/raid1/www/Hosts/bankrupt/TCR_Public/210606.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
Sunday, June 6, 2021, Vol. 25, No. 156
Headlines
AGL CLO 11: S&P Assigns BB- (sf) Rating on Class E Notes
AMERICREDIT AUTOMOBILE 2019-2: Fitch Affirms BB Rating on Cl. E Deb
AMSR 2021-SFR1: DBRS Finalizes B(low) Rating on Class G Certs
BANK 2017-BNK7: Fitch Affirms B- Rating on 2 Debt Tranches
BENCHMARK MORTGAGE 2018-B4: Fitch Affirms B- Rating on G-RR Debt
BENCHMARK MORTGAGE 2021-B26: Fitch Gives B- Rating on 2 Tranches
BLACKROCK DLF 2021-2: DBRS Gives Prov. B Rating on Class W Notes
BPR TRUST 2021-WILL: Moody's Assigns Ba2 Rating to Class E Certs
BRAVO RESIDENTIAL 2021-HE2: Fitch Assigns B Rating on Cl. B-2 Debt
BX COMMERCIAL 2021-VINO: Moody's Assigns B3 Rating to Cl. F Certs
CARVANA AUTO 2021-N2: DBRS Gives Prov. BB Rating on Class E Notes
CATHEDRAL LAKE VI: Moody's Gives Ba3 Rating to $16MM Class E Notes
CIM TRUST 2021-J3: Fitch Gives 'B(EXP)' Rating on B-5 Certs
CIM TRUST 2021-J3: Moody's Assigns (P)B2 Rating to Cl. B-5 Certs
CITIGROUP COMMERCIAL 2018-C5: Fitch Rates Class G-RR Certs 'B-sf'
CITIGROUP MORTGAGE 2021-RP2: Fitch Assigns B Rating on B-2 Debt
CITIGROUP MORTGAGE 2021-RP3: Fitch Assigns B Rating on B2 Debt
COMM 2013-CCRE11 MORTGAGE: Fitch Lowers Class F Tranche to 'CCC'
COMM 2021-CCRE4: Fitch Lowers Rating on 2 Debt Classes to 'Dsf'
COMM MORTGAGE 2000-C1: Fitch Affirms D Rating on 6 Tranches
COMPASS DATACENTERS 2021-1: S&P Assigns BB- (sf) Rating on C Notes
CSAIL COMMERCIAL 2017-C8: Fitch Lowers Class F Certs to 'CCCsf'
CSMC 2019-ICE4: DBRS Confirms B(high) Rating on Class HRR Certs
CSMC TRUST 2017-MOON: Fitch Affirms BB- Rating on 2 Debt Classes
DBJPM MORTGAGE 2017-C6: Fitch Affirms B- Rating on F-RR Certs
DIAMOND INFRASTRUCTURE: Fitch Assigns BB- Rating on Class C Debt
DRYDEN 77: S&P Assigns B- (sf) Rating on $5MM Class F-R Notes
ELLINGTON FINANCIAL 2021-2: Fitch Gives 'B(EXP)' Rating to B-2 Debt
FLAGSHIP CREDIT 2021-2: DBRS Finalizes BB Rating on Class E Notes
FLAGSTAR MORTGAGE 2021-3INV: Moody's Gives B3 Rating to B-5 Certs
GPMT LTD 2021-FL3: DBRS Finalizes B(low) Rating on Class G Notes
GRAND AVENUE 2020-FL2: DBRS Hikes Class F Notes Rating to B(sf)
GS MORTGAGE 2017-GS7: Fitch Affirms B- Rating on Class H-RR Certs
GS MORTGAGE 2018-GS10: Fitch Affirms B- Rating on G-RR Certs
GS MORTGAGE 2019-GC40: Fitch Affirms B- Rating on G-RR Certs
GS MORTGAGE-BACKED 2021-PJ5: Fitch Gives B+ Rating on Cl. B5 Certs
GS MORTGAGE-BACKED 2021-PJ5: Moody's Rates Cl. B-5 Certs 'B2'
GUGGENHEIM PRIVATE: Fitch Affirms B Rating on 6 Note Classes
GULF STREAM 4: S&P Assigns BB- (sf) Rating on Class E Notes
HALCYON LOAN 2015-2: Moody's Lowers Rating on Class E Notes to Caa3
HGI CRE 2021-FL1: DBRS Finalizes B(low) Rating on Class G Notes
HUNDRED ACRE 2021-INV1: Moody's Assigns (P)B2 Rating to B5 Certs
ICG US CLO 2016-1: S&P Assigns BB- (sf) Rating on Class DR-R Notes
JP MORGAN 2021-7: Fitch Assigns Final B+ Rating on Class B-5 Debt
JP MORGAN 2021-7: Moody's Assigns B3 Rating to Class B-5 Certs
JP MORGAN 2021-INV1: Fitch Assigns Final B- Rating on Cl. B-5 Debt
KAYNE CLO III: Moody's Assigns Ba3 Rating to $25MM Class ER Notes
KODIAK CDO I: Moody's Raises Rating on Class B Notes to B3
LAKE SHORE I: Moody's Assigns Ba3 Rating to $29MM Class E-R Notes
LENDMARK FUNDING 2021-1: DBRS Gives Prov. BB Rating on D Notes
LSTREET II 2012-10: DBRS Lowers Rating of Class A Notes to D
MAD MORTGAGE 2017-330M: DBRS Confirms BB Rating on Class E Certs
MAPS 2021-1 TRUST: Moody's Assigns (P)Ba1 Rating to Class C Notes
MELLO MORTGAGE 2021-MTG2: DBRS Gives Prov. B Rating on B5 Certs
MELLO MORTGAGE 2021-MTG2: Moody's Rates Class B5 Certs 'B1'
MILL CITY 2018-2: Fitch Assigns B- Rating to B3 Debt
MORGAN STANLEY 2012-C6: Fitch Cuts Class H Certs Rating to 'CC'
MORGAN STANLEY 2015-C21: DBRS Lowers Rating of 3 Classes to C
MORGAN STANLEY 2021-2: Fitch Assigns Final B Rating on B-5 Debt
NLT 2021-INV1: S&P Assigns B (sf) Rating on Class B-2 Certs
OCTAGON 51: Moody's Assigns B2 Rating to $5.58MM Class F Notes
PALMER SQUARE 2021-2: Moody's Assigns B3 Rating to Class F Notes
PRIMA CAPITAL 2019-RK1: DBRS Confirms B(low) Rating on C-D Certs
PROVIDENT FUNDING 2021-2: Moody's Gives (P)Ba3 Rating to B-5 Certs
PSMC TRUST 2021-2: Fitch Gives 'B+(EXP)' Rating to Class B-5 Debt
REALT 2018-1: Fitch Affirms B Rating on Class G Certs
RLGH TRUST 2021-TROT: DBRS Finalizes B(low) Rating on G Certs
SDART 2021-2: Moody's Assigns B1 Rating to Class E Notes
SFO COMMERCIAL 2021-555: DBRS Finalizes BB Rating on Class F Notes
SG COMMERCIAL 2019-787E: DBRS Confirms BB(low) Rating on F Certs
SMALL BUSINESS 2019-A: Moody's Hikes Rating on Class C Notes to Ba3
TALLMAN PARK: S&P Assigns BB- (sf) Rating on $14.8MM Class E Notes
TPGI TRUST 2021-DGWD: Moody's Assigns (P)B3 Rating to Cl. F Certs
TRAPEZA CDO XI: Moody's Hikes Class C Notes Rating to Caa2
TRAPEZA CDO XIII: Moody's Hikes Rating on 2 Tranches to Ba2
US CAPITAL III: Fitch Affirms D Rating on 2 Debt Tranches
VENTURE 43: Moody's Assigns Ba3 Rating to $22.25M Class E Notes
WACHOVIA BANK 2005-C21: Fitch Affirms D Rating on 6 Tranches
WAMU COMMERCIAL 2007-SL2: Fitch Affirms D Rating on 6 Debt Classes
WELLS FARGO 2013-LC12: Fitch Lowers Rating on 2 Tranches to B-
WELLS FARGO 2015-C27: DBRS Lowers Class F Certs Rating to C
WELLS FARGO 2019-C51: Fitch Affirms B- Rating on G-RR Debt
ZAIS CLO 2: Moody's Hike Rating on Class D Notes to B1
[*] Moody's Takes Action on $1.2BB of US RMBS Issued 1998-2007
*********
AGL CLO 11: S&P Assigns BB- (sf) Rating on Class E Notes
--------------------------------------------------------
S&P Global Ratings assigned its ratings to AGL CLO 11 Ltd./AGL CLO
11 LLC's floating- and fixed-rate notes.
The note issuance is a CLO securitization 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 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 legal structure of the transaction, which is expected to be
bankruptcy remote.
Ratings Assigned
AGL CLO 11 Ltd./AGL CLO 11 LLC
Class AS, $307.50 mil.: AAA (sf)
Class AJ, $17.50 mil.: Not rated
Class B-1, $40.00 mil.: AA (sf)
Class B-2, $15.00 mil.: AA (sf)
Class C (deferrable), $30.00 mil.: A (sf)
Class D (deferrable), $27.50 mil.: BBB- (sf)
Class E (deferrable), $21.25 mil.: BB- (sf)
Subordinated notes, $45.70 mil.: Not rated
AMERICREDIT AUTOMOBILE 2019-2: Fitch Affirms BB Rating on Cl. E Deb
-------------------------------------------------------------------
Fitch Ratings has taken various actions on outstanding classes in
Americredit Automobile Receivables Trusts (AMCAR) 2017-1, 2017-2,
2018-1, 2018-2, 2019-1, 2019-2, 2020-1 and 2020-2 and revised the
Rating Outlooks. The market disruption due to the coronavirus
pandemic and related containment measures did not negatively affect
the ratings, because there is sufficient credit enhancement (CE) to
cover higher cumulative net losses (CNL) projected after
conservative assumptions were applied. The sensitivity of the
ratings to scenarios more severe than currently expected is
provided in the Rating Sensitivities section.
