2020), the collateral has
approximately $749.5 million in unpaid principal balance (UPB) from
3,295 nonperforming home equity conversion mortgage reverse
mortgage assets secured by first liens typically on single-family
residential properties, condominiums, multifamily (two- to
four-family) properties, manufactured homes, and planned unit
developments. The assets were originally originated between 1995
and 2016. Of the total loans, 60 have a fixed interest rate (2.01%
of the balance), with a 5.01% weighted-average coupon (WAC). The
remaining 3,235 loans have floating-rate interest (97.99% of the
balance) with a 1.81% WAC, bringing the entire collateral pool to a
1.88% WAC.
All the assets in this transaction are nonperforming (i.e.,
inactive) loans. There are 1,377 assets that are referred for
foreclosure (45.3% of balance), 114 are in bankruptcy (3.4%), 867
are called due (26.8%), 56 are real estate owned (1.6%), 880 are in
default (22.9%), and one loan with a pending claim. However, all
these assets are insured by the United States Department of Housing
and Urban Development (HUD), and this insurance acts to mitigate
losses vis-à-vis uninsured loans. Because the insurance
supplements the home value, the industry metric for this collateral
is not the loan-to-value ratio (LTV) but rather the
weighted-average (WA) effective LTV adjusted for HUD insurance,
which is 55.9% for these loans. The WA LTV is calculated by
dividing the UPB by the maximum claim amount plus the asset value.
The transaction uses a sequential structure. No subordinate note
shall receive any principal payments until the senior notes (Class
A notes) have been reduced to zero. This structure provides credit
enhancement in the form of subordinate classes and reduces the
effect of realized losses. These features increase the likelihood
that holders of the most senior class of notes will receive regular
distributions of interest and/or principal. All note classes have
available fund caps.
The Class M notes have principal lockout terms insofar as they are
not entitled to principal payments until after the expected final
payment of the upstream notes. Available cash will be trapped until
these dates at which stage the notes will start to receive
payments. Specifically, Classes M1, M2, M3, and M4 are locked out
until November 2023, March 2024, May 2024, and July 2024,
respectively. Note that the DBRS Morningstar cash flow as it
pertains to each note models the first payment being received after
these dates for each of the respective notes; hence at the time of
issuance, these rules are not likely to affect the natural cash
flow waterfall.
Notes: All figures are in U.S. dollars unless otherwise noted.
COLT 2021-2R: Fitch Assigns Final B Rating on Class B-2 Certs
-------------------------------------------------------------
Fitch Ratings assigns final ratings to the residential
mortgage-backed certificates to be issued by COLT 2021-2R Mortgage
Loan Trust (COLT 2021-2R).
DEBT RATING PRIOR
---- ------ -----
COLT 2021-2R
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAsf New Rating AA(EXP)sf
A-3 LT Asf New Rating A(EXP)sf
M-1 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT Bsf New Rating B(EXP)sf
B-3 LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
X LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
KEY RATING DRIVERS
Non-QM Credit Quality (Mixed): The pool has a weighted average (WA)
model credit score of 742, a WA combined loan to value ratio (CLTV)
of 74.3% and a sustainable loan to value ratio (sLTV) of 80.9%. Of
the pool, 45% had a debt to income (DTI) ratio of over 43%.
The pool has WA seasoning of just over two years. The loans have
benefited from a positive home price environment and a generally
strong pay history. Updated exterior broker price opinions (BPOs)
were provided on all but two loans.
Fitch only treated less than 6% of the pool as having less than
full documentation, which included asset depletion loans and loans
originated to nonpermanent resident aliens. The pool did not
include any bank statement loans. A majority of loans were
underwritten to full documentation standards according to Appendix
Q. Under the new QM definition, many of the loans would qualify as
SHQM, if originated today.
Payment Forbearance (Mixed): A total of 53 borrowers in the pool
have requested coronavirus payment relief plans. Of those, only 16
still remain delinquent. The remaining borrowers have either
re-instated and are current. Separately, there are two borrowers,
who never requested forbearance, but are delinquent. The pool's
other forbearance plans are granted by the servicer, and borrowers
will be counted as delinquent; however, the servicer will not
advance delinquent P&I during the forbearance period.
Modified Sequential Payment Structure (Mixed): The structure
distributes principal pro rata among the senior certificates while
shutting out the subordinate bonds from principal until all senior
classes are reduced to zero. If any of a cumulative loss trigger
event, delinquency trigger event or credit enhancement (CE) trigger
event occurs in a given period, principal will be distributed
sequentially to class A-1, A-2 and A-3 certificates until they are
reduced to zero.
Compared with previous new origination COLT transactions, this
transaction features a weaker delinquency trigger. There is no
delinquency trigger for the first six months of the transaction.
Additionally, between months seven and 36, the delinquency trigger
is 25%, which is 5% higher compared with previous new origination
COLT transactions (non-refinance). The delinquency trigger is 30%
for months 37-60 and after month 60, the trigger is set to 35%. The
weaker delinquency trigger could result in more leakage to the A-2
and A-3 classes, which exposes more risk to the A-1 (AAAsf) class.
The triggers are consistent with COLT 2021-1R.
Advances of delinquent P&I will be made on the mortgage loans for
the first 180 days of delinquency, to the extent such advances are
deemed recoverable. If the P&I advancing party fails to make a
required advance, the master servicer (Wells Fargo) will be
obligated to make such advance. The servicer or master servicer
will not advance delinquent P&I during the forbearance period.
Excess Cash Flow (Positive): The transaction benefits from a
material amount of excess cash flow that provides benefit to the
rated certificates before being paid out to class X certificates.
The excess is available to pay timely interest and protect against
realized losses, resulting in a CE amount that is less than Fitch's
loss expectations for all classes except for the A1. To the extent
the collateral weighted average coupon (WAC) and corresponding
excess is reduced through a rate modification, Fitch would view the
impact as credit neutral, as the modification would reduce the
borrower's probability of default, resulting in a lower loss
expectation.
As a sensitivity to Fitch's Rating stresses, Fitch took into
account a WAC deterioration that varied by rating stress. The WAC
cut was derived by assuming a 2.5% cut (based on the most common
historical modification rate) on 40% (historical Alt A modification
%) of the performing loans. Although the WAC reduction stress is
based on historical modification rates, the WAC reduction stress
was not included by Fitch in its testing of the delinquency
trigger.
Fitch viewed the WAC deterioration as more of a pre-emptive cut
given the ongoing macro and regulatory environment. There is likely
to be a portion of borrowers that are impaired but will not
ultimately default. Further, this approach had the largest impact
on the Backloaded Benchmark scenario which is also the most likely
outcome as defaults and liquidations are not likely to be extensive
over the next 12-18 months given the ongoing borrower relief and
eviction moratoriums.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. The implied rating sensitivities are only
an indication of some of the potential outcomes and do not consider
other risk factors that the transaction may become exposed to, or
that may be considered in the surveillance of the transaction.
Sensitivity analysis was conducted at the state and national levels
to assess the effect of higher MVDs for the subject pool, and lower
MVDs illustrated by a gain in home prices.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The 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 assigned 'AAAsf' ratings.
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%, 20% and 30% in
addition to the model-projected 8%. The analysis indicates
that there is some potential rating migration with higher MVDs
for all rated classes, compared with the model projection.
Specifically, a 10% additional decline in home prices would
lower all rated classes by one full category.
-- Fitch has added a coronavirus sensitivity analysis that
includes a prolonged health crisis resulting in depressed
consumer demand and a protracted period of below-trend
economic activity that delays any meaningful recovery to
beyond 2021. Under this severe scenario, Fitch expects the
ratings to be affected by changes in its sustainable home
price model due to updates to the model's underlying economic
data inputs. Any long-term effects arising from coronavirus
related disruptions on these economic inputs will likely
affect both investment and speculative-grade ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
CRITERIA VARIATION
There was one criteria variation to Fitch's "U.S. RMBS Rating
Criteria." Fitch expects an updated tax and title search to be
conducted for transactions in which more than 10% of the deal
comprises seasoned loans (i.e. more than two years' seasoned).
Fitch was comfortable with the lack of an updated search given that
the loans were held with the same servicer since origination and
were previously securitized, while the servicer would have been
required to advance on these amounts to maintain the trust's
priority.
Also, upon the cleanup call being exercised, they would have repaid
themselves from the proceeds. Furthermore, the seasoning is only a
few months outside of the window in which Fitch would expect an
updated search to be conducted. As a result, Fitch did not make any
adjustments to its loss expectations.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by SitusAMC. The third-party due diligence described in
Form 15E focused on a compliance, credit and property valuation
review.
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" (May 2020).
LSRMF engaged AMC to perform the review. Loans reviewed under this
engagement were given compliance, credit and valuation grades, and
assigned initial grades for each subcategory.
An exception and waiver report was 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 residual/disposable income
greater than the U.S. Department of Veterans Affairs' (VA)
standard, substantial liquid reserves, a low LTV and a higher FICO
score. 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.
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 2012-CCRE3: Fitch Lowers Rating on 2 Tranches to 'C'
---------------------------------------------------------
Fitch Ratings has downgraded nine classes of Cantor Commercial Real
Estate's COMM 2012-CCRE3 commercial mortgage pass-through
certificates, series 2012-CCRE3. Fitch has also revised the Rating
Outlook on three classes to Negative from Stable.
DEBT RATING PRIOR
---- ------ -----
COMM 2012-CCRE3
A-3 12624PAE5 LT AAAsf Affirmed AAAsf
A-M 12624PAJ4 LT AAsf Downgrade AAAsf
A-SB 12624PAD7 LT AAAsf Affirmed AAAsf
B 12624PAL9 LT Asf Downgrade AA-sf
C 12624PAQ8 LT BBBsf Downgrade Asf
D 12624PAS4 LT BBsf Downgrade A-sf
E 12624PAU9 LT CCCsf Downgrade BBsf
F 12624PAW5 LT Csf Downgrade CCCsf
G 12624PAY1 LT Csf Downgrade CCCsf
PEZ 12624PAN5 LT BBBsf Downgrade Asf
X-A 12624PAF2 LT AAsf Downgrade AAAsf
KEY RATING DRIVERS
Coronavirus Exposure: The downgrades and Negative Outlooks can be
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 properties, which represents 41.7% of the pool. Retail
properties have faced cash flow disruption with tenants requesting
rent relief, negotiating rate reductions or vacating at lease
expiration. The pool's retail component includes four regional
malls in the top 15, all of which are considered Fitch Loans of
Concern (FLOCs).
Increased Loss Expectations; Fitch Loans of Concern: Fitch's loss
projections have increased since the last rating action, driven by
the FLOCs. Thirteen loans (47.2% of the pool) have been flagged as
FLOCs. The four largest FLOCs are secured by regional malls, which
represent 34.6% of the pool. Three of the four regional malls
(27.2% of the pool) have transferred to special servicing since the
last rating action, and two have appointed receivers and are in
foreclosure proceedings.
Fitch's ratings are based on a base case loss expectation of 13.1%.
The Negative Outlooks reflect additional stresses on the regional
malls, which assumes that losses could reach 22.3%.
The largest FLOC is Solano Mall (10.9% of the pool). It is
collateralized by the inline space of a 1.0 million-sf regional
mall located in Fairfield, CA. The property is anchored by
JCPenney, Macy's and a vacant former Sears, none of which are
included as collateral. The loan is sponsored by a joint venture
between Starwood Capital Group Global, L.P. and the Westfield
Group. The loan is a FLOC due to declining sales and occupancy.
Although inline sales prior to the pandemic had been steady since
issuance, anchor tenant sales have declined. Additionally,
occupancy has declined to 78% as of September 2020, from 94% at
YE2019 and 100% at YE2018. The former Sears store was closed in
2018 and remains vacant. Forever 21 (previously 8.1% NRA) moved out
following its December 2019 lease expiration.
The loan transferred to the special servicer in June 2020 after
falling 60 days delinquent, and the workout strategy is
foreclosure. Spinoso is the appointed receiver. The subject is
located in a secondary location, and the primary economic driver
for the area is Travis Airforce Base. The closest competing mall is
located 30 miles away. The Fitch projected base case loss of 40% is
based on a stressed value which implies a cap rate of 16.8%.
The second largest FLOC is Crossgates Mall (9.6% of the pool). The
asset is a 1.7 million-sf (1.3 million sf of which is collateral)
three-story enclosed regional mall located in Albany, NY owned by
Pyramid Group. The property was constructed in 1984 and is anchored
by Macy's and JC Penney (13.9% NRA, March 2024). Previous anchor
tenant Lord and Taylor closed in December 2020. The collateral also
includes junior anchors Regal Cinemas 18/IMAX (temporarily closed),
Dick's Sporting Goods and Burlington Coat Factory. This is a FLOC
due to declining performance. Although occupancy has remained
steady at 89% as of December 2020, the NOI DSCR has dropped sharply
to 0.56x for YTD September 2020. It was 1.45x at YE2019 and 1.44x
at YE2018.
The loan transferred to the special servicer in April 2020 for
imminent default. Despite missing several mortgage payments from
May through September 2020, the sponsor worked with the special
servicer to execute a six-month forbearance. The 12-month repayment
period began in January 2021 and the loan status is now current. It
remains in special servicing and while there is potential for this
loan to default at maturity, Fitch believes a loan extension is
possible given the sponsor's commitment and the asset's positioning
in the market. The Fitch projected base case loss of 24% is based
on a stressed value which implies a cap rate of 12.9%.
The third largest FLOC is Midland Park Mall (7.5% of the pool). It
is collateralized by the inline space of a single-level enclosed
regional mall located in Midland, TX. The property was constructed
in 1981, renovated in 2012, and is anchored by two Dillard's
(Women's and Men & Home), and JCPenney, none of which are included
as collateral. The loan is sponsored by Simon Property Group, L.P.
This is a FLOC due to the declined occupancy and potential
refinance challenges. The loan is scheduled to mature in September
2022. Fitch has requested updated tenant sales reports for the
asset but has not received any since December 2017. Occupancy has
declined to 84% in September 2020 from 93% at YE2019 and 98% at
YE2018.
Although the loan has continued to perform and is not in special
servicing, Fitch's analysis results in a 2% modeled base case loss
to reflect the potential for maturity default.
The fourth largest FLOC is Emerald Square Mall (6.6% of the pool).
The asset is an enclosed regional mall located in North Attleboro,
MA and anchored by JCPenney, Macy's, Macy's Men's and Home Store
and Sears. The collateral for this loan consists of the JCPenney
anchor (188,950 sf, 33.5% NRA through Aug. 2024) and the in-line
retail space (375,551 sf).
This is a FLOC due to declining sales and occupancy. Occupancy was
86% as of September 2020, down from 90% at YE2019. JCPenney
recently exercised a five-year extension option. Macy's is not on
any of the retailer's store closure lists, but Sears is expected to
close in April 2021 according to media sources. Although it is a
non-collateral tenant, the closing of Sears is expected to trigger
co-tenancy clauses, further stressing revenues following a
difficult year marked by the pandemic. Leases representing 19.6% of
the NRA are scheduled to roll by YE2021, according to the September
2020 rent roll and 4.5% in 2022. Inline sales were $325 psf as of
YE2019, down from $331 psf the year prior.
The loan, which is sponsored by Simon Property Group, transferred
to the special servicer in June 2020 for payment default and the
workout strategy is foreclosure. JLL is the appointed receiver. The
Fitch projected base case loss of 67% is based on a stressed value
which implies a cap rate of 18%.
The base case treatment for these loans was a primary driver for
the downgrades.
Sensitivities to Regional Malls: There continues to be concern with
the retail market overall, and liquidity available for regional
malls in particular. Fitch ran additional sensitivity stresses on
the four regional malls. For Solano Mall, Crossgates Mall and
Midland Park Mall, Fitch's sensitivity assumed a 50% loss to
reflect the likelihood of further performance decline and extended
disposition timelines. Although Midland Park Mall is not currently
in special servicing, there is potential for maturity default. The
sensitivity for Emerald Square Mall was 100% to reflect the
property's low sales, the projected loss of Sears as an anchor and
concentrated near term lease rollover. These sensitivities drive
the Negative Rating Outlooks.
Upcoming Maturities: Since issuance, the pool has paid down by 23%
to $963.6 million from $1.3 billion. There has been little change
to credit enhancement since the last rating action; however, all
remaining loans are scheduled to mature in 2022. Fitch remains
concerned regarding the refinance prospects for several FLOCs,
including the regional malls. There are twelve defeased loans,
representing 17.1% of the pool. Defeasance and amortization has not
been enough to offset increased loss projections. In a scenario
where performing loans payoff at maturity, most of the outstanding
certificates would still be reliant on repayment from the loans
backed by regional malls.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Factors that lead to downgrades include an increase in pool
level losses from underperforming or specially serviced loans.
Downgrades to the classes rated 'AAAsf' or 'AAsf' are possible
should interest shortfalls occur or a large concentration of
loans default at maturity.
-- Downgrades to classes B, C and PEZ are possible should FLOCs
fail to stabilize and performance continues to decline. Class
D may be downgraded if the regional mall values decline
further. Downgrades to the distressed classes are expected as
losses are realized.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades are not currently expected given the pool's exposure
to regional malls and the outlook for retail performance.
Factors that lead to upgrades would include significantly
improved performance coupled with pay down and/or defeasance.
-- An upgrade to classes A-M and B is possible with significant
improvement to credit enhancement or additional defeasance.
Classes would not be upgraded above 'Asf' if there were
likelihood for interest shortfalls. Classes C and PEZ may be
upgraded with significant improvement to cash flow and sales
for the four regional malls and assuming performance of the
rest of the pool remains consistent. Class D could only be
upgraded with improvement to appraised values for the regional
malls. Upgrades to the distressed classes may be possible if
recoveries are significantly higher than Fitch currently
projects.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
ESG CONSIDERATIONS
COMM 2012-CCRE3 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to significantly high retail exposure including
four regional malls that are currently or at risk of
underperforming as a result of changing consumer preference to
shopping, which has a negative impact on the credit profile and is
highly relevant to the rating. This has contributed to the
downgrades of classes A-M through G and the Negative Rating
Outlooks on all non-distressed classes.
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.
CROSSROADS ASSET 2021-A: DBRS Finalizes BB Rating on Class E Notes
------------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by Crossroads Asset Trust 2021-A:
-- $42,000,000 Class A-1 Notes at R-1 (high) (sf)
-- $74,106,000 Class A-2 Notes at AAA (sf)
-- $14,336,000 Class B Notes at AA (sf)
-- $11,336,000 Class C Notes at A (sf)
-- $11,669,000 Class D Notes at BBB (sf)
-- $9,502,000 Class E Notes at BB (sf)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
-- The transaction analysis considers DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
Coronavirus Disease (COVID-19), available in its commentary "Global
Macroeconomic Scenarios: January Update," published on January 28,
2021. DBRS Morningstar initially published macroeconomic scenarios
on April 16, 2020, which have been regularly updated. The scenarios
were last updated on January 28, 2021, and are reflected in DBRS
Morningstar's rating analysis. The analytical considerations
incorporate the moderate macroeconomic scenario outlined in the
commentary, with the moderate scenario serving as the primary
anchor for current ratings. The moderate scenario factors in
increasing success in containment during the first half of 2021,
enabling the continued relaxation of restrictions.
-- The coronavirus pandemic has been negatively affecting
economies worldwide since early 2020. DBRS Morningstar's baseline
cumulative net loss (CNL) assumption of 7.06% considered the
coronavirus pandemic's potential impact on the performance of the
collateral securing the Notes.
-- The assumption also took into account the continuing rollout of
the vaccination program in the U.S., the recently enacted second
legislative package aimed at supporting small businesses across the
country, and the expectation of when a sustained economic recovery
will begin. DBRS Morningstar also considered the exposure of the
transaction exclusively to the cargo transportation sector, which
has not been as heavily affected by the coronavirus as some other
industries.
-- DBRS Morningstar's expected CNL assumption also incorporated a
50% credit for seasoning of the expected financed unit pool of
approximately 11 months (further adjusted to reflect that
approximately 15% of the Aggregate Securitization Value will be
funded during the funding period).
-- Crossroads Equipment Lease & Finance, LLC (Crossroads or the
Company) participates in the California Capital Access Program for
Small Business (CalCAP), which is a program sponsored by the
California Pollution Control Financing Authority designed to
encourage financial institutions to make loans to small businesses
that have difficulty obtaining financing. CalCAP is a loan loss
reserve program, which provides coverage on enrolled loans subject
to the satisfaction of program conditions. As a CalCAP participant,
Crossroads has the option to enroll loans satisfying CalCAP
eligibility criteria into the program upon origination. Any loss on
a charged-off financed unit enrolled by Crossroads in CalCAP may be
covered by funds in Crossroads' loan loss reserve account
established by CalCAP.
-- Up to 27.50% of the Aggregate Securitization Value may be
represented by financed units enrolled in CalCAP. Although
Crossroads is required under the Sale and Servicing Agreement to
deposit into the Collection Account amounts released to the
Servicer from the loss reserve account (CalCAP Loss Payment) and
allocable to a financed unit, none of the Issuing Entity, Grantor
Trust, or Indenture Trustee will have a security interest in such
loss reserve account. Consequently, while DBRS Morningstar views
the availability of CalCAP Loss Payments as providing additional
benefit to the holders of the Notes, it did not formally
incorporate the historical loss mitigation impact from the CalCAP
loss reserve account into its baseline CNL assumption.
-- The transaction's capital structure and form and sufficiency of
available credit enhancement. The subordination,
overcollateralization, cash held in the Reserve Account, available
excess spread, and other structural provisions create credit
enhancement levels that are commensurate with the respective
ratings for each class of the Notes. Under various cash flow
scenarios, the credit enhancement available to the transaction can
withstand the stressed expected loss using target multiples of 5.25
times (x) with respect to the Class A-1 and A-2 Notes, 4.25x with
respect to the Class B Notes, 3.35x with respect to the Class C
Notes, 2.45x with respect to the Class D Notes, and 1.85x with
respect to the Class E Notes.
-- The Securitization Rate for the financed unit pool as of the
Initial Cut-off Date was 11.25%, resulting in an excess spread of
approximately 8.44% per annum at closing, given the servicing fee,
transaction fees and interest expenses.
-- While Crossroads provided deferrals to a substantial number of
its obligors during the early stages of the coronavirus pandemic,
the Company was successful in bringing the overwhelming majority of
its borrowers to resume making scheduled payments by September
2020. The overall delinquency rate for Crossroads' portfolio was
below 1% as of November 2020. No contracts in a pandemic-related
deferral status will be included in the financed unit pool as of
the applicable cut-off date.
-- DBRS Morningstar performed a telephone operational risk review
and deems Crossroads to be an acceptable originator and servicer of
equipment-backed leases and loans. GreatAmerica Portfolio Services
Group, LLC, an experienced servicer of equipment-backed collateral,
will be the Backup Servicer for the Transaction.
-- The financed unit pool is granular but has approximately 70% of
obligor concentration in California, which was considered in DBRS
Morningstar's data review. Overall, more than 80% of all
transactions underwritten by Crossroads have a personal guarantee
requirement, 90% of transactions come with a down payment (which is
held for term of the financing), and approximately 80% of customers
pay through an automated clearinghouse.
-- The transaction is supported by an established structure and is
consistent with DBRS Morningstar's "Legal Criteria for U.S.
Structured Finance" methodology. Legal opinions covering true sale
and non-consolidation were also provided.
Notes: All figures are in U.S. dollars unless otherwise noted.
DEEPHAVEN RESIDENTIAL 2021-1: S&P Assigns 'B-' Rating on B-2 Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to Deephaven Residential
Mortgage Trust 2021-1's mortgage pass-through notes series 2021-1.
The note issuance is an RMBS transaction backed by first-lien
fixed- and adjustable-rate fully amortizing and interest-only
residential mortgage loans primarily secured by single-family
residences, planned unit developments, condominiums,
two-to-four-family homes, a mixed-use property and a five-to-10
unit residential property to both prime and nonprime borrowers. The
pool has 395 loans, which are primarily nonqualified mortgage
(non-QM) and ATR-exempt loans.
The ratings reflect S&P's view of:
-- The pool's collateral composition;
-- The transaction's credit enhancement, associated structural
mechanics, geographic concentration, and representation and
warranty framework;
-- The mortgage aggregator, Deephaven Mortgage LLC; and
-- The impact the COVID-19 pandemic will likely have on the
performance of the mortgage borrowers in the pool and liquidity
available in the transaction.
As vaccine rollouts in several countries continue, S&P Global
Ratings believes there remains a high degree of uncertainty about
the evolution of the coronavirus pandemic and its economic effects.
Widespread immunization, which certain countries might achieve by
midyear, will help pave the way for a return to more normal levels
of social and economic activity. S&P said, "We use this assumption
about vaccine timing in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates
accordingly."
Ratings Assigned(i)
Deephaven Residential Mortgage Trust 2021-1
Class A-1, $85,652,000: AAA (sf)
Class A-2, $9,062,000: AA (sf)
Class A-3, $17,832,000: A (sf)
Class M-1, $9,647,000: BBB- (sf)
Class B-1, $6,504,000: BB (sf)
Class B-2, $9,720,000: B- (sf)
Class B-3, $7,747,081: NR
Class XS, notional(i): NR
Class A-IO-S, notional(ii): NR
Class R: NR
FLAGSHIP CREDIT 2021-1: S&P Assigns BB- (sf) Rating on Cl. E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to Flagship Credit Auto
Trust 2021-1's automobile receivables-backed notes.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The ratings reflect:
-- The availability of approximately 45.18%, 39.22%, 30.81%,
25.79%, and 22.65% credit support (including excess spread) for the
class A, B, C, D, and E notes, respectively, based on stressed cash
flow scenarios. These credit support levels provide coverage of
approximately 3.30x, 2.825x, 2.17x, 1.75x, and 1.45x of our
13.00%-13.50% expected cumulative net loss range for the class A,
B, C, D, and E notes, respectively. These break-even scenarios
cover total cumulative gross defaults (using a recovery assumption
of 40.00%) of approximately 75.29%, 65.37%, 51.35%, 42.98%, and
37.75%, for the class A, B, C, D, and E notes, respectively.
-- The hard credit enhancement in the form of subordination,
overcollateralization, and a reserve account in addition to excess
spread.
-- The expectation that under a moderate ('BBB') stress
scenario(1.75x S&P's expected loss level), all else being equal,
its 'AAA (sf)', 'AA (sf)', 'A (sf)', 'BBB (sf)', and 'BB- (sf)'
ratings on the class A, B, C, D, and E notes, respectively, will be
within the credit stability limits specified by section A.4 of the
Appendix contained in "S&P Global Ratings Definitions," published
Aug. 7, 2020.
-- The timely interest and principal payments made under stressed
cash flow modeling scenarios that are appropriate for the assigned
ratings.
-- The characteristics of the collateral pool being securitized.
-- The transaction's payment and legal structures.
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Ratings Assigned
Flagship Credit Auto Trust 2021-1
Class A, $177.31 million: AAA (sf)
Class B, $25.19 million: AA (sf)
Class C, $32.49 million: A (sf)
Class D, $18.72 million: BBB (sf)
Class E, $11.29 million: BB- (sf)
FLAGSTAR MORTGAGE 2021-1: Fitch to Give B+(EXP) Rating on B-5 Certs
-------------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by Flagstar Mortgage Trust 2021-1 (FSMT
2021-1).
DEBT. RATING
---- ------
FSMT 2021-1
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AAA(EXP)sf Expected Rating
A-3 LT AAA(EXP)sf Expected Rating
A-4 LT AAA(EXP)sf Expected Rating
A-5 LT AAA(EXP)sf Expected Rating
A-6 LT AAA(EXP)sf Expected Rating
A-7 LT AAA(EXP)sf Expected Rating
A-8 LT AAA(EXP)sf Expected Rating
A-9 LT AAA(EXP)sf Expected Rating
A-10 LT AAA(EXP)sf Expected Rating
A-11 LT AAA(EXP)sf Expected Rating
A-11X LT AAA(EXP)sf Expected Rating
A-12 LT AAA(EXP)sf Expected Rating
A-13 LT AAA(EXP)sf Expected Rating
A-14 LT AAA(EXP)sf Expected Rating
A-15 LT AAA(EXP)sf Expected Rating
A-16 LT AAA(EXP)sf Expected Rating
A-17 LT AAA(EXP)sf Expected Rating
A-18 LT AAA(EXP)sf Expected Rating
A-19 LT AAA(EXP)sf Expected Rating
A-20 LT AAA(EXP)sf Expected Rating
A-X-1 LT AAA(EXP)sf Expected Rating
A-X-2 LT AAA(EXP)sf Expected Rating
A-X-3 LT AAA(EXP)sf Expected Rating
A-X-4 LT AAA(EXP)sf Expected Rating
A-X-5 LT AAA(EXP)sf Expected Rating
A-X-6 LT AAA(EXP)sf Expected Rating
A-X-7 LT AAA(EXP)sf Expected Rating
A-X-8 LT AAA(EXP)sf Expected Rating
A-X-9 LT AAA(EXP)sf Expected Rating
A-X-13 LT AAA(EXP)sf Expected Rating
A-X-17 LT AAA(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-1-X LT AA(EXP)sf Expected Rating
B-1-A LT AA(EXP)sf Expected Rating
B-2 LT A+(EXP)sf Expected Rating
B-2-X LT A+(EXP)sf Expected Rating
B-2-A LT A+(EXP)sf Expected Rating
B-3 LT BBB+(EXP)sf Expected Rating
B-3-X LT BBB+(EXP)sf Expected Rating
B-3-A LT BBB+(EXP)sf Expected Rating
B-4 LT BB+(EXP)sf Expected Rating
B-5 LT B+(EXP)sf Expected Rating
B-6-C LT NR(EXP)sf Expected Rating
B LT BBB+(EXP)sf Expected Rating
B-X LT BBB+(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 574 newly originated, fixed rate
prime quality first liens on one to four family residential homes.
The pool consists of both non-agency jumbo and agency eligible
mortgage loans. The total balance of these loans is approximately
$489 million as of the cut-off date. The pool comprises loans that
Flagstar originated through its retail, broker and correspondent
channels. The transaction is similar to previous Fitch-rated prime
transactions, with a standard senior-subordinate, shifting-interest
deal structure. All of the loans in the pool were underwritten to
the Ability to Repay rule (ATR) and qualify as Qualified Mortgages
(QM). Flagstar Bank, FSB (RPS2-/Negative) will be the servicer and
Wells Fargo Bank, NA (RMS1-/Negative) will be the master servicer.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The collateral pool consists
of 30-year, fully amortizing, non-agency jumbo and agency eligible
fixed-rate loans to borrowers with strong credit profiles and low
leverage. All of the loans are designated as Safe Harbor Qualified
Mortgages (SHQMs) or TILA Qualified Mortgages (TQM). The pool has a
weighted average (WA) original FICO score of 773, which is
indicative of high credit-quality borrowers. Approximately 79% of
the loans have current FICO scores at or above 750. In addition,
the original combined loan-to-value (CLTV) ratio is 67.7%, which
represents substantial borrower equity in the property. Only 5.0%
of the loans have known subordinate financing. The pool's
attributes, together with Flagstar's sound origination practices,
support Fitch's low default risk expectations.
Geographic Diversification (Neutral): The pool's primary
concentration is in California, representing 47% of the pool.
Approximately 32% of the pool is located in the top three
metropolitan statistical areas (MSAs) — Los Angeles (14.8%), San
Francisco (11.7%) and Houston (5.6%). The pool's regional
concentration did not add to Fitch's 'AAAsf' loss expectations.
Shifting Interest Structure (Mixed): The mortgage cash flow and
loss allocation are based on a senior-subordinate,
shifting-interest structure whereby the subordinate classes receive
only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained.
Full Servicer Advancing (Mixed): Flagstar Bank, as servicer, will
provide full advancing for the life of the transaction. Although
full P&I advancing will provide liquidity to the certificates, it
will also increase the loan-level loss severity (LS) since the
servicer looks to recoup P&I advances from liquidation proceeds,
which results in less recoveries. Wells Fargo Bank
(RMS1-/Negative/AA-/Negative) is the master servicer in this
transaction and will advance delinquent P&I on the loans if the
servicer is not able to.
Subordination Floor (Positive): A CE or subordination floor of
1.00% has been considered to mitigate potential tail-end risk and
loss exposure as pool size declines and performance volatility
increases due to adverse loan selection and small loan count
concentration.
Extraordinary Expense Treatment (Neutral): Extraordinary trust
expenses including indemnification amounts, costs of arbitration
and fess/expenses incurred by the reviewer for a review will reduce
the net WA coupon (WAC) of the loans, which does not affect the
contractual interest due on the certificates. Fitch did not make
any adjustment for expenses that reduce the net WAC.
Payment Forbearance (Neutral): There are no loans in the pool that
are currently on a coronavirus forbearance or deferral plan as of
the cut-off date. If a borrower seeks pandemic-related relief after
the cut-off date but prior to the closing date, the loan will be
removed from the pool. If a borrower seeks pandemic-related relief
after the closing date, it is up to the servicer, Flagstar Bank,
FSB (Flagstar Bank), to determine what type of coronavirus relief
plan will work best for the borrower.
For borrowers who request coronavirus-related relief or relief
related to a FEMA Major Disaster Declaration or other nationally
declared event after the closing date, the Servicer will allow the
related borrower to suspend or reduce the related P&I owed on such
Mortgage Loan for a limited period of time (i) of up to 6 months,
with a possible extension granted at the Servicer's sole
discretion, or (ii) as mandated by federal or state relevant
legislation or regulation. At the end of the Disaster Related
Forbearance Period, the Servicer will require the related borrower
to pay all amounts suspended during the Disaster Related
Forbearance Period (potential options for eligible borrowers
include repayment over a series of months following such Disaster
Related Forbearance Period including extending the original
Mortgage Loan term by a number of months equal to the related
Disaster Related Forbearance Period or by capitalizing related
arrearages, fees and expenses into an unpaid principal balance of
the Mortgage Loan and extending such Mortgage Loan to, at least,
its original term) or enter other modification or loss mitigation
processes.
Loans on a Disaster Related Forbearance Plan will be counted as
delinquent until the amounts suspended under the plan are fully
repaid, or the loan is modified accordingly. Flagstar Bank will
still be obligated to advance on delinquent loans even if they are
on a pandemic relief plan. If Flagstar is not able to advance, the
master servicer (Wells Fargo Bank, NA) will advance delinquent P&I
payments. Servicer advancing helps to provide liquidity to the
trust, but may create losses if the servicer reimburses itself for
advances all at once.
As of the cut-off date, five borrowers in the pool previously
inquired about entering into a Disaster Related Forbearance Plan
but to date have not entered into such plan with the servicer. All
five of these borrowers are currently current and have not missed a
payment since origination.