DEBT RATING PRIOR
---- ------ -----
AmeriCredit Automobile Receivables Trust 2017-1
C 03065FAF9 LT AAAsf Affirmed AAAsf
D 03065FAG7 LT AAAsf Upgrade AAsf
Americredit Automobile Receivables Trust 2017-2
C 03065GAF7 LT AAAsf Affirmed AAAsf
D 03065GAG5 LT AAAsf Upgrade AAsf
AmeriCredit Automobile Receivables Trust 2018-1
B 03066HAE7 LT AAAsf Affirmed AAAsf
C 03066HAF4 LT AAAsf Affirmed AAAsf
D 03066HAG2 LT Asf Affirmed Asf
E 03066HAH0 LT BBBsf Affirmed BBBsf
AmeriCredit Automobile Receivables Trust 2018-2
A-3 03066LAD0 LT AAAsf Affirmed AAAsf
B 03066LAE8 LT AAAsf Affirmed AAAsf
C 03066LAF5 LT AAAsf Affirmed AAAsf
D 03066LAG3 LT Asf Affirmed Asf
E 03066LAH1 LT BBBsf Affirmed BBBsf
AmeriCredit Automobile Receivables Trust 2019-1
A-3 03066GAD1 LT AAAsf Affirmed AAAsf
B 03066GAE9 LT AAAsf Affirmed AAAsf
C 03066GAF6 LT AAsf Affirmed AAsf
D 03066GAG4 LT Asf Affirmed Asf
E 03066GAH2 LT BBBsf Affirmed BBBsf
AmeriCredit Automobile Receivables Trust 2019-2
A-3 03066KAE0 LT AAAsf Affirmed AAAsf
B 03066KAF7 LT AAAsf Affirmed AAAsf
C 03066KAG5 LT AAsf Upgrade Asf
D 03066KAH3 LT BBBsf Affirmed BBBsf
E 03066KAA8 LT BBsf Affirmed BBsf
AmeriCredit Automobile Receivables Trust 2020-1
A-2-A 03067DAB1 LT AAAsf Affirmed AAAsf
A-2-B 03067DAC9 LT AAAsf Affirmed AAAsf
A-3 03067DAD7 LT AAAsf Affirmed AAAsf
B 03067DAE5 LT AAAsf Upgrade AAsf
C 03067DAF2 LT Asf Affirmed Asf
D 03067DAG0 LT BBBsf Affirmed BBBsf
AmeriCredit Automobile Receivables Trust 2020-2
A-2-A 03066EAB0 LT AAAsf Affirmed AAAsf
A-2-B 03066EAC8 LT AAAsf Affirmed AAAsf
A-3 03066EAD6 LT AAAsf Affirmed AAAsf
B 03066EAE4 LT AAsf Affirmed AAsf
C 03066EAF1 LT Asf Affirmed Asf
D 03066EAG9 LT BBBsf Affirmed BBBsf
E 03066EAH7 LT BBsf Affirmed BBsf
KEY RATING DRIVERS
The affirmations and upgrades of the outstanding notes reflect
available CE and loss performance to date, while also considering
the potential performance impact of the coronavirus pandemic on
delinquencies and cumulative net losses (CNLs). CNLs are tracking
inside the initial base case proxies and hard CE levels have grown
for all classes in each transaction since close. The Stable
Outlooks reflect Fitch's expectation that the notes have sufficient
levels of credit protection to withstand potential deterioration in
credit quality of the portfolio in stress scenarios and that loss
coverage will continue to increase as the transactions amortize.
The Positive Outlooks on the applicable classes reflect the
possibility for an upgrade in the next one to two years.
As of the April 2021 collection period, 61+ day delinquencies were
1.93%, 1.88%, 1.32%, 1.31%, 1.09%, 1.12%, 0.73% and 0.58% of the
remaining collateral balance for 2017-1, 2017-2, 2018-1, 2018-2,
2019-1, 2019-2, 2020-1 and 2020-2, respectively. CNLs were 7.98%,
8.00%, 5.20%, 5.02%, 4.02%, 3.71%, 1.51% and 0.76%, tracking below
Fitch's initial base cases of 11.10%, 11.20%, 10.50%, 10.50%,
10.75%, 11.00%, 10.75% and 11.25%. Furthermore, hard CE has grown
for all transactions since close.
As a base-case scenario, Fitch assumes that the global recession
that took hold in 1H20 and subsequent activity bounce in 2H20 is
followed by a slower recovery trajectory in early 2021. However,
GDP is expected to reach pre-pandemic levels in 2021.
To account for potential increases in delinquencies and losses,
utilizing the base case coronavirus ratings scenario detailed
above, Fitch applied conservative assumptions in deriving the
updated base case proxies while also accounting for the strong
transaction performance to date. For all transactions, the base
case proxy was reduced from the prior review or new rating action.
Conservatism was maintained by utilizing recessionary (2006-2009)
static managed portfolio performance in transactions rated since
2019, along with projections based on current performance in the
CNL proxy derivation.
The base case proxies were revised to 9.25%, 9.50%, 8.50%, 8.75%,
9.25%, 9.75%, 10.00% and 10.00% for 2017-1, 2017-2, 2018-1, 2018-2,
2019-1, 2019-2, 2020-1 and 2020-2, respectively.
For all outstanding transactions, loss coverage multiples for the
rated notes are consistent with or in excess of 3.25x and 2.75x for
'AAAsf' and 'AAsf', respectively. Further, class C, D and E loss
coverage supports multiples in excess of 2.25x, 1.75x and 1.50x for
'Asf', 'BBBsf' and 'BBsf', respectively. Some subordinate notes
showed multiples slightly short of the current ratings, which Fitch
considers to be immaterial and are still within their respective
multiple ranges.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance driven by stable
delinquencies and defaults would lead to increasing CE levels
and consideration for potential upgrades. If CNL is 20% less
than projected CNL proxy, the ratings could be maintained at
higher multiples or upgraded.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Conversely, unanticipated increases in the frequency of
defaults could produce default levels higher than the current
projected base case default proxy, and impact available loss
coverage and multiples levels for the transaction. Weakening
asset performance is strongly correlated to increasing levels
of delinquencies and defaults that could negatively impact CE
levels. Lower loss coverage could affect ratings and Rating
Outlooks, depending on the extent of the decline in coverage.
-- In Fitch's initial review, the notes were found to have some
sensitivity to a 1.5x and 2.0x increase of Fitch's base case
loss expectation for each transaction. The 2.0x scenario was
updated and is considered Fitch's coronavirus downside rating
sensitivity that suggests consistent ratings for the senior
notes. To date, the transactions have strong performance with
losses within Fitch's initial expectations with adequate loss
coverage and multiple levels. Therefore, a material
deterioration in performance would have to occur within the
asset collateral to have potential negative impact on the
outstanding ratings.
-- Due to the uncertainty surrounding the coronavirus outbreak,
Fitch ran additional sensitivities to account for potential
increases in delinquencies. The transactions are able to
withstand the added stresses with loss coverage well in excess
of the ratings in their respective notes. Fitch acknowledges
that lower prepayments and longer recovery lag times due to
delayed ability to repossess and recover on vehicles may
result from the pandemic. However, changes in these
assumptions, all else equal, would not have an adverse impact
on modeled loss coverage and Fitch has maintained its stressed
assumptions.
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.
AMSR 2021-SFR1: DBRS Finalizes B(low) Rating on Class G Certs
-------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Single-Family Rental Pass-Through Certificates (the Certificates)
issued by AMSR 2021-SFR1 Trust (AMSR 2021-SFR1):
-- $118.6 million Class A at AAA (sf)
-- $60.0 million Class B at AA (sf)
-- $16.7 million Class C at A (high) (sf)
-- $21.6 million Class D at A (low) (sf)
-- $18.6 million Class E-1 at BBB (high) (sf)
-- $25.5 million Class E-2 at BBB (low) (sf)
-- $50.0 million Class F at BB (low) (sf)
-- $33.3 million Class G at B (low) (sf)
The AAA (sf) rating on the Class A Certificates reflects 67.6% of
credit enhancement provided by subordinated notes in the pool. The
AA (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), BBB (low)
(sf), BB (low) (sf), and B (low) (sf) ratings reflect 53.7%, 49.2%,
43.3%, 38.2%, 31.3%, 17.6% and 8.6% credit enhancement,
respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
AMSR 2021-SFR1 Trust's (AMSR 2021-SFR1 or the Issuer) 1,706
properties are in 12 states, with the largest concentration by BPO
value in Florida (42.4%). The largest MSA by value is Atlanta
(12.6%), followed by Orlando (12.0%). The geographic concentration
dictates the home-price stresses applied to the portfolio and the
resulting market value decline (MVD). The MVD at the AAA (sf)
rating level for this deal is 61.2%. AMSR 2021-SFR1 has properties
from 36 MSAs, most of which did not experience home-price index
(HPI) declines as dramatic as those in the recent housing
downturn.
DBRS Morningstar finalized the provisional ratings for each class
of certificates by performing a quantitative and qualitative
collateral, structural, and legal analysis. This analysis uses DBRS
Morningstar's single-family rental subordination model and is based
on DBRS Morningstar's published criteria. DBRS Morningstar
developed property-level stresses for the analysis of single-family
rental assets. DBRS Morningstar finalized the provisional ratings
to each class based on the level of stresses each class can
withstand and whether such stresses are commensurate with the
applicable rating level. DBRS Morningstar's analysis includes
estimated base-case NCFs by evaluating the gross rent, concession,
vacancy, operating expenses, and capital expenditure (capex) data.
The DBRS Morningstar NCF analysis resulted in a minimum DSCR of
higher than 1.0 times (x).
Notes: All figures are in U.S. dollars unless otherwise noted.
BANK 2017-BNK7: Fitch Affirms B- Rating on 2 Debt Tranches
----------------------------------------------------------
Fitch Ratings has affirmed 17 classes of BANK 2017-BNK7 Commercial
Mortgage Pass-Through Certificates Series 2017-BNK7.
DEBT RATING PRIOR
---- ------ -----
BANK 2017-BNK7
A-1 06541XAA8 LT AAAsf Affirmed AAAsf
A-2 06541XAB6 LT AAAsf Affirmed AAAsf
A-3 06541XAC4 LT AAAsf Affirmed AAAsf
A-4 06541XAE0 LT AAAsf Affirmed AAAsf
A-5 06541XAF7 LT AAAsf Affirmed AAAsf
A-S 06541XAJ9 LT AAAsf Affirmed AAAsf
A-SB 06541XAD2 LT AAAsf Affirmed AAAsf
B 06541XAK6 LT AA-sf Affirmed AA-sf
C 06541XAL4 LT A-sf Affirmed A-sf
D 06541XAV2 LT BBB-sf Affirmed BBB-sf
E 06541XAX8 LT BB-sf Affirmed BB-sf
F 06541XAZ3 LT B-sf Affirmed B-sf
X-A 06541XAG5 LT AAAsf Affirmed AAAsf
X-B 06541XAH3 LT AA-sf Affirmed AA-sf
X-D 06541XAM2 LT BBB-sf Affirmed BBB-sf
X-E 06541XAP5 LT BB-sf Affirmed BB-sf
X-F 06541XAR1 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Increased Loss Expectations: While overall pool performance has
been relatively stable, loss expectations have increased since
issuance due to an increase in Fitch Loans of Concern (FLOCs) and
additional stress applied due to the pandemic. Nine loans (21.4%)
have been designated as FLOCs, one (1.1%) of which is in special
servicing.
Fitch's current ratings incorporate a base case loss of 3.70%. The
Negative Outlooks on classes D, X-D, E, X-E, F, and X-F reflect
losses that could reach 5.10% when factoring additional
pandemic-related stresses.
Fitch Loans of Concern/Specially Serviced Loan: The largest driver
to losses is the Redondo Beach Hotel Portfolio (5.1%), a
two-property, 319-key hotel portfolio located in Redondo Beach, CA
where performance has declined as a result of the pandemic. As of
3Q20, the properties were performing at a 72% occupancy rate and
0.58x NOI debt service coverage ratio (DSCR), compared with a 90%
occupancy rate and 1.34x NOI DSCR at YE 2019. Prior to the
pandemic, cash flow was declining due to a decline in revenue while
expenses remained stable. Portfolio-level RevPAR, per the
servicer-provided OSAR, was $95 at 3Q 2020 compared to $139 at YE
2019, $142 at YE 2018 and Fitch's expectations of $141 at issuance.
Fitch modeled a loss of approximately 30% on this loan, based on a
cap rate of 11.50% and a 26% total haircut to the YE 2019 servicer
reported NOI.
The second largest driver to losses is the Mall of Louisiana
(5.4%), a 1.5 million sf regional mall located in Baton Rouge, LA.
Per the YE 2020 rent roll, collateral occupancy is 89% and total
mall occupancy is 95%. While cash flow at the property has remained
stable overall, inline sales have declined since issuance. Per the
September 2020 sales report, comp inline TTM sales for tenants less
than 10,000 sf were $346 psf (excluding Apple) compared with $454
psf at YE 2019, $461 psf at YE 2018, $461 psf at issuance (March
2018), $438 psf in March 2017, and $428 psf in 2014.
AMC Theatres (9.6% NRA) is the largest collateral tenant and has
experienced a decline in sales per screen to $342,933 as of March
2020 compared to $390,617 per screen at YE 2018 and $560,583 per
screen at issuance. Non-collateral anchors at the property include
Dillard's, Dillard's Men & Home, JC Penney, and Macy's, all of
which have reported nationwide store closures and declining revenue
in recent years. Sear's, which was also a non-collateral anchor,
closed their store in May 2021. While the subject is the dominant
mall in its trade area, it is also located in a secondary market
with fewer demand drivers. Fitch modeled a loss of approximately
22% on this loan, based on a 15.0% cap rate and a 10% total NOI
haircut to the YE 2020 NOI.
The only specially serviced loan in the pool is the HGI Memphis
Wolfchase Galleria (1.1%). The loan transferred to special
servicing in May 2020 for imminent monetary default. The borrower
initially requested relief due to the pandemic but has withdrawn
that request. The servicer expects the loan to be brought current
and returned to the master servicer. Fitch modeled a loss of
approximately 10% due to the hotel asset class and specially
serviced loan status.
Minimal Change to Credit Enhancement: As of the April 2021
distribution date, the pool's aggregate principal balance has been
reduced by 2.4% to $1.19 billion from $1.21 billion at issuance.
Twenty-two loans (50.5%) are full- term interest-only loans and 13
loans (23.4%) are partial-term interest-only, nine of which (17.1%)
have begun amortizing. One loan (1.4%) is defeased and interest
shortfalls are currently impacting class G.
Investment-Grade Credit Opinion Loans: Four loans (22.0%) were
assigned investment-grade credit opinions at issuance and all loans
continue to perform in line with issuance expectations. The General
Motors Building (9.4%), Westin Building Exchange (5.7%), The
Churchill (4.1%) and Moffett Place B4 (2.7%) were assigned
'AAAsf*', 'AAAsf*', 'AAAsf*' and 'BBB-sf*' stand-alone credit
opinions, respectively, at issuance.
Coronavirus Exposure: The pool contains four loans (12.1%) secured
by hotels with a weighted-average NOI DSCR of 1.89x. Retail
properties account for 21.9% of the pool balance and have weighted
average NOI DSCR of 2.06x. Cash flow disruptions continue as a
result of property and consumer restrictions due to the spread of
the coronavirus. Fitch's base case analysis applied an additional
NOI stress to three hotel and four retail loans due to their
vulnerability to the coronavirus pandemic. These additional
stresses contributed to the Negative Outlooks.
RATING SENSITIVITIES
The Negative Outlooks on classes D, X-D, E, X-E, F and X-F reflect
the potential for a near-term rating change should the performance
of the FLOCs deteriorate. It also reflects concerns with hotel and
retail properties due to decline in travel and commerce as a result
of the 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:
-- 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) or
defeasance, but would be limited should the deal be
susceptible to a concentration whereby the underperformance of
FLOCs could cause this trend to reverse.
-- An upgrade to classes D and X-D would also consider these
factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if there is a
likelihood for interest shortfalls.
-- An upgrade to classes E, X-E, F and X-F is not likely until
the later years in a transaction and only if the performance
of the remaining pool is stable and/or if there is sufficient
CE, which would likely occur when class G is not eroded and
the senior classes payoff. While concerns with the Redondo
Beach Hotel Portfolio and the Mall of Louisiana continue to
impact the pool, upgrades are unlikely.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses from underperforming or the
transfer of loans to special servicing. Downgrades to the
senior classes, A-1, A-2, A-3, A-SB, A-4, A-5, X-A, B, X-B and
C are not likely due to the high CE, but could occur if
interest shortfalls occur or if the Mall of Louisiana and the
Redondo Beach Hotel Portfolio transfer to special servicing
and realize significant losses.
-- Downgrades to classes D and X-D would occur should overall
pool losses increase, one or more large loans, such as the
Mall of Louisiana or Redondo Beach Hotel Portfolio have an
outsized loss, which would erode CE, and/or properties
vulnerable to the coronavirus fail to stabilize to pre
pandemic levels. Downgrades to classes E, X-E, F and X-F would
occur should loss expectations increase due to an increase in
specially serviced loans, the disposition of a specially
serviced loan at a high loss, or a decline in the FLOCs'
performance.
-- The Negative Rating Outlooks on classes D, X-D, E, X-E, 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 where the health crisis is prolonged beyond 2021;
should this scenario play out, Fitch expects that a greater
percentage of classes may be assigned a Negative Rating Outlook or
those with Negative Rating Outlooks will be downgraded one or more
categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
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.
BENCHMARK MORTGAGE 2018-B4: Fitch Affirms B- Rating on G-RR Debt
----------------------------------------------------------------
Fitch Ratings has affirmed 15 classes of Benchmark 2018-B4 Mortgage
Trust.
DEBT RATING PRIOR
---- ------ -----
Benchmark 2018-B4
A-2 08161HAB6 LT AAAsf Affirmed AAAsf
A-3 08161HAC4 LT AAAsf Affirmed AAAsf
A-4 08161HAE0 LT AAAsf Affirmed AAAsf
A-5 08161HAF7 LT AAAsf Affirmed AAAsf
A-M 08161HAH3 LT AAAsf Affirmed AAAsf
A-SB 08161HAD2 LT AAAsf Affirmed AAAsf
B 08161HAJ9 LT AA-sf Affirmed AA-sf
C 08161HAK6 LT A-sf Affirmed A-sf
D 08161HAQ3 LT BBBsf Affirmed BBBsf
E-RR 08161HAS9 LT BBB-sf Affirmed BBB-sf
F-RR 08161HAU4 LT BB-sf Affirmed BB-sf
G-RR 08161HAW0 LT B-sf Affirmed B-sf
X-A 08161HAG5 LT AAAsf Affirmed AAAsf
X-B 08161HAL4 LT AA-sf Affirmed AA-sf
X-D 08161HAN0 LT BBBsf Affirmed BBBsf
KEY RATING DRIVERS
Stable Performance and Loss Expectations: Overall performance and
loss expectations for the pool have remained relatively stable
since issuance. Fitch's current ratings incorporate a base case
loss of 3.75%. The Negative Outlook on class G-RR reflects losses
that could reach 4.60% when factoring in additional
coronavirus-related stresses. Fitch revised the Outlook on class
F-RR to Stable from Negative due to stabilization of performance on
loans that have been affected by the slowdown in economic activity
related to the coronavirus pandemic.
Fitch Loans of Concern: There are 16 Fitch Loans of Concern (FLOCs;
28.8% of pool), including four (7.5%) specially serviced loans. The
largest increase in loss expectations since the last rating action
is the specially serviced JAGR Hotel Portfolio loan (2.6%), which
transferred in August 2020 due to pandemic-related performance
deterioration. The borrower's request for loan modification and/or
debt relief remains under review by the servicer. Fitch's base case
loss expectation of 17% is based upon a discount to a recent
appraisal valuation and reflects a stressed value of $58,600 per
key.
The collateral consists of three lodging properties comprising 721
rooms. The DoubleTree Grand Rapids property in Grand Rapids, MI
(226 rooms) reported declining occupancy, ADR and RevPAR as of TTM
February 2021 of 28.8%, $92 and $27, respectively, from 71%, $113
and $80 in 2019. The Hilton Jackson property in Jackson, MS (276
rooms) reported lower occupancy, ADR and RevPAR as of TTM February
2021 of 34.9%, $104 and $36, respectively, from 61%, $114 and $69
in 2019. The DoubleTree Annapolis property in Annapolis, MD (219
rooms) had occupancy, ADR and RevPAR as of TTM February 2021
decline to 42.9%, $86 and $37, respectively, from 64.4%, $124 and
$80 in 2019.
The largest contributor to overall loss expectations is the Embassy
Suites Glendale loan (2.7%), which is secured by a 272-room hotel
located in Glendale, CA. As of TTM September 2020, occupancy, ADR
and RevPAR declined to 47.1%, $171 and $80, respectively, from
84.9%, $188 and $160 in 2019. The loan has remained current, and
the borrower has not requested debt relief. Fitch's base case loss
expectation for the loan of 7% is based on a 10% haircut to the YE
2019 NOI. Fitch also ran an additional sensitivity utilizing a 26%
haircut to the YE 2019 NOI which brought the loss to approximately
20%.
Minimal Changes in Credit Enhancement: As of the May 2021
remittance reporting, the pool's aggregate balance has paid down by
2.3% to $1.13 billion from $1.16 billion at issuance. Eighteen
loans (54.6% of pool) are full-term, interest-only, 10 loans
(20.6%) remain in their partial interest-only period and 16 loans
(24.8%) are amortizing. Based on the scheduled balance at maturity,
the pool will pay down by 5.9%. Scheduled loan maturities include
one loan (2.6%) in 2024, six loans (12.1%) in 2023 and 37 loans in
2028 (85.3%).
Additional Stresses Applied due to Coronavirus Exposure: Eight
loans (15.2% of pool) are secured by hotel properties and 15 loans
(27.4%) are secured by retail properties. Fitch applied additional
coronavirus-related stresses to all eight hotel loans (15.2%) and
four retail loans (5%); these additional stresses contributed to
the Negative Outlook.
Credit Opinion Loans: Five loans comprising 29.6% of the pool
received an investment-grade credit opinion at issuance, including
Aventura Mall (10.2%; received a credit opinion of 'Asf*' on a
standalone basis), 181 Fremont Street (7.1%; 'BBB-sf*), The Gateway
(4.4%; 'BBBsf*'), AON Center (4.4%; 'BBB-sf*') and 65 Bay Street
(3.5%; 'BBBsf*'). Occupancy at 65 Bay Street declined to 87.9% as
of September 2020 from 95% at YE 2019 and 100% at YE 2018. Fitch
expects the decline in performance to be temporary, as the result
of the pandemic's effects on market vacancy, and will continue to
monitor performance.