Low Operational Risk (Neutral): Operational risk is well controlled
in this transaction. Flagstar is experienced in originating and
securitizing prime loans and is considered an 'Average' originator
by Fitch. Flagstar is also the named servicer for the transaction
and is responsible for performing primary servicing functions. The
platform is rated 'RPS2-' with a Negative Outlook. Fitch did not
adjust its loss levels based on these operational assessments.
Tier 1 Representation and Warranty Framework (Neutral): The
representation and warranty (R&W) framework is consistent with
Fitch's tier 1 framework. The strong framework combined with the
financial condition of the R&W provider led to neutral treatment in
Fitch's loss model and did not warrant adjustments at the 'AAAsf'
level.
Third-Party Due Diligence Results (Positive): A third-party due
diligence review was performed on approximately 39.5% (by loan
count) of the initial transaction pool by Consolidated Analytics,
which is assessed by Fitch as an 'Acceptable - Tier 3' third party
review (TPR) firms. The review was performed on a statistically
significant random sample based on a confidence interval of 95%
with a 5% error rate and did not indicate material defects. Fitch
did not apply an adjustment to losses based on the unreviewed
population of the pool based on the due diligence results. A credit
was given to loans that received a due diligence review which
decreased Fitch's loss expectations by 7 bps at the 'AAAsf' rating
stress.
No Meaningful Changes from Prior Prime Transactions (Neutral): This
transaction is very comparable to other recently issued prime
transactions in both the collateral composition and transaction
structure. Fitch's projected asset loss for the transaction's CE is
in line with other prime transactions that have similar collateral
attributes.
The model indicated slightly higher ratings for the B-2-A, B-3-A,
B-4 and B-5 subordinate classes than the ratings that were
assigned. The ratings were limited to one rating tick higher than
the ratings typically assigned to prime shifting interest
structures given each class's position in the capital structure and
the thin bond sizes, even though CE would allow the class to
achieve a higher rating under Fitch's stresses.
RATING SENSITIVITIES
Fitch's analysis incorporates a sensitivity analysis to demonstrate
how the ratings would react to steeper market value declines (MVDs)
than assumed at the MSA level. The implied rating sensitivities are
only an indication of some of the potential outcomes and do not
consider other risk factors that the transaction may become exposed
to or may be considered in the surveillance of the transaction.
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; that is, positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth
of 10.0%.
-- Excluding the senior classes, which are already 'AAAsf', the
analysis indicates there is potential positive rating
migration for all of the rated classes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The defined negative stress sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10%, 20% and 30%, in
addition to the model projected 7.0%. The analysis indicates
there is some potential rating migration with higher MVDs
compared to the model projection.
-- This section provides insight into the model-implied
sensitivities the transaction faces when one assumption is
modified, while holding others equal. The modeling process
uses the modification of these variables to reflect asset
performance in up- and down environments. The results should
only be considered as one potential outcome, as the
transaction is exposed to multiple dynamic risk factors. It
should not be used as an indicator of possible future
performance. For enhanced disclosure of Fitch's stresses and
sensitivities, please refer to the transaction's presale
report.
Fitch has also added a coronavirus sensitivity analysis that
contemplates a more severe and prolonged economic stress caused by
a reemergence of infections in the major economies, before a slow
recovery begins in 2Q21. Under this severe scenario, Fitch expects
the ratings to be impacted by changes in its sustainable home-price
model due to updates to the model's underlying economic data
inputs. Any long-term impact arising from coronavirus disruption on
these economic inputs will likely affect both investment and
speculative grade ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Consolidated Analytics. The third-party due diligence
described in Form 15E focused on credit, compliance, property
valuation and data integrity. Fitch considered this information in
its analysis. Fitch did not apply an adjustment to losses based on
the unreviewed population of the pool based on the due diligence
results. A credit was given to loans that received a due diligence
review which decreased Fitch's loss expectations by seven bps at
the 'AAAsf' rating stress.
A third-party due diligence review was performed by Consolidated
Analytics on a sample of loans from the transaction pool. The
sample was determined by a statistically significant selection
methodology based on a 95% confidence level with a 5% error rate.
Flagstar adopted this methodology in 2019 when it had previously
selected loans for review at a fixed rate. This is the third RMBS
issued by Flagstar that Fitch has rated that incorporates the
statistical significance approach in which approximately 39.8% of
the final pool, by loan count, was reviewed. For loans that were
reviewed, the diligence scope consisted of a review of credit,
regulatory compliance and property valuation. Both the sample size
and review scope are consistent with Fitch criteria for diligence
sampling.
All of the loans in the review sample received a final diligence
grade of 'A' or 'B', and the results did not indicate material
defects. The sample exhibited strong adherence to underwriting
guidelines as approximately 99% of loans received a final credit
grade of 'A'.
The sample had a low concentration of compliance 'B' exceptions
(6.6%) compared to the average prime jumbo non-agency transactions
(42%). Compliance exceptions were primarily related to fees that
were over tolerance thresholds. However, the amounts were deemed by
the TPR firm to be immaterial and ultimately acknowledged by the
lender.
Five loans were removed from the initial pool due to issues related
to securitization timing or were removed by the sponsor because
they did not meet the sponsor's program parameters.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on approximately 39.5% of the pool by loan count. The
third-party due diligence was generally consistent with Fitch's
"U.S. RMBS Rating Criteria", and Consolidated Analytics was engaged
to perform the review. Loans reviewed under this engagement were
given compliance, credit and valuation grades, and assigned initial
grades for each subcategory. Minimal exceptions and waivers were
noted in the due diligence reports. Refer to the Third-Party Due
Diligence section for more detail.
Fitch also used data files that were made available by the issuer
on its SEC Rule 17g-5 designated website. Fitch received loan-level
information based on the American Securitization Forum's (ASF) data
layout format, and the data are considered to be comprehensive. The
ASF data tape layout was established with input from various
industry participants, including rating agencies, issuers,
originators, investors and others to produce an industry standard
for the pool-level data in support of the U.S. RMBS securitization
market. The data contained in the ASF layout data tape were
reviewed by the due diligence companies, and no material
discrepancies were noted.
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.
FLAGSTAR MORTGAGE 2021-1: Moody's Gives (P)B2 Rating on B-5 Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to
forty-five classes of residential mortgage-backed securities issued
by Flagstar Mortgage Trust 2021-1 (FSMT 2021-1). The ratings range
from (P)Aaa (sf) to (P)B2 (sf).
FSMT 2021-1 is a securitization of first-lien prime jumbo and
agency eligible mortgage loans. The transaction is backed by 574
30-year fixed rate prime jumbo and agency eligible mortgage loans
with an aggregate stated principal balance of $488,656,342. There
are 463 (84.00% by unpaid principal balance) and 111 (14.00% by
unpaid principal balance) prime jumbo and agency eligible mortgage
loans, respectively. The average stated principal balance is
$851,318.
All the loans are designated as Qualified Mortgages (QM) either
under the QM safe harbor or the GSE temporary exemption under the
Ability-to-Repay (ATR) rules. 100% of the loans are originated by
Flagstar Bank, FSB (Flagstar).
Flagstar (Long Term Issuer Baa3) will service the mortgage loans.
Servicing compensation is subject to a step-up incentive fee
structure. Wells Fargo Bank, N.A. (Long Term Issuer Aa2) will be
the master servicer. Flagstar will be responsible for principal and
interest advances as well as other servicing advances. The master
servicer will be required to make principal and interest advances
if Flagstar is unable to do so.
One third-party review (TPR) firm verified the accuracy of the loan
level information that Moody's received from the sponsor. These
firms conducted detailed credit, property valuation, data accuracy
and compliance reviews on approximately 39.55% of the mortgage
loans in the collateral pool. The TPR results indicate that there
are no material compliance, credit, or data issues and no appraisal
defects. Initially, there were 232 mortgage loans to be reviewed.
However, five loans were removed from the pool because they either
didn't meet the sponsor's program parameters or were missing
verification of employment or balance sheets. However, the sample
size of 227 loans reviewed did not meet our credit neutral
criteria. Moody's made adjustment to Moody's loss levels to account
for this risk.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. Moody's also compared the
collateral pool to other prime jumbo securitizations. Overall, this
pool has average credit risk profile as compared to that of recent
prime jumbo transactions.
The securitization has a shifting interest structure with a
five-year lockout period that benefits from a senior floor and a
subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool.
The complete rating actions are as follows:
Issuer: Flagstar Mortgage Trust 2021-1
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aa1 (sf)
Cl. A-4, Assigned (P) Aa1 (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-10, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-11-X*, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aaa (sf)
Cl. A-15, Assigned (P)Aa1 (sf)
Cl. A-16, Assigned (P)Aaa (sf)
Cl. A-17, Assigned (P)Aaa (sf)
Cl. A-18, Assigned (P)Aaa (sf)
Cl. A-19, Assigned (P)Aaa (sf)
Cl. A-20, Assigned (P)Aaa (sf)
Cl. A-X-1*, Assigned (P)Aaa (sf)
Cl. A-X-2*, Assigned (P)Aaa (sf)
Cl. A-X-3*, Assigned (P)Aa1 (sf)
Cl. A-X-4*, Assigned (P) Aa1 (sf)
Cl. A-X-5*, Assigned (P)Aaa (sf)
Cl. A-X-6*, Assigned (P)Aa1 (sf)
Cl. A-X-7*, Assigned (P)Aaa (sf)
Cl. A-X-8*, Assigned (P)Aaa (sf)
Cl. A-X-9*, Assigned (P)Aaa (sf)
Cl. A-X-13*, Assigned (P)Aaa (sf)
Cl. A-X-17*, Assigned (P)Aaa (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-1-X*, Assigned (P)Aa3 (sf)
Cl. B-1-A, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-2-X*, Assigned (P)A2 (sf)
Cl. B-2-A, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa2 (sf)
Cl. B-3-X*, Assigned (P)Baa2 (sf)
Cl. B-3-A, Assigned (P)Baa2 (sf)
Cl. B-4, Assigned (P)Ba2 (sf)
Cl. B-5, Assigned (P)B2 (sf)
Cl. B, Assigned (P)A3 (sf)
Cl. B-X*, Assigned (P)A3 (sf)
*Reflects Interest-Only Classes
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 0.36%
at the mean, 0.19% at the median, and reaches 3.81% at a stress
level consistent with Moody's Aaa ratings.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Moody's 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 Moody's forecasts is unusually high.
Moody's increased our model-derived median expected losses by 15%
(10.15% for the mean) and our Aaa losses by 5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity due to the coronavirus 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 base our ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third-party due diligence and the
R&W framework of the transaction.
Collateral description
Flagstar Mortgage Trust 2021-1 (FSMT 2021-1) is the first issuance
from Flagstar Mortgage Trust in 2021. Flagstar Bank, FSB is the
sponsor of the transaction.
FSMT 2021-1 is a securitization of first-lien prime jumbo and
agency eligible mortgage loans. The transaction is backed by 463
(84% by unpaid principal balance) and 111 (16% by unpaid principal
balance) 30-year fixed rate prime jumbo and agency eligible
mortgage loans, respectively, with an aggregate stated principal
balance of $488,656,342. The average stated principal balance is
$851,318 and the weighted average (WA) current mortgage rate is
3.19%. Borrowers of the mortgage loans backing this transaction
have strong credit profiles demonstrated by strong credit scores
and low loan-to-value (LTV) ratios. The weighted average primary
borrower original FICO score and original LTV ratio of the pool is
778 and 67.03%, respectively. The WA original debt-to-income (DTI)
ratio is 32.64%. The average borrower total monthly income is
$27,906 with an average $246,280 of liquid cash reserves.
Approximately, 43.41% by loan balance of the borrowers in the pool
have more than one mortgage. However, there is no single borrower
with multiple mortgages in the pool.
Overall, this pool has average credit risk profile as compared to
that of recent prime jumbo transactions.
Approximately half of the mortgages (46.57% by loan balance) are
backed by properties located in California. The next largest
geographic concentration is Florida (11.22% by loan balance), Texas
(9.59% by loan balance), and Colorado (5.34% by loan balance). All
other states each represent 4% or less by loan balance.
Approximately 0.70% (by loan balance) of the pool is backed by
properties that are 2-to-4 unit residential properties whereas
loans backed by single family residential properties represent
64.38% (by loan balance) of the pool.
Approximately 39.41% of the loans (by loan balance) were originated
through the correspondent channel. Additionally, 35.91% (by loan
balance) of the loans were originated through the broker channel
and the remaining 24.68% (by loan balance) were originated through
the retail channel.
Origination Quality and Underwriting Guidelines
100% of the loans in the pool are originated by Flagstar. The prime
jumbo loans in the pool are underwritten per Flagstar's Jumbo
(70.87% by unpaid principal balance) and Jumbo Express (13.14% by
unpaid principal balance) underwriting guidelines. Both programs
offer 30-yr fixed rate loans. However, loans originated under the
Jumbo program require manual underwriting and loans originated
under the Jumbo Express program require a valid Desktop Underwriter
(DU) response. The maximum loan amount under the Jumbo Express
program is limited to that of high balance conforming loan limit of
$822,375. Moody's consider Flagstar an adequate originator of prime
jumbo and conforming mortgages. As a result, Moody's did not make
any adjustments (positive or negative) to losses based on Moody's
assessment of origination quality.
Servicing arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate. Flagstar will service the mortgage loans. Flagstar
will be responsible for principal and interest advances as well as
other servicing advances. Wells Fargo Bank, N.A., the master
servicer, will be required to make principal and interest advances
if Flagstar is unable to do so. Moody's did not make any
adjustments to Moody's base case and Aaa stress loss assumptions
based on this servicing arrangement.
Covid-19 Impacted Borrowers
As of the cut-off date, no borrower in the pool has entered a
COVID-19 related forbearance plan with the servicer. However, there
are five borrowers in the pool that had previously inquired about
the forbearance plan but never entered it. Also, if any borrower
enters or requests a COVID-19 related forbearance plan from the
cut-off date to the closing date, then the associated mortgage loan
will be removed from the pool. In the event a borrower enters or
requests a COVID-19 related forbearance plan after the closing
date, such mortgage loan (and the risks associated with it) will
remain in the mortgage pool.
Servicing compensation for loans in this transaction is based on a
fee-for-service incentive structure. The fee-for-service incentive
structure includes an initial monthly base fee of $20.5 for all
performing loans and increases according to certain delinquent and
incentive fee schedules. By establishing a base servicing fee for
performing loans that increases with the delinquency of loans, the
fee-for-service structure aligns monetary incentives to the
servicer with the costs of the servicer. The servicer receives
higher fees for labor-intensive activities that are associated with
servicing delinquent loans, including loss mitigation, than they
receive for servicing a performing loan, which is less labor
intensive. The fee-for-service compensation is reasonable and
adequate for this transaction.
Third-party review
The credit, compliance, property valuation, and data integrity
portion of the third-party review (TPR) was conducted on a total of
approximately 39.55% (227 loans) of the pool (by loan count).
Initially, there were 232 mortgage loans included in the pool to be
reviewed. However, five loans were removed from the pool because
they either didn't meet the sponsor's program parameters or were
missing verification of employment or balance sheets. 100% of the
loans reviewed received a grade B or higher with 92.07% of loans
receiving an A grade.
While the TPR results indicated compliance with the originators'
underwriting guidelines for most of the loans, no material
compliance issues and no material appraisal defects, the total
sample size of 227 loans reviewed did not meet Moody's credit
neutral criteria. Moody's, therefore made an adjustment to loss
levels to account for this risk.
Representations and Warranties Framework
Flagstar Bank, FSB (Long Term Issuer Baa3), the originator as well
as an investment-grade rated entity, makes the loan-level
representation and warranties (R&Ws) for the mortgage loans. The
loan-level R&Ws are strong and, in general, either meet or exceed
the baseline set of credit-neutral R&Ws Moody's have identified for
US RMBS. Further, R&W breaches are evaluated by an independent
third party using a set of objective criteria to determine whether
any R&Ws were breached when (1) the loan becomes 120 days
delinquent, (2) the servicer stops advancing, (3) the loan is
liquidated at a loss or (4) the loan becomes between 30 days and
119 days delinquent and is modified by the servicer. Similar to
J.P. Morgan Mortgage Trust (JPMMT) transactions, the transaction
contains a "prescriptive" R&W framework. These reviews are
prescriptive in that the transaction documents set forth detailed
tests for each R&W that the independent reviewer will perform.
Moody's assessed the R&W framework for this transaction as
adequate. Moody's analyzed the strength of the R&W provider, the
R&Ws themselves and the enforcement mechanisms. The R&W provider is
rated investment grade, the breach reviewer is independent, and the
breach review process is thorough, transparent and objective.
Moody's did not make any additional adjustment to Moody's base case
and Aaa loss expectations for R&Ws.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior floor and a subordinate floor. Funds collected,
including principal, are first used to make interest payments and
then principal payments to the senior bonds, and then interest and
principal payments to each subordinate bond. As in all transactions
with shifting interest structures, the senior bonds benefit from a
cash flow waterfall that allocates all prepayments to the senior
bond for a specified period and increasing amounts of prepayments
to the subordinate bonds thereafter, but only if loan performance
satisfies delinquency and loss tests.
All certificates (except Class B-6-C) in this transaction are
subject to a net WAC cap. Class B-6-C will accrue interest at the
net WAC minus the aggregate delinquent servicing and aggregate
incentive servicing fee. For any distribution date, the net WAC
will be the greater of (1) zero and (2) the weighted average net
mortgage rates minus the capped trust expense rate.
Realized losses are allocated reverse sequentially among the
subordinate, starting with most junior, and senior support
certificates and on a pro-rata basis among the super senior
certificates.
Tail risk & subordination floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
shrinks, senior bonds are exposed to eroding credit enhancement
over time and increased performance volatility, known as tail risk.
To mitigate this risk, the transaction provides for a senior
subordination floor of 1.00% which mitigates tail risk by
protecting the senior bonds from eroding credit enhancement over
time. Additionally, there is a subordination lock-out amount which
is 1.00% of the closing pool balance.
Moody's calculate the credit neutral floors for a given target
rating as shown in Moody's principal methodology. The senior
subordination floor and the subordinate floor of 1.00% are
consistent with the credit neutral floors for the assigned
ratings.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in April 2020.
FLATIRON CLO 17: Moody's Rates $18MM Class E-R Notes 'Ba3 (sf)'
---------------------------------------------------------------
Moody's Investors Service has assigned ratings to five classes of
CLO refinancing notes issued by Flatiron CLO 17 Ltd. (the
"Issuer").
Moody's rating action is as follows:
US$256,000,000 Class A-R Senior Secured Floating Rate Notes due
2030 (the "Class A-R Notes"), Assigned Aaa (sf)
US$46,000,000 Class B-R Senior Secured Floating Rate Notes due 2030
(the "Class B-R Notes"), Assigned Aa2 (sf)
US$24,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class C-R Notes"), Assigned A2 (sf)
US$24,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class D-R Notes"), Assigned Baa3 (sf)
US$18,000,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class E-R Notes"), Assigned Ba3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks particularly those associated with the
CLO's portfolio and structure.
The Issuer is a managed cash flow collateralized loan obligation
(CLO). The issued notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans.
NYL Investors LLC (the "Manager") will continue to direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's remaining
reinvestment period.
The Issuer previously issued one class of subordinated notes, which
will remain outstanding.
In addition to the issuance of the Refinancing Notes, a variety of
other changes to transaction features will occur in connection with
the refinancing. These include: extension of the non-call period;
the inclusion of alternative benchmark replacement provisions;
changes to the definition of "Adjusted Weighted Average Rating
Factor"; and changes to the base matrix and modifiers.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. For modeling
purposes, Moody's used the following base-case assumptions:
Performing par and principal proceeds balance: $397,691,203
Defaulted par: $1,104,457
Diversity Score: 70
Weighted Average Rating Factor (WARF): 3050
Weighted Average Spread (WAS) (before accounting for LIBOR floors):
3.35%
Weighted Average Recovery Rate (WARR): 46.5%
Weighted Average Life (WAL): 5.25 years
In consideration of the current high uncertainties around the
global economy, and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from Moody's base case. Some of the
additional scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; an additional cashflow
analysis assuming a lower WAS to test the sensitivity to LIBOR
floors; sensitivity analysis on deteriorating credit quality due to
a large exposure to loans with negative outlook, and a lower
recovery rate assumption on defaulted assets to reflect declining
loan recovery rate expectations.
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.
Moody's 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 Moody's 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
December 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.
FORTRESS CREDIT X: S&P Assigns Prelim BB-(sf) Rating on E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Fortress
Credit BSL X Ltd./Fortress Credit BSL X LLC's floating-rate notes.
The note issuance is a CLO transaction backed primarily by broadly
syndicated speculative-grade (rated 'BB+' and lower) senior secured
term loans that are governed by collateral quality tests.
The preliminary ratings are based on information as of Feb. 10,
2021. 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;
-- 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
Fortress Credit BSL X Ltd./Fortress Credit BSL X LLC
Class A, $300.00 million: AAA (sf)
Class B, $70.00 million: AA (sf)
Class C (deferrable), $32.50 million: A (sf)
Class D (deferrable), $30.10 million: BBB- (sf)
Class E (deferrable), $17.50 million: BB- (sf)
Subordinated notes, $52.90 million: Not rated
FREDDIE MAC 2017-K63: Fitch Affirms BB+ Rating on Class C Certs
---------------------------------------------------------------
Fitch Ratings has affirmed all classes of Fitch-rated 2017 Vintage
Freddie Mac CMBS transactions. This includes 71 classes from nine
Freddie Mac multifamily mortgage pass-through certificates (FREMF),
along with 45 classes from nine Freddie Mac structured pass-through
certificates.
In addition, Fitch has affirmed the unenhanced ratings on 45
classes of the multifamily pass-through certificates and 45 classes
of the Freddie Mac structured pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
Freddie Mac Structured Pass-Through Certificates 2017-K066
A-1 3137F2L38 LT AAAsf Affirmed AAAsf
A-1 3137F2L38 ULT AAAsf Affirmed AAAsf
A-2 3137F2LJ3 LT AAAsf Affirmed AAAsf
A-2 3137F2LJ3 ULT AAAsf Affirmed AAAsf
A-M 3137F2LK0 LT AAAsf Affirmed AAAsf
A-M 3137F2LK0 ULT A+sf Affirmed A+sf
X1 3137F2LL8 LT AAAsf Affirmed AAAsf
X1 3137F2LL8 ULT AAAsf Affirmed AAAsf
XAM 3137F2LN4 LT AAAsf Affirmed AAAsf
XAM 3137F2LN4 ULT A+sf Affirmed A+sf
Freddie Mac Structured Pass-Through Certificates 2017-K724
A-1 3137BTTZ4 LT AAAsf Affirmed AAAsf
A-1 3137BTTZ4 ULT AAAsf Affirmed AAAsf
A-2 3137BTU25 LT AAAsf Affirmed AAAsf
A-2 3137BTU25 ULT AAAsf Affirmed AAAsf
A-M 3137BTU33 LT AAAsf Affirmed AAAsf
A-M 3137BTU33 ULT Asf Affirmed Asf
X1 3137BTU41 LT AAAsf Affirmed AAAsf
X1 3137BTU41 ULT AAAsf Affirmed AAAsf
XAM 3137BTU66 LT AAAsf Affirmed AAAsf
XAM 3137BTU66 ULT Asf Affirmed Asf
FREMF 2017-K724
A-1 30295XAA6 LT AAAsf Affirmed AAAsf
A-1 30295XAA6 ULT AAAsf Affirmed AAAsf
A-2 30295XAC2 LT AAAsf Affirmed AAAsf
A-2 30295XAC2 ULT AAAsf Affirmed AAAsf
A-M 30295XAE8 LT AAAsf Affirmed AAAsf
A-M 30295XAE8 ULT Asf Affirmed Asf
B 30295XAS7 LT BBBsf Affirmed BBBsf
C 30295XAU2 LT BBB-sf Affirmed BBB-sf
X1 30295XAG3 LT AAAsf Affirmed AAAsf
X1 30295XAG3 ULT AAAsf Affirmed AAAsf
X2-A 30295XAN8 LT AAAsf Affirmed AAAsf
XAM 30295XAJ7 LT AAAsf Affirmed AAAsf
XAM 30295XAJ7 ULT Asf Affirmed Asf
FREMF 2017-K62
A-1 302949AA0 LT AAAsf Affirmed AAAsf
A-1 302949AA0 ULT AAAsf Affirmed AAAsf
A-2 302949AC6 LT AAAsf Affirmed AAAsf
A-2 302949AC6 ULT AAAsf Affirmed AAAsf
A-M 302949AE2 LT AAAsf Affirmed AAAsf
A-M 302949AE2 ULT Asf Affirmed Asf
B 302949AQ5 LT BBBsf Affirmed BBBsf
C 302949AS1 LT BBB-sf Affirmed BBB-sf
X1 302949AG7 LT AAAsf Affirmed AAAsf
X1 302949AG7 ULT AAAsf Affirmed AAAsf
XAM 302949AJ1 LT AAAsf Affirmed AAAsf
XAM 302949AJ1 ULT Asf Affirmed Asf
Freddie Mac Structured Pass-Through Certificates 2017-K062
A-1 3137BUX52 LT AAAsf Affirmed AAAsf
A-1 3137BUX52 ULT AAAsf Affirmed AAAsf
A-2 3137BUX60 LT AAAsf Affirmed AAAsf
A-2 3137BUX60 ULT AAAsf Affirmed AAAsf
A-M 3137BUX78 LT AAAsf Affirmed AAAsf
A-M 3137BUX78 ULT Asf Affirmed Asf
X1 3137BUX86 LT AAAsf Affirmed AAAsf
X1 3137BUX86 ULT AAAsf Affirmed AAAsf
XAM 3137BUXA1 LT AAAsf Affirmed AAAsf
XAM 3137BUXA1 ULT Asf Affirmed Asf
FREMF 2017-K65
A-1 30302XAL3 LT AAAsf Affirmed AAAsf
A-1 30302XAL3 ULT AAAsf Affirmed AAAsf
A-2 30302XAN9 LT AAAsf Affirmed AAAsf
A-2 30302XAN9 ULT AAAsf Affirmed AAAsf
A-M 30302XAQ2 LT AAAsf Affirmed AAAsf
A-M 30302XAQ2 ULT A+sf Affirmed A+sf
B 30302XAE9 LT BBB+sf Affirmed BBB+sf
C 30302XAG4 LT BBB-sf Affirmed BBB-sf
X1 30302XAS8 LT AAAsf Affirmed AAAsf
X1 30302XAS8 ULT AAAsf Affirmed AAAsf
X2-A 30302XAA7 LT AAAsf Affirmed AAAsf
XAM 30302XAU3 LT AAAsf Affirmed AAAsf
XAM 30302XAU3 ULT A+sf Affirmed A+sf
Freddie Mac Structured Pass Through Certificates 2017-K725
A-1 3137BWWC4 LT AAAsf Affirmed AAAsf
A-1 3137BWWC4 ULT AAAsf Affirmed AAAsf
A-2 3137BWWD2 LT AAAsf Affirmed AAAsf
A-2 3137BWWD2 ULT AAAsf Affirmed AAAsf
A-M 3137BWWE0 LT AAAsf Affirmed AAAsf
A-M 3137BWWE0 ULT Asf Affirmed Asf
X1 3137BWWF7 LT AAAsf Affirmed AAAsf
X1 3137BWWF7 ULT AAAsf Affirmed AAAsf
XAM 3137BWWH3 LT AAAsf Affirmed AAAsf
XAM 3137BWWH3 ULT Asf Affirmed Asf
Freddie Mac Structured Pass-Through Certificates 2017-K061
A-1 3137BTUL3 LT AAAsf Affirmed AAAsf
A-1 3137BTUL3 ULT AAAsf Affirmed AAAsf
A-2 3137BTUM1 LT AAAsf Affirmed AAAsf
A-2 3137BTUM1 ULT AAAsf Affirmed AAAsf
A-M 3137BTUN9 LT AAAsf Affirmed AAAsf
A-M 3137BTUN9 ULT Asf Affirmed Asf
X1 3137BTUP4 LT AAAsf Affirmed AAAsf
X1 3137BTUP4 ULT AAAsf Affirmed AAAsf
XAM 3137BTUR0 LT AAAsf Affirmed AAAsf
XAM 3137BTUR0 ULT Asf Affirmed Asf
FREMF 2017-K63
A-1 30300HAA4 LT AAAsf Affirmed AAAsf
A-1 30300HAA4 ULT AAAsf Affirmed AAAsf
A-2 30300HAC0 LT AAAsf Affirmed AAAsf
A-2 30300HAC0 ULT AAAsf Affirmed AAAsf
A-M 30300HAE6 LT AAAsf Affirmed AAAsf
A-M 30300HAE6 ULT Asf Affirmed Asf
B 30300HAG1 LT BBBsf Affirmed BBBsf
C 30300HAJ5 LT BB+sf Affirmed BB+sf
X1 30300HAQ9 LT AAAsf Affirmed AAAsf
X1 30300HAQ9 ULT AAAsf Affirmed AAAsf
X2-A 30300HAW6 LT AAAsf Affirmed AAAsf
XAM 30300HAS5 LT AAAsf Affirmed AAAsf
XAM 30300HAS5 ULT Asf Affirmed Asf
FREMF 2017-K71
A-1 35708WAA8 LT AAAsf Affirmed AAAsf
A-1 35708WAA8 ULT AAAsf Affirmed AAAsf
A-2 35708WAC4 LT AAAsf Affirmed AAAsf
A-2 35708WAC4 ULT AAAsf Affirmed AAAsf
A-M 35708WAE0 LT AAAsf Affirmed AAAsf
A-M 35708WAE0 ULT A+sf Affirmed A+sf
B 35708WAS9 LT BBB+sf Affirmed BBB+sf
C 35708WAU4 LT BBB-sf Affirmed BBB-sf
X1 35708WAG5 LT AAAsf Affirmed AAAsf
X1 35708WAG5 ULT AAAsf Affirmed AAAsf
X2-A 35708WAN0 LT AAAsf Affirmed AAAsf
XAM 35708WAJ9 LT AAAsf Affirmed AAAsf
XAM 35708WAJ9 ULT A+sf Affirmed A+sf
Freddie Mac Structured Pass-Through Certificates 2017 K-728
A-1 3137FBT97 LT AAAsf Affirmed AAAsf
A-1 3137FBT97 ULT AAAsf Affirmed AAAsf
A-2 3137FBTA4 LT AAAsf Affirmed AAAsf
A-2 3137FBTA4 ULT AAAsf Affirmed AAAsf
A-M 3137FBTB2 LT AAAsf Affirmed AAAsf
A-M 3137FBTB2 ULT Asf Affirmed Asf
X1 3137FBTC0 LT AAAsf Affirmed AAAsf
X1 3137FBTC0n ULT AAAsf Affirmed AAAsf
XAM 3137FBTE6 LT AAAsf Affirmed AAAsf
XAM 3137FBTE6 ULT Asf Affirmed Asf
FREMF 2017-K728
A-1 30305GAA1 LT AAAsf Affirmed AAAsf
A-1 30305GAA1 ULT AAAsf Affirmed AAAsf
A-2 30305GAC7 LT AAAsf Affirmed AAAsf
A-2 30305GAC7 ULT AAAsf Affirmed AAAsf
A-M 30305GAE3 LT AAAsf Affirmed AAAsf
A-M 30305GAE3 ULT Asf Affirmed Asf
B 30305GAS2 LT BBBsf Affirmed BBBsf
C 30305GAU7 LT BBB-sf Affirmed BBB-sf
X1 30305GAG8 LT AAAsf Affirmed AAAsf
X1 30305GAG8 ULT AAAsf Affirmed AAAsf
X2-A 30305GAN3 LT AAAsf Affirmed AAAsf
XAM 30305GAJ2 LT AAAsf Affirmed AAAsf
XAM 30305GAJ2 ULT Asf Affirmed Asf
Freddie Mac Structured Pass-Through Certificates 2017-K065
A-1 3137F1G36 LT AAAsf Affirmed AAAsf
A-1 3137F1G36 ULT AAAsf Affirmed AAAsf
A-2 3137F1G44 LT AAAsf Affirmed AAAsf
A-2 3137F1G44 ULT AAAsf Affirmed AAAsf
A-M 3137F1G51 LT AAAsf Affirmed AAAsf
A-M 3137F1G51 ULT A+sf Affirmed A+sf
X1 3137F1G69 LT AAAsf Affirmed AAAsf
X1 3137F1G69 ULT AAAsf Affirmed AAAsf
XAM 3137F1G85 LT AAAsf Affirmed AAAsf
XAM 3137F1G85 ULT A+sf Affirmed A+sf
FREMF 2017-K66
A-1 35708QAA1 LT AAAsf Affirmed AAAsf
A-1 35708QAA1 ULT AAAsf Affirmed AAAsf
A-2 35708QAC7 LT AAAsf Affirmed AAAsf
A-2 35708QAC7 ULT AAAsf Affirmed AAAsf
A-M 35708QAE3 LT AAAsf Affirmed AAAsf
A-M 35708QAE3 ULT A+sf Affirmed A+sf
B 35708QAU7 LT BBB+sf Affirmed BBB+sf
C 35708QAW3 LT BBB-sf Affirmed BBB-sf
X1 35708QAG8 LT AAAsf Affirmed AAAsf
X1 35708QAG8 ULT AAAsf Affirmed AAAsf
X2-A 35708QAQ6 LT AAAsf Affirmed AAAsf
XAM 35708QAJ2 LT AAAsf Affirmed AAAsf
XAM 35708QAJ2 ULT A+sf Affirmed A+sf
FREMF 2017-K61
A-1 30296AAA5 LT AAAsf Affirmed AAAsf
A-1 30296AAA5 ULT AAAsf Affirmed AAAsf
A-2 30296AAC1 LT AAAsf Affirmed AAAsf
A-2 30296AAC1 ULT AAAsf Affirmed AAAsf
A-M 30296AAE7 LT AAAsf Affirmed AAAsf
A-M 30296AAE7 ULT Asf Affirmed Asf
B 30296AAS6 LT BBBsf Affirmed BBBsf
C 30296AAU1 LT BB+sf Affirmed BB+sf
X1 30296AAG2 LT AAAsf Affirmed AAAsf
X1 30296AAG2 ULT AAAsf Affirmed AAAsf
X2-A 30296AAN7 LT AAAsf Affirmed AAAsf
XAM 30296AAJ6 LT AAAsf Affirmed AAAsf
XAM 30296AAJ6 ULT Asf Affirmed Asf
Freddie Mac Structured Pass-Through Certficates 2017-K063
A-1 3137BVZ74 LT AAAsf Affirmed AAAsf
A-1 3137BVZ74 ULT AAAsf Affirmed AAAsf
A-2 3137BVZ82 LT AAAsf Affirmed AAAsf
A-2 3137BVZ82 ULT AAAsf Affirmed AAAsf
A-M 3137BVZ90 LT AAAsf Affirmed AAAsf
A-M 3137BVZ90 ULT Asf Affirmed Asf
X1 3137BVZA7 LT AAAsf Affirmed AAAsf
X1 3137BVZA7 ULT AAAsf Affirmed AAAsf
XAM 3137BVZC3 LT AAAsf Affirmed AAAsf
XAM 3137BVZC3 ULT Asf Affirmed Asf
Freddie Mac Structured Pass-Through Certificates 2017-K071
A-1 3137FCLC6 LT AAAsf Affirmed AAAsf
A-1 3137FCLC6 ULT AAAsf Affirmed AAAsf
A-2 3137FCLD4 LT AAAsf Affirmed AAAsf
A-2 3137FCLD4 ULT AAAsf Affirmed AAAsf
A-M 3137FCLE2 LT AAAsf Affirmed AAAsf
A-M 3137FCLE2 ULT A+sf Affirmed A+sf
X1 3137FCLF9 LT AAAsf Affirmed AAAsf
X1 3137FCLF9 ULT AAAsf Affirmed AAAsf
XAM 3137FCLH5 LT AAAsf Affirmed AAAsf
XAM 3137FCLH5 ULT A+sf Affirmed A+sf
FREMF 2017-K725
A-1 30301TAL3 LT AAAsf Affirmed AAAsf
A-1 30301TAL3 ULT AAAsf Affirmed AAAsf
A-2 30301TAN9 LT AAAsf Affirmed AAAsf
A-2 30301TAN9 ULT AAAsf Affirmed AAAsf
A-M 30301TAQ2 LT AAAsf Affirmed AAAsf
A-M 30301TAQ2 ULT Asf Affirmed Asf
B 30301TAE9 LT BBBsf Affirmed BBBsf
C 30301TAG4 LT BBB-sf Affirmed BBB-sf
X1 30301TAS8 LT AAAsf Affirmed AAAsf
X1 30301TAS8 ULT AAAsf Affirmed AAAsf
X2-A 30301TAA7 LT AAAsf Affirmed AAAsf
XAM 30301TAU3 LT AAAsf Affirmed AAAsf
XAM 30301TAU3 ULT Asf Affirmed Asf
KEY RATING DRIVERS
Freddie Mac Guarantee, Credit Linked Notes: The multifamily
mortgage pass-through certificates are guaranteed by Freddie Mac.