RATING SENSITIVITIES
The Negative Rating Outlook on class G-RR reflects concerns
surrounding the ultimate impact of the pandemic and the performance
concerns associated with the FLOCs. Fitch revised the Outlook on
class F-RR to Stable from Negative due to stabilization of
performance on loans that have been affected by the slowdown in
economic activity related to the coronavirus pandemic. The Stable
Outlooks reflect the increasing credit enhancement, 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:
-- Stable to improved asset performance, particularly on the
FLOCs, coupled with paydown and/or defeasance.
-- Upgrades to classes B, C and X-B may 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.
-- Upgrades to classes D, E-RR and X-D would also consider these
factors but would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if interest
shortfalls were likely.
-- Upgrades to classes F-RR and G-RR and are not likely unless
resolution of the specially serviced loans is better than
expected and performance of the remaining pool is stable,
and/or properties vulnerable to the coronavirus pandemic
return to pre-pandemic levels and there is sufficient CE to
the classes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool-level losses from underperforming or
specially serviced loans.
-- Downgrades to classes A-2, A-3, A-4, A-5, A-SB, A-M, B, X-A
and X-B are not considered likely due to their position in the
capital structure, but may occur should interest shortfalls
affect these classes.
-- Downgrades to classes C, D, E-RR and X-D may occur should
expected losses for the pool increase substantially and/or all
of the loans susceptible to the coronavirus pandemic suffer
losses.
-- Downgrades to classes F-RR and G-RR would occur should overall
pool loss expectations increase from continued performance
decline of the FLOCs, loans susceptible to the pandemic not
stabilize, additional loans default or transfer to special
servicing and/or higher losses incurred on the specially
serviced loans than expected.
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.
BENCHMARK MORTGAGE 2021-B26: Fitch Gives B- Rating on 2 Tranches
----------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Benchmark 2021-B26 Mortgage Trust commercial mortgage pass-through
certificates series 2021-B26 as follows:
-- $3,919,000 class A-1 'AAAsf'; Outlook Stable;
-- $41,799,000 class A-2 'AAAsf'; Outlook Stable;
-- $5,941,000 class A-SB 'AAAsf'; Outlook Stable;
-- $145,456,000 class A-3 'AAAsf'; Outlook Stable;
-- $143,600,000a class A-4 'AAAsf'; Outlook Stable;
-- $313,195,000a class A-5 'AAAsf'; Outlook Stable;
-- $84,074,000 class A-M 'AAAsf'; Outlook Stable;
-- $737,984,000b class X-A 'AAAsf'; Outlook Stable;
-- $39,702,000 class B 'AA-sf'; Outlook Stable;
-- $42,037,000 class C 'A-sf'; Outlook Stable;
-- $81,739,000bc class X-B 'A-sf'; Outlook Stable;
-- $29,193,000c class D 'BBBsf'; Outlook Stable;
-- $23,353,000c class E 'BBB-sf'; Outlook Stable;
-- $52,546,000bc class X-D 'BBB-sf'; Outlook Stable;
-- $19,851,000c class F 'BB-sf'; Outlook Stable;
-- $19,851,000bc class X-F 'BB-sf'; Outlook Stable;
-- $9,342,000c class G 'B-sf'; Outlook Stable;
-- $9,342,000bc class X-G 'B-sf'; Outlook Stable.
The following classes are not rated by Fitch:
-- $9,342,000c class H;
-- $23,353,961c class J;
-- $32,695,961bc class X-H;
-- $49,166,209cd VRR Interest.
(a) Since Fitch published its expected ratings on May 10, 2021, the
balances for classes A-4 and A-5 were finalized. At the time the
expected ratings were published, the initial certificate balances
of classes A-4 and A-5 were expected to be $456,795,000 in the
aggregate, subject to a 5% variance. The final class balances for
classes A-4 and A-5 are $143,600,000 and $313,195,000,
respectively. The classes above reflect the final ratings and deal
structure.
(b) Notional amount and interest only (IO).
(c) Privately placed and pursuant to Rule 144A.
(d) Non-offered vertical credit risk retention interest.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 39 loans secured by 127
commercial properties having an aggregate principal balance of
$983,324,171 as of the cut-off date. The loans were contributed to
the trust by JPMorgan Chase Bank, National Association, Goldman
Sachs Mortgage Company, German American Capital Corporation and
Citi Real Estate Funding Inc.
KeyBank, National Association is expected to serve as both the
Master Servicer and Special Servicer for this transaction, other
than the Equus Industrial Portfolio whole loan. Situs Holdings, LLC
is expected to act as the special servicer for the Equus Industrial
Portfolio mortgage loan and the related companion loans.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 10.7% of the properties
by balance, cash flow analyses of 87.6% of the pool, and asset
summary reviews on 100% of the pool.
Coronavirus-Related Effects: The ongoing containment effort related
to the coronavirus pandemic may have adverse effects 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 effects 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 outcomes on consumers.
Per the offering documents, all the loans are current and are not
subject to any ongoing forbearance requests; however, the sponsor
for one loan, JW Marriott Nashville (2.0% of the pool) has
negotiated loan amendments/modifications. Please see the
"Additional Coronavirus Forbearance Provisions" section on page 14
of the presale report for additional information.
KEY RATING DRIVERS
Fitch Leverage: The transaction's Fitch leverage is slightly higher
than other recent U.S. multi-borrower transactions rated by Fitch.
The pool's Fitch loan-to-value (LTV) ratio of 101.7% is slightly
higher than the 2020 average of 99.6% and slightly below the YTD
2021 average of 102.0%. Additionally, the pool's Fitch trust debt
service coverage ratio (DSCR) of 1.27x is lower than the 2020 and
YTD 2021 averages of 1.32x and 1.38x, respectively. Excluding
credit opinion loans, the pool's weighted average (WA) Fitch trust
DSCR and LTV are 1.29x and 113.4%, respectively.
Investment-Grade Credit Opinion Loans: The pool includes three
loans, representing 28.9% of the pool, that received
investment-grade credit opinions. This is higher than the 2020 and
YTD 2021 averages of 24.5% and 14.3%, respectively. Burlingame
Point (9.8% of the pool) received a credit opinion of 'BBB-sf' on a
standalone basis, Equus Industrial Portfolio (9.7% of the pool)
received a credit opinion of 'BBB-sf' on a standalone basis, and
Amazon Seattle (9.5%) received a credit opinion of 'BBB-sf' on a
standalone basis.
Highly Concentrated Pool: The largest 10 loans in the pool
represent 58.8% of the pool by balance. This is higher than the
2020 and YTD 2021 averages of 56.8% and 53.9%, respectively. This
results in a loan concentration index (LCI) score of 484 for the
transaction, which is higher than the 2020 and YTD 2021 average LCI
scores of 440 and 410, respectively.
Very Limited Amortization: The pool has a scheduled principal
paydown of only 1.2% by maturity. The expected paydown is
significantly lower than the 2020 and YTD 2021 averages of 5.3% and
5.1%, respectively. Thirty-two loans, representing 90.3% of the
pool's cutoff balance, are interest only for the entirety of their
respective loan terms. This concentration of full-term IO loans is
greater than the 2020 and YTD 2021 averages of 67.7% and 69.2%,
respectively.
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 effects of changes to property
net cash flow (NCF) in up- and down-environments. The result below
should only be considered as one potential outcome, as the
transaction is exposed to multiple dynamic risk factors. It should
not be used as an indicator of possible future performance.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Improvement in cash flow increases property value and capacity
to meet 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'.
20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AA+sf' / 'A-sf' / 'BBB+sf' /
'BBB-sf' / 'BBB-sf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Similarly, declining cash flow decreases property value and
capacity to meet 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'.
10% NCF Decline: 'A+sf' / 'A-sf' / 'BBB-sf' / 'BB+sf' / 'B+sf' /
'CCCsf' / 'CCCsf'.
20% NCF Decline: 'A-sf' / 'BBBsf' / 'BB+sf' / 'B+sf' / 'CCCsf' /
'CCCsf' / 'CCCsf'.
30% NCF Decline: 'BBBsf' / 'BBB-sf' / 'Bsf' / '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.
DATA ADEQUACY
Fitch received information in accordance with its published
criteria. Sufficient data, including asset summaries, three years
of property financials, when available, and third-party reports on
the properties were received from the issuer. Ongoing performance
monitoring, including the data provided, is described in the
Surveillance section of the presale report.
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.
BLACKROCK DLF 2021-2: DBRS Gives Prov. B Rating on Class W Notes
----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following Notes
issued by BlackRock DLF IX CLO 2021-2, LLC, pursuant to the Note
Purchase and Security Agreement (the NPSA) dated as of May 20,
2021, among BlackRock DLF IX CLO 2021-2, LLC, as the Issuer; U.S.
Bank National Association, as the Collateral Agent, Custodian,
Document Custodian, Collateral Administrator, Information Agent,
and Note Agent; and the Purchasers referred to therein.
-- Class A-1 Notes at AAA (sf)
-- Class A-2 Notes at AA (high) (sf)
-- Class B Notes at A (high) (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)
-- Class W Notes at B (sf)
The provisional ratings on the Class A-1 Notes and the Class A-2
Notes address the timely payment of interest (excluding the
additional interest payable at the Post-Default Rate, as defined in
the NPSA) and the ultimate payment of principal on or before the
Stated Maturity of May 20, 2035.
The provisional ratings on the Class B Notes, the Class C Notes,
the Class D Notes, the Class E Notes, and the Class W Notes address
the ultimate payment of interest (excluding the additional interest
payable at Post-Default Rate, as defined in the NPSA) and the
ultimate payment of principal on or before the Stated Maturity of
May 20, 2035. The Class W Notes will have a fixed-rate coupon that
is lower than the spread/coupon of some of the more-senior Secured
Notes, including the Class E Notes, and could therefore be
considered below market rate.
As of the Closing Date, DBRS Morningstar's ratings on the Secured
Notes will be provisional. The provisional ratings reflect the fact
that the finalization of the provisional ratings are subject to
certain conditions after the Closing Date, such as compliance with
the Eligibility Criteria (as defined in the NPSA).
Provisional ratings are not final ratings with respect to the
above-mentioned Secured Notes and may be different than the final
ratings assigned or may be discontinued. The assignment of final
ratings on the Secured Notes is subject to DBRS Morningstar
receiving all data and/or information and final documentation that
it deems necessary to finalize the ratings.
The Notes will be collateralized primarily by a portfolio of U.S.
middle-market corporate loans. The Issuer will be managed by
BlackRock Capital Investment Advisors, LLC (BCIA), which is a
wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar
considers BCIA an acceptable collateralized loan obligation (CLO)
manager.
The provisional ratings reflect the following primary
considerations:
(1) The NPSA, dated as of May 20, 2021.