On Aug. 3, 2020 Fitch affirmed Freddie Mac's rating at 'AAA' and
revised the Rating Outlook to Negative from Stable. This action
followed Fitch's affirmation of the U.S. sovereign's 'AAA' Issuer
Default Rating and revision of its Outlook to Negative from Stable
on July 31, 2020. The Negative Outlooks on 18 classes (A-Ms and
interest only XAMs) from nine FREMF transactions and 18 classes
(A-Ms and XAMs) from nine Freddie Mac structured pass-through
certificates reflect Freddie Mac's 'AAA'/Outlook Negative rating.
The affirmations of the long-term ratings are based on the
generally stable pool performance and loss expectations and are
supported by the guarantee. Although the interest only X1 classes
are guaranteed, the long-term rating for the interest only X1
classes are based on the pass-through to the referenced A-1 and A-2
certificates. Although Freddie Mac does not guarantee the
structured pass-through certificates, they benefit indirectly from
this guarantee. The Freddie Mac SPC certificates represent a
pass-through interest in the corresponding multifamily mortgage
pass-through certificates.
Stable Loss Expectations: Fitch's unenhanced ratings are based on
an analysis of the underlying collateral pools and do not give any
credit to the Freddie Mac guarantee. The affirmations are based on
the stable performance and loss expectations of the underlying
collateral. Pool level losses ranged from 2.3% to 6.4%. There are
50 loans on the servicer's watch lists (8.2% of the entire vintage)
and no specially serviced loans. Fitch has identified 71 loans as
Loans of Concern (FLOCs) due to declining performance, including
economic stress as a result of the coronavirus pandemic, student
concentrations and senior housing concentrations. Average FLOC
concentration was approximately 11.0% (ranging from 1.4% to 16.5%),
with the highest concentrations in FREMF 2017-K66 (16.5%), FREMF
2017-K728 (15.2%), and FREMF 2016-K65 (14.6%).
Changes to CE: There has been minimal change to credit enhancement
(CE) since issuance. As of January 2021, the pool balances have
paid down an average of 2.2% (ranging from 0.8% to 8.9%).
Thirty-three loans (5.2% of the vintage) are fully defeased, with
individual pool defeasance ranging from 0.4% to 23.8% of the
respective pools.
Coronavirus Exposure: Twenty-one loans (3.7% of the vintage) are
secured by senior housing properties. Twenty-three loans (4.5%) are
secured by a student housing property or multifamily with high
student concentration. These multifamily sub-classifications are
considered more volatile and/or may require more operational
experience than traditional multifamily assets. In addition, 20
loans (2.0%) reported a full year end DSCR less than 1.20x, based
on the servicers most recent reporting. Fitch's base case analysis
applied additional stresses to these multifamily properties/loans
given the significant declines in property-level cash flow expected
in the short term as a result the coronavirus pandemic. These
additional stresses did not affect the ratings or Outlooks due to
sufficient credit enhancement and overall stable performance of the
pool.
RATING SENSITIVITIES
Stable Outlooks on the long-term ratings of classes the senior
classes (those rated 'AAAsf') and corresponding interest-only
reflect both the overall stable pool performance, and benefit from
the Freddie Mac guarantee. The Stable Outlooks on the unenhanced
ratings reflect stable pool performance, increasing credit
enhancement and expected continued amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades of classes B and C could occur if there is stable to
improved asset performance coupled with additional paydown
and/or defeasance. However, adverse selection and increased
concentrations or the underperformance of particular loans
could cause this trend to reverse.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades on the unenhanced ratings could occur with an
increase in pool level expected losses from underperforming or
specially serviced loans. While not expected, downgrades to
classes B and C could occur if loan performance declines
significantly, loans face difficulty refinancing at maturity
or properties vulnerable to the coronavirus do not return to
pre-pandemic levels.
-- The unenhanced ratings represent a detachment from the
guarantee provided by Freddie Mac for their respective
classes. Should the performance of the underlying collateral
deteriorate enough to warrant a downgrade to any of the
classes benefiting from the Freddie Mac guarantee, only the
unenhanced ratings would be downgraded. The long-term ratings
for those classes that benefit from a guarantee would be rated
at the higher of Freddie Mac or the underlying rating without
the guarantee.
In addition to its baseline scenario related to the coronavirus,
Fitch envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
negative rating actions including downgrades or Negative Outlooks
to the long-term and unenhanced ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The multifamily mortgage pass-through certificates are guaranteed
by Freddie Mac. The affirmations of the long-term ratings are based
on the generally stable pool performance and loss expectations and
are supported by the Freddie Mac guarantee.
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.
FREDDIE MAC 2021-HQA1: Moody's Gives (P)Ba2 Rating to 10 Tranches
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 28
classes of credit risk transfer notes issued by Freddie Mac STACR
REMIC TRUST 2021-HQA1. The ratings range from (P)Baa1 (sf) to (P)B3
(sf).
Freddie Mac STACR REMIC TRUST 2021-HQA1 (STACR 2021-HQA1) is the
first transaction of 2021 in the HQA series issued by the Federal
Home Loan Mortgage Corporation (Freddie Mac) to share the credit
risk on a reference pool of mortgages with the capital markets. The
transaction is structured as a real estate mortgage investment
conduit (REMIC). Class coupons of floating rate notes are based on
secured overnight financing rate (SOFR) and their respective fixed
margin.
The notes in STACR 2021-HQA1 receive principal payments as the
loans in the reference pool amortize or prepay. Principal payments
to the notes are paid from assets in the trust account established
from proceeds of the notes issuance. Interest payments to the notes
are paid from a combination of investment income from trust assets,
an asset of the trust known as the interest-only (IO) Q-REMIC
interest, and Freddie Mac. Freddie Mac is responsible to cover (1)
any interest owed on the notes not covered by the investment income
from the trust assets and the yield on the IO Q-REMIC interest and
(2) to reimburse the trust for any investment losses from sales of
the trust assets.
Investors have no recourse to the underlying reference pool. The
credit risk exposure of the notes depends on the actual realized
losses and modification losses incurred by the reference pool.
Freddie Mac is obligated to pay off the notes in August 2033 if any
balances remain outstanding. Of note, this is the first STACR REMIC
transaction in the HQA series with 12.5-year stated bullet maturity
on the offered notes, instead of 30-year maturity for recent
transactions.
The complete rating actions are as follows:
Issuer: Freddie Mac STACR REMIC TRUST 2021-HQA1
Cl. M-1, Assigned (P)Baa1 (sf)
Cl. M-2, Assigned (P)Ba1 (sf)
Cl. M-2A, Assigned (P)Baa3 (sf)
Cl. M-2B, Assigned (P)Ba2 (sf)
Cl. M-2R, Assigned (P)Ba1 (sf)
Cl. M-2S, Assigned (P)Ba1 (sf)
Cl. M-2T, Assigned (P)Ba1 (sf)
Cl. M-2U, Assigned (P)Ba1 (sf)
Cl. M-2I*, Assigned (P)Ba1 (sf)
Cl. M-2AR, Assigned (P)Baa3 (sf)
Cl. M-2AS, Assigned (P)Baa3 (sf)
Cl. M-2AT, Assigned (P)Baa3 (sf)
Cl. M-2AU, Assigned (P)Baa3 (sf)
Cl. M-2AI*, Assigned (P)Baa3 (sf)
Cl. M-2BR, Assigned (P)Ba2 (sf)
Cl. M-2BS, Assigned (P)Ba2 (sf)
Cl. M-2BT, Assigned (P)Ba2 (sf)
Cl. M-2BU, Assigned (P)Ba2 (sf)
Cl. M-2BI*, Assigned (P)Ba2 (sf)
Cl. M-2RB, Assigned (P)Ba2 (sf)
Cl. M-2SB, Assigned (P)Ba2 (sf)
Cl. M-2TB, Assigned (P)Ba2 (sf)
Cl. M-2UB, Assigned (P)Ba2 (sf)
Cl. B-1, Assigned (P)B2 (sf)
Cl. B-1A, Assigned (P)B1 (sf)
Cl. B-1AR, Assigned (P)B1 (sf)
Cl. B-1AI*, Assigned (P)B1 (sf)
Cl. B-1B, Assigned (P)B3 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
0.71%, in a baseline scenario-median is 0.50%, and reaches 4.89% at
a stress level consistent with our Aaa ratings.
Moody's calculated losses on the pool using Moody's US Moody's
Individual Loan Analysis (MILAN) GSE 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,
qualitative adjustments for origination quality and third-party
review (TPR) scope.
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.
Moody's 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 Moody's forecasts is unusually high.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
The contraction in economic activity in the second quarter was
severe and the overall recovery in the second half of the year will
be gradual. However, there are significant downside risks to
Moody's forecasts in the event that the pandemic is not contained
and lockdowns have to be reinstated. As a result, the degree of
uncertainty around Moody's forecasts is unusually high. Moody's
increased Moody's model-derived median expected losses by 15%,
11.74% for the mean) and Moody's Aaa losses by 5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak
Moody's increased our model-derived median expected losses by 15%
(11.74% for the mean) and Moody's Aaa losses by 5% to reflect the
likely performance deterioration resulting from of a slowdown in US
economic activity in 2020 due to the coronavirus outbreak.
Servicing practices, including tracking coronavirus related loss
mitigation activities, may vary among servicers in the transaction.
These inconsistencies could impact reported collateral performance
and affect the timing of any breach of performance triggers and the
amount of modification losses.
Moody's may infer and extrapolate from the information provided
based on this or other transactions or industry information, or
make stressed assumptions.
Collateral Description
The reference pool consists of over one hundred and forty eight
thousand prime, fixed-rate, one- to four-unit, first-lien
conforming mortgage loans acquired by Freddie Mac. The loans were
originated on or after February 1, 2015 with a weighted average
seasoning of five months. Each of the loans in the reference pool
had a loan-to-value (LTV) ratio at origination that was greater
than 80% and less than or equal to 97%. 7.4% of the pool are loans
underwritten through Freddie Mac's Home Possible program and 99.1%
of loans in the pool are covered by mortgage insurance as of the
cut-off date.
About 17.1% of loans in this transaction were underwritten through
Freddie Mac's Automated Collateral Evaluation (ACE) program. Under
ACE program, Freddie Mac assesses whether the estimate of value or
sales price of a mortgaged property, as submitted by the seller, is
acceptable as the basis for the underwriting of the mortgage loan.
If a loan is assessed as eligible for appraisal waiver, the seller
will not be required to obtain an appraisal and will be relieved
from R&Ws related to value, condition and marketability of the
property. A loan originated without a full appraisal will lack
details about the property's condition. Moody's consider ACE loans
weaker than loans with full appraisal. Specifically, for refinance
loans, seller estimated value, which is the basis for calculating
LTV, may be biased where there is no arms-length transaction
information. Although such value is validated against Freddie Mac's
in-house HVE model, there's still possibility for over valuations
subject to Freddie Mac's tolerance levels. All ACE loans in this
transaction are either rate or term refinance loans where Moody's
made haircuts to property values to account for overvaluation
risk.
Aggregation/Origination Quality
Moody's consider Freddie Mac's overall seller management and
aggregation practices to be adequate and Moody's did not apply a
separate loss-level adjustment for aggregation quality.
Underwriting
Freddie Mac uses a delegated underwriting process to purchase
loans. Sellers are required to represent and warrant that loans are
made in accordance with negotiated terms or Freddie Mac's guide.
Numerous checks in the selling system ensures that loans with the
correct characteristics are delivered to Freddie Mac. Sellers are
required to cure, make an indemnification payment or repurchase the
loans if a material underwriting defect is discovered subject to
certain limits. In certain cases, Freddie Mac may elect to waive
the enforcements of the repurchase if an alternative such as an
indemnification payment is provided.
Quality control
Freddie Mac monitors each seller's risk exposure both on an
aggregated basis as well as by product lines. A surveillance team
reviews sellers' financials at least on an annual basis, monitors
exposure limits, risk ratings, lenders QC reports and internal
audit results and may adjust credit limits, require additional
loan/operational reviews or put the seller on a watch list, as
needed.
Home Possible program
Approximately 7.4% of the loans by cut-off date balance were
originated under the Home Possible program. The program is designed
to make responsible homeownership accessible to low- to
moderate-income homebuyers, by requiring low down payments, lower
risk-adjusted pricing, flexibility in sources of income, and, in
certain circumstances, lower than standard mortgage insurance
coverage.
Home Possible loans in STACR 2021-HQA1's reference pool have a WA
FICO of 748 and WA LTV of 93.9%, versus a WA FICO of 756 and a WA
LTV of 90.5% for the rest of the loans in the pool. While Moody's
MILAN model takes into account characteristics listed on the loan
tape, such as lower FICOs and higher LTVs, there may be risks not
captured by Moody's model due to less stringent underwriting,
including allowing more flexible sources of funds for down payment
and lower risk-adjusted pricing. Moody's applied an adjustment to
the loss levels to address the additional risks that Home Possible
loans may add to the reference pool.
Enhanced Relief Refinance (ERR)
The ERR program is designed to provide refinance opportunities to
borrowers with existing Freddie Mac's mortgage loans who are
current on their mortgage payments but whose LTV ratios exceed the
maximum permitted for standard refinance products. The program is
intended to offer refinance opportunities to borrowers so they can
reduce their monthly payment. STACR 2021-HQA1's reference pool does
not include ERR loans at closing, however, transaction documents
allow for the replacement of loans in the reference pool with ERR
loans in the future. The replacement will not constitute a
prepayment on the replaced loan, credit event or a modification
event.
At closing, Moody's did not make any adjustment to Moody's
collateral losses due to the existence of the ERR program. Moody's
believe the programs are beneficial for loans in the pool,
especially during an economic downturn when limited refinancing
opportunities would be available to borrowers with low or negative
equity in their properties. However, since such refinanced loans
are likely to have later maturities and slower prepayment rates
than the rest of the loans, the reference pool is at risk of having
a high concentration of high LTV loans at the tail of the
transaction's life. Moody's will monitor ERR loans in the reference
pool and may make an adjustment in the future if the percentage of
them becomes significant after closing.
Mortgage insurance
99.3% of the loans in the pool were originated with mortgage
insurance. 97.6% of the loans benefit from BPMI which is usually
terminated when LTV falls below 78% under scheduled amortization,
and 2.0% of the loans benefit from LPMI or IPMI which lasts through
the life of the loan.
Freddie Mac will cover proceeds that are not received due to a
mortgage insurer insolvency or due to a settlement between the
mortgage insurer and Freddie Mac. The servicer is required to
reimburse Freddie Mac for claim curtailments rejections due to the
servicer's violation of the mortgage insurance policy.
The MILAN model output accounts for the presence of mortgage
insurance backed by Freddie Mac. Moody's rejection rate assumption
is 0% under base case and 1% under Aaa scenario.
Servicing arrangement
As master servicer, Freddie Mac has strong servicer oversight and
monitoring processes. Generally, Freddie Mac does not itself
conduct servicing activities. When a mortgage loan is sold to
Freddie Mac, the seller enters into an agreement to service the
mortgage loan for Freddie Mac in accordance with a comprehensive
servicing guide for servicers to follow. Freddie Mac monitors
primary servicer performance and compliance through its Servicer
Success Program, scorecard and servicing quality assurance group.
Freddie Mac also reviews individual loan files to identify
servicing performance gaps and trends.
Moody's consider the servicing arrangement to be adequate and
Moody's did not make any adjustments to its loss levels based on
Freddie Mac's servicer management.
Third-party Review
Moody's consider the scope of the TPR based on Freddie Mac's
acquisition and QC framework to be adequate. Moody's assessed an
adjustment to loss at a Aaa stress level due to lack of compliance
review on TILA-RESPA Integrated Disclosure (TRID) violations.
The results and scope of the pre-securitization third-party,
loan-level review (due diligence) suggest a heavier reliance on
sellers' representations and warranties (R&Ws) compared with
private label securitizations. The scope of the TPR, for example,
is weaker because the sample size is small (only 0.40% of the loans
in reference pool are included in the sample). To the extent that
the TPR firm classifies certain credit or valuation discrepancies
as 'findings', Freddie Mac will review and may provide rebuttals to
those findings, which could result in the change of event grades by
the review firm.
The third-party due diligence scope focuses on the following:
Compliance: The diligence firm reviewed 400 loans for compliance
with federal, state and local high cost Home Ownership and Equity
Protection Act (HOEPA) regulations (379 loans were reviewed for
compliance plus 21 loans were reviewed for both credit/valuation
and compliance). None were determined to be noncompliant.
Appraisals: The third-party diligence provider also reviewed
property valuation on 1,500 loans in the sample pool (1,479 loans
were reviewed for credit/valuation plus 21 loans were reviewed for
both credit/valuation and compliance). 34 loans received final
valuation grades of "C". 33 of the 34 loans are ACE loans and had
Appraisal Desktop with Inspections (ADI) which did not support the
original appraised value within the 10% tolerance. The valuation
result is in line with the prior STACR transaction in terms of
percentage of TPR sample. Moody's didn't make additional adjustment
based on this result given we have already made property value
haircuts to all ACE loans in the reference pool.
Credit: The third-party diligence provider reviewed credit on 1,500
loans in the sample pool. Within these 1,500 loans, the diligence
provider reviewed 1,479 loans for credit only, and 21 loans were
reviewed for both credit/valuation and compliance. Five loans had
final grades of "C" due to underwriting defects. These loans were
removed from the transaction. The results were better than prior
STACR transactions we rated.
Data integrity: The third-party review firm analyzed the sample
pool for data calculation and comparison to the imaged file
documents. The review revealed 125 data discrepancies on 117
loans.
Unlike private label RMBS transactions, a review of TRID violation
was not part of Freddie Mac's due diligence scope. A lack of
transparency regarding how many loans in the transaction contain
material violations of the TRID rule is a credit negative. However,
since Moody's expect overall losses on STACR transactions owing to
TRID violations to be fairly minimal, Moody's only made a slight
qualitative adjustment to losses under a Aaa scenario. Furthermore,
lender R&Ws and the GSEs' ability to remove defective loans from
the transactions will likely mitigate some of aforementioned
concerns.
Reps & Warranties Framework
Freddie Mac is not providing loan level (R&Ws for this transaction
because the notes are a direct obligation of Freddie Mac. The
reference obligations are subject to R&Ws made by the sellers. As
such, Freddie Mac commands robust R&Ws from its seller/servicers
pertaining to all facets of the loan, including but not limited to
compliance with laws, compliance with all underwriting guidelines,
enforceability, good property condition and appraisal procedures.
Freddie Mac will be responsible for enforcing the R&Ws made by the
sellers/lenders in the reference pool. To the extent that Freddie
Mac discovers a confirmed underwriting defect or a major servicing
defect, the respective loan will be removed from the reference
pool. Since Freddie Mac retains a significant portion of the risk
in the transaction, it will likely take necessary steps to address
any breaches of R&Ws. For example, Freddie Mac undertakes quality
control reviews and servicing quality assurance reviews of small
samples of the mortgage loans that sellers deliver to Freddie Mac.
These processes are intended to determine, among other things, the
accuracy of the R&Ws made by the sellers in respect of the mortgage
loans that are sold to Freddie Mac. Moody's made no adjustments to
the transaction regarding the R&W framework.
The notes
Moody's refer to the M-1, M-2A, M-2B, B-1A, B-1B, B-2A and B-2B
notes as the original notes, and the M-2, M-2R, M-2S, M-2T, M-2U,
M-2I, M-2AR, M-2AS, M-2AT, M-2AU, M-2AI, M-2BR, M-2BS, M-2BT,
M-2BU, M-2BI, M-2RB, M-2SB, M-2TB, M-2UB, B-1, B-2, B-1AR, B-1AI,
B-2AR and B-2AI notes as the Modifiable and Combinable REMICs
(MACR) notes; together Moody's refer to them as the notes.
The M-2 notes can be exchanged for M-2A and M-2B notes, M-2R and
M-2I notes, M-2S and M-2I, M-2T and M-2I, and M-2U and M-2I notes.
The M-2A notes can be exchanged for M-2AR and M-2AI notes, M-2AS
and M-2AI notes, M-2AT and M-2AI, and M-2AU and M-2AI notes.
The M-2B notes can be exchanged for M-2BR and M-2BI notes, M-2BS
and M-2BI notes, M-2BT and M-2BI notes, and M-2BU and M-2BI notes.
Classes M-2I , M-2AI, M-2BI, B-1AI and B-2AI are interest only
tranches referencing to the notional balances of Classes M-2, M-2A,
M-2B, B-1A and B-2A, respectively.
Classes M-2RB, M-2SB, M-2TB and M-2UB are each an exchangeable for
two classes that are initially offered at closing. Moody's ratings
of M-2RB, M-2SB, M-2TB and M-2UB reference the rating of Class M-2B
only, disregarding the rating of M-2AI. This is the case because
Class M-2AI's cash flow represents an insignificant portion of the
overall promise. In the event Class M-2B gets written down through
losses and Class M-2AI is still outstanding, Moody's would continue
to rate Classes M-2RB, M-2SB, M-2TB and M-2UB consistent with Class
M-2B's last outstanding rating so long as Classes M-2RB, M-2SB,
M-2TB and M-2UB are still outstanding.
Transaction Structure
Credit enhancement in this transaction is comprised of
subordination provided by mezzanine and junior tranches. Realized
losses are allocated in a reverse sequential order starting with
the Class B-3H reference tranche.
Interest due on the notes is determined by the outstanding
principal balance and the interest rate of the notes. The interest
payment amount is the interest accrual amount of a class of notes
minus any modification loss amount allocated to such class on each
payment date, plus any modification gain amount. The modification
loss and gain amounts are calculated by taking the respective
positive and negative difference between the original accrual rate
of the loans, multiplied by the unpaid balance of the loans, and
the current accrual rate of the loans, multiplied by the interest
bearing unpaid balance.
So long as the senior reference tranche 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.
The STACR 2021-HQA1 transaction allows for principal distribution
to subordinate notes by the supplemental subordinate reduction
amount even if performance triggers fail. The supplemental
subordinate reduction amount equals the excess of the offered
reference tranche percentage over 6.15%. The distribution of the
supplemental subordinated reduction amount would reduce principal
balances of the offered reference tranche and correspondingly limit
the credit enhancement of class A note to be always below 6.15%
plus the note balance of B-3H. This feature is beneficial to the
offered certificates.
Credit Events and Modification Events
Reference tranche write-downs occur as a result of loan level
credit events. A credit event with respect to any loan means any of
the following events: (i) a short sale with respect to the related
mortgaged property is settled, (ii) a related seriously delinquent
mortgage note is sold prior to foreclosure, (iii) the mortgaged
property that secured the related mortgage note is sold to a third
party at a foreclosure sale, (iv) an REO disposition occurs, or (v)
the related mortgage note is charged-off. As a result, the
frequency of credit events will be the same as actual loan default
frequency, and losses will impact the notes similar to that of a
typical RMBS deal.
Loans that experience credit events that are subsequently found to
have an underwriting defect, a major servicing defect or are deemed
ineligible will be subject to a reverse credit event. Reference
tranche balances will be written up for all reverse credit events
in sequential order, beginning with the most senior tranche that
has been subject to a previous write-down. In addition, the amount
of the tranche write-up will be treated as an additional principal
recovery, and will be paid to noteholders in accordance with the
cash flow waterfall.
If a loan experiences a forbearance or mortgage rate modification,
the difference between the original mortgage rate and the current
mortgage rate will be allocated to the reference tranches as a
modification loss. The Class B-3H reference tranche, which
represents 0.25% of the pool, will absorb modification losses
first. The final coupons on the notes will have an impact on the
amount of interest available to absorb modification losses from the
reference pool.
Tail Risk
Similar to prior STACR transactions, the initial subordination
level of 3.25% is lower than the deal's minimum credit enhancement
trigger level of 3.50%. The transaction begins by failing the
minimum credit enhancement test, leaving the subordinate tranches
locked out of unscheduled principal payments until the deal builds
an additional 0.25% subordination. STACR 2021-HQA1 does not have a
subordination floor. This is mitigated by the sequential principal
payment structure of the deal, which ensures that the credit
enhancement of the subordinate tranches is not eroded early in the
life of the transaction.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in April 2020.
FREDDIE MAC 2021-HQA1: S&P Assigns Prelim B- Rating on B-1B Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Freddie Mac
STACR REMIC Trust 2021-HQA1's asset-backed notes.
The note issuance is an RMBS transaction backed by fully
amortizing, high loan-to-value, first-lien, fixed-rate residential
mortgage loans secured by one- to four-family residences,
planned-unit developments, condominiums, cooperatives, and
manufactured housing to mostly prime borrowers.
The preliminary ratings are based on information as of Feb. 11,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The credit enhancement provided by the subordinated reference
tranches, as well as the associated structural deal mechanics;
-- The credit quality of the collateral included in the reference
pool--a majority of this collateral is covered by mortgage
insurance backstopped by Freddie Mac;
-- A REMIC structure that reduces the counterparty exposure to
Freddie Mac for periodic principal and interest payments, but, at
the same time, pledges the support of Freddie Mac (a highly rated
counterparty) to cover shortfalls, if any, on interest payments and
to make up for any investment losses;
-- The issuer's aggregation experience and the alignment of
interests between the issuer and noteholders in the deal's
performance, which, in our view, enhances the notes' strength;
-- The enhanced credit risk management and quality control
processes Freddie Mac uses in conjunction with the underlying
representations and warranties framework; and
-- The impact that COVID-19 is likely to have on the U.S. economy
and the U.S. housing market and the additional structural
provisions included to address corresponding forbearance and
subsequent defaults.
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Preliminary Ratings Assigned
Freddie Mac STACR REMIC Trust 2021-HQA1
Class A-H(i), $60,933,083,834: NR
Class M-1, $335,000,000: BBB (sf)
Class M-1H(i), $137,349,486: NR
Class M-2, $560,000,000: B+
Class M-2A, $280,000,000: BB+ (sf)
Class M-2AH(i), $113,624,573: NR
Class M-2B, $280,000,000: B+ (sf)
Class M-2BH(i), $113,624,573: NR
Class M-2R, $560,000,000: B+ (sf)
Class M-2S, $560,000,000: B+ (sf)
Class M-2T, $560,000,000: B+ (sf)
Class M-2U, $560,000,000: B+ (sf)
Class M-2I, $560,000,000: B+ (sf)
Class M-2AR, $280,000,000: BB+ (sf)
Class M-2AS, $280,000,000: BB+ (sf)
Class M-2AT, $280,000,000: BB+ (sf)
Class M-2AU, $280,000,000: BB+ (sf)
Class M-2AI, $280,000,000: BB+ (sf)
Class M-2BR, $280,000,000: B+ (sf)
Class M-2BS, $280,000,000: B+ (sf)
Class M-2BT, $280,000,000: B+ (sf)
Class M-2BU, $280,000,000: B+ (sf)
Class M-2BI, $280,000,000: B+ (sf)
Class M-2RB, $280,000,000: B+ (sf)
Class M-2SB, $280,000,000: B+ (sf)
Class M-2TB, $280,000,000: B+ (sf)
Class M-2UB, $280,000,000: B+ (sf)
Class B-1, $223,000,000: B- (sf)
Class B-1A, $111,500,000: B+ (sf)
Class B-1AR, $111,500,000: B+ (sf)
Class B-1AI, $111,500,000: B+ (sf)
Class B-1AH(i), $45,949,829: NR
Class B-1B, $111,500,000: B- (sf)
Class B-1BH(i), $45,949,829: NR
Class B-2, $268,000,000: NR
Class B-2A, $134,000,000: NR
Class B-2AR, $134,000,000: NR
Class B-2AI, $134,000,000: NR
Class B-2AH(i), $23,449,829: NR
Class B-2B, $134,000,000: NR
Class B-2BH(i), $23,449,829: NR
Class B-3H(i), $157,449,829: NR
(i)Reference tranche only and will not have corresponding notes.
Freddie Mac retains the risk of each of these tranches.
NR--Not rated.
GOLUB CAPITAL 41(B)-R: S&P Assigns BB-(sf) Rating on Cl. E-R Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to Golub Capital Partners
CLO 41(B)-R Ltd./Golub Capital Partners CLO 41(B)-R LLC's fixed-
and floating-rate notes.
The note issuance is a CLO transaction backed primarily by broadly
syndicated speculative-grade (rated 'BB+' and lower) senior secured
term loans that are governed by collateral quality tests.
The ratings reflect:
-- The diversification of the collateral pool;
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading;
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
Golub Capital Partners CLO 41(B)-R Ltd./Golub Capital Partners
CLO 41(B)-R LLC
Class A-R, $272.80 million: AAA (sf)
Class B-1-R, $47.20 million: AA (sf)
Class B-2-R, $22.00 million: AA (sf)
Class C-R (deferrable), $24.75 million: A (sf)
Class D-R (deferrable), $27.00 million: BBB- (sf)
Class E-R (deferrable), $15.75 million: BB- (sf)
Subordinated notes, $47.00 million: Not rated
GS MORTGAGE 2016-GS2: Fitch Downgrades Class F Certs to 'CCC'
-------------------------------------------------------------
Fitch Ratings has downgraded two and affirmed 12 classes of GS
Mortgage Securities Trust 2016-GS2 Commercial Mortgage Pass-Through
Certificates.
DEBT RATING PRIOR
---- ------ -----
GSMS 2016-GS2
A-2 36252TAP0 LT AAAsf Affirmed AAAsf
A-3 36252TAQ8 LT AAAsf Affirmed AAAsf
A-4 36252TAR6 LT AAAsf Affirmed AAAsf
A-AB 36252TAS4 LT AAAsf Affirmed AAAsf
A-S 36252TAV7 LT AAAsf Affirmed AAAsf
B 36252TAW5 LT AA-sf Affirmed AA-sf
C 36252TAY1 LT A-sf Affirmed A-sf
D 36252TAA3 LT BBB-sf Affirmed BBB-sf
E 36252TAE5 LT B-sf Downgrade BB-sf
F 36252TAG0 LT CCCsf Downgrade B-sf
PEZ 36252TAX3 LT A-sf Affirmed A-sf
X-A 36252TAT2 LT AAAsf Affirmed AAAsf
X-B 36252TAU9 LT AA-sf Affirmed AA-sf
X-D 36252TAC9 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Increased Loss Expectations: Loss expectations have increased
primarily due to increased loss expectations on the Fitch Loans of
Concern (FLOCs), primarily the largest loan in the pool, in
addition to the two specially serviced loans. Fitch's ratings are
based on base case loss expectations of 7.50%; the Negative Rating
Outlooks reflect additional stresses on loans expected to be
negatively impacted by the pandemic, which assumes that losses
could reach 10.70%.
The largest loan and also the largest increase to loss
expectations, Twenty Ninth Street Retail (12.3% of the pool), is
secured by a 705,169 sf retail center located in Boulder, CO. The
property is shadow anchored by Macy's and the collateral is
anchored by a Home Depot (rated A/F1 by Fitch; 20% of net rentable
area (NRA); 1/31 lease expiration), the Zayo Group (12.1% of NRA;
Dec. 31,2021), and a 13-screen Century Theaters (6.9% of NRA;
August 31, 2022). Per local media reports, the noncollateral Macy's
has been approved to convert the space into office space rather
than retail. Macy's remains off any store closure lists as of
February 2021, however, sales have continued to decline since
issuance.
As of the trailing 12 months (TTM) ended September 2020, Macy's
sales were approximately $27 psf compared to $132 psf as of the TTM
ended September 2019 and $80 psf as of the TTM ended September
2018. The property's occupancy as September 2020 declined to 91.6%
from 96% at YE 2019 primarily due to multiple tenants vacating upon
lease expiration. Additionally, approximately 28% of the NRA has
upcoming lease expirations between 2020 and 2021, including top
tenants, Zayo Group (12% of the NRA) and Nordstrom Rack (5.6% of
the NRA). Per the master servicer, Zayo Group has a five-year
extension option which has not yet been exercised and Nordstrom
Rack has renewed for an additional five years. Fitch's base case
loss of 11% reflects a 15% cap rate applied to the loan due to
declining tenant sales and concerns regarding significant upcoming
lease rollover.
The second largest increase to loss expectations is Cove at Coastal
Carolina (2.3% of the NRA) which is secured by a 396-unit student
housing property located in Conway, SC. As of September 2020,
occupancy had slightly increased to 81% from 74% at YE 2019 but
remained well below the 98% reported at YE 2018 and YE 2017. Per
the master servicer, the declines in performance are related to
declining enrollment at the school, mostly due to
coronavirus-related impacts. The borrower sighted more freshman
taking gap year leaves and declining enrollment of international
students due to difficulties obtaining visas. Fitch's base case
loss of 50% reflects a 15% haircut to the YE 2019 net operating
income (NOI) due to expected further declines in performance.
The third largest increase to loss expectations is the Residence
Inn and Springhill Suites NorthShore (3.8% of the pool), is secured
by two hotels located in Pittsburgh, PA: a 198-key limited service
SpringHill Suites hotel and a 180-key, extended stay Residence Inn.
The loan failed to meet Fitch's property specific NOI debt service
coverage ratio (DSCR) tolerance threshold for hotels. As of
September 2020, NOI DSCR had declined to below 1.00x to 0.40x from
1.44x at YE 2019. The declines in performance are primarily related
to impacts caused by the ongoing coronavirus pandemic. As a result,
Fitch's loss expectation of 25% reflects a 26% haircut to the YE
2019 NOI to reflect further expected declines in performance.
The fourth largest increase to loss expectations is Wycoff Avenue
(2.3% of the pool), is secured by a 27,832 sf retail center located
in Ridgewood, NY (Queens). The property is anchored by a Planet
Fitness (55% of the NRA) and CVS (39% of the NRA). While the
property remained 100% occupied as of September 2020, the loan does
fail to meet Fitch's property specific NOI DSCR tolerance threshold
for retail properties. As of September 2020, NOI DSCR was 1.33x
which was in line with YE 2019 of 1.29x and 1.31x at YE 2018. Fitch
applied a haircut of 20% to the YE 2019 NOI to reflect expected
declines in performance and significant exposure to nonessential
retail businesses.
The last largest increase to loss expectations is the Hampton Inn
San Diego Mission Valley (5.4% of the pool), is secured by a a
184-key, limited service hotel located in San Diego, CA. As of the
TTM ended Sept. 30, 2020, property occupancy had declined to 59%
from 90% at YE 2019 and 92% in YE 2018 and YE 2017. NOI DSCR as of
September 2020 had also declined to 0.63x from 2.43x at YE 2019 and
2.59x at YE 2018. The declines in performance are primarily driven
by the impact on hotels due to the ongoing coronavirus pandemic.
Per the master servicer commentary, the loan did receive three
months forbearance relief, which commenced in November 2020. The
loan also failed to meet Fitch's property specific NOI DSCR
tolerance threshold, therefore Fitch's loss expectation of 15%
reflects a 26% haircut to the YE 2019 NOI to reflect expected
declines in performance.
Increased Credit Enhancement (CE): As of the February 2021
remittance, the transaction's balance has been reduced by 19.0% to
$608 million from $751 million at issuance. No loans are defeased.
Since Fitch's last rating action, two loans (previously 17.4% of
the pool) paid off in full at their respective prepayment periods.
Fifteen loans (55.7% of the pool) have IO payments for the full
loan term, including eight loans (32.7% of the pool) within the top
15. Fourteen (28.2% of the pool) have partial IO payments,
including five loans (17.7% of the pool) in the top 15. Only one
loan that has partial IO payments is still in its IO period. The
remaining loans are amortizing.
Five loans (16.7% of the pool) received forbearance relief,
including all four hotels within the top 15. None of the loans that
received forbearance relief are delinquent.
Coronavirus Exposure: Significant economic impact to certain
hotels, retail and multifamily properties is expected from the
coronavirus pandemic, due to the recent and sudden reductions in
travel and tourism, temporary property closures and lack of clarity
on the potential length of the impact. The pandemic has prompted
the closure of several hotel properties in gateway cities as well
as malls, entertainment venues and individual stores.
Four loans (15.3% of the pool) are secured by hotel loans and 20
loans (53.8% of the pool) are secured by retail properties. Fitch
applied additional stresses to all four hotel loans, three retail
and two multifamily loans to account for potential cash flow
disruptions due to the coronavirus pandemic. This sensitivity
analysis contributed to the Downgrades of classes E and F and the
Negative Outlooks on classes D, E, F and X-D.
Alternative Loss Considerations: In addition to modeling a base
case loss, Fitch ran an additional loss sensitivity which reflects
the paydown of one loan maturing in 2021. This additional
sensitivity analysis contributed to the Downgrades of classes E and
F and the Negative Outlooks on classes D, E, F and X-D.
RATING SENSITIVITIES
The Negative Outlooks on classes D, E, and X-D and downgrades of
classes E and F reflect the potential for further Downgrades due to
performance concerns on the FLOCs, concerns surrounding the
ultimate impact of the coronavirus pandemic, additional loan
transfers to special servicing and potentially higher than expected
losses, particularly on larger, specially serviced loans. The
Stable Outlooks on classes A-2, A-3, A-4, A-S, A-AB, B and C
reflect overall stable performance for the majority of the pool,
scheduled amortization and expected continued paydown.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- Sensitivity factors that lead to Upgrades would include stable
to improved asset performance, particularly on the FLOCs,
coupled with additional paydown and/or defeasance. Upgrades to
class B would only occur with significant improvement in CE
and/or defeasance and with the stabilization of performance on
the FLOCs and/or the properties affected by the coronavirus
pandemic. Classes would not be upgraded above 'Asf' if there
is a likelihood of interest shortfalls.
-- Upgrades to classes C, D, and X-D are not likely until the
later years in the transaction and only if the performance of
the remaining pool is stable and/or properties vulnerable to
the coronavirus return to pre-pandemic levels, and there is
sufficient CE to the class. Classes E and F are unlikely to be
upgraded absent significant performance improvement on the
FLOCs and substantially higher recoveries than expected on the
specially serviced loans/assets.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- Sensitivity factors that lead to downgrades include an
increase in pool-level losses from underperforming or
specially serviced loans/assets. Downgrades to classes A-1
through A-AB are not likely due to the position in the capital
structure, but may occur should interest shortfalls affect
these classes. Downgrades to classes A-S, B and X-A are
possible should expected losses for the pool increase
significantly, all of the loans susceptible to the coronavirus
pandemic suffer losses and/or interest shortfalls occur.
-- Downgrades to classes C, D, E and F are possible should loss
expectations increase due to a continued performance decline
of the FLOCs and additional loans transfer to special
servicing. The Negative Rating Outlooks on classes D, E and X
D may be revised back to Stable if performance of the FLOCs
improves and/or properties vulnerable to the coronavirus
pandemic stabilize.
-- Further downgrades to classes E and F would occur as losses
are realized and/or become more certain.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, classes with Negative Rating
Outlooks will be downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
GS MORTGAGE 2019-GC42: DBRS Confirms B(high) Rating on G-RR Certs
-----------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2019-GC42 issued by GS Mortgage
Securities Trust 2019-GC42 as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F-RR at BB (sf)
-- Class G-RR at B (high) (sf)
All trends are Stable. DBRS Morningstar also removed Class G-RR
from Under Review with Negative Implications where it was placed on
August 6, 2020.
As of the January 2021 remittance, all 38 original loans remain in
the pool, with no defeasance to date. One loan, representing 0.7%
of the current pool balance, is in special servicing.
Additionally, eight loans, representing 20.6% of the current pool
balance, are on the servicer's watchlist. These loans are being
monitored for cash management provisions that have been triggered
by recent performance events, low debt service coverage ratios
(DSCRs), and/or occupancy issues generally caused by disruptions
related to the Coronavirus Disease (COVID-19) pandemic.
The property type distribution of the loans on the servicer's
watchlist is generally granular, as two are backed by retail
properties (6.8% of the pool), one by a multifamily property (6.2%
of the pool), three by hospitality properties (4.5% of the pool),
and one by an office property (3.0% of the pool). In addition, one
small loan on the watchlist is secured by a self-storage property
(0.3% of the pool). All three of the watchlisted loans backed by
hospitality properties have been flagged for considerable cash flow
declines that have been driven by the impacts of the pandemic.
Although the performance declines by those and other properties
that back loans in this pool are indicative of increased risks from
issuance, DBRS Morningstar notes that the strong performance of the
underlying hotels and the lack of delinquency prior to the pandemic
are mitigating factors considered as part of this review of the
transaction.
At issuance, DBRS Morningstar shadow-rated five loans, representing
19.4% of the current pool balance, as investment grade. These loans
include Moffett Towers II Buildings 3 & 4 (Prospectus ID #1; 6.2%
of the pool), Woodlands Mall (Prospectus ID #6; 3.8% of the pool),
Diamondback Industrial Portfolio 1 (Prospectus ID #7; 3.8% of the
pool), 30 Hudson Yards (Prospectus ID #23; 1.9% of the pool), and
Grand Canal Shoppes (Prospectus ID #24; 1.9% of the pool). With
this review, DBRS Morningstar confirms that the performance of
these loans remains consistent with investment-grade loan
characteristics. However, the Grand Canal Shoppes loan is being
monitored closely as the coronavirus pandemic has been particularly
hard on the Las Vegas economy and sales at the property are
expected to slump through the near to medium term. Although local
and international tourism is down, DBRS Morningstar believes the
collateral property's prime location, historically strong
performance, relatively low leverage, and tenant mix are
significant mitigating factors for the near- to medium-term risks
introduced by the pandemic.
The only loan in special servicing, 114 Fordham Road (Prospectus
ID#32; 0.7% of pool), is secured by an unanchored retail property
in Bronx, New York. The loan transferred to special servicing in
April 2020 for imminent default and has remained over 90 days
delinquent since July 2020. According to the servicer, the property
was closed for a few months in 2020 as a result of the pandemic,
with many of the tenants having been unable to make rent payments
from March 2020 to August 2020. In addition, in the second half of
2020, the property sustained damage from looting activity in the
area, which was primarily contained to the retail space occupied by
Oren Sportswear (53.9% of the net rentable area, with a lease
expiration in April 2027). The servicer confirmed all stores were
open as of September 2020 and, as of January 2021, the special
servicer is in the final stages of papering a loan modification to
provide the borrower temporary relief and address the outstanding
defaults.
Notes: All figures are in U.S. dollars unless otherwise noted.
GULF STREAM 3: S&P Assigns Prelim BB- (sf) Rating on Cl. D Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Gulf Stream
Meridian 3 Ltd./Gulf Stream Meridian 3 LLC's floating-rate notes.
The note issuance is a CLO securitization backed by primarily
broadly syndicated speculative-grade (rated 'BB+' and lower) senior
secured term loans that are governed by collateral quality tests.
The preliminary ratings are based on information as of Feb. 9,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The diversification of the collateral pool;
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization;
-- The experience of the collateral 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
Gulf Stream Meridian 3 Ltd./Gulf Stream Meridian 3 LLC
Class A-1, $249.60 million: AAA (sf)
Class A-2, $50.40 million: AA (sf)
Class B (deferrable), $27.00 million: A (sf)
Class C (deferrable), $25.00 million: BBB- (sf)
Class D (deferrable), $12.00 million: BB- (sf)
Subordinated notes, $35.00 million: Not rated
J.P. MORGAN 2014-DSTY: S&P Cuts Class X-B Certs Rating to 'CCC'
---------------------------------------------------------------
S&P Global Ratings lowered its ratings on five classes of
commercial mortgage pass-through certificates from J.P. Morgan
Chase Commercial Mortgage Securities Trust 2014-DSTY, a U.S.
stand-alone single-borrower CMBS transaction.
The transaction is backed by two fixed-rate interest-only (IO)
mortgage loans, each secured by a different phase of the Destiny
USA mall in Syracuse, N.Y.
As vaccine rollouts in several countries continue, S&P Global
Ratings believes there remains a high degree of uncertainty about
the evolution of the coronavirus pandemic and its economic effects.
Widespread immunization, which certain countries might achieve by
midyear, will help pave the way for a return to more normal levels
of social and economic activity. S&P said, "We use this assumption
about vaccine timing in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates
accordingly."
Rating Actions
S&P said, "The downgrades on the class A, B, and C certificates
reflect our reevaluation of the two phases of the Destiny USA mall,
based on our review of the updated lower-than-expected November
2020 appraisal values released in January 2021 and the performance
data for the year-to-date (YTD) period ended Sept. 30, 2020, that
were provided by the special servicer after our March and December
2020 reviews.
"We lowered our aggregated expected-case valuation by 35.9% to
$186.3 million, based on the updated appraisals, which was 71.4%
lower than the aggregated appraisal values at origination, and
performance information. Specifically, the lower S&P Global Ratings
expected-case value reflects lower S&P Global Ratings net cash
flows (NCFs) and our application of higher S&P Global Ratings
capitalization rates (details below). This resulted in a lower
recovery on the mall than what we had derived in our 2020 reviews.
"The downgrades on classes A, B, and C reflect the increased
susceptibility to liquidity interruption and losses due to our
revised lower combined expected case value and the lower appraisal
values, in total, of $203.0 million. In addition, we considered the
steep decline in the reported YTD 2020 performance partly due to
the COVID-19 pandemic, and the low servicer-reported debt service
coverages (DSCs) for the YTD period ended Sept. 30, 2020. In
particular, the class B and C downgrades reflect our view that,
based on the significantly reduced appraisal values and an S&P
Global Ratings loan-to-value (LTV) ratio of over 100%, the risk of
default and loss on these classes have increased due to uncertain
market conditions.
"However, while the model-indicated rating on class A was lower
than the class' revised rating level, we tempered our downgrade
because we qualitatively considered the class' senior position in
the waterfall and the potential that, given the property's
dominance in its trade area, the operating performance could
improve above our expectations. However, if there are any reported
negative changes in the property or the transaction's performance
beyond what we have already considered, we may revisit our analysis
and adjust our ratings as necessary.
"The downgrades on the class X-A and X-B IO certificates are based
on our criteria for rating IO securities, in which the ratings on
the IO securities would not be higher than that of the lowest-rated
reference class. Class X-A's notional amount references class A and
class X-B's notional amount references class B.
"In addition to the lower-than-expected appraisal values and
declining performance at the property, our analysis also considered
that the loans transferred to the special servicer on April 10,
2020, due to imminent default." The borrowers had requested
COVID-19-related relief due to the pandemic's impact on the
property's performance. The special servicer, Wells Fargo Bank N.A,
indicated that a standstill agreement was executed on June 9, 2020.
The terms included a moratorium of six debt service payments from
April through September 2020, extending the loans' maturity dates
to Oct. 6, 2021, and the borrowers paying the deferred amounts and
special servicing and modification fees in 12 monthly installments.
According to Wells Fargo, the borrowers were granted a second
one-month extension of the moratorium period to November 2020 and
it has approved an accommodation as of Dec. 30, 2020, under the
following terms: the borrowers paying down the deferred amounts by
$5.0 million, repaying the remaining deferred amounts from
available excess cash flow through the maturity date, extending the
maturity date further to June 6, 2022, and paying the consent and
special servicing fees in equal installments through the maturity
date. According to the Jan. 12, 2021, trustee remittance report,
the reported outstanding principal and interest advances to date
totaled $13.5 million. In addition, there are $9.3 million reported
in the other reserve accounts.
Transaction Summary
This is a stand-alone (single-borrower) transaction backed by two
fixed-rate IO mortgage loans, each secured by a different phase of
the Destiny USA mall in Syracuse, N.Y. The two loans totaled $430.0
million (as of the Jan. 12, 2021, trustee remittance report) and
are not cross-collateralized or cross-defaulted because the
payment-in-lieu-of-tax (PILOT) bond financing underlying Phase I of
the mall restricts the loans from being crossed. Both loans pay an
annual fixed interest rate of 3.814% and originally matured on June
6, 2019. The loans' sponsor is The Pyramid Co. To date, the trust
has not incurred any principal losses.
Details on the two loans are as follows:
The Phase I mortgage loan has a $300.0 million trust and whole-loan
balance and is secured by 1.24 million sq. ft. of a 1.51
million-sq.-ft. super regional shopping mall, known as Destiny USA
Phase I, in Syracuse. The Phase I borrower is party to a PILOT
agreement under which the borrower makes PILOT payments that
increase each year through the agreement's 2035 expiration in lieu
of paying real estate tax. S&P said, "Our property-level analysis
considered the year-over-year decline in servicer-reported net
operating income (NOI) in 2016 (-6.9%), 2017 (-7.9%), 2018
(-13.9%), and 2019 (-6.1%), due primarily to lower occupancy and
revenues, flat expenses, and flat in-line sales ($452 per sq. ft.
based on the November 2020 tenant sales report, as calculated by
S&P Global Ratings). According to the Nov. 10, 2020, rent roll, the
occupancy for the collateral was 59.0% (down from 73.4% in the last
reviews) and the five largest collateral tenants, which include
three junior anchors, At Home (7.1% of net rentable area [NRA]),
Regal Carousel Mall 17 (6.1%), and Burlington Coat Factory (6.7%),
comprise 22.2% of the collateral's total NRA. We excluded the
tenants that had closed or announced impending closures, including
J.C. Penney (12.8%; closed in October 2020), Lord & Taylor
(noncollateral, 100,000 sq. ft., closed in December 2020), and Best
Buy (4.0%, plans to vacate by mid-April 2021), bringing the
collateral occupancy rate down to 52.1%, in our current analysis.
In addition, the NRA reflects leases that expire in 2021 (5.6%),
2022 (11.1%), 2023 (11.5%), and 2024 (6.3%). Wells Fargo reported a
NOI DSC of 0.49x for the YTD period ended Sept. 30, 2020, based on
NOI of $4.2 million. This compares to $19.9 million and $21.2
million for year-end 2019 and 2018, respectively. We derived our
sustainable NCF of $7.8 million (down 31.5% from our last reviews),
which considered the reported declining NOI and occupancy, and the
contractual PILOT payment increases, by estimating a
forward-looking PILOT payment of $29.4 million, unchanged from our
last reviews and at issuance. In addition, we increased our
capitalization rate to 9.75%, up from 8.50% in our last review in
December 2020, and added to value $24.9 million for the present
value of the PILOT benefit over an eight-year period to arrive at
our expected-case value of $104.5 million, down 36.3% since our
December 2020 review. Our expected-case value yielded an S&P Global
Ratings LTV ratio that was significantly above 100.0%. Our analysis
also considered the Nov. 19, 2020, appraisal value of $118.0
million, a 75.9% decline from the appraisal value at issuance. The
master servicer reported an appraisal reduction amount (ARA) of
$190.8 million on this loan."
The Phase II mortgage loan has a $130.0 million trust and
whole-loan balance, and it is secured by an 874,200-sq.-ft.
regional shopping mall, known as Destiny USA Phase II, in Syracuse.
S&P said, "Our property-level analysis considered the fluctuating
servicer-reported occupancy and NOI: 78.9% and $12.8 million,
respectively, in 2016; 82.9% and $12.2 million, respectively, in
2017; 69.6% and $11.1 million, respectively, in 2018; 75.7% and
$11.7 million, respectively, in 2019, and 70.0% and $4.6 million,
respectively, as of the YTD period ended Sept. 30, 2020. According
to the Nov. 10, 2020, rent roll, the collateral's occupancy was
70.0% and the five largest tenants, which include four anchors and
juniors, Dick's Sporting Goods (10.4% of NRA), Apex Entertainment
Center (6.3%), RPM Raceway (4.7%), and Wonderworks (4.3%), comprise
29.1% of the collateral's total NRA. Similarly, we excluded the
tenants that had closed or announced impending closures, including
Michaels (2.4%, closed in January 2021), bringing the collateral
occupancy rate down to 64.8%, in our analysis. In addition, the NRA
includes leases that expire in 2021 (1.1%), 2022 (9.7%), 2023
(23.5%), and 2024 (4.7%). Wells Fargo reported a NOI DSC of 1.22x
for the YTD period ended Sept. 30, 2020. We derived our sustainable
NCF of $8.0 million (down 25.9% from our last reviews). In
addition, we increased our capitalization rate to 9.75%, up from
8.50% in our last review in December 2020 to arrive at our
expected-case value of $81.7 million, down 35.4% since our last
review in December 2020. Our expected-case value yielded an S&P
Global Ratings LTV ratio of 159.1%. In addition, we considered the
Nov. 20, 2020, appraisal value of $85.0 million, a 61.4% decline
from the appraisal value at issuance. The master servicer reported
an ARA of $51.9 million on this loan."
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety.
Ratings Lowered
J.P. Morgan Chase Commercial Mortgage Securities Trust 2014-DSTY
Commercial mortgage pass-through certificates
Class A: to 'B- (sf)' from 'BB+ (sf)'
Class B: to 'CCC (sf)' from 'B (sf)'
Class C: to 'CCC- (sf)' from 'CCC (sf)'
Class X-A: to 'B- (sf)' from 'BB+ (sf)'
Class X-B: to 'CCC (sf)' from 'B (sf)'
JP MORGAN 2004-CIBC10: Moody's Affirms C on Class X-1 Certs
-----------------------------------------------------------
Moody's Investors Service has upgraded the rating on one class and
affirmed the ratings on two classes in J.P. Morgan Chase Commercial
Mortgage Securities Corp., Commercial Pass-Through Certificates,
Series 2004-CIBC10 as follows:
Cl. E, Upgraded to Aa2 (sf); previously on Dec 14, 2020 Upgraded to
Ba1 (sf)
Cl. F, Affirmed Ca (sf); previously on Dec 14, 2020 Affirmed Ca
(sf)
Cl. X-1*, Affirmed C (sf); previously on Dec 14, 2020 Affirmed C
(sf)
* Reflects interest-only classes
RATINGS RATIONALE
The rating on Cl. E was upgraded due to the increased share of
defeased loans in the pool. Cl. E is now fully covered by
defeasance, however, the class was previously impacted by interest
shortfalls for over three years between June 2013 through August
2016. The deal has paid down 3.5% since Moody's last review and
just under 99% since securitization. The largest remaining loan,
representing 27% of the pool, recently defeased in January 2021.
The rating on Cl. F was affirmed due to the anticipated plus
cumulative realized losses. Cl. F has already experienced a 36%
loss from previously liquidated loans.
The rating on the IO class, Cl. X-1, was affirmed based on the
credit quality of the referenced classes.
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.
Moody's 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 Moody's forecasts is unusually high. Stress
on commercial real estate properties will be most directly stemming
from declines in hotel occupancies (particularly related to
conference or other group attendance) and declines in foot traffic
and sales for non-essential items at retail properties.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's does not anticipate losses from the remaining collateral in
the current environment. However, over the remaining life of the
transaction, losses may emerge from macro stresses to the
environment and changes in collateral performance. Our ratings
reflect the potential for future losses under varying levels of
stress. Moody's base expected loss plus realized losses is now 7.7%
of the original pooled balance, the same as last review. Moody's
provides a current list of base expected losses for conduit and
fusion CMBS transactions on moodys.com at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, an increase in realized and
expected losses from specially serviced and troubled loans or
interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating Large Loan
and Single Asset/Single Borrower CMBS" published in September
2020.
DEAL PERFORMANCE
As of the January 12, 2021 distribution date, the transaction's
aggregate certificate balance has decreased by 3.5% to $21.3
million from $22.1 million at last review. The certificates are
collateralized by 10 mortgage loans. Four loans, constituting 41.6%
of the pool, have defeased and are secured by US government
securities. The largest remaining loan, representing 27% of the
pool, recently defeased in January 2021.
All of the remaining loans are fully amortizing over their loan
term and as of the January 2021 remittance report, all loans were
current on their debt service payments. Thirty-three loans have
been liquidated from the pool, resulting in an aggregate realized
loss of $150.3 million (for an average loss severity of 42%).
Moody's received full year 2019 and partial year 2020 operating
results for 100% of the pool (excluding specially serviced and
defeased loans). Moody's weighted average conduit LTV is 28.0%.
Moody's conduit component excludes loans with structured credit
assessments, defeased and CTL loans, and specially serviced and
troubled loans. Moody's net cash flow (NCF) reflects a weighted
average haircut of 24.8% to the most recently available net
operating income (NOI). Moody's value reflects a weighted average
capitalization rate of 9.2%.
Moody's actual and stressed conduit DSCRs are 1.09X and 3.61X,
respectively, compared to 1.15X and 3.60X at the last review.
Moody's actual DSCR is based on Moody's NCF and the loan's actual
debt service. Moody's stressed DSCR is based on Moody's NCF and a
9.25% stress rate the agency applied to the loan balance.
The top three non-defeased loans represent 48.5% of the pool
balance. The largest loan is the Foss Manufacturing Loan ($5.2
million -- 24.2% of the pool), which is secured by three buildings
(industrial, mixed use, and office) that total 528,000 SF. The
properties are located in Hampton, New Hampshire. As of January
2021, the properties were fully leased to Foss Performance
Materials, which has a lease expiration in August 2035. The loan is
fully amortizing, has amortized 69.4% since securitization and
matures in July 2024. Due to the single tenancy, Moody's analysis
incorporated a lit/dark analysis. Moody's LTV and stressed DSCR are
27% and 3.67X, respectively.
The second largest loan is the Southern View Apartments Loan ($3.4
million -- 16.1% of the pool), which is secured by a 26 building,
300-unit garden style apartment complex located in Fayetteville,
AR. As of the June 2020 Rent Roll, the complex was nearly fully
leased. The loan is fully amortizing, has amortized 69.0% since
securitization and matures in October 2024. Moody's LTV and
stressed DSCR are 26% and 3.72X, respectively.
The third largest loan is the Dick's Sporting Goods- Greenwood Loan
($1.7 million -- 8.1% of the pool), which is secured by a single
tenant retail property located in Greenwood, Indiana. The asset
functions as a shadow anchor building within the Greenwood Park
Mall. The property is 100% leased to Dick's Sporting Goods with a
lease expiration date in March 2024. The loan is fully amortizing,
has amortized 65.3% since securitization and matures in October
2024. Moody's LTV and stressed DSCR are 26% and greater than 4.00X,
respectively.
JP MORGAN 2014-C22: Fitch Lowers Rating on 2 Tranches to 'CCC'
--------------------------------------------------------------
Fitch Ratings has downgraded eight and affirmed four classes of
J.P. Morgan Chase Commercial Mortgage Securities Trust, series
2014-C22 (JPMBB 2014-C22).
DEBT RATING PRIOR
---- ------ -----
JPMBB 2014-C22
A-3A1 46642NBC9 LT AAAsf Affirmed AAAsf
A-3A2 46642NAA4 LT AAAsf Affirmed AAAsf
A-4 46642NBD7 LT AAAsf Affirmed AAAsf
A-S 46642NBH8 LT AA-sf Downgrade AAAsf
A-SB 46642NBE5 LT AAAsf Affirmed AAAsf
B 46642NBJ4 LT A-sf Downgrade AA-sf
C 46642NBK1 LT BBBsf Downgrade A-sf
D 46642NAJ5 LT B-sf Downgrade BBB-sf
E 46642NAL0 LT CCCsf Downgrade B-sf
EC 46642NBL9 LT BBBsf Downgrade A-sf
X-A 46642NBF2 LT AA-sf Downgrade AAAsf
X-C 46642NAC0 LT CCCsf Downgrade B-sf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades to classes A-S, B, C,
D, E, X-A, X-C and EC reflect increased loss expectations for the
pool since Fitch's prior rating action, primarily due to continued
underperformance of the specially serviced Las Catalinas Mall (7.4%
of pool) and Charlottesville Fashion Square (1.8%) loans. Seventeen
loans (31.2%) were designated Fitch Loans of Concern (FLOCs),
including five (13.8%) in special servicing.
Fitch's current ratings incorporate a base case loss of 11.3%. The
Negative Outlooks on classes A-S, B, C, D, X-A and EC reflect
losses that could reach 14.5% when factoring additional stresses
related to the coronavirus pandemic, as well as a potential
outsized loss on the Las Catalinas Mall and Charlottesville Fashion
Square loans.
Fitch Loans of Concern: The largest contributor to loss, and the
largest change in loss since the prior rating action, is the
specially serviced Las Catalinas Mall loan, which is secured by a
355,385-sf portion of a 494,071-sf regional mall located in Caguas,
Puerto Rico. The loan, which is sponsored by Urban Edge Properties,
transferred to special servicing in June 2020 due to performance
decline following the closure of Kmart (34.5% of collateral NRA) in
2Q19. Per the servicer, only two tenants (2.1%) had co-tenancy
clauses tied to Kmart; both remain in occupancy.
Collateral occupancy fell to 50.4% as of the September 2020 rent
roll from 54.3% at YE 2019 and 87.8% at YE 2018. Total mall
occupancy was 64.3% as of September 2020; however, it is expected
to further decline to 36.3% after the last remaining anchor, a
non-collateral Sears, closes by March 2021. Near-term lease
rollover includes 15.4% of the collateral NRA in 2021 and 4.1% in
2022.
In December 2020, the loan was modified with terms that included an
extension of the maturity date by 18 months through February 2026,
loan forgiveness and rate relief. After August 2023, the borrower
can pay off the whole loan amount, which has a current balance of
$127.1 million, for $72.5 million without any fees or prepayments;
the forgiven loan amount equates to a 43% loss on the current loan
balance.
The modification also deferred all note rate interest accrued
between April 2020 and December 2020 until the extended maturity
date and converted the loan to interest-only payments through
maturity. The borrower contributed $8.5 million at closing to pay
for leasing related expenses and closing/transaction costs. Fitch's
loss expectation of approximately 65% in the base case factors in a
20% cap rate and 15% haircut to YE 2019 NOI.
The next largest change in loss since the prior rating action is
the specially serviced Charlottesville Fashion Square loan, which
is secured by a 362,332-sf portion of a 576,749-sf regional mall
located in Charlottesville, VA. The loan, which is sponsored by
Washington Prime Group, transferred to special servicing in October
2019 due to imminent default following the closure of the
collateral Sears (28.7% of NRA) in March 2019. This mall is
considered a noncore property in the sponsor's portfolio.
Non-collateral anchors include Belk Women's and JCPenney. Belk
Men's (16.8% of collateral NRA) is the sole remaining collateral
anchor. Belk filed for bankruptcy in January 2021. Per the
servicer, 20 tenants had co-tenancy clauses tied to Sears; several
of these tenants have since vacated. Collateral occupancy fell to
49.8% as of the September 2020 rent roll from 58.9% at YE 2019 and
93.4% at YE 2018. Total mall occupancy was 68.6% as of September
2020.
Near-term lease rollover includes 2.5% of the collateral NRA that
is month-to-month, 30.6% expiring in 2021 and 6.6% in 2022. Updated
sales were not provided; the most recent available in-line sales
provided to Fitch were $283 psf as of TTM February 2018. Fitch's
loss expectation of approximately 80% in the base case factors in a
25% cap rate and 20% haircut to the annualized YTD September 2019
NOI.
Coronavirus Exposure: Six loans (10.1%) are secured by hotel
properties. The weighted average (WA) NOI DSCR for the hotel loans
is 2.32x; these hotel loans could sustain a decline in NOI of 53.5%
before NOI DSCR falls below 1.0x. Seventeen loans (20.8%) are
secured by retail properties. The WA NOI DSCR for the retail loans
is 1.71x; these retail loans could sustain a decline in NOI of
39.6% before DSCR falls below 1.0x. Eight loans (6.7%) are secured
by multifamily properties. The WA NOI DSCR for the multifamily
loans is 1.71x; these multifamily loans could sustain a decline in
NOI of 40.2% before DSCR falls below 1.0x.
Fitch applied additional stresses to five hotel loans and eight
retail loans to account for potential cash flow disruptions due to
the coronavirus pandemic; this analysis contributed to the Negative
Rating Outlooks on classes A-S, B, C, D, X-A and EC.
Alternative Loss Considerations: Fitch performed an additional
sensitivity scenario that assumed a potential outsized loss of 100%
on both the specially serviced Las Catalinas Mall and
Charlottesville Fashion Square loans given the declining cash flow,
low occupancy, anchor vacancies and weak sponsorships, while also
factoring in the expected paydown of the transaction from defeased
loans. This scenario contributed to the Negative Rating Outlooks on
classes A-S, B, C, D, X-A and EC.
Increased Credit Enhancement (CE): Credit enhancement has increased
since issuance due to loan payoffs, defeasance and scheduled
amortization. As of the January 2021 distribution date, the pool's
aggregate principal balance has paid down by 11.9% to $986.6
million from $1.120 billion at issuance. Eleven loans (6.4%) are
fully defeased. Six loans (14.5%) are full-term interest-only. All
loans with partial interest-only periods at issuance are currently
amortizing. Loan maturities or anticipated repayment dates for the
remaining pool are concentrated in 2024 (88.2%), with 0.5% in 2021,
7.3% in 2026, 0.7% in 2029 and 3.3% in 2034.
RATING SENSITIVITIES
The Negative Rating Outlooks on classes A-S, B, C, D, X-A and EC
reflect the potential for downgrade due to concerns surrounding the
ultimate impact of the coronavirus pandemic and performance
concerns associated with the FLOCs, primarily the specially
serviced Las Catalinas Mall and Charlottesville Fashion Square
loans. The Stable Rating Outlooks on classes A-3A1 through A-SB
reflect the increasing CE and continued expected amortization.
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 pay down and/or defeasance. Upgrades of the 'Asf'
and 'AAsf' categories would only occur with significant
improvement in CE and/or defeasance and with the stabilization
of performance on the FLOCs, particularly Las Catalinas Mall
and Charlottesville Fashion Square.
-- An upgrade to the 'BBBsf' category also would 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 were
likelihood of interest shortfalls.
-- An upgrade to the 'Bsf' category is not likely until the later
years in a transaction, and only if the performance of the
remaining pool is stable and/or properties vulnerable to the
coronavirus return to pre-pandemic levels, and there is
sufficient CE to the classes.
-- An upgrade to the 'CCCsf' category is unlikely absent
significant performance improvement on the FLOCs and
substantially higher recoveries than expected on the specially
serviced loans.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- Sensitivity factors that lead to downgrades include an
increase in pool level losses from underperforming or
specially serviced loans. Downgrades of the super senior A
3A1, A-3A2, A-4 and A-SB classes, rated 'AAAsf', are not
considered likely due to the position in the capital
structure, but may occur should interest shortfalls affect
these classes.
-- Downgrades of classes A-S, B and X-A would occur should
expected losses for the pool increase significantly, all of
the loans susceptible to the coronavirus pandemic suffer
losses, outsized losses on the Las Catalinas Mall and
Charlottesville Fashion Square loans be realized and/or
interest shortfalls occur.
-- A downgrade of the 'BBBsf' category would occur if overall
pool losses increase substantially, performance of the FLOCs
further deteriorates, properties vulnerable to the coronavirus
fail to stabilize to pre-pandemic levels and/or losses on the
specially serviced loans are higher than expected.
-- A downgrade of the 'B-sf' rated class would occur should loss
expectations increase and if performance of the FLOCs or loans
vulnerable to the coronavirus pandemic fail to stabilize or
additional loans default and/or transfer to the special
servicer.
Further downgrades of the 'CCCsf' rated class would occur with
increased certainty of losses or as losses are realized.