(2) The integrity of the transaction's structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand DBRS Morningstar's
projected collateral loss rates under various cash flow-stress
scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and CLO management capabilities of BCIA.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio that is not rated by DBRS
Morningstar. Credit estimates are not ratings; rather, they
represent a model-driven default probability for each obligor that
is used in assigning a rating to a facility.
As the Coronavirus Disease (COVID-19) spread around the world,
certain countries imposed quarantines and lockdowns, including the
United States, which accounts for more than one fourth of confirmed
cases worldwide. The coronavirus pandemic has negatively affected
not only the economies of the nations most afflicted, but also the
overall global economy with diminished demand for goods and
services as well as disrupted supply chains. The effects of the
pandemic may result in deteriorated financial conditions for many
companies and obligors, some of which will experience the effects
of such negative economic trends more than others. At the same
time, governments and central banks in multiple regions, including
the United States and Europe, have taken significant measures to
mitigate the economic fallout from the coronavirus pandemic.
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: March 2021 Update," published on March 17,
2021, DBRS Morningstar further considers additional adjustments to
assumptions for the CLO asset class that consider the moderate
economic scenario outlined in the commentary. The adjustments
include a higher default assumption for the weighted-average (WA)
credit quality of the current collateral obligation portfolio. To
derive the higher default assumption, DBRS Morningstar notches
ratings for obligors in certain industries and obligors at various
rating levels based on their perceived exposure to the adverse
disruptions caused by the coronavirus. Considering a higher default
assumption would result in losses that exceed the original default
expectations for the affected classes of notes. DBRS Morningstar
may adjust the default expectations further if there are changes in
the duration or severity of the adverse disruptions.
For CLOs with minimally ramped assets at closing, DBRS Morningstar
considers whether that the NPSA contains a Collateral Quality
Matrix with sufficient rows and columns that would allow for higher
stressed DBRS Morningstar Risk Scores and therefore a higher
default probability on the collateral pool, while still remaining
in compliance with the other Collateral Quality Tests, such as the
WA Spread and Diversity Score. The results of this analysis
indicate that the instruments can withstand an additional higher
default probability commensurate with a moderate-scenario impact of
the coronavirus.
Notes: All figures are in U.S. dollars unless otherwise noted.
BPR TRUST 2021-WILL: Moody's Assigns Ba2 Rating to Class E Certs
----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to six
classes of CMBS securities, issued by BPR Trust 2021-WILL,
Commercial Mortgage Pass-Through Certificates, Series 2021-WILL:
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)
RATINGS RATIONALE
The certificates are collateralized by a single, $155.0 million
floating-rate, amortizing loan secured by the borrower's fee
interests in Willowbrook Mall, a super-regional mall located in
Houston, TX. The collateral for the loan consists of a 536,186
square foot portion of the 1.52 million SF single-story, enclosed
mall. Moody's ratings are based on the credit quality of the loans
and the strength of the securitization structure.
Moody's approach to rating this transaction involved the
application of Moody's Large Loan and Single Asset/Single Borrower
CMBS 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.
Willowbrook Mall is situated on an approximately 123.1-acre site
located 20 miles northwest of downtown Houston. The property's
non-collateral anchors, which comprise 809,709 SF, include Macy's,
Macy's Men's, JC Penney, and Dillard's, and the collateral anchors
include Dick's Sporting Goods (73,250 SF, 13.7% of collateral NRA)
and Nordstrom Rack (38,111 SF, 7.1% of collateral NRA).
As of March 31, 2021, the property was occupied with over 90
in-line tenants, with a physical occupancy of 86.5% and an economic
vacancy (excluding bankrupt tenants) of 83.8%. Physical occupancy
at the property is higher due to tenants that are bankrupt, but are
still occupying space and paying rent at the Property. The property
has a five-year average historical occupancy of 98.0%.
Large tenants at the property (greater than 10,000 SF) include H&M,
Zara, Old Navy, Victoria's Secret, and Wave. Other noteworthy
retailers at the property include Express, Abercrombie & Fitch,
House of Hoops, Sephora, Kay Jewelers, and Bath & Body Works. The
subject's most notable omnichannel retailers including Apple and
Lego. The subject's food venues include a 13-bay food court. Some
of the noteworthy food venues include Chick-fil-A, Cinnabon,
Subway, Taco Bell, and Starbucks.
The property was originally constructed in 1981; however, it has
been expanded and renovated numerous times since development. In
2016, Dick's Sporting Goods was added to the Property for a cost of
approximately $10 million. Between 2016 and 2020, approximately
$36.0 million of capital expenditures were spent on the Willowbrook
Mall property including developments to the Zara and Nordstrom Rack
spaces, updates to the energy systems, charging stations, lighting
and more. Future capital expenditures are estimated at
approximately $5.3 million which include roof replacement, security
upgrades, and parking lot pavements.
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 1.93 and Moody's first-mortgage
stressed DSCR at a 9.25% constant is 1.16x. Moody's DSCR is based
on Moody's stabilized net cash flow.
The Moody's LTV ratio for the first-mortgage balance is 91.2%. The
Moody's LTV ratio is based on Moody's value.
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 property's quality
grade is 3.00.
Notable strengths of the transaction include: strong in-line sales,
strong location, amortizing loan profile, and experienced
sponsorship.
Notable concerns of the transaction include: the effects of the
coronavirus pandemic, tenant rollover, lack of asset
diversification, recent decline in operating performance,
floating-rate mortgage loan profile and certain credit negative
legal features.
The principal methodology used in these ratings was "Moody's
Approach to Rating Large Loan and Single Asset/Single Borrower
CMBS" published in September 2020.
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 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.
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 pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of commercial real estate from a gradual and unbalanced
recovery in United States economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
BRAVO RESIDENTIAL 2021-HE2: Fitch Assigns B Rating on Cl. B-2 Debt
------------------------------------------------------------------
Fitch Ratings has assigned final ratings to Bravo Residential
Funding Trust 2021-HE2 (BRAVO 2021-HE2).
DEBT RATING PRIOR
---- ------ -----
BRAVO 2021-HE2
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
AIOS LT NRsf New Rating NR(EXP)sf
SA LT NRsf New Rating NR(EXP)sf
XS LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Fitch rates the residential mortgage-backed notes backed by
seasoned first and second lien, open and closed home equity line of
credit (HELOC) and home equity loans on residential properties to
be issued by BRAVO Residential Funding Trust 2021-HE2 (BRAVO
2021-HE2) as indicated above. This is the second transaction that
includes HELOCs with open draws on the BRAVO shelf.
The collateral pool consists of 5,126 seasoned performing loans
(SPL) and re-performing loans (RPL) totaling $294.46 million. As of
the cutoff date, approximately $168.52 million of the collateral
consists of second liens, while the remaining $125.94 million
comprises first liens. The maximum available draw amount as of the
cutoff date is expected to be $156.64 million, as determined by
Fitch.
The loans were originated or acquired by affiliates of Capital One,
National Association, which exited the mortgage originations
business in 2018, and were subsequently purchased by an affiliate
of a PIMCO-managed private fund in a bulk sale and are serviced by
Rushmore Loan Management Services (Rushmore).
Distributions of principal are based on a modified sequential
structure subject to the transaction's performance triggers.
Interest payments are made sequentially, while losses are allocated
reverse sequentially.
Draws will be funded first by the servicer, which will be
reimbursed from principal collections. If funds from principal
collections are insufficient, the servicer will be reimbursed from
the variable funding account (VFA). The VFA will be funded up
front, and the holder of the trust certificates will be obligated,
in certain circumstances (only if the draws exceed funds in the
VFA), to remit funds on behalf of the holder of the class R note to
the VFA to reimburse the servicer for certain draws made with
respect to the mortgage loans. Any amounts so remitted by the
holder of the trust certificates will be added to the principal
balance of the trust certificates.
The servicer, Rushmore, will not be advancing delinquent monthly
payments of principal and interest (P&I).
KEY RATING DRIVERS
Seasoned Prime Credit Quality (Positive): The pool in aggregate is
seasoned almost nine years with the first lien portion seasoned
roughly nine years and the second lien portion seasoned roughly 10
years. Of the loans, Fitch determined that 99.8% are current and
0.2% are currently 30 days delinquent (based on the transaction
documents, 99.7% are current and 0.3% are 30 days delinquent).
Approximately 91% of the loans have been performing for at least
the previous 24 months (88.7% have been performing for 36 months
according to Fitch) and, therefore, received a credit in Fitch's
model. Approximately 1.5% of loans have received a prior
modification based on Fitch's analysis (2.0% per the transaction
documents). The pool exhibits a relatively strong credit profile as
shown by the Fitch determined 755 weighted average (WA) FICO (746
per the transaction documents) as well as the 61.7% sustainable
loan-to-value ratio (sLTV).
Geographic Concentration (Negative): Approximately 23.8% of the
pool is concentrated in Maryland per the transaction documents.
According to Fitch, the largest MSA concentration is in the
Washington-Arlington-Alexandria, DC-VA-MD MSA (33.4%), followed by
the New York-Northern New Jersey-Long Island, NY-NJ-PA MSA (24.2%)
and the New Orleans-Metairie-Kenner, LA MSA (8.0%). The top three
MSAs account for 65.6% of the pool. As a result, there was a 1.21x
probability of default (PD) penalty for geographic concentration.
Modified Sequential Structure (Positive): The transaction has a
modified sequential structure in which principal is distributed
pro-rata to the senior classes to the extent that the performance
triggers are passing. To the extent they are failing, it is paid
sequentially. The transaction also benefits from excess spread that
can be used to reimburse for realized and cumulative losses and cap
carryover amounts. Excess spread is not being used to turbo down
the bonds, and as a result, more credit enhancement compared to
expected loss is needed.
If the triggers are passing, the trust certificates will receive
their pro-rata share of principal and the residual principal
balance will receive its pro-rata share of losses up to the trust
certificates' writedown amount for such payment date. If triggers
are failing, the trust certificates will be paid principal after
all other classes have been paid in full and the trust certificates
will take losses first, followed by the subordinate, mezzanine and
senior notes.
No Servicer Advancing (Positive): The servicer will not be
advancing delinquent monthly payments of P&I. Because P&I advances
made on behalf of loans that become delinquent and eventually
liquidate reduce liquidation proceeds to the trust, the loan-level
loss severities (LS) are less for this transaction than for those
where the servicer is obligated to advance P&I.
Macro or Sector Risks (Positive): Consistent with the Additional
Scenario Analysis section of Fitch's "U.S. RMBS Coronavirus-Related
Analytical Assumptions" criteria, Fitch will consider applying
additional scenario analysis based on stressed assumptions as
described in the section to remain consistent with significant
revisions to Fitch's macroeconomic baseline scenario or if actual
performance data indicate the current assumptions require
reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of COVID-19 vaccines, Fitch reconsidered the
application of the coronavirus-related Economic Risk Factor (ERF)
floors of 2.0 and used ERF floors of 1.5 and 1.0 for the 'BBsf' and
'Bsf' rating stresses, respectively. Fitch's "Global Economic
Outlook - March 2021" and related baseline economic scenario
forecasts have been revised to a 6.2% U.S. GDP growth rate for 2021
and 3.3% for 2022 following -3.5% GDP growth in 2020. Additionally,
Fitch's U.S. unemployment forecasts for 2021 and 2022 are 5.8% and
4.7%, respectively, which is down from 8.1% in 2020. These revised
forecasts support Fitch reverting to the 1.5 and 1.0 ERF floors
described in Fitch's "U.S. RMBS Loan Loss Model Criteria."