In addition to its baseline scenario related to the coronavirus,
Fitch envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
negative rating actions, including further downgrades and/or
Negative Rating Outlook revisions.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
ESG CONSIDERATIONS
JPMBB 2014-C22 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to two malls that are underperforming as a
result of changing consumer preferences to shopping, which has a
negative impact on the credit profile and is highly relevant to the
rating, resulting in the Negative Rating Outlooks on classes A-S,
B, C, D, X-A and EC.
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.
JP MORGAN 2021-3: Fitch Assigns B(EXP) Rating on Class B-5 Debt
---------------------------------------------------------------
Fitch Ratings has assigned expected ratings to JP Morgan Mortgage
Trust 2021-3 (JPMMT 2021-3).
DEBT RATING
---- ------
JPMMT 2021-3
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AAA(EXP)sf Expected Rating
A-3 LT AAA(EXP)sf Expected Rating
A-3-A LT AAA(EXP)sf Expected Rating
A-3-X LT AAA(EXP)sf Expected Rating
A-4 LT AAA(EXP)sf Expected Rating
A-4-A LT AAA(EXP)sf Expected Rating
A-4-X LT AAA(EXP)sf Expected Rating
A-5 LT AAA(EXP)sf Expected Rating
A-5-A LT AAA(EXP)sf Expected Rating
A-5-X LT AAA(EXP)sf Expected Rating
A-6 LT AAA(EXP)sf Expected Rating
A-6-A LT AAA(EXP)sf Expected Rating
A-6-X LT AAA(EXP)sf Expected Rating
A-7 LT AAA(EXP)sf Expected Rating
A-7-A LT AAA(EXP)sf Expected Rating
A-7-X LT AAA(EXP)sf Expected Rating
A-8 LT AAA(EXP)sf Expected Rating
A-8-A LT AAA(EXP)sf Expected Rating
A-8-X LT AAA(EXP)sf Expected Rating
A-9 LT AAA(EXP)sf Expected Rating
A-9-A LT AAA(EXP)sf Expected Rating
A-9-X LT AAA(EXP)sf Expected Rating
A-10 LT AAA(EXP)sf Expected Rating
A-10-A LT AAA(EXP)sf Expected Rating
A-10-X LT AAA(EXP)sf Expected Rating
A-11 LT AAA(EXP)sf Expected Rating
A-11-X LT AAA(EXP)sf Expected Rating
A-11-A LT AAA(EXP)sf Expected Rating
A-11-AI LT AAA(EXP)sf Expected Rating
A-11-B LT AAA(EXP)sf Expected Rating
A-11-BI LT AAA(EXP)sf Expected Rating
A-12 LT AAA(EXP)sf Expected Rating
A-13 LT AAA(EXP)sf Expected Rating
A-14 LT AAA(EXP)sf Expected Rating
A-15 LT AAA(EXP)sf Expected Rating
A-16 LT AAA(EXP)sf Expected Rating
A-17 LT AAA(EXP)sf Expected Rating
A-X-1 LT AAA(EXP)sf Expected Rating
A-X-2 LT AAA(EXP)sf Expected Rating
A-X-3 LT AAA(EXP)sf Expected Rating
A-X-4 LT AAA(EXP)sf Expected Rating
B-1 LT AA-(EXP)sf Expected Rating
B-1-A LT AA-(EXP)sf Expected Rating
B-1-X LT AA-(EXP)sf Expected Rating
B-2 LT A(EXP)sf Expected Rating
B-2-A LT A(EXP)sf Expected Rating
B-2-X LT A(EXP)sf Expected Rating
B-3 LT BBB-(EXP)sf Expected Rating
B-4 LT BB(EXP)sf Expected Rating
B-5 LT B(EXP)sf Expected Rating
B-6 LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 1,179 loans with a total balance
of approximately $1.099 billion as of the cutoff date. The pool
consists of prime quality fixed-rate mortgages (FRMs) from various
mortgage originators. The servicers in the transactions consists
of
JP Morgan Chase Bank and various other servicers. Nationstar
Mortgage LLC will be the master servicer.
100% of the loans qualify as Safe Harbor Qualified Mortgage (SHQM),
Rebuttable Presumption QM, or Agency Safe Harbor QM loans.
There is no exposure to LIBOR in this transaction. The collateral
is 100% fixed rate loans, the certificates are fixed rate, based
off of the net WAC, or floating/inverse floating rate based off of
the SOFR index and capped at the net WAC. This is the third
Fitch-rated JPMMT transaction to use SOFR as the index rate for
floating/inverse floating-rate certificates.
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. 100% of the loans qualify as Safe Harbor
Qualified Mortgage (SHQM), Rebuttable Presumption QM, or Agency
Safe Harbor QM loans. The loans were made to borrowers with strong
credit profiles, relatively low leverage, and large liquid
reserves. The loans are seasoned an average of four months
according to Fitch (two months per the transaction documents).
The pool has a weighted average (WA) original FICO score of 780 (as
determined by Fitch), which is indicative of very high
credit-quality borrowers. Approximately 89% of the loans have a
borrower with an original FICO score above 750. In addition, the
original WA CLTV ratio of 69.6% (sLTV 73.7%) represents substantial
borrower equity in the property and reduced default risk.
97.8% of the pool are nonconforming loans, while the remaining 2.2%
are conforming loans. 100% of the loans are designated as QM loans
with roughly 79% of the pool being originated by a retail channel.
The pool consists of 91.4% of loans where the borrower maintains a
primary residence, while 8.6% is a second home (there are no
investor properties in the pool). Single-family homes make up 92.8%
and condos make up 6.1% of the pool. Cash-out comprise only 6.7% of
the pool while purchases comprise 47.1% and rate refinances
comprise 46.2%. Based on the information provided, there are no
nonpermanent residents in the pool.
354 loans in the pool are over $1 million and the largest loan is
$2.99 million.
Geographic Concentration (Neutral): Approximately 49.5% of the pool
is concentrated in California. The largest MSA concentration is in
the Los Angeles-Long Beach-Santa Ana, CA MSA (14.4%), followed by
the San Francisco-Oakland-Fremont, CA MSA (14%) and the San
Jose-Sunnyvale-Santa Clara, CA MSA (7.7%). The top three MSAs
account for 36.2% of the pool. As a result, there was no PD penalty
for geographic concentration.
Shifting Interest Structure (Mixed): The mortgage cash flow and
loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained.
CE Floor (Positive): A CE or senior subordination floor of 0.55%
has been considered in order to mitigate potential tail end risk
and loss exposure for senior tranches as pool size declines and
performance volatility increases due to adverse loan selection and
small loan count concentration. A junior subordination floor of
0.50% has been considered in order to mitigate potential tail-end
risk and loss exposure for subordinate tranches as pool size
declines and performance volatility increases due to adverse loan
selection and small loan count concentration.
Payment Forbearance (Neutral): As of the cutoff date, none of the
borrowers in the pool are on a coronavirus forbearance plan;
however, there were loans that had previously been on a coronavirus
forbearance plan, or inquired about a coronavirus forbearance plan,
but have continued to make their full contractual payment and were
never considered delinquent.
As of the cutoff date, approximately 0.19% (two loans) of the
borrowers of the mortgage loans have previously entered into a
coronavirus-related forbearance plan with the related servicer,
each of which is no longer active. However, with respect to each
such mortgage loan, the related borrower had nonetheless made all
of the scheduled payments due during the related forbearance period
and was therefore never delinquent. In addition, none of the
borrowers of the mortgage loans have inquired about or requested
forbearance plans with the related servicer, and subsequently
declined to enter into any forbearance plan with such servicer, and
remain current as of the cutoff date.
Fitch did not make any adjustment to the loans previously on a
coronavirus forbearance plan, since they continued to make their
payments under the plan (no delinquencies) and the plans are no
longer active.
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.
Low Operational Risk (Positive) : Operational risk is well
controlled for in this transaction. JP Morgan has an extensive
operating history in mortgage aggregations and is assessed by Fitch
as an 'Above Average' aggregator. JP Morgan has a developed
sourcing strategy and maintains strong internal controls that
leverage the company's enterprise wide risk management framework.
Approximately 91% of loans are serviced by JP Morgan Chase (Chase),
rated 'RPS1-'. Nationstar is the Master Servicer and will advance
if the servicer is not able to. If the Master Servicer is not able
to advance, then the Securities Administrator (Citibank) will
advance. Due to the low operational risk, the 'AAA' loss was
reduced by 0.29%.
Representation and Warranty Framework (Negative): The loan-level
representations and warranties (R&Ws) are mostly consistent with a
higher tier framework, but have knowledge qualifiers without a
clawback provision contributed to its Tier 2 assessment. Fitch
increased its loss expectations 26 bps at the 'AAAsf' rating
category to mitigate the limitations of the framework and the
non-investment-grade counterparty risk of the providers.
Third-Party Due Diligence (Positive): Third-party due diligence was
performed on 100% of loans in the transaction by three different
third-party review firms; two firms are assessed by Fitch as
'Acceptable- Tier 1', and 'Acceptable-Tier 2'. The review confirmed
strong origination practices; no material exceptions were listed
and loans that received a final 'B' grades were due to non-material
exceptions that were mitigated with strong compensating factors.
Fitch applied a credit for the high percentage of loan level due
diligence which reduced the 'AAAsf' loss expectation by 17 bps.
Full Servicer Advancing (Mixed): The servicers will provide full
advancing for the life of the transaction (the servicer is expected
to advance delinquent P&I on loans that enter a coronavirus
forbearance plan). Although full P&I advancing will provide
liquidity to the certificates, it will also increase the loan-level
loss severity (LS) since the servicer looks to recoup P&I advances
from liquidation proceeds, which results in less recoveries.
Nationstar is the master servicer and will advance if the servicer
is not able to. If the master servicer is not able to advance, then
the securities administrator (Citibank) will advance.
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
$550,000 per annum, which can be carried over each year, subject to
the cap until paid in full.
JPMMT 2021-3 has an ESG Relevance Score of '4' for Transaction
Parties and Operational Risk. Operational risk is well controlled
for in JPMMT 2021-3, including strong transaction due diligence as
well as an aggregatorr assessed as 'Above Average' by Fitch and an
'RPS1-' Fitch-rated servicer, which resulted in a reduction in
expected losses and is relevant to the rating.
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 stress sensitivity analysis demonstrates how the
ratings would react to steeper market value declines at the\
national level. The analysis assumes market value declines of
10%, 20%, and 30%, in addition to the model projected MVD,
which is 5.6% in the base case. 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.
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.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by SitusAMC, Clayton, and Inglet Blair. The third-party
due diligence described in Form 15E focused on four areas:
compliance review, credit review, valuation review, and data
integrity. Fitch considered this information in its analysis and,
as a result, Fitch did not make any adjustment(s) to its analysis.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
generally consistent with Fitch's "U.S. RMBS Rating Criteria."
SitusAMC, Clayton, and IngletBlair were engaged to perform the
review. Loans reviewed under this engagement were given compliance,
credit and valuation grades and assigned initial grades for each
subcategory. Minimal exceptions and waivers were noted in the due
diligence reports. Refer to the Third-Party Due Diligence section
for more detail.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. Fitch received
loan-level information based on the American Securitization Forum's
(ASF) data layout format, and the data are considered
comprehensive. The ASF data tape layout was established with input
from various industry participants, including rating agencies,
issuers, originators, investors and others to produce an industry
standard for the pool-level data in support of the U.S. RMBS
securitization market. The data contained in the ASF layout data
tape were reviewed by the due diligence companies, and no material
discrepancies were noted.
ESG CONSIDERATIONS
JPMMT 2021-3 has an ESG Relevance Score of '4' for Transaction
Parties and Operational Risk. Operational risk is well controlled
for in JPMMT 2021-3, including strong transaction due diligence as
well as an aggregator assessed as 'Above Average' by Fitch and an
'RPS1-' Fitch-rated servicer, which resulted in a reduction in
expected losses and is relevant to the rating.
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.
KEY COMMERCIAL 2018-S1: DBRS Confirms B Rating on Class F Certs
---------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2018-S1 issued by Key Commercial
Mortgage Trust 2018-S1 as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
DBRS Morningstar also changed the trend on Class E to Stable from
Negative. All other trends are Stable. DBRS Morningstar also
removed Class F from Under Review with Negative Implications, where
it was placed on August 6, 2020.
The rating confirmations and Stable trends reflect the overall
stable performance of the transaction, which has generally been in
line with DBRS Morningstar's expectations at issuance. At the
February 2020 review, DBRS Morningstar changed the trend on the
lowest-rated certificates, Classes E and F, to Negative because of
concerns with two of the largest 10 loans in the pool: Green Bay
Plaza (Prospectus ID#1; 8.0% of the pool) and 72nd Street Square
(Prospectus ID#6; 5.0% of the pool). Both loans are backed by
retail properties that have lost tenants in the last few years and,
although both continue to have vacancy rates that are higher than
the levels at issuance, more recent developments suggest that there
are mitigating factors in each case that reduce the overall risk to
the pool through the near to medium term.
As of the January 2021 remittance, all 31 original loans remain in
the pool with no defeasance to date. One loan, representing 1.5% of
the current pool balance, is in special servicing and six loans,
representing 26.0% of the current pool balance, are on the
servicer's watchlist. The watchlisted loans are being monitored for
tenant rollover, low debt service coverage ratios (DSCRs), and/or
occupancy issues, some of which are caused by disruptions related
to the Coronavirus Disease (COVID-19) pandemic.
The largest loan in the pool, Green Bay Plaza, is collateralized by
a retail power center in Green Bay, Wisconsin. DBRS Morningstar has
been monitoring this loan because of the May 2019 closure of Office
Depot, which composes 13.3% of the net rentable area (NRA) with a
lease expiry in April 2022; the concentrated rollover in 2021; and
the 2017 closure of the center's shadow anchor, Sears. The servicer
previously confirmed that Office Depot will honor its lease
obligations through the lease expiry date and, as of January 2021,
the tenant continues to make its monthly lease payments. More
recently, the property lost another tenant in Tuesday Morning (8.8%
of the NRA) following the retailer's bankruptcy filing in early
2020 and ultimate closure of 297 locations within its 687 store
portfolio. With the Tuesday Morning closure, the property's leased
rate appears to fall to approximately 83.0%, with the physical
occupancy rate at approximately 70.0%, based on the servicer's
reported occupancy rate at Q3 2020 of 92.0%. Other notable tenants,
including T.J. Maxx (20.7% of the NRA) and Big Lots (14.4% of the
NRA), had original lease expirations in January 2021; however, both
tenants recently renewed their respective leases by five years
while the lease expirations for the remaining tenants are staggered
throughout the loan term.
The loan in special servicing, 775 West Jackson Boulevard
(Prospectus ID#25; 1.5% of the pool), is secured by a mixed-use
property with office and retail space in Chicago. The loan
transferred to special servicing in May 2020 after the borrower
requested coronavirus relief and the loan has remained over 90 days
delinquent since July 2020. In addition, according to the servicer,
the largest tenant at the property, Jia Bo Group (29.4% of the
NRA), vacated the property in July 2020 ahead of its lease
expiration in September 2022. Although the loan is not reporting
quarterly financials, the YE2019 DSCR was reported at 1.23 times
(x) with an occupancy rate of 78% compared with a YE2018 DSCR of
1.14x with an occupancy rate of 100%. The issuance value was
reported at $3.5 million with a relatively low loan-to-value ratio
of 55.4%; there is no updated appraisal value reported to date.
Although the servicer is in the process of finalizing a workout
strategy, given the extended delinquency and elevated vacancy rate
that will likely be in place through the medium to longer term
because of the impacts of ongoing road construction in the area and
the general effects of the coronavirus pandemic, the risks for this
loan remain elevated since issuance. Given the relatively small
size of the loan, however, the rated bonds are generally
well-insulated if the loan is resolved with a loss.
Of the six loans on the servicer's watchlist, one is backed by an
industrial property (6.2% of the pool), one by a manufactured
housing community property (6.0% of the pool), one by a retail
property (5.0% of the pool), and three by self-storage properties
(8.8% of the pool).
The third-largest loan on the servicer's watchlist, 72nd Street
Square, is secured by an anchored retail center in Tacoma,
Washington. The loan was added to the watchlist in October 2019
because the grocery anchor, Safeway (44.0% of the NRA), had a March
2020 lease expiry. Safeway, which has not occupied its space since
2006, had been subleasing its space to Goodwill; however, the
Goodwill store closed in January 2020, leaving the space vacant.
The loan has no cash management provisions surrounding the Safeway
lease expiry. There are recent positive developments, however, as
the servicer has confirmed that the borrower is in the process of
finalizing the terms with a replacement tenant for the Safeway
space. Additionally, throughout the last year when the property
reported an elevated vacancy rate with a significant drop in lease
income, the loan has remained current.
Although the overall performance for the transaction remains
generally stable, DBRS Morningstar notes that the pool has a
moderate concentration of retail properties, representing 18.8% of
the current pool balance. The initial impact of the coronavirus
pandemic has severely affected retail properties. There is only one
loan secured by a hospitality property, which represents 4.5% of
the current pool balance. Much like retail properties, hospitality
properties have been among the most significantly affected by the
pandemic. As such, DBRS Morningstar is monitoring these loans
closely.
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.
DBRS Morningstar did not run a new model as performance was deemed
to be generally in line with expectations at the last review. As of
the previous actions published on February 5, 2020, a material
deviation from the predictive model was reported on Classes A-S, B,
and C. The material deviations were warranted, given that the
sustainability of loan performance trends were not demonstrated.
Notes: All figures are in U.S. dollars unless otherwise noted.
KEY COMMERCIAL 2019-S2: DBRS Confirms B Rating on Class F Certs
---------------------------------------------------------------
DBRS Limited confirmed its ratings on all classes of the Commercial
Mortgage Pass-Through Certificates, Series 2019-S2 issued by Key
Commercial Mortgage Trust 2019-S2 as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
With this review, DBRS Morningstar removed the ratings on Classes E
and F from Under Review with Negative Implications, where they were
placed on August 6, 2020. All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction since issuance. As of the January 2021 remittance,
all 29 of the original loans remain in the pool, with an aggregate
trust balance of $154.2 million, representing a collateral
reduction of approximately 1.6% since issuance because of scheduled
loan amortization. The deal has favorable credit metrics, as
evidenced by the issuance's weighted-average (WA) loan-to-value
(LTV) ratio and balloon WA LTV of 64.7% and 55.0%, respectively.
The balloon WA LTV is representative of the lack of interest-only
(IO) exposure in the deal; no loans are full-term IO and only 30.3%
are partial IO. In addition, the transaction benefits from property
type diversification, with the largest concentration being
self-storage assets, representing 20.1% of the current trust
balance, followed by office, retail, and mixed-use assets, which
account for 15.9%, 13.4%, and 12.0% of the current trust balance,
respectively. Only one loan, representing 8.3% of the current trust
balance, is secured by hotel properties. While this property type
has been the most severely affected by the Coronavirus Disease
(COVID-19) pandemic, both of the collateral properties are
extended-stay hotels and benefit from a much more stable cash flow
profile than traditional hotels given occupants' longer-term
leases. As of Q3 2020, the loan reported an annualized debt service
coverage ratio (DSCR) of 1.83 times (x), in line with the DBRS
Morningstar figure of 1.80x derived at issuance.
As of the January 2021 reporting, no loans in the pool are in
special servicing or delinquent, but there are five loans,
representing 20.6% of the current trust balance, on the servicer's
watchlist. Three of these loans, representing 13.3% of the current
trust balance, were added to the watchlist for performance-related
reasons, while the remaining two loans, representing 7.3% of the
current trust balance, were flagged for near-term tenant rollover
and deferred maintenance.
The second-largest loan in the pool, 180 North Wacker Drive
(Prospectus ID#2, 7.1% of the current trust balance), was added to
the watchlist in December 2020 for a low DSCR, which fell to 0.54x
as of Q3 2020 following a period of increased vacancy, well below
the year-end 2019 figure of 1.55x. The property is secured by a
72,088-square-foot mixed-use property in the Chicago central
business district. At issuance, the property had an occupancy rate
of 97.3%, but Red Bull contracted its space, leaving the property
only 85.9% leased with an average rental rate of $42.29 per square
foot (psf) gross. Bar Method (6.0% of the net rentable area (NRA))
vacated in early 2019, ahead of its May 2022 lease expiration, and
most recently Hub International (8.7% of the NRA) vacated, leaving
the property 71.2% occupied with an average rental rate of $44.60
psf gross. The only remaining significant tenant rollover prior to
year-end 2022 is O'Malley Hansen, LLC (7.0% of the NRA), which has
a lease expiration in March 2021. Although the loan is current as
of the January 2021 reporting and the sponsorship group appears to
be able to weather the storm, DBRS Morningstar has increased the
probability of default to recognize the increased credit risk to
the trust, given the recent spike in vacancy paired with the
lease-up period, which may be prolonged by the pandemic.
Notes: All figures are in U.S. dollars unless otherwise noted.
LOANCORE 2021-CRE4: DBRS Finalizes B(low) Rating on Class G Notes
-----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by LoanCore 2021-CRE4 Issuer Ltd:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
Notes: (1) Only the Class A, B, C, D, and E Notes are being
offered. The Class F Notes, the Class G Notes, and the Preferred
Shares are not being offered. The Preferred Shares are not being
rated by the rating agencies; (2) For so long as any class of notes
with a higher priority is outstanding, any interest due on the
Class F and G Notes that is not paid on any payment date will be
deferred, will not be considered "due and payable," and the failure
to pay such interest will not be an event of default.
All trends are Stable.
The initial collateral consists of 16 floating-rate mortgages
secured by 22 mostly transitional properties with a cut-off balance
totaling approximately $600.4 million, excluding approximately
$79.4 million of future funding commitments and $30.0 million of
funded companion participations. Most loans are in a period of
transition with plans to stabilize and improve the asset value. The
collateral pool for the transaction is static with no ramp-up or
reinvestment period; however, during the Replenishment Period, the
Issuer may acquire funded Future Funding Participations and
permitted Funded Companion Participations with principal repayment
proceeds. The transaction will have a sequential-pay structure.
Interest can be deferred for Note F and Note G and interest
deferral will not result in an event of default.
All the loans in the pool have floating interest rates initially
indexed to Libor and are interest only through their initial terms.
As such, to determine a stressed interest rate over the loan term,
DBRS Morningstar used the one-month Libor index, which was the
lower of DBRS Morningstar's stressed rates that corresponded to the
remaining fully extended term of the loans and the strike price of
the interest rate cap with the respective contractual loan spread
added. When the fully funded loan balances were measured against
the DBRS Morningstar As-Is Net Cash Flow (NCF), nine loans,
comprising 53% of the initial pool balance, had a DBRS Morningstar
As-Is debt service coverage ratio (DSCR) below 1.00 times (x), a
threshold indicative of elevated term default risk. Additionally,
the DBRS Morningstar Stabilized DSCR for five loans, comprising
23.7% of the fully funded pool balance, is below 1.00x, which is
indicative of elevated refinance risk. The properties are often
transitioning with potential upside in cash flow; however, DBRS
Morningstar does not give full credit to the stabilization if there
are no holdbacks or if other loan structural features in place are
insufficient to support such treatment. Furthermore, even with the
structure provided, DBRS Morningstar generally does not assume the
assets to stabilize above market levels.
With regard to the Coronavirus Disease (COVID-19) pandemic, the
magnitude and the extent of performance stress posed to global
structured finance transactions remain highly uncertain. This
considers the fiscal and monetary policy measures and statutory law
changes that have already been implemented or will be implemented
to soften the impact of the crisis on global economies. Some
regions, jurisdictions, and asset classes are, however, affected
more immediately. Accordingly, DBRS Morningstar may apply
additional short-term stresses to its rating analysis; for example,
by front-loading default expectations and/or assessing the
liquidity position of a structured finance transaction with more
stressful operational risk and/or cash flow timing considerations.
Per the Issuer, five loans were granted forbearances and/or loan
modifications in connection with the coronavirus pandemic (One
Whitehall, The Parking REIT Portfolio, University Square, Parke
Green, and 1404-1408 3rd Street Promenade), representing a combined
29% of the cut-off date pool balance. The majority of the
forbearances and modifications were short term in nature and
included deferment or reductions on the Libor rates, waiver of
monthly reserves, and/or reapplication of reserves to cover
operating or other shortfalls caused by the pandemic. All payment
deferments are required to be replenished or paid back within a
year. Some modifications also included loan extensions from the
initial terms. In addition, some tenants at certain properties have
also requested rent relief and such requests are being considered
on a case-by-case basis between the landlords and tenants.
The properties are primarily located in core markets with the
overall pool's weighted-average (WA) DBRS Morningstar Market Rank
at 5.3, which is indicative of highly liquid, urban markets. Four
loans, totaling 19.3% of the pool, are in markets with a DBRS
Morningstar Market Rank of 8. These markets generally benefit from
increased liquidity that is driven by consistently strong investor
demand, and therefore tend to benefit from lower default
frequencies than less-dense suburban, tertiary, or rural markets.
Two loans, totaling 9.4% of the pool, are in markets with a DBRS
Morningstar Market Rank of 7 or 6. The market ranks correspond to
zip codes that are more urbanized in nature.
Two loans in the pool, totaling 16.2% of the total pool balance,
are backed by a property with a quality DBRS Morningstar deemed to
be Above Average. DBRS Morningstar provides for a lower probability
of default for higher quality collateral. Furthermore, two loans,
totaling 9.9% of the pool, are backed by properties considered to
have Average+ property quality.
The borrowers of all 22 loans have purchased Libor rate caps
ranging between 1.9% and 4.0% to protect against rising interest
rates over the term of the loan. The WA remaining fully extended
term is 40.3 months, which allows the sponsors time to execute
their business plans without risk of imminent maturity.
All loans have floating interest rates with original-term ranges
from 24 months to 48 months, creating interest rate risk. All loans
have interest rate caps ranging from 1.95% to 4.0% to protect
against interest rate risk through the duration of the loan term.
In addition to the fulfillment of certain minimum performance
requirements, exercise of any extension options would also require
the repurchase of interest rate cap protection through the duration
of the respectively exercised options. Furthermore, DBRS
Morningstar applied the lesser of the interest rate cap or the DBRS
Morningstar-stressed forward interest rate based on the Unified
Interest Rate Model. Of the 16 loans, 15, representing 97.5% of the
trust balance, have extension options. In order to qualify for
these options, the loans must meet certain requirements, including
but not limited to minimum DSCR and loan-to-value (LTV)
requirements. One property, 60 Tenth Avenue, representing 2.5% of
the trust balance, has a current maturity of March 9, 2023, and has
no extension option.
The overall WA DBRS Morningstar As-Is DSCR of 0.74x and WA As-Is
LTV of 83.2% are generally reflective of high-leverage financing.
The DBRS Morningstar As-Is DSCR is based on the DBRS Morningstar
In-Place NCF and debt service calculated using a stressed interest
rate. The WA stressed rate used is 4.9%, which is greater than the
current WA interest rate of 3.4% (based on WA mortgage spread and
an assumed 0.16% one-month Libor index). When measured against the
DBRS Morningstar Stabilized NCF, the WA DBRS Morningstar
As-Stabilized DSCR is estimated to improve to 1.24x, suggesting the
properties are likely to have improved NCFs, assuming completion of
the sponsor's business plan. DBRS Morningstar associates its loss
severity given default (LGD) based on the assets' as-is LTV, which
does not assume that the stabilization plan and cash flow growth
will ever materialize but does account for the loan having been
fully funded.
DBRS Morningstar has analyzed the loans to a stabilized cash flow
that is, in some instances, above the current in-place cash flow.
There is a possibility that the sponsors will not execute their
business plans as expected and that the higher stabilized cash flow
will not materialize during the loan term, particularly with the
ongoing coronavirus pandemic and its impact on the overall economy.
Failure to execute the business plan could result in a term default
or the inability to refinance the fully funded loan balance. DBRS
Morningstar made relatively conservative stabilization assumptions
and, in each instance, considered the business plan to be rational
and the future funding amounts to be sufficient to execute such
plans. In addition, DBRS Morningstar analyzes LGD based on the DBRS
Morningstar As-Is LTV assuming the loan is fully funded.
Nine loans, totaling 58.9% of the initial pool balance, represent
refinance transactions. The refinancing within this securitization
generally does not require the respective sponsor(s) to contribute
material cash equity as a source of funding in conjunction with the
mortgage loan, resulting in a lower sponsor cost basis in the
underlying collateral. Only two of the nine refinance loans,
representing 10.9% of the pool, have a current occupancy of less
than 80.0% and three of the refinance loans account for $23.3
million of the $79.4 million of future funding. This suggests that
most of the refinance loans are near stabilization, which would
mitigate the higher risk associated with a sponsor's lower cost
basis.
The 16-loan pool is concentrated by commercial real estate
collateralized loan obligation standards with a low Herfindahl
score of 13.7. Furthermore, the top 10 loans represent 80.1% of the
pool. The 16 loans are secured by 22 properties located across 10
states and the properties are primarily located in core markets
with the overall pool's WA DBRS Morningstar Market Rank at 5.3.
The transaction has significant exposures to office (20.6%) and
retail (36.4%) with a smaller concentration in retail/office
mixed-use (6%) properties, which, in aggregate, account for 63% of
the trust balance. Office and retail property types have
experienced considerable disruption as a result of the coronavirus
pandemic with mandatory closures, stay-at-home orders, retail
bankruptcies, and consumer shifts to online purchasing. To account
for the elevated risk, DBRS Morningstar typically analyzes retail
(more specifically, unanchored retail) and office properties with
higher probabilities of default and LGDs compared with other
property types. For certain retail properties, DBRS Morningstar did
not include upside from the sponsor's business plan or accepted
only minimal upside.
The transaction will likely be subject to a benchmark rate
replacement, which will depend on the availability of various
alternative benchmarks. The current selected benchmark is the
Secured Overnight Financing Rate (SOFR). Term SOFR, which is
expected to be a forward-looking term rate comparable with Libor,
is the first alternative benchmark replacement rate but it is
currently being developed. There is no assurance that the Term SOFR
development will be completed or that it will be widely endorsed
and adopted. This could lead to volatility in the interest rate on
the mortgage assets and floating-rate notes. The transaction could
be exposed to a timing mismatch between the notes and the
underlying mortgage assets as a result of the mortgage benchmark
rates adjusting on different dates than the benchmark on the note,
or a mismatch between the benchmark and/or the benchmark
replacement adjustment (if any) applicable to the mortgage loans.
In order to compensate for differences between the successor
benchmark rate and the then-current benchmark rate, a benchmark
replacement adjustment has been contemplated in the indenture as a
way to compensate for the rate change. Currently, Wells Fargo Bank,
National Association in its capacity as Designated Transaction
Representative will generally be responsible for handling any
benchmark rate change and will only be held to a gross negligence
standard with regard to any liability for its actions.
DBRS Morningstar notes that Designated Transaction Representative
parties have been negotiating a gross negligence standard of care
and recently added a liquidated damages provision for 1.5x the
indemnified expenses. While this may be understandable given the
unknowns associated with termination of Libor, it could have an
impact by increasing expenses.
Notes: All figures are in U.S. dollars unless otherwise noted.
MADISON PARK XVII: Moody's Raises Class E-R Notes to 'Ba3'
----------------------------------------------------------
Moody's Investors Service has assigned ratings to three classes of
CLO refinancing notes issued by Madison Park Funding XVII, Ltd.
(the "Issuer").
Moody's rating action is as follows:
US$507,000,000 Class A-R-2 Floating Rate Notes Due 2030 (the "Class
A-R-2 Notes"), Assigned Aaa (sf)
US$92,000,000 Class B-R-2 Floating Rate Notes Due 2030 (the "Class
B-R-2 Notes"), Assigned Aa2 (sf)
US$43,500,000 Class C-R-2 Deferrable Floating Rate Notes Due 2030
(the "Class C-R-2 Notes"), Assigned A2 (sf)
Additionally, Moody's has upgraded ratings on the following
outstanding notes issued by the Issuer on the refinanced original
notes.
US$48,500,000 Class D-R Deferrable Floating Rate Notes Due 2030
(the "Class D-R Notes"), Upgraded to Baa3 (sf); previously on July
16, 2020 Downgraded to Ba1 (sf)
US$42,300,000 Class E-R Deferrable Floating Rate Notes Due 2030
(the "Class E-R Notes"), Upgraded to Ba3 (sf); previously on July
16, 2020 Downgraded to B1 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on our methodology and
considers all relevant risks particularly those associated with the
CLO's portfolio and structure.
The Issuer is a managed cash flow collateralized loan obligation
(CLO). The issued notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. At least 90%
of the portfolio must consist of senior secured loans, and up to
10% of the portfolio may consist of senior unsecured loans, and
second lien loans.
Credit Suisse Asset Management, LLC (the "Manager") will continue
to direct the selection, acquisition and disposition of the assets
on behalf of the Issuer and may engage in trading activity,
including discretionary trading, during the transaction's remaining
1 year and 4 months reinvestment period. Thereafter, subject to
certain restrictions, the Manager may reinvest unscheduled
principal payments and proceeds from sales of credit risk assets.
The Issuer has issued the Refinancing Notes on February 12, 2021
(the "Refinancing Date") in connection with the refinancing of four
classes of the secured notes (the "Refinanced Original Notes")
previously refinanced on June 15, 2017 and originally issued on May
21, 2015 (the "Original Closing Date"). On the Refinancing Date,
the Issuer used proceeds from the issuance of the Refinancing Notes
to redeem in full the Refinanced Original Notes. On the Original
Closing Date, the issuer also issued three other classes of secured
notes subsequently refinanced and one class of subordinated notes
that remain outstanding.
In addition to the issuance of the Refinancing Notes, a variety of
other changes to transaction features will occur in connection with
the refinancing. These include: the inclusion of alternative
benchmark replacement provisions and changes to the definition of
"Moody's Adjusted Weighted Average Rating Factor".
Moody's rating actions on the Class D-R Notes and Class E-R Notes
are primarily a result of the refinancing, which increases excess
spread available as credit enhancement to the rated notes.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. For modeling
purposes, Moody's used the following base-case assumptions:
Performing par and principal proceeds balance: $781,478,162
Defaulted par: $14,985,828
Diversity Score: 77
Weighted Average Rating Factor (WARF): 3084
Weighted Average Spread (WAS) (before accounting for LIBOR floors):
3.54%
Weighted Average Recovery Rate (WARR): 46.85%
Weighted Average Life (WAL): 5.8 years
Par haircut in OC tests and interest diversion test: 0.8%
In consideration of the current high uncertainties around the
global economy, and the ultimate performance of the CLO portfolio,
Moody's conducted a number of additional sensitivity analyses
representing a range of outcomes that could diverge, both to the
downside and the upside, from our base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include, among others: additional near-term defaults of
companies facing liquidity pressure; for reinvesting deals: an
additional cashflow analysis assuming a lower WAS to test the
sensitivity to LIBOR floors; sensitivity analysis on deteriorating
credit quality due to a large exposure to loans with negative
outlook, and a lower recovery rate assumption on defaulted assets
to reflect declining loan recovery rate expectations.
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.
Moody's 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 Moody's 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
December 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.
MFA 2021-INV1: DBRS Finalizes B Rating on Class B-2 Certificates
----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Mortgage Pass-Through Certificates, Series 2021-INV1 issued by MFA
2021-INV1 Trust:
-- $149.0 million Class A-1 at AAA (sf)
-- $13.8 million Class A-2 at AA (sf)
-- $20.1 million Class A-3 at A (sf)
-- $7.4 million Class M-1 at BBB (sf)
-- $7.6 million Class B-1 at BB (sf)
-- $8.7 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 31.50%
of credit enhancement provided by subordinate certificates. The AA
(sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 25.15%,
15.90%, 12.50%, 9.00%, and 5.00% of credit enhancement,
respectively.
This transaction is a securitization of a portfolio of fixed- and
adjustable-rate investor debt service coverage ratio (DSCR),
first-lien residential mortgages funded by the issuance of the
Certificates. The Certificates are backed by 1,423 mortgage loans
with a total principal balance of $217,489,114 as of the Cut-Off
Date (December 31, 2020).
The originators for the mortgage pool are Lima One Capital, LLC
(Lima One; 67.0%), Constructive Loans, LLC (28.4%), and two other
originators composing approximately 4.6% of the mortgage loans. MFA
Financial, Inc. is the Sponsor and the Servicing Administrator of
the transaction. The servicers for the loans are Lima One (67.0%)
and Fay Servicing, LLC (33.0%).
The mortgage loans were underwritten to program guidelines for
business-purpose loans that are designed to rely on property value,
the mortgagor's credit profile, and the DSCR, where applicable.
Because the loans were made to investors for business purposes,
they are exempt from the Consumer Financial Protection Bureau's
(CFPB's) Ability-to-Repay (ATR) rules and TILA/RESPA Integrated
Disclosure rule.
The Sponsor and Servicing Administrator are the same entity, and
the Depositor is its affiliate. The initial Controlling Holder is
expected to be the Depositor. The Depositor will retain an eligible
horizontal interest consisting of the Class B-3 and XS Certificates
representing at least 5% of the aggregate fair value 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. Additionally, the Depositor
will initially own the Class B-2 and A-IO-S Certificates.
Wells Fargo Securities, LLC, an Initial Purchaser, is an affiliate
of Wells Fargo Bank, N.A., which will act as the Securities
Administrator, Certificate Registrar, and Custodian.
On or after the earlier of (1) the distribution date in January
2024 or (2) the date when the aggregate unpaid principal balance of
the mortgage loans is reduced to 30% of the Cut-Off Date balance,
the Depositor, at its option, may redeem all of the outstanding
Certificates at a price equal to the class balances of the related
Certificates plus accrued and unpaid interest, including any Cap
Carryover Amounts, any preclosing deferred amounts, and any
post-closing deferred amounts due to the Class XS Certificates
(optional redemption).
After such purchase, the Depositor may complete a qualified
liquidation, which requires (1) a complete liquidation of assets
within the trust and (2) proceeds to be distributed to the
appropriate holders of regular or residual interests.
On any date following the date on which the aggregate unpaid
principal balance of the mortgage loans is less than or equal to
10% of the Cut-Off Date balance, the Servicing Administrator will
have the option to terminate the transaction by purchasing all of
the mortgage loans and any real estate owned (REO) property from
the issuer at a price equal to the sum of the aggregate unpaid
principal balance of the mortgage loans (other than any REO
property) plus accrued interest thereon, the lesser of the fair
market value of any REO property and the stated principal balance
of the related loan, and any outstanding and unreimbursed servicing
advances, accrued and unpaid fees, any preclosing deferred amounts,
any post-closing deferred amounts, and expenses that are payable or
reimbursable to the transaction parties (optional termination). An
optional termination is conducted as a qualified liquidation.
For this transaction, the Servicers will not fund advances on
Pre-Closing Deferred Amounts or delinquent principal and interest
(P&I) on any mortgage. However, the Servicers are obligated to make
advances in respect of taxes, insurance premiums, and reasonable
costs incurred in the course of servicing and disposing of
properties (servicing advances).
Of note, if the Servicers defer or capitalize the repayment of any
amounts owed by a borrower in connection with the borrower's loan
modification, the Servicer is entitled to reimburse itself from the
excess servicing fee, first, and from principal collections,
second, for any previously made and unreimbursed servicing advances
related to the capitalized amount at the time of such
modification.
The transaction employs a sequential-pay cash flow structure with a
pro rata principal distribution among the senior tranches subject
to certain performance triggers. Principal proceeds can be used to
cover interest shortfalls on certain senior classes, dependent on
applicable performance triggers. Also, the excess spread can be
used to cover (1) realized loss and (2) cumulative applied realized
loss amounts preceding the allocation of funds to unpaid Cap
Carryover Amounts due to Class A-1 down to Class B-2.
Coronavirus Disease (COVID-19) Impact
The coronavirus pandemic and the resulting isolation measures have
caused an economic contraction, leading to sharp increases in
unemployment rates and income reductions for many consumers. DBRS
Morningstar anticipates that delinquencies may continue to rise in
the coming months for many residential mortgage-backed security
(RMBS) asset classes, some meaningfully.
The non-Qualified Mortgage (non-QM) sector is a traditional RMBS
asset class that consists of securitizations backed by pools of
residential home loans that may fall outside 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 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 W-2s or tax returns.
Finally, foreign nationals and real estate investor programs, like
this program, 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: January 2021
Update," dated January 28, 2021), for the non-QM asset class, DBRS
Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than 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 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 borrowers have been granted deferral plans
because of financial hardship related to the coronavirus pandemic.
All of those borrowers were granted deferment for three scheduled
monthly payments.
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) no
servicing advances on delinquent P&I. These assumptions include:
-- Increasing delinquencies for the AAA (sf) and AA (sf) rating
levels for the first 12 months;
-- Increasing delinquencies for the A (sf) and below rating levels
for the first nine months;
-- Applying no voluntary prepayments for the AAA (sf) and AA (sf)
rating levels for the first 12 months; and
-- Delaying the receipt of liquidation proceeds for the AAA (sf)
and AA (sf) rating levels for the first 12 months.
Notes: All figures are in U.S. dollars unless otherwise noted.
MILL CITY 2021-NMR1: DBRS Finalizes B(high) Rating on 3 Classes
---------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Mortgaged-Backed Securities, Series 2021-NMR1 issued by Mill City
Mortgage Loan Trust 2021-NMR1 (the Trust):
-- $40.3 million Class A1A at AAA (sf)
-- $120.9 million Class A1B at AAA (sf)
-- $161.2 million Class A1 at AAA (sf)
-- $190.9 million Class A2 at AA (high) (sf)
-- $209.8 million Class A3 at A (high) (sf)
-- $226.1 million Class A4 at BBB (high) (sf)
-- $29.7 million Class M1 at AA (high) (sf)
-- $18.9 million Class M2 at A (high) (sf)
-- $8.1 million Class M3A at BBB (high) (sf)
-- $8.1 million Class M3B at BBB (high) (sf)
-- $16.3 million Class M3 at BBB (high) (sf)
-- $6.8 million Class B1A at BB (high) (sf)
-- $6.8 million Class B1B at BB (high) (sf)
-- $13.6 million Class B1 at BB (high) (sf)
-- $6.3 million Class B2A at B (high) (sf)
-- $6.3 million Class B2B at B (high) (sf)
-- $12.5 million Class B2 at B (high) (sf)
Classes A1, A2, A3, A4, M3, B1, and B2 are exchangeable. These
classes can be exchanged for combinations of initial exchangeable
notes as specified in the offering documents.
The AAA (sf) ratings on the Notes reflect 48.50% of credit
enhancement provided by subordinated notes. The AA (high) (sf), A
(high) (sf), BBB (high) (sf), BB (high) (sf), and B (high) (sf)
ratings reflect 39.00%, 32.95%, 27.75%, 23.40%, and 19.40% of
credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This transaction is a securitization of a portfolio of primarily
first-lien, seasoned, performing, and reperforming residential
mortgages funded by the issuance of the Notes. The Notes are backed
by 2,579 loans with a total principal balance of approximately
$312,929,995 as of the Cut-Off Date (December 31, 2020).
The loans are approximately 149 months seasoned. As of the Cut-Off
Date, 85.2% of the pool is current, 8.2% is 30 to 59 days
delinquent, 3.3% is 60 to 89 days delinquent, and 0.4% is 90+ days
delinquent under the Mortgage Bankers Association delinquency
method; additionally, 3.0% of the pool is in bankruptcy. Subject to
adjustments made by DBRS Morningstar, approximately 32.9% of the
pool has been zero times 30 (0 x 30) days delinquent for the past
24 months, 49.9% has been 0 x 30 for the past 12 months, and 63.2%
has been 0 x 30 for the past six months. In certain months, 20.4%
of loans were missing data and as such are not included when
determining the 0 x 30 days delinquent duration.
Modified loans comprise 75.2% of the portfolio. The modifications
happened more than two years ago for 80.7% of the modified loans.
Within the pool, 859 loans have noninterest-bearing deferred
amounts, which equates to 6.4% of the total principal balance.
In accordance with the Consumer Financial Protection Bureau
Qualified Mortgage (QM) rules, no loan is designated as QM Safe
Harbor or QM Rebuttable Presumption. There is 13.0% designated as
non-QM and approximately 87.0% of the loans are not subject to the
QM rules.
Approximately 8.1% of the pool comprises nonfirst-lien loans.
Nomura Corporate Funding Americas, LLC (NCFA), as the Sponsor, is
acquiring (most of) the loans from various Mill City entities in
connection with the securitization. NCFA, as the Sponsor, directly
or through a majority-owned affiliate, will acquire and retain a
5.0% eligible vertical interest in the transaction to satisfy the
credit risk retention requirements under Section 15G of the
Securities Exchange Act of 1934 and the regulations promulgated
thereunder. These loans were originated and previously serviced by
various entities through purchases in the secondary market.
As of the Cut-Off Date, the loans are serviced by NewRez LLC doing
business as Shellpoint Mortgage Servicing (75.3%) and Fay
Servicing, LLC (24.7%).
There will not be any advancing of delinquent principal or interest
on any mortgages by the servicers or any other party to the
transaction; however, the servicers are obligated to make advances
in respect of taxes and insurance and reasonable costs and expenses
incurred in the course of servicing and disposing of properties.
When the aggregate pool balance of the mortgage loans is reduced to
less than 20% of the Cut-Off Date balance, the holders of more than
50% of the Class X Certificates will have the option to cause the
Trust to sell its remaining property (other than amounts in the
Breach Reserve Account) to one or more third-party purchasers so
long as the aggregate proceeds meet a minimum price.
When the aggregate pool balance is reduced to less than 10% of the
balance as of the Cut-off Date, the holder(s) of more than 50% of
the most subordinate class of Notes, or their affiliates, may
purchase all mortgage loans, real-estate-owned properties, and
other properties from the Trust, as long as the aggregate proceeds
meet a minimum price.
The transaction employs a sequential-pay cash flow structure.
Principal proceeds can be used to cover interest shortfalls on the
Notes, but such shortfalls on Class M2 and more subordinate bonds
will not be paid until the more senior classes are retired.
CORONAVIRUS IMPACT: REPERFORMING LOAN (RPL)
The Coronavirus Disease (COVID-19) pandemic and the resulting
isolation measures have caused an economic contraction, leading to
sharp increases in unemployment rates and income reductions for
many consumers. DBRS Morningstar anticipates that delinquencies may
continue to raise in the coming months for many residential
mortgage-backed securities (RMBS) asset classes, some
meaningfully.
RPL is a traditional RMBS asset class that consists of
securitizations backed by pools of seasoned performing and
reperforming residential home loans. Although borrowers in these
pools may have experienced delinquencies in the past, the loans
have been largely performing for the past six to 24 months since
issuance. Generally, these pools are highly seasoned and contain
sizable concentrations of previously modified loans.
As a result of the coronavirus 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 affects 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: January 2021
Update," published on January 28, 2021), for the RPL asset class,
DBRS Morningstar applies more severe market value decline (MVD)
assumptions across all rating categories than it previously used.
DBRS Morningstar derives such MVD assumptions through a fundamental
home price approach based on the forecasted unemployment rates and
GDP growth outlined in the moderate scenario. In addition, for
pools with loans on forbearance plans, DBRS Morningstar may assume
higher loss expectations above and beyond the coronavirus
assumptions. Such assumptions translate to higher expected losses
on the collateral pool and correspondingly higher credit
enhancement.
In the RPL asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes that loans that were previously
delinquent, recently modified, or have higher updated loan-to-value
ratios (LTVs) may be more sensitive to economic hardships resulting
from higher unemployment rates and lower incomes. Borrowers with
previous delinquencies or recent modifications have exhibited
difficulty in fulfilling payment obligations in the past and may
revert to spotty payment patterns in the near term. Higher LTV
borrowers with lower equity in their properties generally have
fewer refinance opportunities and, therefore, slower prepayments.
In addition, for this transaction, as permitted by the Coronavirus
Aid, Relief, and Economic Security Act, signed into law on March
27, 2020, 536 borrowers (30.5% of the borrowers by balance) either
have completed forbearance or deferral plans or are on such plans
because the borrowers reported financial hardship related to the
coronavirus pandemic. These forbearance plans allow temporary
payment holidays, followed by repayment once the forbearance period
ends.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2014-C16: Fitch Lowers Rating on Cl. E Debt to 'CC'
------------------------------------------------------------------
Fitch Ratings has downgraded six classes, affirmed six classes and
revised four Rating Outlooks to Negative from Stable in Morgan
Stanley Bank of America Merrill Lynch Trust 2014-C16.
DEBT RATING PRIOR
---- ------ -----
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C16
A-3 61763MAD2 LT AAAsf Affirmed AAAsf
A-4 61763MAE0 LT AAAsf Affirmed AAAsf
A-5 61763MAF7 LT AAAsf Affirmed AAAsf
A-S 61763MAH3 LT AAAsf Affirmed AAAsf
A-SB 61763MAC4 LT AAAsf Affirmed AAAsf
B 61763MAJ9 LT Asf Downgrade AA-sf
C 61763MAL4 LT BBBsf Downgrade A-sf
D 61763MAR1 LT CCCsf Downgrade BBsf
E 61763MAT7 LT CCsf Downgrade CCCsf
PST 61763MAK6 LT BBBsf Downgrade A-sf
X-A 61763MAG5 LT AAAsf Affirmed AAAsf
X-B 61763MAM2 LT Asf Downgrade AA-sf
KEY RATING DRIVERS
Increased Loss Expectations: The Downgrades and Outlook revisions
reflect increased loss expectations since Fitch's prior rating
action, primarily due to continued underperformance of the
specially serviced Outlets of Mississippi (5.8% of pool) and Aspen
Heights - Stillwater (3.6%) along with the performing Arundel Mills
& Marketplace and other Fitch Loans of Concern (FLOCs) affected by
the slowdown in economic activity related to the coronavirus
pandemic. Fifteen loans (48.7% of the pool balance) have been
identified as FLOC's, including four loans in special servicing
(10.6%), as a result of the coronavirus pandemic and/or occupancy
declines and upcoming lease rollover concerns.
Fitch's ratings incorporate a base case loss of 12.7%. The Negative
Outlooks reflect a sensitivity scenario where losses could reach
19.20%. The sensitivity scenario factors in additional stresses
related to the coronavirus pandemic, as well as a potential
outsized loss on the Arundel Mills & Marketplace and State Farm
Portfolio.
FLOCs/Specially Serviced Loans: The largest increase in loss since
the prior rating action is the largest loan Arundel Mills &
Marketplace (13.9% of pool). The collateral includes Arundel Mills,
a 1.3 million sf superregional mall that includes leasehold
interests on a hotel and casino component, and Marketplace, a
101,613- sf anchored shopping center, both of which are located in
Hanover, MD.
As of September 2020, occupancy was 94.3%, compared with 98.7% at
YE 2019. Bed, Bath and Beyond closed its store at the Mills
property in fall 2020. Major anchor tenants at Arundel Mills
include Bass Pro Shops Outdoor (9.9% of NRA, lease expiry in Oct.
2026), Cinemark Theatres (8.3%, Dec. 2025), Burlington (6.3%, Jan.
2026), Best Buy (3.6%, Jan. 2022) and T.J. Maxx (2.6%, Jan. 2026).
Anchor tenants at the Marketplace include Aldi (32.6%, Nov. 2033),
Michael's (23.5%, Mar. 2023), Staples (20.1%, Jan. 2021), PetSmart
(18.7%, Jan. 2023) and Mattress Warehouse (5.1%, Mar. 2023).
Near-term lease rollover for both properties consists of 4.1% of
the NRA that is either month-to-month or have leases that expired
by YE 2020 (17 tenants), 4.4% expiring in 2021 (24 tenants), 6.1%
in 2022 (26 tenants) and 9.5% in 2023 (20 tenants).
Fitch's loss expectation of approximately 22% is based on an 18%
cap rate and a 25% total haircut to 2019 NOI, reflecting the
regional mall component of the collateral, coronavirus performance
concerns, near-term lease rollover, lack of updated sales
information and volatility associated with the casino revenue.
Fitch also assumed a 40% loss on the loan as a sensitivity stress.
This contributed to the Negative Outlooks.
The second largest increase in loss since the prior rating action,
Outlets of Mississippi (5.8%), is a 300,156-sf outlet mall located
in Pearl, MS, which was constructed in 2013. The loan transferred
to the special servicer in November 2018 due to imminent monetary
default when the borrower communicated to the servicer that they
have insufficient funds to cover operating expenses and debt
service. The property was temporarily closed due to the pandemic,
but reopened at the end of April 2020. According to a recent
appraisal, occupancy is 97% but many tenants are paying percentage
rent which has contributed to the declining NOI DSCR of 0.59x at YE
2019 compared to 1.08x at YE 2018 and 1.42x at YE 2017.
A loan modification with the borrower was closed in December 2020
in which the loan was bifurcated into a $28 million A-Note and $34
million B-Note and the maturity date was extended from June 2024 to
June 2026. The loan is the largest contributor to modeled losses.
Fitch's loss expectation of approximately 90% is based on a recent
appraisal with an additional stress to account for potential future
value decline and fees and expenses.
The third largest loss in the transaction and specially serviced
asset, Aspen Heights - Stillwater (3.6%), is a 231-unit,
792-bedroom student housing complex built in 2013 and located less
than three miles from Oklahoma State University in Stillwater, OK.
The asset transferred to the special servicer in July 2019 for
imminent monetary default when the borrower stated they will no
longer fund monthly shortfalls. The property is now REO but is
currently not being marketed for sale. Occupancy as of October 2020
was 92% compared to 80% at July 2019. NOI at the property has been
declining since issuance with an NOI DSCR as of fiscal year July
2019 of 0.65x compared to 0.69x at July 2018, 1.05 at July 2017 and
1.27x at July 2016. Fitch's loss expectation of approximately 50%
is based on an appraisal with an additional stress to account for
potential future value decline and fees and expenses.
The second largest loan and FLOC, The State Farm Portfolio (9.6%)
is secured by 14 single-tenant office properties. Various media
reports have confirmed that the tenant will be vacating all
collateral properties as it converts to a virtual workforce in the
wake of the coronavirus pandemic. The leases have various remaining
terms, but the majority of leases expire in November 2028. The
earliest lease expiration is in November 2023 for one of the
Greeley, CO properties (3.1% allocated loan balance). Given the
extended lease expirations, there is not significant term risk;
however, the prospect of a vacant portfolio of office properties in
secondary markets elevates the risk of maturity default. Fitch's
analysis included a 10% stress to the YE 2019 NOI to reflect the
limited term risk but risk of maturity default. The resulting
modeled loss is approximately 10%; Fitch also assumed a 25% loss on
the loan as a sensitivity stress which contributed to the Negative
Outlooks.
The fifth largest loan and FLOC, Hilton San Francisco Financial
District loan (4.7%), which is secured by a 543-room, full-service
hotel located in downtown San Francisco within walking distance of
several iconic attractions including the Embarcadero, the Ferry
Building, and Chinatown. The servicer reported TTM June 2020 NOI
DSCR of 1.0x reflects the impact of the ongoing coronavirus
pandemic. The servicer reported YE 2019 NOI DSCR was 2.34x for this
amortizing loan. Per the August 2020 STR report, the subject hotel
had TTM occupancy, ADR and RevPAR rates of 65.8%, $227, and $150,
respectively (compared to the TTM April 2019 figures of 96.4%, $266
and $257, respectively). The TTM August 2020 RevPAR was down 41.8%
yoy. RevPAR at issuance was $196.
Fitch's analysis included a 26% stress to the YE 2019 cash flow to
account for impact from the ongoing coronavirus pandemic.
Alternative Loss Considerations: Fitch performed an additional
sensitivity scenario that assumed a potential outsized loss of 40%
to the maturity balances of the Arundel Mills & Marketplace and 25%
on the maturity balance of State Farm Portfolio due to refinance
concerns. The sensitivity scenario also factored in the expected
paydown of the defeased loans, as well as the payment priority of
the senior classes. These additional sensitivities contributed to
the Negative Rating Outlooks on classes A-4, A-5, A-S, B, C, X-A,
X-B and PST.
The transaction has an ESG relevance score of '4' for Exposure to
Social Impacts due to regional malls and retail outlet malls that
are underperforming as a result of changing consumer preference to
shopping, which has been accelerated by the effects of the
coronavirus pandemic, and has a negative impact on the credit
profile that is highly relevant to the rating.
Improved Credit Enhancement (CE): CE has increased since issuance
due to loan payoffs, defeasance, and scheduled amortization. As of
the January 2021 distribution date, the pool's aggregate principal
balance has been reduced by 17.7% to $1.042 billion from $1.267
billion at issuance. Five loans have paid off since issuance,
including the fourth largest loan, Green Hills Corporate Center,
formerly $59.7 million. Eight loans, approximately 29.4% of the
pool, are full-term, IO, including the two largest loans in the
pool and FLOCs Arundel Mills & Marketplace and State Farm
Portfolio. All of the partial-term, IO loans (40.6%) are now
amortizing. Seven loans (8.2%) are fully defeased, and increase
from five loans (7.3%) at the prior review. Four loans (4.5%)
including one specially serviced asset mature in 2021, most loans
mature in 2024 with the exception of the extended Outlets of
Mississippi in 2026 and one loan in 2029.
Fitch's ratings and outlooks considered the payment priority of the
senior bonds and the expected continued amortization, loan payoffs
and disposition proceeds. Classes A-3 and A-SB are expected to pay
in full before other senior classes and therefore maintain Stable
Outlooks. Any future rating actions will consider payment priority
and timing.
Additional Stresses 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 closures and capacity
rules, and lack of clarity at this time on the potential duration
and/or impact of the pandemic. Properties collateralized by retail,
multifamily, and hotels total 37.3%, 26.0% and 13.6%, respectively.
Fitch's analysis applied additional stresses to 13 retail loans and
10 hotel loans, and two multifamily loans due to their
vulnerability to the pandemic; this analysis contributed to the
Downgrade of classes B, C, D, E, PST, X-B and the Negative Outlooks
on classes A-4, A-5, A-S, B, C, X-A, X-B and PST.
RATING SENSITIVITIES
The Negative Outlooks on classes A-4, A-5, A-S, B, C, X-A, X-B and
PST reflect the potential for Downgrades due to concerns with the
FLOCs, and potential increase in pool-level expected losses if
performance of loans impacted by the pandemic do not stabilize
and/or if additional loans transfer to special servicing. The
Stable Outlooks on classes A-3 and A-SB reflect the payment
priority for these senior bonds and anticipation that they are
expected to pay in full before the other senior classes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Sensitivity factors that lead to upgrades would include stable
to improved asset performance, particularly on the FLOCs,
coupled with pay down and/or defeasance. Upgrade of Class B
would only occur with significant improvement in CE and/or
defeasance and with the stabilization of performance on the
FLOCs, particularly Outlets of Mississippi and Arundel Mills &
Marketplace.
-- An Upgrade to Class C also would 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 were likelihood of interest
shortfalls.
-- An Upgrade to Classes D and E is 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:
-- Factors resulting in Downgrades include an increase in pool
level expected losses from underperforming or specially
serviced loans. Downgrades of classes A-3 and A-SB are not
likely due to their payment priority and continued
amortization. Downgrades of classes A-4, A-5, A-S, and X-A
could occur if interest shortfalls impact the class,
additional loans transfer to the special servicer, if
additional loans become FLOCs or if losses on the loans
expected to be impacted by the coronavirus pandemic do not
stabilize.
-- Classes B, C, PST and X-B would be downgraded further if
performance of the FLOCs declines further or as losses are
realized. Classes D and E would be downgraded further as
losses are realized.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021. Should this scenario play out, Fitch expects
downgrades could be multiple categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
ESG CONSIDERATIONS
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C16:
Exposure to Social Impacts: 4
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
PARK AVENUE 2017-1: S&P Assigns BB- (sf) Rating on Class D-R Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to the class X, A-1R, A-2R,
B-1R, B-2R, C-1R, C-2R, and D-R replacement notes from Park Avenue
Institutional Advisers CLO Ltd. 2017-1, a CLO originally issued in
November 2017 that is managed by Park Avenue Institutional Advisers
LLC. The replacement notes were issued via a supplemental
indenture.
The ratings reflect S&P's opinion that the credit support available
is commensurate with the associated rating levels.
On the Feb. 16, 2021, refinancing date, the proceeds from the
issuance of the replacement notes were used to redeem the original
notes.
The replacement notes were issued via a supplemental indenture,
which, in addition to outlining the terms of the replacement notes,
also:
-- Issued the replacement class A-2R notes at a lower spread than
the original notes;
-- Issued the replacement class A-1R and D-R notes at a higher
spread than the original notes;
-- Issued the replacement class B-1R and B-2R notes at a floating
spread and fixed coupon, respectively, and replaced the class B
notes, which were paid at a floating spread;
-- Issued the replacement class C-1R and C-2R notes at a floating
spread and fixed coupon, respectively, and replaced the class C
notes, which were paid at a floating spread;
-- Extended the stated maturity and reinvestment period 4.34
years;
-- Established a new non-call period with a deadline of Feb. 14,
2023;
-- Reset the weighted average life test covenant to nine years
post-closing;
-- Allowed the deal to purchase bonds up to 5% of the collateral
principal amount upon amendment of the Volcker Rule; and
-- Disallowed the collateral manager from purchasing assets from
obligors in the tobacco industry.
The deal is now allowed to purchase loss-mitigation assets with the
following requirements:
-- If principal proceeds are used, the principal balance of all
collateral obligations (excluding defaulted obligations) plus the
S&P Global Ratings' collateral value of defaulted obligations plus
eligible investments must be greater than or equal to the
reinvestment target par balance, and each overcollateralization
ratio test must satisfied.
-- If interest proceeds are used, there must be sufficient
interest proceeds present to pay all interest on the rated notes.
S&P said, "Our review of this transaction included a cash flow
analysis, based on the portfolio and transaction as reflected in
the trustee report, to estimate future performance. In line with
our criteria, our cash flow scenarios applied forward-looking
assumptions on the expected timing and pattern of defaults, and
recoveries upon default, under various interest rate and
macroeconomic scenarios. In addition, our analysis considered the
transaction's ability to pay timely interest or ultimate principal,
or both, to each of the rated tranches.
"We will continue to review whether, in our view, the ratings
assigned to the notes remain consistent with the credit enhancement
available to support them, and we will take further rating actions
as we deem necessary."
Ratings Assigned
Park Avenue Institutional Advisers CLO Ltd. 2017-1
Class X, $7.000 million: AAA (sf)
Class A-1R, $255.150 million: AAA (sf)
Class A-2R, $52.650 million: AA (sf)
Class B-1R (deferrable), $14.000 million: A (sf)
Class B-2R (deferrable), $10.300 million: A (sf)
Class C-1R (deferrable), $14.000 million: BBB- (sf)
Class C-2R (deferrable), $10.300 million: BBB- (sf)
Class D-R (deferrable), $14.175 million: BB- (sf)
Subordinated notes, $41.900 million: Not rated
Ratings Withdrawn
Park Avenue Institutional Advisers CLO Ltd. 2017-1
Class A-1: to not rated from AAA (sf)
Class A-2: to not rated from AA (sf)
Class B: to not rated from A (sf)
Class C: to not rated from BBB- (sf)
Class D: to not rated from BB- (sf)
REGIONAL MANAGEMENT 2021-1: DBRS Gives Prov. BB Rating on D Notes
-----------------------------------------------------------------
DBRS, Inc. (assigned provisional ratings to the following notes to
be issued by Regional Management Issuance Trust 2021-1:
-- $203,130,000 Class A at AA (sf)
-- $7,160,000 Class B at A (sf)
-- $17,320,000 Class C at BBB (sf)
-- $ 21,090,000 Class D at BB (sf)
The ratings are based on DBRS Morningstar's review 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 12.00%.
-- The transaction's 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: January 2021 Update," published on January
28, 2021. DBRS Morningstar initially published macroeconomic
scenarios on April 16, 2020, which have been regularly updated. The
scenarios were last updated on January 28, 2021, and are reflected
in DBRS Morningstar's rating analysis. The assumptions also take
into consideration observed performance during the 2008–09
financial crisis and the possible impact of stimulus. The
assumptions consider the moderate macroeconomic scenario outlined
in the commentary, with the moderate scenario serving as the
primary anchor for current ratings. The moderate scenario factors
in increasing success in containment during the first half of 2021,
enabling the continued relaxation of restrictions.
-- Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms under which
they have invested. For this transaction, the ratings address the
timely payment of interest on a monthly basis and principal by the
legal final maturity date.
-- Regional Management Corp.'s (Regional) capabilities with regard
to originations, underwriting, and servicing.
-- DBRS Morningstar has performed an operational review of
Regional and considers the entity to be an acceptable originator
and servicer of unsecured personal loans with an acceptable backup
servicer.
-- Regional's senior management team has considerable experience
and a successful track record within the consumer loan industry.
-- Regional has remained consistently profitable since 2007.
-- In February 2018, Regional completed a system migration to the
Nortridge Loan Management System, allowing for the implementation
of centralized underwriting for all branches, which led to the
ability to implement a hybrid servicing model.
-- The credit quality of the collateral and performance of
Regional's consumer loan portfolio. DBRS Morningstar used a hybrid
approach in analyzing Regional's portfolio that incorporates
elements of static pool analysis, employed for assets such as
consumer loans, and revolving asset analysis, employed for assets
such as credit card master trusts.
-- The legal structure and presence of legal opinions that address
the true sale of the assets to the Issuer, the nonconsolidation of
the special-purpose vehicle with Regional, 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."
-- Credit enhancement in the transaction consists of
overcollateralization (OC), subordination, a reserve account, and
excess spread. The initial amount of OC is approximately 4.50% of
the Initial Loan Pool. The subordination in the transaction refers
to the Class B Notes, Class C Notes, and the Class D Notes, which
are subordinated to the Class A Notes (collectively, the Notes).
The reserve account is 1.00% of the Initial Loan Pool and is funded
at inception and non-declining. Initial Class A credit enhancement
of 23.00% includes a reserve account of 1.00%, OC of 4.50%, and
subordination of 17.50%. Initial Class B credit enhancement of
20.25% includes a reserve account of 1.00%, OC of 4.50%, and
subordination of 14.75%. Initial Class C credit enhancement of
13.60% includes a reserve account of 1.00%, OC of 4.50%, and
subordination of 8.10%. Initial Class D credit enhancement of 5.50%
includes a reserve account of 1.00% and OC of 4.50%.
Notes: All figures are in U.S. dollars unless otherwise noted.
SARATOGA INVESTMENT 2013-1: Moody's Gives '(P)Ba3' on E-R-3 Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to eight
classes of CLO refinancing notes to be issued by Saratoga
Investment Corp. CLO 2013-1, Ltd. (the "Issuer").
Moody's rating action is as follows:
US$330,000,000 Class A-1-R-3 Senior Secured Floating Rate Notes due
2033 (the "Class A-1-R-3" Notes) Assigned (P)Aaa (sf)
US$60,000,000 Class A-2-R-3 Senior Secured Floating Rate Notes due
2033 (the "Class A-2-R-3" Notes) Assigned (P)Aaa (sf)
US$55,000,000 Class B-FL-R-3 Senior Secured Floating Rate Notes due
2033 (the "Class B-FL-R-3" Notes) Assigned (P)Aa2 (sf)
US$11,000,000 Class B-FXD-R-3 Senior Secured Fixed Rate Notes due
2033 (the "Class B-FXD-R-3" Notes) Assigned (P)Aa2 (sf)
US$23,500,000 Class C-FL-R-3 Deferrable Mezzanine Floating Rate
Notes due 2033 (the "Class C-FL-R-3" Notes) Assigned (P)A2 (sf)
US$6,500,000 Class C-FXD-R-3 Deferrable Mezzanine Fixed Rate Notes
due 2033 (the "Class C-FXD-R-3" Notes) Assigned (P)A2 (sf)
US$36,000,000 Class D-R-3 Deferrable Mezzanine Floating Rate Notes
due 2033 (the "Class D-R-3" Notes) Assigned (P)Baa3 (sf)
US$25,500,000 Class E-R-3 Deferrable Mezzanine Floating Rate Notes
due 2033 (the "Class E-R-3" Notes) Assigned (P)Ba3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on our methodology and
considers all relevant risks particularly those associated with the
CLO's portfolio and structure.
The Issuer is a managed cash flow collateralized loan obligation
(CLO). The issued notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. At least 95%
of the portfolio must consist of first lien senior secured loans,
cash, and eligible investments, and up to 5% of the portfolio may
consist of second lien loans and unsecured loans.
Saratoga Investment Corp. (the "Manager") will continue to direct
the selection, acquisition and disposition of the assets on behalf
of the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's three-year
reinvestment period. Thereafter, the manager may not reinvest and
all proceeds received will be used to amortize the notes in
sequential order.
In addition to the issuance of the Refinancing Notes, the Issuer
will incorporate a variety of other changes to transaction features
in connection with the refinancing. These include: issuing an
additional class of secured notes, extension of the reinvestment
period; extensions of the stated maturity and non-call period;
changes to certain collateral quality tests; and changes to the
overcollateralization test levels; the inclusion of alternative
benchmark replacement provisions; additions to the CLO's ability to
hold workout and restructured assets, changes to the definition of
"Adjusted Weighted Average Rating Factor".
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 December 2020.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. For modeling
purposes, Moody's used the following base-case assumptions:
Portfolio par: $600,000,000
Diversity Score: 75
Weighted Average Rating Factor (WARF): 3000
Weighted Average Spread (WAS): 3.80%
Weighted Average Coupon (WAC): 6.0%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 8.2 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.