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. Sensitivity analyses was conducted at the
state and national levels to assess the effect of higher MVDs for
the subject pool as well as lower MVDs, illustrated by a gain in
home prices.
Factor that could, individually or collectively, lead to a negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 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.
Factor 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 positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up- and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
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 Digital Risk and Solidifi. The third-party due
diligence described in Form 15E focused on compliance (Digital
Risk) and tax and title search (Solidifi). Fitch considered this
information in its analysis and, as a result, Fitch made the
following adjustments to its analysis: increased the loss severity
due to HUD-1 issues and extrapolated the results to the loans that
did not receive diligence grades and for all loans where the
first-lien status could not be confirmed, Fitch assumed the loan
was a second lien. These adjustments resulted in an increase in the
expected loss of approximately 0.75%.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on approximately 16.3% of the pool by loan count (based
on Fitch's analysis of the pool, the due diligence percent is 15.9%
by loan count). The third-party due diligence was generally
consistent with Fitch's "U.S. RMBS Rating Criteria." Digital Risk
was engaged to perform the review. Loans reviewed under this
engagement were given compliance, 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 that was 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.
BX COMMERCIAL 2021-VINO: Moody's Assigns B3 Rating to Cl. F Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to six
classes of CMBS securities, issued by BX Commercial Mortgage Trust
2021-VINO, Commercial Mortgage Pass-Through Certificates, Series
2021-VINO:
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 Ba3 (sf)
Cl. F, Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The certificates are collateralized by the borrower's fee and
leasehold interests in 48 industrial properties located across five
states. Moody's ratings are based on the credit quality of the
loans and the strength of the securitization structure.
Moody's approach to rating this transaction involved the
application of Moody's Large Loan and Single Asset/Single Borrower
CMBS 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 contains a total of 11,336,706 SF of net rentable
area ("NRA") comprised primarily of warehouse/distribution and
light industrial facilities. The largest geographic market
concentration by allocated loan amount ("ALA") is in the Atlanta,
Georgia area (59.8% of ALA, 70.1% of NRA), followed by Minneapolis,
Minnesota (15.0% of ALA, 13.5% of NRA), Washington, D.C (12.7% of
ALA, 6.4% of NRA), Salt Lake City, Utah (8.6% of ALA, 6.8% of NRA),
and Orange County, California (3.8% of ALA, 3.2% of NRA). The
portfolio properties are primarily located in global gateway
markets and generally situated within close proximity to major
transportation arteries.
Construction dates for properties in the portfolio range between
1964 and 2020, with a weighted average year built of 2004. Property
sizes for assets range between 40,617 SF and 1,000,000 SF, with an
average size of approximately 236,000 SF. Clear heights for
properties range between 20 feet and 36 feet, with a weighted
average, clear height for the portfolio of approximately 30 feet.
As of April 22, 2021, the portfolio was approximately 91.5% leased
to 76 unique tenants, not including pending leases.
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 2.35 and Moody's first-mortgage
stressed DSCR at a 9.25% constant is 0.55x. Moody's DSCR is based
on Moody's stabilized net cash flow.
The Moody's LTV ratio for the first-mortgage balance is 157.8%. The
Moody's LTV ratio is based on Moody's value.
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 pool's weighted
average property quality grade is 0.98.
Notable strengths of the transaction include: proximity to global
gateway markets, geographic diversity, asset quality and
experienced sponsorship.
Notable concerns of the transaction include: the high Moody's
loan-to-value ratio (LTV), tenant rollover profile,
floating-rate/interest-only mortgage loan profile and certain
credit negative legal features.
Moody's rating approach considers sequential pay in connection with
a collateral release as a credit neutral benchmark. Although the
loans' release premium mitigates the risk of a ratings downgrade
due to adverse selection, the pro rata payment structure limits
ratings upgrade potential as mezzanine classes are prevented from
building enhancement. The benefit received from pooling through
cross-collateralization is also reduced.
The principal methodology used in these ratings was "Moody's
Approach to Rating Large Loan and Single Asset/Single Borrower
CMBS" published in September 2020.
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 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.
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 pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of commercial real estate from a gradual and unbalanced
recovery in United States economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
CARVANA AUTO 2021-N2: DBRS Gives Prov. BB Rating on Class E Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Carvana Auto Receivables Trust 2021-N2 (CRVNA
2021-N2 or the Issuer):
-- $143,000,000 Class A1 Notes at AAA (sf)
-- $42,400,000 Class A2 Notes at AAA (sf)
-- $53,600,000 Class B Notes at AA (sf)
-- $58,200,000 Class C Notes at A (sf)
-- $40,800,000 Class D Notes at BBB (sf)
-- $62,000,000 Class E Notes at BB (sf)
The provisional ratings are based on DBRS Morningstar's review of
the following analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization,
subordination, a fully funded reserve fund, and excess spread.
Credit enhancement levels are sufficient to support the DBRS
Morningstar-projected cumulative net loss (CNL) assumption under
various stress scenarios.
(2) The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms in which
they have invested. For this transaction, the ratings address the
payment of timely interest on a monthly basis and principal by the
legal final maturity date.
(3) The transaction parties' capabilities with regard to
originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Carvana,
LLC (Carvana) and Bridgecrest Credit Company, LLC and considers the
entities to be an acceptable originator and servicer, respectively,
of auto loans.
(4) The operational history of Carvana and the strength of the
overall company and its management team.
-- Company management has considerable experience in the consumer
lending business.
-- Carvana's platform is a technology-driven platform that focuses
on providing the customer with high-level experience, selection,
and value. Its website and smartphone app provide the consumer with
vehicle search and discovery (currently showing more than 30,000
vehicles online); the ability to trade or sell vehicles almost
instantaneously; and real-time, personalized financing. Carvana has
developed underwriting policies and procedures for use across the
lending platform that leverages technology where appropriate to
validate customer identity, income, employment, residency,
creditworthiness, and proper insurance coverage.
-- Carvana has developed multiple proprietary risk models to
support various aspects of its vertically integrated automotive
lending business. All proprietary risk models used in Carvana's
lending business are regularly monitored and tested. The risk
models are updated from time to time to adjust for new performance
data, changes in customer and economic trends, and additional
sources of third-party data.
(5) The credit quality of the collateral, which includes
Carvana-originated loans with Deal Scores of 49 or lower.
-- As of the May 9, 2021, cut-off date, the collateral pool for
the transaction is primarily composed of receivables due from
nonprime obligors with a weighted-average (WA) FICO score of 569
and WA annual percentage rate of 19.19% and a WA loan-to-value
ratio of 98.97%. Approximately 43.33%, 30.10%, and 26.57% of the
pool include loans with Carvana Deal Scores greater than or equal
to 30, between 10 and 29, and between 0 and 9, respectively.
Additionally, 0.29% of the collateral balance is composed of
obligors with FICO scores greater than 800, 30.38% consists of FICO
scores between 601 to 800, and 69.32% is from obligors with FICO
scores less than or equal to 600 or with no FICO score.
-- DBRS Morningstar analyzed the performance of Carvana's auto
loan and retail installment contract originations and static pool
vintage loss data broken down by Deal Score to determine a
projected CNL expectation for the CRVNA 2021-N2 pool.
(6) The DBRS Morningstar CNL assumption is 16.40% based on the
cut-off date pool composition.
-- The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
coronavirus, available in its commentary "Global Macroeconomic
Scenarios: March 2021 Update," published on March 17, 2021. DBRS
Morningstar initially published macroeconomic scenarios on April
16, 2020, that have been regularly updated. The scenarios were last
updated on March 17, 2021, and are reflected in DBRS Morningstar's
rating analysis. The assumptions consider the moderate
macroeconomic scenario outlined in the commentary, with the
moderate scenario serving as the primary anchor for the current
ratings. The moderate scenario factors in increasing success in
containment during the first half of 2021, enabling the continued
relaxation of restrictions.
(7) Carvana's financial condition as reported in its annual report
on Form 10-K filed as of February 25, 2021, and 10-Q filed as of
May 6, 2021.
(8) The legal structure and expected presence of legal opinions,
which will address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Carvana, that
the trust has a valid first-priority security interest in the
assets, and consistency with the DBRS Morningstar "Legal Criteria
for U.S. Structured Finance."
The rating on the Class A Notes reflects 54.90% of initial hard
credit enhancement provided by subordinated notes in the pool
(53.65%) and the reserve account (1.25%). The ratings on the Class
B, C, D, and E Notes reflect 41.50%, 26.95%, 16.75%, and 1.25% of
initial hard credit enhancement, respectively.
Notes: All figures are in U.S. dollars unless otherwise noted.
CATHEDRAL LAKE VI: Moody's Gives Ba3 Rating to $16MM Class E Notes
------------------------------------------------------------------
Moody's Investors Service has assigned ratings to three classes of
notes issued and one class of loans incurred by Cathedral Lake VI,
Ltd. (the "Issuer" or "Cathedral Lake VI").
Moody's rating action is as follows:
US$174,000,000 Class A Senior Secured Loans due 2034 (the "Class A
Loans"), Assigned Aaa (sf)
US$61,000,000 Class A-N Senior Secured Floating Rate Notes Due 2034
(the "Class A-N Notes"), Assigned Aaa (sf)
US$25,000,000 Class A-F Senior Secured Fixed Rate Notes Due 2034
(the "Class A-F Notes"), Assigned Aaa (sf)
US$16,000,000 Class E Secured Deferrable Floating Rate Notes Due
2034 (the "Class E Notes"), Assigned Ba3 (sf)
The Class A Loans, the Class A-N Notes, the Class A-F Notes, and
the Class E Notes are referred to herein, collectively, as the
"Rated Debt."
On the closing date, the Class A Loans and the Class A-N Notes have
a principal balance of $174,000,000 and $61,000,000 respectively.
However, the aggregate outstanding amount of the Class A-N Notes
may be increased up to $235,000,000 upon an optional conversion of
the Class A Loans or the issuance of additional Class A-N Notes in
lieu of Class A Loans being prepaid as a result of an effective
applicable margin reset with respect to the AMR Class that consists
of the Class A-N Notes and the Class A Loans, in each case, in
accordance with the governing transaction documents.
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.
Cathedral Lake VI is a managed cash flow CLO. The issued notes will
be collateralized primarily by broadly syndicated senior secured
corporate loans. At least 92.5% of the portfolio must consist of
senior secured loans and eligible investments, and up to 7.5% of
the portfolio may consist of second lien loans, senior unsecured
loans and senior secured bonds, provided that no more than 3.0% of
the portfolio consists of senior secured bonds. The portfolio is
approximately 95% ramped as of the closing date.