Moody's 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 Moody's 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
December 2020.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Refinancing Notes is subject to uncertainty.
The performance of the Refinancing Notes is sensitive to the
performance of the underlying portfolio, which in turn depends on
economic and credit conditions that may change. The Manager's
investment decisions and management of the transaction will also
affect the performance of the Refinancing Notes.
TIAA SEASONED 2007-C4: Fitch Lowers Rating on E Debt to CCC
-----------------------------------------------------------
Fitch Ratings has downgraded two classes and affirmed 11 classes of
TIAA Seasoned Commercial Mortgage Trust, series 2007-C4 commercial
mortgage pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
TIAA Seasoned Commercial Mortgage Trust 2007-C4
D 87246AAH1 LT BBsf Downgrade BBBsf
E 87246AAJ7 LT CCCsf Downgrade Bsf
F 87246AAK4 LT CCCsf Affirmed CCCsf
G 87246AAM0 LT CCsf Affirmed CCsf
H 87246AAN8 LT Csf Affirmed Csf
J 87246AAP3 LT Csf Affirmed Csf
K 87246AAQ1 LT Dsf Affirmed Dsf
L 87246AAR9 LT Dsf Affirmed Dsf
M 87246AAS7 LT Dsf Affirmed Dsf
N 87246AAT5 LT Dsf Affirmed Dsf
P 87246AAU2 LT Dsf Affirmed Dsf
Q 87246AAV0 LT Dsf Affirmed Dsf
S 87246AAW8 LT Dsf Affirmed Dsf
KEY RATING DRIVERS
High Loss Expectations/Specially Serviced Assets: Loss expectations
for the pool remain high given the concentrated nature of the deal
and high loss expectations of the largest asset, Algonquin Commons
Phase I & Phase II (84.6% of the pool). The loan transferred to
special servicing in August 2009; was subsequently modified in July
2010 then returned back to the special servicer in June 2012 for
payment default. The increased in expected losses and downgrades
are the result of ongoing litigation, uncertainty surrounded the
ultimate timing of the disposition and potential for high fees and
increasing expected losses if the resolution is protracted.
The properties are secured by two phases of an anchored retail
center located in Algonquin, IL. Phase I contains 418,451 square
feet (sf), built in 2003, and is anchored by Dick's Sporting Goods
(11.1% of the net rentable area [NRA]; January 2025). Phase II has
146,339 sf, built in 2005, and largest tenants include Ross Dress
for Less (5.8% of the NRA; January 2022) and Nordstrom Rack (5.3%
of the NRA; October 2026). As of the October 2020 rent rolls, total
occupancy was 74.1%.
There has been ongoing litigation between the trust and
borrower/guarantor since 2016. The trust was granted foreclosure in
April 2019 and included the right to pursue the guaranty for the
full recovery of Phase I and II amounts. The borrower subsequently
appealed the ruling; however, the Illinois Appellate court affirmed
the judgement on Dec. 3, 2020. The trust has other outstanding
suits against the borrower and motions have been filed to lift
stays on these suits now that the Appellate court has ruled.
Fitch's current loss expectations are based on the total exposure
of the assets, expected future fees due to the ongoing litigation
and other property protection advances and a discount to the most
recent valuations from the special servicer. Fitch's loss
expectation of 78% reflects a conservative assumption on value as
the resolution of the litigation remains uncertain, as performance
has declined, and updated appraisals from the special servicer were
not provided.
Outside of the specially serviced asset, one loan, Northport VII &
VIII (2.8% of the NRA), has been flagged as a Fitch Loan of Concern
(FLOC). The loan is secured by a 100,662-sf industrial center and
retail center located in Tampa, FL. The industrial portion is
anchored by Syndaver Labs (36.4% of the NRA) while the retail
property, Gunn Collection Retail Center, is fully occupied by CVS,
which has a lease expiration of Sept. 25, 2021.
As of July 1, 2020, occupancy declined to 76.7% from 100% at YE
2019 due to the departure of former top tenant, Dal-Tile
Distribution; and approximately 33% of NRA has lease expirations
between 2020 and 2021, including top tenants, Coram Healthcare
(20.1% of NRA; Oct. 19, 2021) and CVS Pharmacy (10.7% of NRA; Sept.
25, 2021). Per the borrower, the two tenants have not provided an
update on whether or not they are renewing. The loan is fully
amortizing, has a Fitch LTV of 38% and has an expected maturity
date of 2024. Fitch applied a 50% loss severity in its sensitivity
analysis to address the upcoming rollover concerns, lack of updated
financial information and declining occupancy. This analysis
contributed to the Negative Outlook on class D.
The remaining loan non-defeased loan, 900 West 23rd Street
Apartments (1.5% of the pool), is secured by a 52-unit garden
style, multifamily property located in Austin, TX. The property's
reported occupancy has been stable at 98% since 2017. The loan is
lowly levered, fully amortizing and has a maturity date in 2023.
Increasing Credit Enhancement: Since Fitch's last rating action,
three loans (previously 33.4% of the pool) have paid in full ahead
of their respective maturity dates. The disposition resulted in
classes B and C paying in full. Of the remaining non-specially
serviced loans, one loan (11.11% of the pool) is defeased and two
(4.26% of the pool) are low levered, fully amortizing loans with
maturity dates in 2023 and 2024. As of the January 2021 remittance,
the pool's aggregate balance has been reduced by 95.4% to $95
million from $2.09 billion at issuance. There are interest
shortfalls in the amount of $24.4 million affecting classes E
through T.
RATING SENSITIVITIES
The Negative Outlook on class D reflects the potential for future
downgrades if legal and other fees on Algonquin Phase I & II
increase and litigation resolution or timing of the ultimate
disposition remain uncertain. Classes rated 'CCCsf' and below will
be downgraded further if losses become more certain or are
realized.
Factor that could, individually or collectively, lead to a negative
rating action/downgrade:
-- Class D will be downgraded further if expected losses
increase. The remaining distressed ratings reflect the
expectation of losses; classes will be downgraded to 'Dsf' as
principal losses are incurred.
Factor that could, individually or collectively, lead to a positive
rating action/upgrade:
-- Although not currently expected, upgrades are possible with
higher certainty of a higher recovery on Algonquin Phase I &
II.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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.
TOWD POINT 2020-3: Fitch Assigns B Rating on 10 Tranches
--------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to Towd
Point Mortgage Trust 2020-3 (TPMT 2020-3). TPMT 2020-3 closed in
July 2020, and FirstKey added the exchangeable classes after the
transaction closed.
DEBT RATING
---- ------
TPMT 2020-3
B1A LT BBsf New Rating
B1AX LT BBsf New Rating
B1B LT BBsf New Rating
B1BX LT BBsf New Rating
B1C LT BBsf New Rating
B1CX LT BBsf New Rating
B1D LT BBsf New Rating
B1DX LT BBsf New Rating
B1E LT BBsf New Rating
B1EX LT BBsf New Rating
B2A LT Bsf New Rating
B2AX LT Bsf New Rating
B2B LT Bsf New Rating
B2BX LT Bsf New Rating
B2C LT Bsf New Rating
B2CX LT Bsf New Rating
B2D LT Bsf New Rating
B2DX LT Bsf New Rating
B2E LT Bsf New Rating
B2EX LT Bsf New Rating
TRANSACTION SUMMARY
As of the statistical calculation date, the notes were supported by
one collateral group that consisted of 12,585 seasoned performing
and re-performing mortgages with a total balance of approximately
$1.64 billion, which included $61 million, or 4%, of the aggregate
pool balance in non-interest-bearing deferred principal amounts.
The data in this press release reflects the transaction composition
as of the statistical calculation date.
KEY RATING DRIVERS
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage, SPLs and RPLs. Of the pool,
3.8% was 30 days delinquent as of the statistical calculation date,
and 23% of loans are current, but have had recent delinquencies or
incomplete 24-month pay strings. For the past 24 months, 73% of the
loans have been paying on time. Roughly, 55% have been modified.
Low Operational Risk (Positive): Operational risk is well
controlled for in this transaction. FirstKey Mortgage, LLC 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-'/Negative and 'RPS2+'/Negative,
respectively, for this product type. The benefit of highly rated
servicers decreased Fitch's loss expectations by 134 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 17 bps (SPS
servicing fee of 17 bps and SLS servicing fee of 32 bps) 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 50-bp servicing fee.
Third-Party Due Diligence (Negative): A third-party due diligence
review was conducted on 64% of the loan by loan count / 74% 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 which are assessed as 'Acceptable-Tier 1' TPR
firms by Fitch. The results of the review indicate moderate
operational risk with approximately 9.1% of the entire pool (14% of
the reviewed loans) were 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. See the Third-Party Due Diligence section for
additional details.
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 newly originated loans are receiving R&Ws applicable for
seasoned collateral; Fitch treated these loans as Tier 5. Fitch
increased its 'AAAsf' loss expectations by 174 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. See
Mortgage Loan Representations and Warranties section for more
detail.
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 August 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 August 2021.
No Servicer P&I Advances (Mixed): The servicers will not be
advancing delinquent monthly payments of P&I, which reduces
liquidity to the trust. P&I advances made on behalf of loans that
become delinquent and eventually liquidate reduce liquidation
proceeds to the trust. Due to the lack of P&I advancing, the
loan-level loss severity (LS) is less for this transaction than for
those where the servicer is obligated to advance P&I. Structural
provisions and cash flow priorities, together with increased
subordination, provide for timely payments of interest to the
'AAAsf' and 'AAsf' rated classes.
Sequential-Pay Structure (Positive): The transaction's cash flow is
based on a sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to re-allocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
Deferred Amounts (Negative): Non-interest-bearing principal
forbearance amounts totaling $61 million (4%) of the UPB are
outstanding on 2,656 loans. Fitch included the deferred amounts
when calculating the borrower's loan-to-value ratio (LTV) and
sustainable LTV (sLTV), despite the lower payment and amounts not
being owed during the term of the loan. The inclusion resulted in a
higher probability of default (PD) and LS than if there were no
deferrals. Fitch believes that borrower default behavior for these
loans will resemble that of the higher LTVs, as exit strategies
(i.e. sale or refinancing) will be limited relative to those
borrowers with more equity in the property.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. The implied rating sensitivities are only
an indication of some of the potential outcomes and do not consider
other risk factors that the transaction may become exposed to or
that may be considered in the surveillance of the transaction.
Sensitivity analysis was conducted at the state and national levels
to assess the effect of higher MVDs for the subject pool, as well
as lower MVDs illustrated by a gain in home prices.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to negative MVDs at the national
level, or positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth
of 10%. Excluding the senior class, which is already 'AAAsf',
the analysis indicates there is potential positive rating
migration for all of the rated classes. Specifically a 10%
gain in home prices would result in a full category upgrade
for the rated class excluding those being assigned ratings of
'AAAsf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10%, 20% and 30% in
addition to the model-projected 39.5% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
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.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
CRITERIA VARIATION
Fitch's analysis incorporated three criteria variations from its
"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 10% 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 due diligence compliance and data
integrity review was not completed on approximately 36% of the pool
by loan count. The sample meets Fitch's criteria for second liens
and SPL loans as 31% of the second liens and 48% of the SPL loans
were reviewed (the criteria allows for a 20% sample). Fitch defines
SPL as loans that 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. 44% of the pool is
categorized as RPL, and Fitch's criteria expects 100% review for
RPL loans (90% was reviewed). The loans in the pool are
predominately from two sources with nearly 80% of the loans in the
pool from a single source. Of the loans reviewed, only about 1.5%
had findings, which Fitch made an adjustment for in its analysis;
therefore, Fitch believes the sample does not introduce additional
operational risk to the transaction.
Additionally, 2% of the pool consists of new origination (loans
seasoned less than 24 month) and a credit and valuation review was
not completed for these loans. While a full credit review was not
completed, the ATR status was checked and updated values were
provided in lieu of a valuations review. This variation had no
rating impact.
The third 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 newly originated
loans, the SPL and second liens meet 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 10% of
the RPL loans. As nearly 80% of the loans are from a single source,
Fitch believes the sample does not introduce additional operational
risk to the transaction.
In addition, the loans are approximately 12.5 years seasoned and
73% 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 that were provided on the loan tape were provided by the
current servicer where applicable. This variation had no rating
impact.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
A third-party regulatory compliance review was completed on
approximately 64% of the loans (by loan count) in the transaction
pool. The sample meets Fitch's criteria for second liens and SPL
loans. 31% of the second liens and 48% of the SPL loans were
reviewed, which meets Fitch's criteria as the criteria allows for a
20% sample. Fitch defines SPL as loans that 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 and newly originated
loans. 44% of the pool is categorized as RPL by Fitch, and criteria
expects 100% review for RPL loans (90% was reviewed). The loans in
the pool are predominately from two sources with close to 80% of
the loans in the pool from a single source. Of the loans reviewed,
only about 1.5% had findings, which Fitch made an adjustment for in
its analysis and therefore Fitch believes the sample does not
introduce additional operational risk to the transaction.
Additionally, 2% of the pool consists of new origination (loans
seasoned less than 24 month) and a credit and valuation review was
not completed for these loans. While a full credit review was not
completed, the ATR status was checked and updated values were
provided in lieu of a valuations review.
1,147, or about 9% of the pool (14% of the reviewed loans) were
assigned a grade of 'C' or 'D'. The diligence results indicated
similar operational risk to prior TPMT transactions as well as
other Fitch-reviewed RPL transactions.
For 163 of the 'C' or 'D' grades, Fitch adjusted its loss
expectation to reflect the missing documents that prevented the
testing for predatory lending compliance and the missing
modification agreements. The inability to test for predatory
lending may expose the trust to potential assignee liability, which
creates added risk for bond investors. Fitch make and adjustment
for loan modification agreements (LMAs) identified as pending
receipt in the custodial report. For this pool, 2,126 were
identified as such, however all but 452 of the loans had imaged
LMAs in their respective servicing file and were used by the TPRs
to facilitate the modification review and capture the modified loan
repayment terms. Fitch believes that the imaged files are
sufficient to demonstrate the borrower's contractual obligations
under the terms of the LMA and unlikely to materially delay or
prevent enforceability.
Fitch adjusted its loss expectation at the 'AAAsf' rating stress by
approximately 10 bps to reflect the additional risks.
The remaining 984 loans graded 'C' or 'D' were due to missing Final
HUD1's that are not subject to predatory lending, missing state
disclosures, and other compliance related missing documents. Fitch
believes these issues do not add material risk to bondholders since
the statute of limitations has expired. No adjustment to loss
expectations were made for these 984 loans.
Fitch received certifications indicating that due diligence was
conducted in accordance with its published standards for
legal/regulatory compliance. The certifications also stated that
the companies performed their work in accordance with the
independence standards, per Fitch's "U.S. RMBS Rating Criteria."
The due diligence analysts performing the reviews met Fitch's
criteria of minimum years of experience.
Form ABS Due Diligence 15E was received from each of the TPR firms.
The 15E forms were reviewed and used as a part of the rating for
this transaction.
ESG CONSIDERATIONS
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.
VCP CLO II: DBRS Gives Prov. BB(low) Rating on Class E Notes
------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the Class
A-1 Notes, Class A-2 Notes, Class B-1 Notes, Class B-2 Notes, Class
C Notes, Class D Notes, and Class E Notes to be issued by VCP CLO
II, Ltd. (the Issuer or VCP CLO II) and VCP CLO II, LLC pursuant to
the Indenture to be dated as of [March] [4], 2021, by and among the
Co-Issuers and Wells Fargo Bank, National Association as the
Trustee:
-- Class A-1 Notes rated AAA (sf)
-- Class A-2 Notes rated AAA (sf)
-- Class B-1 Notes rated AA (sf)
-- Class B-2 Notes rated AA (sf)
-- Class C Notes rated A (sf)
-- Class D Notes rated BBB (low) (sf)
-- Class E Notes rated BB (low) (sf)
The DBRS Morningstar provisional ratings on the Class A-1 Notes,
Class A-2 Notes, Class B-1 Notes, and Class B-2 Notes address the
Issuer's ability to make timely payments of interest and ultimate
payments of principal on or before the Stated Maturity. The DBRS
Morningstar provisional ratings on the Class C Notes, Class D
Notes, and Class E Notes address the Issuer's ability to make
ultimate payments of interest and ultimate payments of principal on
or before the Stated Maturity.
VCP CLO II is a cash flow collateralized loan obligation (CLO)
transaction that is collateralized primarily by a portfolio of U.S.
senior secured broadly syndicated corporate loans and will be
managed by Vista Credit Partners, L.P. DBRS Morningstar considers
Vista Credit Partners, L.P. to be an acceptable collateralized loan
obligation manager.
The provisional ratings reflect the following:
(1) The draft Indenture to be dated as of [March] [4], 2021.
(2) The integrity of the transaction's structure.
(3) DBRS Morningstar's assessment of the portfolio's quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and CLO management capabilities of Vista Credit Partners, L.P.
As the Coronavirus Disease (COVID-19) spread around the world,
certain countries imposed quarantines and lockdowns, including the
United States, which accounts for more than one fourth of confirmed
cases worldwide. The coronavirus pandemic has negatively affected
not only the economies of the nations most afflicted, but also the
overall global economy with diminished demand for goods and
services as well as disrupted supply chains. The effects of the
pandemic may result in deteriorated financial conditions for many
companies and obligors, some of which will experience the effects
of such negative economic trends more than others. At the same
time, governments and central banks in multiple regions, including
the United States and Europe, have taken significant measures to
mitigate the economic fallout from the coronavirus pandemic.
In conjunction with DBRS Morningstar's commentary, "Global
Macroeconomic Scenarios: Implications for Credit Ratings,"
published on April 16, 2020, and its updated commentary, "Global
Macroeconomic Scenarios: January 2021 Update," published on January
28, 2021, DBRS Morningstar further considers additional adjustments
to assumptions for the CLO asset class that consider the moderate
economic scenario outlined in the commentary. After a review of the
transaction's target closing portfolio and publicly available
ratings on the Collateral Obligations, DBRS Morningstar decided
that the collateral credit ratings reflect the economic risk of the
coronavirus, commensurate with a moderate-impact scenario.
Notes: All figures are in U.S. dollars unless otherwise noted.
VENTURE 41: S&P Assigns BB- (sf) Rating on $22.5MM Class E Notes
----------------------------------------------------------------
S&P Global Ratings assigned its ratings to Venture 41 CLO
Ltd./Venture 41 CLO LLC's floating- and fixed-rate notes.
The note issuance is a CLO securitization backed by primarily
broadly syndicated speculative-grade (rated 'BB+' and lower) senior
secured term loans that are governed by collateral quality tests.
The ratings reflect S&P's view of:
-- The diversification of the collateral pool;
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization;
-- The experience of the collateral management team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
Venture 41 CLO Ltd./Venture 41 CLO LLC
Class A-1N, $283.680 million: AAA (sf)
Class A-1F, $26.320 million: AAA (sf)
Class A-2, $15.000 million: AAA (sf)
Class B-N, $44.473 million: AA (sf)
Class B-F, $10.527 million: AA (sf)
Class C (deferrable), $30.000 million: A (sf)
Class D (deferrable), $25.000 million: BBB (sf)
Class E (deferrable), $22.500 million: BB- (sf)
Subordinated notes, $49.750 million: Not rated
VERUS SECURITIZATION 2021-1: S&P Assigns B(sf) Rating on B-2 Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to Verus Securitization
Trust 2021-1's mortgage-backed notes.
The note issuance is an RMBS securitization back primarily by
first-lien, fixed-, and adjustable-rate residential mortgage loans,
including mortgage loans with initial interest-only periods and/or
balloon terms. The loans are secured primarily by single-family
residential properties, planned-unit developments, condominiums,
mixed-use properties, townhouses, and two- to four-family
residential properties to both prime and nonprime borrowers. The
pool has 1,100 loans backed by 1,129 properties, which are
primarily non-qualified mortgage (non-QM/ATR compliant) and
ATR-exempt loans.
S&P said, "Since we assigned our preliminary ratings on Feb. 4,
which reflected the term sheet dated Feb. 2, 2021, the final pool
balance and class balances (including unrated classes) increased by
$2,796 to $482,780,530. The note balances saw a corresponding
change: The A-1 note balance increased by $2,000 to $337,705,000,
and the B-3 note balance increased by $796 to $7,484,430 to keep
the rounded credit enhancement levels the same. Our loss coverage
estimates at different rating levels and the ratings assigned to
the bonds remained the same as during our preliminary ratings."
The ratings reflect S&P's view of:
-- The pool's collateral composition;
-- The transaction's credit enhancement;
-- The transaction's associated structural mechanics;
-- The transaction's representation and warranty framework;
-- The transaction's geographic concentration;
-- The mortgage aggregator, Invictus Capital Partners; and
-- The impact the COVID-19 pandemic will likely have on the
performance of the mortgage borrowers in the pool and liquidity
available in the transaction.
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Ratings Assigned
Verus Securitization Trust 2021-1(i)
Class A-1, $337,705,000: AAA (sf)
Class A-1X-1, notional amount(ii): AAA (sf)
Class A-1X-2, notional amount(ii): AAA (sf)
Class A-1B(iii), $337,705,000: AAA (sf)
Class A-2, $32,587,000: AA (sf)
Class A-3, $59,382,000: A (sf)
Class M-1, $25,587,000: BBB- (sf)
Class B-1, $13,276,000: BB- (sf)
Class B-2, $6,759,000: B (sf)
Class B-3, $7,484,430: Not rated
Class A-IO-S, notional amount(iv): Not rated
Class XS, notional amount(iv): Not rated
Class P, $100: Not rated
Class DA, amount not applicable: Not rated
Class R, amount not applicable: Not rated
(i)The ratings address the ultimate payment of interest and
principal.
(ii)The notional amount of class A-1X-1 and A-1X-2 equals the class
A-1 balance as of the prior distribution date.
(iii)The class A-1 and A-1X-1 notes together are exchangeable for
the class A-1B MACR notes.
(iv)The notional amount equals the loans' stated principal balance.
WELLS FARGO 2015-C29: Fitch Lowers Rating on Class F Certs to 'B-'
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Fitch has downgraded one and affirmed 10 classes of Wells Fargo
Commercial Mortgage (WFCM) Trust 2015-C29 commercial mortgage
pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
WFCM 2015-C29
A-3 94989KAU7 LT AAAsf Affirmed AAAsf
A-4 94989KAV5 LT AAAsf Affirmed AAAsf
A-S 94989KAX1 LT AAAsf Affirmed AAAsf
A-SB 94989KAW3 LT AAAsf Affirmed AAAsf
B 94989KBA0 LT AA-sf Affirmed AA-sf
C 94989KBB8 LT A-sf Affirmed A-sf
D 94989KBC6 LT BBB-sf Affirmed BBB-sf
E 94989KAE3 LT BBsf Affirmed BBsf
F 94989KAG8 LT B-sf Downgrade Bsf
PEX 94989KBD4 LT A-sf Affirmed A-sf
X-A 94989KAY9 LT AAAsf Affirmed AAAsf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrade of class F was driven by
increased loss expectations on a greater number of Fitch Loans of
Concern (FLOCs) that have been affected by the slowdown in economic
activity related to the coronavirus pandemic. Fitch has designated
21 loans (23.8% of pool) as FLOCs, including six specially serviced
loans (3.4%), all of which are new transfers since April 2020 due
to the coronavirus pandemic.
Fitch's current ratings incorporate a base case loss of 6.10%. The
Negative Rating Outlooks on classes E and F factor in additional
stresses related to the coronavirus pandemic, which reflect losses
that could reach 7.00%.
The largest contributor to Fitch's overall loss expectations and
the largest increase in loss since the prior rating action is the
Dulles North Corporate Parks loan (2% of pool), which is secured by
a suburban office building and a data center totaling 159,601
square feet (sf). The property is located in Sterling, VA, and
consists of 79,210sf of Class B office space and a 80,391sf data
center. The property has experienced continued low occupancy after
the sole tenant in the data center portion of the collateral (NTT
Worldwide Communications, 50.4% of total NRA) vacated in early 2019
prior to its February 2020 lease expiration.
As of September 2020, the data center was still vacant and the
office portion of the property was fully occupied, with total
combined occupancy of 49.6%. YE 2019 NOI subsequently declined 76%
from YE 2018. The tenant agreed to pay a net lease termination fee
of $4.6 million to the borrower, which was required to be deposited
in lender-held reserves. As of January 2021, the termination fee
has been received by the borrower but has not yet been deposited
with the lender. Per the borrower, a broker continues to
aggressively market the space for lease.
The next largest increase in loss since the prior rating action is
the Hall Office Park loan (2.2%), which is secured by a six-story
office building located in Frisco, TX, approximately 25 miles north
of the Dallas CBD. Occupancy remains low after the former largest
tenant, Fiserv (35% of NRA; 41% of total base rents) vacated at
lease expiration in 2019. The borrower previously stated it will
re-lease the space in the normal course of business, but nothing
has been executed at this time. YE 2019 NOI declined 33% from YE
2018 due to the increased vacancy.
Cash flow reported for the YTD September 2020 period was negative.
The property was 60.6% occupied as of September 2020, compared with
56.6% in January 2020 and 86.5% in January 2019.
The next largest increase in loss since the prior rating action is
the Louisville Plaza loan (1.4%), which is secured by a retail
center in Louisville, CO. The lease for the King Soopers grocery
anchor (38.5% of NRA and 32% of total base rents) is scheduled to
expire in May 2022. The property was 82% leased as of September
2020. Property performance was previously negatively affected by
Hobby Lobby (31% of NRA) vacating at its August 2018 lease
expiration. Approximately half the former Hobby Lobby space has
been re-leased to new tenants, including Planet Fitness (13% of NRA
expiring in July 2031).
The Planet Fitness location is open. According to the servicer, the
borrower stated that property performance has been negatively
affected by coronavirus-related hardships. YE 2019 NOI was 14%
below YE 2018 due to the increased vacancy from Hobby Lobby
vacating. However, total annual base rents, as reflected on the
September 2020 rent roll, are approximately 33% above total base
rents reported for YE 2019 due to the new lease with Planet
Fitness.
Increased Credit Enhancement: As of the January 2021 distribution
date, the pool's aggregate principal balance was paid down by 8.7%
to $1.07 billion from $1.18 billion at issuance. Defeasance
increased to 10.6% of the pool (12 loans; $114 million) as of
January 2021 from 8.8% (eight loans; $97.1 million) at the last
rating action. Since the last rating action, two loans (a combined
$6.5 million) were repaid in full prior to or post maturity. There
have been no realized losses since issuance. Interest shortfalls of
approximately $78,000 are currently affecting the nonrated class
G.
Fourteen loans (13.4%) are full term interest-only and the
remainder of the pool (86.7% of pool; 114 loans) is currently
amortizing. Scheduled loan maturities include one loan (0.1%) in
2022, and the remaining 127 loans (99.9%) mature in 2025.
Additional Stresses Applied due to Coronavirus Exposure: Loans
secured by retail, hotel and multifamily properties represent 23.5%
of the pool (39 loans), 4.8% (seven loans) and 16.4% (16 loans),
respectively. The retail loans have a weighted average (WA) NOI
debt service coverage ratio (DSCR) of 1.78x and can withstand an
average 43.7% decline to NOI before DSCR falls below 1.00x. The
hotel loans have a WA NOI DSCR of 1.73x and can withstand an
average 42.2% decline to NOI before DSCR falls below 1.00x. The
multifamily loans have a WA NOI DSCR of 2.23x and can withstand an
average 55.1% decline to NOI before DSCR falls below 1.00x.
Fitch's analysis applied additional coronavirus-related stresses on
14 retail loans (9.9%), three hotel loans (2.5%) and one
multifamily loan (Jackson Square Apartments; 1%) to account for
potential cash flow disruptions due to the coronavirus pandemic.
These additional stresses contributed to the downgrade of class F
and the Negative Rating Outlooks on classes E and F.
Co-Op Collateral: The pool contains 27 loans (5.7% of pool) secured
by multifamily co-operative properties, all of which are located in
New York, within the greater New York City Metro area.
RATING SENSITIVITIES
The Negative Rating 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. The Stable Rating Outlooks on classes
A-3 through D reflect the relatively stable performance of the
majority of the pool and 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 to classes B and C would only occur with significant
improvement in credit enhancement and/or defeasance and with
the stabilization of performance on the FLOCs and/or the
properties affected by the coronavirus pandemic. Classes would
not be upgraded above 'Asf' if there is a likelihood of
interest shortfalls.
-- Upgrades to class D are not likely until the later years in
the transaction, and only if the performance of the remaining
pool is stable and/or properties vulnerable to the pandemic
return to pre-pandemic levels, and there is sufficient credit
enhancement to the class. Classes E and F are unlikely to be
upgraded absent significant performance improvement on the
FLOCs and 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 losses from underperforming or
specially serviced loans/assets. Downgrades to classes A-3
through A-SB are not likely due to the position in the capital
structure, but may occur should interest shortfalls affect
these classes. A downgrade of one category to classes A-S and
X-A is possible should expected losses for the pool increase
significantly and/or should all of the loans susceptible to
the coronavirus pandemic suffer losses and/or if interest
shortfalls occur.
-- Downgrades to classes B and C are possible should expected
losses for the pool increase significantly, performance of the
FLOCs continue to decline, additional loans transfer to
special servicing and/or loans susceptible to the coronavirus
pandemic not stabilize. Downgrades to class D would occur
should loss expectations increase due to a continued decline
in the performance of the FLOCs, an increase in specially
serviced loans or the disposition of a specially serviced loan
at a high loss.
-- The Negative Rating Outlooks on classes E and F may be revised
back to Stable if performance of the FLOCs improve and/or
properties vulnerable to the coronavirus pandemic eventually
stabilize. Further downgrades to class F would occur as losses
are realized and/or become more certain.
-- In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond
2021. Should this scenario play out, classes with Negative
Rating Outlooks will be downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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 2016-C34: DBRS Cuts Rating on 2 Classes of Certs to CCC
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DBRS Limited downgraded seven classes of Commercial Mortgage
Pass-Through Certificates, Series 2016-C34 issued by Wells Fargo
Commercial Mortgage Trust 2016-C34 as follows:
-- Class X-B to AA (low) (sf) from AA (sf)
-- Class B to A (high) (sf) from AA (low) (sf)
-- Class C to BBB (high) (sf) from A (low) (sf)
-- Class D to B (high) (sf) from BBB (low) (sf)
-- Class X-E to B (low) (sf) from BB (low) (sf)
-- Class E to CCC (sf) from B (high) (sf)
-- Class F to CCC (sf) from B (sf)
In addition, DBRS Morningstar confirmed the ratings on the
following classes:
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-FG at B (low) (sf)
-- Class G at CCC (sf)
DBRS Morningstar also discontinued the rating on Class A-1 as the
class was repaid with the December 2020 remittance. Classes C, D,
E, F, G, X-E, and X-FG were removed from Under Review with Negative
Implications where they were placed on August 6, 2020. In addition,
the designation of Interest in Arrears was placed on Classes E, F,
and G.
All trends are Stable, with the exception of Classes B, C, D, X-B,
X-E, and X-FG, which have Negative trends. Classes E, F, and G are
assigned ratings that do not carry a trend.
The rating downgrades and Negative trends are reflective of the
increased risks to the trust since issuance, which are generally
concentrated in two of six specially serviced top 10 loans in this
transaction. Both of these loans were liquidated in the analysis
for this review, suggesting losses to the trust could be realized
that would put significant negative pressure on the two lowest
rated classes, Classes E and F, which were assigned CCC (sf)
ratings with this review. These largest loans in special servicing
have been in default for the last year or more and DBRS Morningstar
previously downgraded the ratings for five classes in this
transaction in February 2020. However, in the last year, the
outlook for these loans has deteriorated, as further discussed
below, supporting the additional downgrades taken with this
review.
These loans include the largest loan in the pool, Regent Portfolio
(Prospectus ID#1;10.2% of the pool balance), which is primarily
secured by a portfolio of medical office properties in New York and
Florida. The loan transferred to special servicing in June 2019 for
payment default and, as of the January 2021 remit, is over 30 days
delinquent. According to the servicer, workout discussions were
ongoing when the borrower filed for Chapter 11 bankruptcy in
February 2020. As of January 2021, the discussions with the special
servicer are continuing. The portfolio is primarily owned by Dr.
John Hajjar, a medical doctor as well as the primary owner of the
portfolio's largest tenant, Sovereign Medical Services Inc. (SMS).
At issuance, SMS was 70.0% owned and controlled by Dr. Hajjar and
SMS guarantees the leases of all its affiliates. The most recently
reported occupancy rate for the portfolio was 78.5% as of March
2020, down from 90.0% at issuance.
Since the loan's transfer to special servicing, one of the
portfolio properties was sold in the Hajjar MOB – Wayne property,
located in Wayne, New Jersey. The net proceeds of $11.3 million
from the sale compare with the issuance appraised value of $13.9
million for that property and funds were used to recover
outstanding servicer advances and to pay past due debt service
payments. An updated appraisal has not been obtained to date, but,
given the differential between the sale proceeds and the issuance
valuation for the Wayne property, it is likely the as-is value for
the portfolio is well below the issuance figures. The increased
risks with the outstanding defaults and long-term stint in special
servicing suggest the prospects for a resolution without a
significant loss to the trust are quite dim. A loss severity in
excess of 25.0% was assumed as part of this review.
The other specially-serviced loan driving the rating actions taken
with this review is the 200 Precision and 425 Privet Portfolio
(Prospectus ID#6; 4.2% of the pool balance), which is secured by
two mixed-use properties in Horsham, Pennsylvania. The loan
transferred to special servicing in November 2019 following the
loss of a major tenant, Teva Pharmaceuticals, which previously
occupied 48.7% of the portfolio's combined net rentable area (NRA),
as the tenant exercised its early termination option. In addition,
the collateral previously lost the former second-largest tenant,
Optium Finisar (25.8% of the portfolio NRA) in 2018 and occupancy
has been depressed since, with the June 2020 occupancy reported at
39.8%. Based on the December 2020 appraisal, the collateral was
valued at $21.3 million, which is a 45.5% decline from the issuance
value of $39.1 million. A foreclosure was finalized in November
2020 and the servicer expects the title transfer to be finalized in
the near term. DBRS Morningstar's analysis assumed a loss severity
in excess of 40.0%, based on the December 2020 appraisal figure.
DBRS Morningstar has been monitoring another top 10 loan in special
servicing in the Shoppes at Alafaya (Prospectus ID #10, 3.0% of the
pool). That loan is secured by a retail property in Orlando,
Florida, that has been in special servicing since October 2018,
following the loss of the property's Toys "R" Us (TRU) store, which
represented approximately 49.0% of the NRA. However, Burlington
recently backfilled the majority of the former TRU space, moving
into the property in 2020. The space was built out during 2020 and
the tenant was open for business by the fourth quarter of 2020. A
December 2020 value obtained by the special servicer showed an
as-is value of $25.5 million, still below issuance but above the
total trust exposure of $22.6 million as of January 2021 and above
the appraisal showing an as-is value of $22.0 million in December
2018.
In addition to the above-mentioned loans, three loans in special
servicing are secured by hotel properties that were negatively
affected by the Coronavirus Disease (COVID-19) pandemic. With the
January 2021 remittance, loans representing 33.4% of the pool
balance are in special servicing. There is also a high
concentration of loans backed by retail properties in the
transaction, representing 39.5% of the pool balance. Retail
properties have also been among the most severely affected by the
impact of the pandemic.
According to the January 2021 remit, one loan is fully defeased,
representing 0.7% of the pool balance, and 24 loans are on the
servicer's watchlist, representing 39.0% of the pool balance. The
watchlisted loans are being monitored for various reasons,
including a low debt-service coverage ratio, low occupancy,
forbearance requests, trigger events, or upcoming loan maturity.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2017-RB1: Fitch Affirms B- Rating on 2 Tranches
-----------------------------------------------------------
Fitch Ratings has affirmed all classes of Wells Fargo Commercial
Mortgage Trust 2017-RB1.
DEBT RATING PRIOR
---- ------ -----
WFCM 2017-RB1
A-2 95000TBP0 LT AAAsf Affirmed AAAsf
A-3 95000TBQ8 LT AAAsf Affirmed AAAsf
A-4 95000TBR6 LT AAAsf Affirmed AAAsf
A-5 95000TBS4 LT AAAsf Affirmed AAAsf
A-S 95000TBU9 LT AAAsf Affirmed AAAsf
A-SB 95000TBT2 LT AAAsf Affirmed AAAsf
B 95000TBX3 LT AA-sf Affirmed AA-sf
C 95000TBY1 LT A-sf Affirmed A-sf
D 95000TAC0 LT BBB-sf Affirmed BBB-sf
E 95000TBA3 LT BB-sf Affirmed BB-sf
E-1 95000TAE6 LT BB+sf Affirmed BB+sf
E-2 95000TAG1 LT BB-sf Affirmed BB-sf
EF 95000TBE5 LT B-sf Affirmed B-sf
F 95000TBC9 LT B-sf Affirmed B-sf
X-A 95000TBV7 LT AAAsf Affirmed AAAsf
X-B 95000TBW5 LT A-sf Affirmed A-sf
X-D 95000TAA4 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Increased Loss Expectations: While the majority of the pool
continues to exhibit stable performance, loss expectations have
increased, primarily due to a greater number of Fitch Loans of
Concern (FLOCs) that have been affected by the slowdown in economic
activity attributed to the coronavirus pandemic. Fourteen loans
(30.4% of pool) are designated as FLOCs, including two loans (6.8%)
in special servicing. Fitch's current ratings incorporate a base
case loss of 5.10%. The Negative Outlooks on classes E, F, E-1, E-2
and EF reflect losses that could reach 6.30% when factoring in
additional stresses related to the coronavirus pandemic.
FLOCs: The largest increase in loss since the prior review is the
Anaheim Marriott Suites loan (3.9%), which is secured by a 371-key
full-service hotel located in Garden Grove, CA. The property was
built in 2002, later renovated in 2016, and is located within three
miles of Disneyland and 1.5 miles of Anaheim Convention Center. The
loan transferred to special servicing in June 2020 due to imminent
default as a result of the coronavirus pandemic. The special
servicer and borrower are working toward finalizing potential debt
relief terms. As of TTM August 2020, occupancy, ADR and RevPAR
declined to 55.3%, $124 and $69, respectively, from $88.7%, $135
and $120, respectively, as of TTM August 2019.
The second largest increase in loss since the prior review is The
Summit Birmingham loan (3.7%), which is secured by a 688,852-sf
lifestyle center located in Birmingham, AL. The largest tenants are
Belk (23.7% of NRA; lease expiry in January 2023), RSM US (5.2%;
October 2021) and Barnes & Noble (3.7%; February 2023). Belk filed
for Chapter. 11 bankruptcy in January 2021. Occupancy declined to
92.3% as of October 2020 from 95% at YE 2019. As of the October
2020 rent roll, 0.8% of the NRA is dark (Sur La Table vacated in
August 2020, but continues to make rental payments; lease expiry in
January 2023), 0.5% is on month-to-month terms (two tenants), 0.5%
had leases that expired by YE 2020 (2 tenants), 7.2% rolls in 2021
(7 tenants), 9% in 2022 (11 tenants) and 29.7% in 2023 (11 tenants)
and 10.1% in 2024 (20 tenants).
The third largest increase in loss since the prior review is the
Hotel Wilshire loan (4.1%), which is secured by a 74-room, boutique
full-service hotel located in Los Angeles, CA. The property was
originally developed as a medical office property in 1950. The
building was completely gutted in 2009 and reopened as a hotel in
2011. The property underwent an extensive $1.9 million renovation
between October 2018 and August 2019, which required entire floors
to be taken offline resulting in decreased cash flow. Occupancy,
ADR and RevPAR declined to 55.5%, $203 and $112, respectively as of
TTM October 2020 from 84.1%, $245 and $206, respectively as of TTM
October 2019.
Increased Credit Enhancement (CE): As of the January 2021
remittance reporting, the pool's aggregate balance has paid down by
2.2% to $623.4 million from $637.6 million at issuance. One loan
(2.0% of pool) is fully defeased. Thirteen loans (53.4%) are full
term interest only and the remaining 23 loans (46.6%) are
amortizing. Loan maturities include one loan (3.3%) in 2022, one
loan (6.4%) in 2026 and 34 loans (90.3%) in 2027.
Additional Stresses Applied due to Coronavirus Exposure: Nine loans
(18.6% of pool) are secured by retail properties and three loans
(9.4%) are secured by hotel properties. Fitch applied additional
coronavirus-related stresses to five retail loans (7.9%) and two
hotel loans (5.6%); these additional stresses contributed to the
Negative Rating Outlooks on classes E, F, E-1, E-2 and EF.
RATING SENSITIVITIES
The Negative Outlooks on classes E, F, E-1, E-2 and EF reflect the
potential for downgrade given the concerns associated with the
performance of the FLOCs and ultimate impact of the coronavirus
pandemic. The Stable Outlooks on classes A-2, A-3, A-4, A-5, A-SB,
A-S, B, C, D, X-A, X-B and X-D reflect increased CE since issuance
and continued expected amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Sensitivity factors that lead to upgrades would include stable
to improved asset performance, particularly on the FLOCs,
coupled with additional paydown and/or defeasance. Upgrades to
classes B, C, X-B and X-D would occur with significant
improvement in CE and/or defeasance and with the stabilization
of performance on the FLOCs and/or the properties affected by
the coronavirus pandemic; however, adverse selection and
increased concentrations could cause this trend to reverse. An
upgrade to class D would also take into account these factors,
but would be limited based on sensitivity to concentrations or
the potential for future concentration.
-- Classes would not be upgraded above 'Asf' if interest
shortfalls are likely. Upgrades to classes E, F, E-1, E-2 and
EF are not likely until the later years in the transaction and
only if the performance of the remaining pool is stable and/or
properties vulnerable to the coronavirus return to pre
pandemic levels, and there is sufficient CE.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Sensitivity factors that lead to downgrades include an
increase in pool-level losses from underperforming or
specially serviced loans/assets. Downgrades to classes A-2, A
3, A-4, A-5, A-SB, A-S, B, X-A and X-B are not likely due to
the position in the capital structure, but may occur should
interest shortfalls affect these classes.
-- Downgrades to classes C, D and X-D are possible should
expected losses for the pool increase significantly and/or one
or more large loans incur an outsized loss, which would erode
CE. Downgrades to classes E, F, E-1, E-2 and EF are possible
if performance of the FLOCs, including the two specially
serviced loans, or loans susceptible to the coronavirus
pandemic not stabilize and/or additional loans default or
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
additional negative rating actions, including further Downgrades
and/or Negative Outlook revisions.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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 2021-SAVE: Moody's Rates Class E Certs 'Ba2 (sf)'
-------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to eight
classes of CMBS securities, issued by Wells Fargo Commercial
Mortgage Trust 2021-SAVE, Commercial Mortgage Pass-Through
Certificates, Series 2021-SAVE:
Cl. A, Definitive Rating Assigned Aaa (sf)
Cl. B, Definitive Rating Assigned Aa3 (sf)
Cl. C, Definitive Rating Assigned A3 (sf)
Cl. D, Definitive Rating Assigned Baa3 (sf)
Cl. E, Definitive Rating Assigned Ba2 (sf)
Cl. HRR, Definitive Rating Assigned Ba3 (sf)
Cl. X-CP*, Definitive Rating Assigned Aa3 (sf)
Cl. X-NCP*, Definitive Rating Assigned Aa3 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The certificates are collateralized by a single, floating-rate loan
secured by the borrower's fee simple interest in a portfolio of 41
grocery stores, two industrial properties and two office properties
(the "portfolio"), all leased and occupied under a unitary master
lease by Save Mart Supermarkets. Moody's ratings are based on the
credit quality of the loan and the strength of the securitization
structure.
Moody's approach to rating this transaction involved the
application of both Moody's Large Loan and Single Asset/Single
Borrower CMBS methodology and our 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 consider a range of qualitative issues as well as the
transaction's structural and legal aspects.
The portfolio is located across California and Nevada, in 13
Metropolitan Statistical Areas, primarily concentrated in
California's Central Valley and the Bay Area.
The grocery stores (77.1% of NRA, 88.8% of in-place base rent) are
under three retail banners: 20 properties are under the Lucky/Lucky
California banner, a line of full service grocers with primary
presence in California's Bay Area; 13 properties are under the Save
Mart banner, a line of full-service grocers with primary presence
in California's Central Valley area; and 8 properties are under the
FoodMaxx banner, a discount grocer.
The two industrial properties (20.0% of NRA, 8.8% of in-place base
rent) are operated by Save Mart as their warehouse and distribution
facilities. The two office properties (2.9% of NRA, 2.4% of
in-place base rent) serve as Save Mart's corporate headquarters.
The securitization consists of a single floating-rate, first lien
mortgage loan with an outstanding cut-off date principal balance of
$416,800,000 (the "loan" or "mortgage loan"). The mortgage loan has
an initial two-year term, with five, one-year extension options.
The mortgage loan is interest-only for the first five years of the
loan term, followed by a fixed amortization schedule set forth in
Schedule IV of the loan agreement.
The credit risk of loans is determined primarily by two factors: 1)
Moody's assessment of the probability of default, which is largely
driven by each loan's DSCR, and 2) Moody's assessment of the
severity of loss upon a default, which is largely driven by each
loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV.
As described in the CMBS methodology used to rate this transaction,
Moody's make various adjustments to the MLTV. Moody's adjust the
MLTV for each loan using a value that reflects capitalization (cap)
rates that are between Moody's sustainable cap rates and market cap
rates. Moody's also use an adjusted loan balance that reflects each
loan's amortization profile. The MLTV reported in this publication
reflects the MLTV before the adjustments described in the
methodology.
The Moody's first-mortgage DSCR is 3.31x and Moody's first-mortgage
stressed DSCR (at a 9.25% constant) is 1.07x. Moody's DSCR is based
on our assessment of the property's stabilized NCF.
The first mortgage balance of $416,800,000 represents a Moody's LTV
of 95.3%.
With respect to diversity, the portfolio's property level
Herfindahl score is 33.3.
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 portfolio's
weighted average property quality grade is 1.82.
Notable strengths of the transaction include: established regional
tenancy, recession resistant non-discretionary demand of the real
estate, major market concentration of the collateral, and
property-level diversity.
Notable concerns of the transaction include: tenant concentrations,
high occupancy cost ratios for certain stores, historical financial
volatility at the tenant-level, and the mortgage loan's debt
service payment 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.
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 our
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.
Moody's 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 Moody's 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.
WFRBS COMMERCIAL 2013-C11: Fitch Lowers Class F Certs to 'B-'
-------------------------------------------------------------
Fitch Ratings has downgraded one class, affirmed 11 classes and
revised the Rating Outlook on one class of WFRBS Commercial
Mortgage Trust 2013-C11 certificates.
DEBT RATING PRIOR
---- ------ -----
WFRBS 2013-C11
A-3 92937EAC8 LT AAAsf Affirmed AAAsf
A-4 92937EAD6 LT AAAsf Affirmed AAAsf
A-5 92937EAZ7 LT AAAsf Affirmed AAAsf
A-S 92937EAF1 LT AAAsf Affirmed AAAsf
A-SB 92937EAE4 LT AAAsf Affirmed AAAsf
B 92937EAG9 LT AAsf Affirmed AAsf
C 92937EAH7 LT Asf Affirmed Asf
D 92937EAJ3 LT BBB-sf Affirmed BBB-sf
E 92937EAL8 LT BBsf Affirmed BBsf
F 92937EAN4 LT B-sf Downgrade Bsf
X-A 92937EAS3 LT AAAsf Affirmed AAAsf
X-B 92937EAU8 LT Asf Affirmed Asf
Classes A-1 and A-2 are paid in full.
KEY RATING DRIVERS
Increased Loss Expectations/Specially Serviced Loans: Loss
expectations have increased due to an increase in Fitch Loans of
Concern (FLOCs) and to the transfer of two specially serviced loans
since the last rating action. Fitch's ratings are based on base
case loss expectations of 4.40%. The Negative Rating Outlooks
reflect a sensitivity scenario that assumed losses could reach
7.50%. The sensitivity scenario applied additional stresses on
loans expected to be negatively impacted by the pandemic, as well
as the assumption of a 25% loss severity on Concord Mills. Sixteen
loans (25.4% of the pool) are considered FLOCs, including the two
(1.2%) specially serviced loans.
The largest contributor to loss expectations is Encana Oil and Gas,
which is secured by a 318,582 -sf, 12-story, office building in
Plano, TX. The building is located in the Legacy Business Park,
approximately 20 miles north of the Dallas CBD. Encana U.S.
consolidated business operations in 2014 and vacated and subleased
all of their space. The largest tenants are Legacy Texas, Aimbridge
Hospitality, US Renal Care, and Ally Financial on long-term leases.
The property is 100% master leased to Ovinitiv USA Inc. (fka Encana
Oil & Gas (USA) Inc) through June 30, 2027 with average rent $24.95
psf.
The most recent servicer reported DSCR is 1.87x (September 2020),
1.82x (2019), 2.55x (2018), 2.58 (2017), 2.00x (2016), and 2.57x at
issuance. Fitch's loss expectation of 14% reflects a 15% stress to
the YE 2019 NOI to address concerns with the sublease of the
property.
The second largest contributor to loss expectations is Encino
Courtyard (2.2%), which is secured by a 99,677-sf retail shopping
center located in Encino, CA. At issuance, the property was
anchored by Bed Bath and Beyond and LA Fitness, and a mix of 18
other in-line tenants. The property's occupancy declined to 22.5%
as of December 2019, due to the two largest tenants, LA Fitness and
Bed Bath & Beyond vacating their space in December 2018 and
September 2019, respectively. The most recent NOI DSCR as of
September 2019 declined to 0.34x from 1.18 YE 2018 and 1.50x at
issuance. Per the master servicer, the borrower has agreed to terms
with Target and Planet Fitness to back fill the spaces vacated by
these two tenants. These tenants have yet to take occupancy. The
estimated rent commencement date for Target is April 2021 and July
2021 for Planet Fitness.
Fitch's loss expectation of 39% is based on the loan failing to
meet Fitch's coronavirus property specific NOI DSCR tolerance
threshold; therefore, as part of its base case analysis, Fitch
applied a 20% stress to the YE 2019 NOI to reflect expected
declines in performance.
The third largest contributor to loss expectations is the specially
serviced loan, Home 2 Suites Baltimore, which is secured by a
95-key extended stay hotel property located in Baltimore, MD. The
loan transferred to special servicing in May 2020 for imminent
monetary default. The property performed well until 2015, after
which the downtown Baltimore market experienced lower occupancies
due to fewer conventions, association meetings, and leisure
travelers. As a result, the property experienced a DSCR below
1.00x. The property has experienced further negative impact from
the coronavirus pandemic.
Per the special servicer, the property ranks third of five within
its comp set, in RevPAR performance because it has an inferior
location to the inner harbor and corporate demand generators. As of
the TTM October 2020, the property's reported occupancy was 53.2%,
with an average daily rate (ADR) of $78.66 and $41.84 revenue per
available room (RevPAR) compared to $74.95 TTM 2019 and $74.44 TTM
2018. The RevPAR penetration of 89.8% compares to 95.5% in 2019 and
95.6% in 2018. Per the special servicer, the borrower is no longer
interested in discussing a modification and are pursuing
foreclosure and the appointment of a receiver. Fitch's loss
expectation of 52% reflects a haircut to the most recent appraisal
provided by the special servicer.
The fourth largest contributor to loss expectations is Republic
Plaza, which is secured by a 56-story, 1.3 million-sf office tower
and separate 12-story parking garage (1,275 stalls) located in the
CBD of Denver, CO. The property's largest tenants include Ovintiv
Inc. (fka Encana) (26% of NRA), DCP Midstream (12% of NRA), and
Wheeler Trigg O'Donnell (6% of NRA), all of which have spaces that
serve as their respective company's headquarters. Energy tenants
represent approximately 44% of the property's net rentable area
(NRA).
The office occupancy as of December 2020 was 82.4% compared to 84%,
and average rent of $41.11 sf (2019) and 81%; average rent $41.28
sf in (2018). The property's retail occupancy declined to 72% as of
December 2020 compared to 95.6% (December 2019). The most recent
servicer reported DSCR as of September 2020 was 1.54x compared to
1.57x (September 2019), 1.58x (2018), 1.61x (2017), 1.64x (2016)
and 1.67x at issuance. There is approximately 24% rollover within
the next two years. Fitch's loss expectation of 3% reflects a 15%
stress to the YE 2019 NOI, given concerns with these tenant's
performance.
The fifth largest contributor to loss expectations is Concord
Mills, which is secured by a 1,285,834-sf super regional mall and
outlet center located in Concord, NC. The property is anchored by
Bass Pro Shops, Burlington Coat Factory, AMC Theatres, Dave &
Busters, and Sea Life Centre, with lease expirations in September
2029, January 2025, September 2029, May 2026, and Dec. 31, 2029,
respectively. The loan is sponsored by Simon Property Group.
As of September 2020, the property's reported occupancy for the
total mall is 91.2% with in-line occupancy at 89.2% compared to
95.6%, and in-line 89.3% (September 2029) and 97.4%; in-line 87.2%
(September 2017). There is approximately 13% upcoming rollover
within the next two years.
The most recent servicer reported debt-service coverage ratio
(DSCR) is 3.72x as of September 2020 compared to 3.99x (2019),
4.22x (2018), 4.00x (2017), 3.72x (2016) and 3.27x issuance. Per
the August 2020 sales report, the comparable YE 2020 in-line sales
were projected to be $276 per square foot (psf) compared to $444
psf (2019), $401 psf (2017), $406 psf (2016), $417 psf (issuance).
Total mall sales were projected to be $187 psf as of YE 2020
compared to $290 psf YE 2019, $381 psf (2017), $371 psf (2016),
$386 psf issuance. The AMC Theatre sales were projected to be down
75% over the same period. Anchor sales for Bass Pro Shops were
projected to be $322 psf as of YE 2020 compared to $275 (2019),
$278 psf (2017). Burlington Coat Factory sales were projected to be
$73 psf as of YE 2020 compared to $129 psf (2019), $113 psf (2017).
Dave & Buster's sales were projected to be $33 psf YE 2020 compared
to $176 psf (2019), $230 psf (2017) and $148 at issuance.
Fitch's base case loss of 3% reflects a 15% cap rate and a 10%
stress to YE 2019 NOI for rollover and decline in performance.
Fitch also performed an additional stressed sensitivity scenario on
this loan in which the loss severity on the loan was increased to
25% to address potential for tenant departures, as a result of
major-tenant bankruptcies, decline in tenant sales and upcoming
rollover risk.
Improved Credit Enhancement/Additional Defeasance: The increased
credit enhancement is a result of loan amortization and additional
defeasance of two loans (0.9%) since Fitch's last rating action. In
total, there are 19 loans (13.5%) fully defeased. As of the January
2021 remittance report, the pool's aggregate principal balance has
been reduced by 31.6% to $982.7 million from $1.44 billion at
issuance.
Two loans (19% of the pool) within the top 15 have IO payments for
the full loan term. Nine (43.2% of the pool) have partial IO
payments. The remaining loans are amortizing. Sixteen loans (25.4%)
are considered FLOC's, including 13 loans (11.5%) currently on the
master servicer's watchlist due to performance declines, resulting
from coronavirus issues, tenants vacating, upcoming rollover,
and/or deferred maintenance, of which, one is a retail property
(2.2%) within the top 15.
Additional Loss Considerations: Fitch ran an additional stressed
sensitivity of 25% on Concord Mills to address the potential for
tenant departures, as a result of major-tenant bankruptcies and
upcoming rollover risk. This contributed to the Outlook revision to
Negative on class E.
Coronavirus Exposure: Significant economic impact to certain
hotels, retail and multifamily properties is expected from the
coronavirus pandemic, due to the recent and sudden reductions in
travel and tourism, temporary property closures and lack of clarity
on the potential length of the impact. The pandemic has prompted
the closure of several hotel properties in gateway cities as well
as malls, entertainment venues and individual stores.
Ten loans (9.7% of the pool) are secured by hotel loans and 24
loans (29.0% of the pool) are secured by retail properties. Fitch
applied additional stresses to all six hotel loans, and eight
retail loans to account for potential cash flow disruptions, due to
the pandemic. This sensitivity analysis contributed to the
downgrade of class F and the Negative Outlooks on classes E and F.
Pool Concentrations: The largest 10 loans account for 65.4% of the
pool balance. No loan accounts for more than 14.3% of the pool's
balance. 34.1% of the pool is secured by office properties; 29%
retail with no exposure to retailers Macy's, JC Penney's or Sears;
3.1% multifamily; and 9.7% hotels. Two loans (19.1%) are
interest-only, and nine loans (43.2%) are interest-only then
balloon.
Energy Tenancy Exposure: The largest loan, Republic Plaza (14.3%)
and the fifth largest loan, Encana Oil & Gas (6.7%), have
significant exposure to energy related tenants. However, Encana
vacated the Encana Oil & Gas property in Plano, TX, when they
consolidated U.S. business operations in 2014, and have subleased
all of their space. Fitch will continue to monitor the performance
of these loans, due to ongoing concerns with the oil and gas
industry. Fitch's cash flow analysis reflects the high energy
related tenancy.
Maturity Concentration: Nineteen loans (38.9%) mature in 2022,
three of which mature in November, and the remaining 16 loans in
December and 51 loans (61.1%) in 2023.
RATING SENSITIVITIES
The Negative Outlooks on classes E and F reflect the potential for
further downgrades due to performance concerns on the FLOCs,
concerns surrounding the ultimate impact of the pandemic,
additional loan transfers to special servicing, and if losses on
the larger specially serviced loans are higher than expected. The
Stable Outlooks on classes A-3 thru D, X-A and X-B reflect overall
stable performance for the majority of the pool, scheduled
amortization, paydown and/or defeasance.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- Sensitivity factors that could lead to upgrades would include
stable to improved asset performance, particularly on the
FLOCs, coupled with additional paydown and/or defeasance.
Upgrades to class B would only occur with significant
improvement in CE and/or defeasance and with the stabilization
of performance on the FLOCs and/or the properties affected by
the pandemic. Classes would not be upgraded above 'Asf' if
there were likelihood of interest shortfalls.
-- Upgrades to classes C and D are not likely until the later
years in the transaction, and only if the performance of the
remaining pool is stable and/or properties vulnerable to the
pandemic return to pre-pandemic levels, and there is
sufficient CE to the class. Classes E and F are unlikely to be
upgraded absent significant performance improvement on the
FLOCs and substantially higher recoveries than expected on the
specially serviced loans/assets.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- Sensitivity factors that lead to downgrades include an
increase in pool-level losses from underperforming or
specially serviced loans/assets. Downgrades to classes A-3
through A-SB are not likely due to the position in the capital
structure, but may occur should interest shortfalls affect
these classes. Downgrades to classes A-S, B, X-A and X-B are
possible should expected losses for the pool increase
significantly, all of the loans susceptible to the pandemic
suffer losses and/or interest shortfalls occur.
-- Downgrades to classes C, D, E and F are possible should loss
expectations increase due to a continued performance decline
of the FLOCs and additional loans transfer to special
servicing. The Negative Rating Outlooks on classes E and F may
be revised back to Stable if performance of the FLOCs improves
and/or properties vulnerable to the pandemic stabilize.
-- Further downgrades to class F would occur as losses are
realized and/or become more certain.
In addition to its baseline scenario, Fitch envisions a downside
scenario where the health crisis is prolonged beyond 2021; should
this scenario play out, classes with Negative Rating Outlooks will
be downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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.
[*] S&P Takes Various Actions on 26 Classes From Five US RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 26 ratings from five
U.S. RMBS transactions issued in 2002 through 2007. The review
yielded 14 affirmations, seven downgrades, and five withdrawals.
ANALYTICAL CONSIDERATIONS
S&P said, "We incorporate various considerations into our decisions
to raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by our projected cash flows. These considerations
are based on transaction-specific performance or structural
characteristics (or both) and their potential effects on certain
classes." Some of these considerations may include:
-- Factors related to the COVID-19 pandemic,
-- Collateral performance or delinquency trends,
-- Historical interest shortfalls or missed interest payments,
-- Available subordination and/or overcollateralization,
-- Erosion of or increases in credit support,
-- Small loan count,
-- Expected short duration, and
-- Principal-only criteria.
As vaccine rollouts in several countries continue, S&P Global
Ratings believes there remains a high degree of uncertainty about
the evolution of the coronavirus pandemic and its economic effects.
Widespread immunization, which certain countries might achieve by
midyear, will help pave the way for a return to more normal levels
of social and economic activity. S&P said, "We use this assumption
about vaccine timing in assessing the economic and credit
implications associated with the pandemic. As the situation
evolves, we will update our assumptions and estimates
accordingly."
RATING ACTIONS
S&P said, "The rating changes reflect our views regarding the
associated transaction-specific collateral performance and
structural characteristics, and/or the application of specific
criteria applicable to these classes. See the ratings list below
for the specific rationales associated with each of the classes
with rating transitions.
"The affirmations reflect our view that our projected credit
support and collateral performance on these classes have remained
relatively consistent with our prior projections.
"We lowered our ratings on class II-A-4 and II-A-5 from Nomura
Asset Acceptance Corp. Alternative Loan Trust series 2005-AP1 to be
consistent with "S&P Global Ratings Definitions," published Jan. 5,
2021, which imposes a maximum rating threshold on classes that have
incurred interest shortfalls resulting from credit or liquidity
erosion. In applying our ratings definitions, we looked to see if
the applicable class received additional compensation beyond the
imputed interest due as direct economic compensation for the delay
in interest payment, which these classes did not. Therefore, in
these instances, we used the maximum length of time until full
interest is reimbursed as part of our analysis to assign a rating
to each class.
"In addition, we withdrew our ratings on five classes from Bear
Stearns ALT-A Trust 2003-3 due to the small number of loans
remaining within the related structure. Once a pool has declined to
a de minimis amount, we believe there is a high degree of credit
instability that is incompatible with any rating level."
A list of Affected Ratings can be viewed at:
https://bit.ly/2Za70PH
[*] S&P Takes Various Actions on 46 Classes From Six US RMBS Deals
------------------------------------------------------------------
S&P Global Ratings completed its review of 46 classes from six U.S.
RMBS transactions issued between 2003 and 2007. All of the
transactions are backed by prime jumbo collateral. The review
yielded one upgrade, eight downgrades, 28 affirmations, eight
withdrawals, and one discontinuance.
Analytical Considerations
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P uses these assumptions about vaccine timing
in assessing the economic and credit implications associated with
the pandemic.. As the situation evolves, we will update our
assumptions and estimates accordingly."
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by its projected cash flows. These considerations
are based on transaction-specific performance or structural
characteristics (or both) and their potential effects on certain
classes. Some of these considerations may include:
-- Factors related to COVID-19;
-- Collateral performance/delinquency trends;
-- Historical interest shortfalls;
-- Available subordination and/or overcollateralization;
-- Erosion of or increases in credit support; and
-- A small loan count.
Rating Actions
S&P said, "The rating changes reflect our opinion regarding the
associated transaction-specific collateral performance and/or
structural characteristics, and/or reflect the application of
specific criteria applicable to these classes. See the ratings list
below for the specific rationales associated with each of the
classes with rating transitions.
"The affirmations of ratings reflect our opinion that our projected
credit support and collateral performance on these classes has
remained relatively consistent with our prior projections.
"We withdrew our ratings on eight classes from three transactions
due to the small number of loans remaining in the related group.
Once a pool has declined to a de minimis amount, their future
performance becomes more difficult to project. As such, we believe
there is a high degree of credit instability that is incompatible
with any rating level.
"As a result, we raised our rating on class A-P from CSFB
Mortgage-Backed Trust Series 2004-7 to 'BBB+ (sf)' from 'B+ (sf)'
based on the application of our principal-only (PO) criteria,
"Methodology For Surveilling U.S. RMBS Principal-Only Strip
Securities For Pre-2009 Originations" published Oct. 11, 2016. The
credit risk of this type of PO class, in our view, is typically
commensurate with the lowest-rated senior class in the respective
structures. Class A-P receives principal from discount loans from
loan groups one and two. In this case, the lowest-rated remaining
senior class is rated 'BBB+ (sf)' since we withdrew the group one
classes, which also no longer have discount loans. Additionally, we
applied our principal-only criteria on class C-P from WaMu Mortgage
Pass-Through Certificates Series 2003-S5 Trust, which resulted in
rating a withdrawal. Class C-P is a PO class associated with groups
one and three; however, we can no longer assess the
creditworthiness of group three and there is one remaining discount
loan in this group. As such, we withdrew our rating on class C-P."
A list of Affected Ratings can be viewed at:
https://bit.ly/3qeEkRz
[*] S&P Takes Various Actions on 70 Classes From Seven RMBS Deals
-----------------------------------------------------------------
S&P Global Ratings completed its review of 70 ratings from seven
U.S. RMBS transactions issued between 2003 and 2007. The review
yielded six downgrades, 54 affirmations, and 10 withdrawals. S&P
also removed two ratings from CreditWatch, where they were placed
with negative implications on Dec. 8, 2020.
Analytical Considerations
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by our projected cash flows. These considerations
are based on transaction-specific performance or structural
characteristics (or both) and their potential effects on certain
classes. Some of these considerations may include:
-- Factors related to COVID-19;
-- Collateral performance/delinquency trends;
-- Principal write-downs;
-- Erosion of/increases in credit support;
-- A small loan count;
-- Loan modifications; and
-- Interest-only criteria.
Rating Actions
S&P said, "The rating changes reflect our opinion regarding the
associated transaction-specific collateral performance or
structural characteristics and/or reflect the application of
specific criteria applicable to these classes. See the ratings list
below for the specific rationales associated with each of the
classes with rating transitions.
"The ratings affirmations reflect our opinion that our projected
credit support and collateral performance on these classes has
remained relatively consistent with our prior projections.
"We also removed two ratings from CreditWatch, where they were
placed with negative implications on Dec. 8, 2020.
On Dec. 8, 2020, we placed 145 classes from 87 U.S. RMBS
transactions, including 22 U.S. RMBS re-REMIC transactions, on
CreditWatch. The review for the CreditWatch placements followed the
update to our criteria guidance article regarding how we analyze
the impact of reductions in interest payments to security holders
due to loan rate modifications and other credit-related events. The
updates to how we apply our analytical judgment to determine and
assess the impact of interest reduction amounts include:
-- The introduction of a monthly calculation that considers the
portion of the pool reported as modified, our assumption as to what
percentage of the modified portion has experienced an interest rate
adjustment, and an assumed amount of interest rate reduction;
-- A calculation that captures the expected cumulative interest
reduction amount for the remaining life of the security from
existing modifications has been updated;
-- Clarification that the projected interest reduction amount is
not applicable for pre-2009 transactions given significant
seasoning;
-- The update of the maximum potential rating thresholds; and
-- More clarity regarding other considerations that may be used
and applied in the analysis has been provided.
S&P said, "We withdrew our ratings on nine classes from three
transactions due to the small number of loans remaining in the
related group. Once a pool has declined to a de minimis amount,
their future performance becomes more difficult to project. As
such, we believe there is a high degree of credit instability that
is incompatible with any rating level. One of the ratings that was
withdrawn due to small loan count, the class I-4-A-M issued from
Bear Stearns ARM Trust 2004-2, was also removed from CreditWatch
with negative implications.
"We applied our interest-only criteria, "Global Methodology For
Rating Interest-Only Securities" published April 15, 2010, on class
S issued from Merrill Lynch Mortgage Investors Trust, Series
2003-HE1, which resulted in the rating being withdrawn, as all
principal- and interest-paying classes rated 'AA-' or higher have
been retired or downgraded below that rating level."
A list of Affected Ratings can be viewed at:
https://bit.ly/3s6ovx5
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than $3 per
share in public markets. At first glance, this list may look like
the definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
On Thursdays, the TCR delivers a list of recently filed
Chapter 11 cases involving less than $1,000,000 in assets and
liabilities delivered to nation's bankruptcy courts. The list
includes links to freely downloadable images of these small-dollar
petitions in Acrobat PDF format.
Each Friday's edition of the TCR includes a review about a book of
interest to troubled company professionals. All titles are
available at your local bookstore or through Amazon.com. Go to
http://www.bankrupt.com/books/to order any title today.
Monthly Operating Reports are summarized in every Saturday edition
of the TCR.
The Sunday TCR delivers securitization rating news from the week
then-ending.
TCR subscribers have free access to our on-line news archive.
Point your Web browser to http://TCRresources.bankrupt.com/and use
the e-mail address to which your TCR is delivered to login.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter is a daily newsletter co-published
by Bankruptcy Creditors Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Jhonas Dampog, Marites Claro, Joy Agravante, Rousel Elaine
Tumanda, Valerie Udtuhan, Howard C. Tolentino, Carmel Paderog,
Meriam Fernandez, Joel Anthony G. Lopez, Cecil R. Villacampa,
Sheryl Joy P. Olano, Psyche A. Castillon, Ivy B. Magdadaro, Carlo
Fernandez, Christopher G. Patalinghug, and Peter A. Chapman,
Editors.
Copyright 2021. All rights reserved. ISSN: 1520-9474.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers. Information contained
herein is obtained from sources believed to be reliable, but is
not guaranteed.
The TCR subscription rate is $975 for 6 months delivered via
e-mail. Additional e-mail subscriptions for members of the same
firm for the term of the initial subscription or balance thereof
are $25 each. For subscription information, contact Peter A.
Chapman at 215-945-7000.
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