Carlson CLO Advisers, LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Debt, the Issuer will issue six other
classes of secured notes and one class of subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $400,000,000
Diversity Score: 70
Weighted Average Rating Factor (WARF): 2857
Weighted Average Spread (WAS): 3.45%
Weighted Average Coupon (WAC): 5.0%
Weighted Average Recovery Rate (WARR): 46.0%
Weighted Average Life (WAL): 9.0 years
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in the US economic activity.
Moody's regard 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 Debt is subject to uncertainty. The
performance of the Rated Debt 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 Debt.
CIM TRUST 2021-J3: Fitch Gives 'B(EXP)' Rating on B-5 Certs
------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates (RMBS) issued by CIM Trust 2021-J3 (CIM 2021-J3).
DEBT RATING
---- ------
CIM Trust 2021-J3
A-1 LT AAA(EXP)sf Expected Rating
A-10 LT AAA(EXP)sf Expected Rating
A-11 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-2 LT AAA(EXP)sf Expected Rating
A-20 LT AAA(EXP)sf Expected Rating
A-21 LT AAA(EXP)sf Expected Rating
A-22 LT AAA(EXP)sf Expected Rating
A-23 LT AAA(EXP)sf Expected Rating
A-24 LT AAA(EXP)sf Expected Rating
A-25 LT AAA(EXP)sf Expected Rating
A-26 LT AAA(EXP)sf Expected Rating
A-27 LT AAA(EXP)sf Expected Rating
A-28 LT AAA(EXP)sf Expected Rating
A-29 LT AAA(EXP)sf Expected Rating
A-3 LT AAA(EXP)sf Expected Rating
A-30 LT AAA(EXP)sf Expected Rating
A-31 LT AAA(EXP)sf Expected Rating
A-32 LT AAA(EXP)sf Expected Rating
A-33 LT AAA(EXP)sf Expected Rating
A-34 LT AAA(EXP)sf Expected Rating
A-35 LT AAA(EXP)sf Expected Rating
A-36 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-X-1 LT AAA(EXP)sf Expected Rating
A-X-10 LT AAA(EXP)sf Expected Rating
A-X-11 LT AAA(EXP)sf Expected Rating
A-X-12 LT AAA(EXP)sf Expected Rating
A-X-13 LT AAA(EXP)sf Expected Rating
A-X-14 LT AAA(EXP)sf Expected Rating
A-X-15 LT AAA(EXP)sf Expected Rating
A-X-16 LT AAA(EXP)sf Expected Rating
A-X-17 LT AAA(EXP)sf Expected Rating
A-X-18 LT AAA(EXP)sf Expected Rating
A-X-19 LT AAA(EXP)sf Expected Rating
A-X-2 LT AAA(EXP)sf Expected Rating
A-X-20 LT AAA(EXP)sf Expected Rating
A-X-21 LT AAA(EXP)sf Expected Rating
A-X-22 LT AAA(EXP)sf Expected Rating
A-X-23 LT AAA(EXP)sf Expected Rating
A-X-24 LT AAA(EXP)sf Expected Rating
A-X-25 LT AAA(EXP)sf Expected Rating
A-X-26 LT AAA(EXP)sf Expected Rating
A-X-27 LT AAA(EXP)sf Expected Rating
A-X-28 LT AAA(EXP)sf Expected Rating
A-X-29 LT AAA(EXP)sf Expected Rating
A-X-3 LT AAA(EXP)sf Expected Rating
A-X-30 LT AAA(EXP)sf Expected Rating
A-X-31 LT AAA(EXP)sf Expected Rating
A-X-32 LT AAA(EXP)sf Expected Rating
A-X-33 LT AAA(EXP)sf Expected Rating
A-X-34 LT AAA(EXP)sf Expected Rating
A-X-35 LT AAA(EXP)sf Expected Rating
A-X-36 LT AAA(EXP)sf Expected Rating
A-X-37 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-S LT NR(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-1A LT AA(EXP)sf Expected Rating
B-2 LT A(EXP)sf Expected Rating
B-2A 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
B-X-1 LT AA(EXP)sf Expected Rating
B-X-2 LT A(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 340 fixed-rate mortgages (FRMs)
with a total balance of approximately $320.27 million as of the
cutoff date. The loans were originated by various mortgage
originators, and the seller, Fifth Avenue Trust, acquired the loans
from Bank of America, National Association (BANA). Distributions of
P&I and loss allocations are based on a traditional
senior-subordinate, shifting-interest structure.
KEY RATING DRIVERS
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data,
and the unexpected development in the health crisis arising from
the advancement and availability of coronavirus vaccines, Fitch
reconsidered the application of the Coronavirus-related ERF floors
of 2.0 and used ERF Floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf'
rating stresses, respectively. Fitch's March 2021 Global Economic
Outlook and related base-line economic scenario forecasts have been
revised to a 6.2% U.S. GDP growth for 2021 and 3.3% for 2022
following a -3.5% GDP growth in 2020. Additionally, Fitch's U.S.
unemployment forecasts for 2021 and 2022 are 5.8% and 4.7%,
respectively, which is down from 8.1% in 2020. These revised
forecasts support Fitch reverting back to the 1.5 and 1.0 ERF
floors described in Fitch's "U.S. RMBS Loan Loss Model Criteria."
High-Quality Mortgage Pool (Positive): The pool consists of very
high-quality, 30-year fixed-rate, fully amortizing safe harbor
qualified mortgage (SHQM) loans to borrowers with strong credit
profiles, relatively low leverage and large liquid reserves. Per
Fitch's calculation methodology, the loans are seasoned an average
of three months. The pool has a weighted average (WA) original FICO
score of 778, which is indicative of very high credit-quality
borrowers. Approximately 87% of the loans have a borrower with a
FICO score equal to or above 750. In addition, the original WA
combined loan to value ratio (CLTV) of 62.9% represents substantial
borrower equity in the property and reduced default risk.
Geographic Concentration (Negative): Approximately 49% of the pool
is concentrated in California. The largest MSA concentration is in
the Los Angeles MSA (16%), followed by the San Francisco MSA (15%)
and the San Jose MSA (6%). The top three MSAs account for 37% of
the pool. As a result, there was a 1.01x probability of default
(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 to 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): The servicer will provide full
advancing for the life of the transaction (the servicer is also
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. Wells Fargo, as master servicer, will advance if the
servicer fails to do so.
Subordination Floor (Positive): A CE or senior subordination floor
of 1.40% has been considered to mitigate potential tail-end risk
and loss exposure for senior tranches as the pool size declines and
performance volatility increases due to adverse loan selection and
small loan count concentration. Also, a junior subordination floor
of 0.90% will be maintained to mitigate tail risk, which arises as
the pool seasons and fewer loans are outstanding. Additionally, the
stepdown tests do not allow principal prepayments to subordinate
bondholders in the first five years following deal closing.
Payment Forbearance (Neutral): As of May 1, 2021, none of the
borrowers in the pool were on an active coronavirus forbearance
plan. The borrowers that previously entered into a coronavirus
pandemic-related forbearance plan have since been reinstated (Fitch
did not penalize these loans). In the event that, after closing, a
borrower enters into or requests an active coronavirus-related
forbearance plan, such loan will remain in the pool and the
servicer will be required to make advances in respect of delinquent
P&I (as well as servicing advances) on such mortgage loan during
the forbearance period (to the extent such advances are deemed
recoverable), and the mortgage loan will be considered delinquent
for all purposes under the transaction documents.
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-related 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.
Third-Party Due Diligence Results (Positive): Third-party due
diligence was performed on 100% of the pool by Clayton Services,
Opus CMC and Consolidated Analytics, which are respectively
assessed as Acceptable - Tier 1, Acceptable - Tier 2 and Acceptable
- Tier 3 by Fitch. The due diligence results identified no material
exceptions, as 100% of the loans were graded either 'A' or 'B'.
Credit exceptions were deemed immaterial and supported by
compensating factors, and compliance exceptions were primarily
related to the TRID (TILA-RESPA Integrated Disclosures) rule and
cured with subsequent documentation. Fitch applied a credit for
loans that received due diligence, which ultimately reduced the
'AAAsf' loss expectation by 16 basis points (bps).
Representation and Warranty Framework Adjustment (Negative): The
loan-level representation and warranty (R&W) framework is
consistent with a Tier 1 framework, as it contains the full list of
representations that are outstanding for the life of the mortgage
loans. Despite a strong framework, repurchase obligations are
designated to a separate fund that does not hold an
investment-grade rating. The fund may have issues fulfilling
repurchases in times of economic stress, particularly if the fund
must repurchase on behalf of underlying originators. Fitch
increased its loss expectations by 13bps at the 'AAAsf' rating
category to account for the non-investment-grade counterparty risk
of the R&W provider.
Low Operational Risk (Negative): Operational risk is well
controlled for in this transaction. Chimera actively purchases
prime jumbo loans and is assessed as an 'average' aggregator by
Fitch. Loans were primarily originated by Guaranteed Rate, Inc.,
Guild Mortgage Company LLC and Fairway Independent Mortgage
Corporation (Fairway), which comprise approximately 19%, 18% and
16% of the loans in the transaction pool, respectively. Fitch has
reviewed both Guaranteed Rate and Fairway mortgage origination
platforms and has assessed them both to be 'Average' originators.
Shellpoint Mortgage Servicing is the named servicer for the
transaction and is responsible for primary and special servicing
functions. Fitch views Shellpoint as a sound servicer of prime
loans, and the company is rated 'RPS2'/Stable. Wells Fargo Bank,
N.A. (RMS1-/Negative) will act as master servicer. Overall, Fitch
increased its expected losses at the 'AAAsf' rating stress
slightly, by 8bps, to reflect the absence of originator assessments
covering a portion of the transaction coupled with the 'average'
aggregator assessment.
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. Sensitivity analyses was conducted at the
state and national levels to assess the effect of higher MVDs for
the subject pool as well as lower MVDs, illustrated by a gain in
home prices.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 40.7% 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.
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.
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, Clayton Services and Opus. The
third-party due diligence described in Form 15E focused on credit,
compliance, data integrity and property valuation. Fitch considered
this information in its analysis.
100% of the pool received a final grade of 'A' or 'B' and confirms
no incidence of material exceptions. Approximately 16% of the loan
pool (by loan count) was assigned a final grade 'B', which is lower
than other prime jumbo RMBS reviewed by Fitch.
Approximately 4% of the pool was graded 'B' for credit exceptions
that were considered immaterial as they were supported with
significant compensating factors identified by both the seller and
Chimera during the acquisition process. Additionally, approximately
12% of the pool was graded 'B' for immaterial compliance exceptions
primarily to the TILA-RESPA Integrated Disclosure (TRID) rule that
were corrected by the seller with subsequent and/or post-closing
documentation. Fitch did not apply any loss adjustments based on
the due diligence results.
Fitch applied a credit for loans that received due diligence, which
ultimately reduced the 'AAAsf' loss expectation by 16bps.
ESG CONSIDERATIONS
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.
CIM TRUST 2021-J3: Moody's Assigns (P)B2 Rating to Cl. B-5 Certs
----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to
eighty-two classes of residential mortgage-backed securities issued
by CIM Trust 2021-J3 (CIM 2021-J3). The ratings range from (P)Aaa
(sf) to (P)B2 (sf).
CIM 2021-J3 is a securitization of prime residential mortgages.
This transaction represents the third prime jumbo issuance by
Chimera Investment Corporation (the sponsor) in 2021. The pool
comprises of 340, 30-year fixed rate non-conforming mortgage loans.
The mortgage loans for this transaction have been acquired by the
affiliate of the sponsor, Fifth Avenue Trust (the seller) from Bank
of America, National Association (BANA). BANA acquired the mortgage
loans through its whole loan purchase program from various
originators. Approximately, 96.6% of the loans in the pool are
underwritten to Chimera Investment Corporation's (Chimera)
guidelines.
The credit characteristics of the mortgage loans backing this
transaction are similar or better to recent CIM Trust transactions
and other prime jumbo issuers that Moody's have rated. Moody's
consider the overall servicing arrangement for this pool to be
adequate. Shellpoint Mortgage Servicing (Shellpoint) will service
the loans and Wells Fargo Bank, N.A. (Wells Fargo) (Aa1 long term
deposit) will be the master servicer. Three third-party review
(TPR) firms 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 100% 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.
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. In addition,
Moody's adjusted Moody's expected losses based on qualitative
attributes, including the financial strength of the representation
and warranties (R&W) provider and TPR results. CIM 2021-J3 has a
shifting interest structure with a five-year lockout period that
benefits from a senior subordination floor and a subordinate floor.
Moody's coded the cash flow for each of the certificate classes
using Moody's proprietary cash flow tool.
The complete rating actions are as follows:
Issuer: CIM Trust 2021-J3
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-10, Assigned(P) Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aaa (sf)
Cl. A-15, Assigned (P)Aaa (sf)
Cl. A-16, Assigned (P)Aaa (sf)
Cl. A-17, Assigned (P)Aaa (sf)
Cl. A-18, Assigned (P)Aaa (sf)
Cl. A-19, Assigned (P)Aaa (sf)
Cl. A-20, Assigned (P)Aaa (sf)
Cl. A-21, Assigned (P)Aaa (sf)
Cl. A-22, Assigned (P)Aaa (sf)
Cl. A-23, Assigned (P)Aaa (sf)
Cl. A-24, Assigned (P)Aaa (sf)
Cl. A-25, Assigned (P)Aaa (sf)
Cl. A-26, Assigned (P)Aaa (sf)
Cl. A-27, Assigned (P)Aaa (sf)
Cl. A-28, Assigned (P)Aaa (sf)
Cl. A-29, Assigned (P)Aaa (sf)
Cl. A-30, Assigned (P)Aaa (sf)
Cl. A-31, Assigned (P)Aaa (sf)
Cl. A-32, Assigned (P)Aaa (sf)
Cl. A-33, Assigned (P)Aaa (sf)
Cl. A-34, Assigned (P)Aaa (sf)
Cl. A-35, Assigned (P)Aaa (sf)
Cl. A-36, 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)Aaa (sf)
Cl. A-X-4*, Assigned (P)Aaa (sf)
Cl. A-X-5*, Assigned (P)Aaa (sf)
Cl. A-X-6*, Assigned (P)Aaa (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-10*, Assigned (P)Aaa (sf)
Cl. A-X-11*, Assigned (P)Aaa (sf)
Cl. A-X-12*, Assigned (P)Aaa (sf)
Cl. A-X-13*, Assigned (P)Aaa (sf)
Cl. A-X-14*, Assigned (P)Aaa (sf)
Cl. A-X-15*, Assigned (P)Aaa (sf)
Cl. A-X-16*, Assigned (P)Aaa (sf)
Cl. A-X-17*, Assigned (P)Aaa (sf)
Cl. A-X-18*, Assigned (P)Aaa (sf)
Cl. A-X-19*, Assigned (P)Aaa (sf)
Cl. A-X-20*, Assigned (P)Aaa (sf)
Cl. A-X-21*, Assigned (P)Aaa (sf)
Cl. A-X-22*, Assigned (P)Aaa (sf)
Cl. A-X-23*, Assigned (P)Aaa (sf)
Cl. A-X-24*, Assigned (P)Aaa (sf)
Cl. A-X-25*, Assigned (P)Aaa (sf)
Cl. A-X-26*, Assigned (P)Aaa (sf)
Cl. A-X-27*, Assigned (P)Aaa (sf)
Cl. A-X-28*, Assigned (P)Aaa (sf)
Cl. A-X-29*, Assigned (P)Aaa (sf)
Cl. A-X-30*, Assigned (P)Aaa (sf)
Cl. A-X-31*, Assigned (P)Aaa (sf)
Cl. A-X-32*, Assigned (P)Aaa (sf)
Cl. A-X-33*, Assigned (P)Aaa (sf)
Cl. A-X-34*, Assigned (P)Aaa (sf)
Cl. A-X-35*, Assigned (P)Aaa (sf)
Cl. A-X-36*, Assigned (P)Aaa (sf)
Cl. A-X-37*, Assigned (P)Aaa (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-X-1*, Assigned (P)Aa3 (sf)
Cl. B-1A, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-X-2*, Assigned (P)A2 (sf)
Cl. B-2A, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa2 (sf)
Cl. B-4, Assigned (P)Ba2 (sf)
Cl. B-5, Assigned (P)B2 (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
0.20%, in a baseline scenario-median is 0.09%, and reaches 2.17% at
a stress level consistent with Moody's Aaa ratings.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's increased its model-derived median expected losses by
10.00% (5.94% for the mean) and Moody's Aaa loss by 2.50% to
reflect the likely performance deterioration resulting from the
slowdown in US economic activity due to the coronavirus outbreak.
These adjustments are lower than the 15% median expected loss and
5% Aaa loss adjustments Moody's made on pools from deals issued
after the onset of the pandemic until February 2021. Moody's
reduced adjustments reflect the fact that the loan pool in this
deal does not contain any loans to borrowers who are not currently
making payments. For newly originated loans, post-COVID
underwriting takes into account the impact of the pandemic on a
borrower's ability to repay the mortgage. For seasoned loans, as
time passes, the likelihood that borrowers who have continued to
make payments throughout the pandemic will now become non-cash
flowing due to COVID-19 continues to decline.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Collateral Description
Moody's assessed the collateral pool as of the cut-off date of May
1, 2021. CIM 2021-J3 is a securitization of 340, 30-year fixed
rate, prime residential non-conforming mortgage loans with an
aggregate principal balance of approximately $320,266,773. All of
the mortgage loans are secured by first liens on single-family
residential properties, planned unit developments, condominiums,
co-operatives, and multi-family units. The loans have a weighted
average seasoning of approximately one month. All of the mortgage
loans are designated as qualified mortgages (QM) under the QM safe
harbor rules.
As of May 1, 2021, no borrower under any mortgage loan is currently
in an active COVID-19 related forbearance plan with the servicer.
In the event that after May 1, 2021, a borrower experiences
financial difficulty as a result of the COVID-19 outbreak and
requests forbearance or other relief with respect to its mortgage
payments, such mortgage loan will remain in the mortgage pool.
Origination Quality and Underwriting Guidelines
The seller, Fifth Avenue Trust, acquired the mortgage loans from
Bank of America, National Association (BANA). Approximately 96.6%
of the mortgage loans by stated principal balance as of the cut-off
date were acquired by BANA from various mortgage loan originators
or sellers through its jumbo whole loan purchase program. These
mortgage loans have principal balances in excess of the
requirements for purchase by Fannie Mae and Freddie Mac (i.e. 100%
of the loans in the pool are prime jumbo loans) and were generally
acquired pursuant to the CIM 2021-J3 acquisition criteria.
There are 11 originators in the transaction. The largest
originators in the pool with more than 10% by balance are
Guaranteed Rate Inc., Guaranteed Rate Affinity, LLC, and Proper
Rate, LLC (combined 23.5%), Guild Mortgage Company LLC (18.0%),
Fairway Independent Mortgage Corporation (16.4%), PrimeLending
(14.0%) and Commerce Home Mortgage, LLC (11.2%).
Moody's increased Moody's base case and Aaa loss expectations for
all loans underwritten to Chimera's underwriting guidelines, which
include loans originated by the aforementioned originators, because
Moody's consider such mortgage loans to have been acquired to
slightly less conservative prime jumbo underwriting standards.
Moody's did not make any adjustments to Moody's losses for loans
originated under loanDepot's underwriting guidelines as Moody's
consider the company's prime jumbo origination quality to be
adequate.
Servicing arrangement
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement in this transaction in
which Shellpoint will service all the mortgage loans and Wells
Fargo, an experienced master servicer, provides oversight of the
servicer. Shellpoint will be responsible for advancing principal
and interest and corporate advances, with the master servicer
backing up Shellpoint's advancing obligations if Shellpoint cannot
fulfill them.
In the event that after May 1, 2021 a borrower enters into or
requests an active COVID-19 related forbearance plan, such mortgage
loan will remain in the mortgage pool and the servicer will be
required to make advances in respect of delinquent interest and
principal (as well as servicing advances) on such mortgage loan
during the forbearance period (to the extent such advances are
deemed recoverable) and the mortgage loan will be considered
delinquent for all purposes under the transaction documents.
Third Party Review
The transaction benefits from a TPR on 100% of the loans for
regulatory compliance, credit and property valuation. The TPR
results confirm compliance with the originator's underwriting
guidelines for the vast majority of loans, no material regulatory
compliance issues, and no material property valuation issues. The
loans that had exceptions to the originator's underwriting
guidelines had significant compensating factors that were
documented.
Representations and Warranties Framework
Each originator will provide comprehensive loan level
representations and warranties for their respective loans. BANA
will assign each originator's R&W to the seller, who will in turn
assign to the depositor, which will assign to the trust. To
mitigate the potential concerns regarding the originators' ability
to meet their respective R&W obligations, Chimera Funding TRS LLC
(an affiliate of the sponsor) will backstop the R&Ws for all
originator's loans. The R&W provider's obligation to backstop third
party R&Ws will terminate 5 years after the closing date, subject
to certain performance conditions. The R&W provider will also
provide the gap reps. Moody's considered the R&W framework in
Moody's analysis and found it to be adequate. Moody's therefore did
not make any adjustments to Moody's losses based on the strength of
the R&W framework.
Tail Risk & Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinate bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinate bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 1.40% of the cut-off date pool
balance, and as subordination lockout amount of 0.90% of the
cut-off date pool balance. Moody's calculate the credit neutral
floors as shown in Moody's principal methodology.
Other Considerations
In CIM 2021-J3, the controlling holder has the option to hire at
its own expense the independent reviewer upon the occurrence of a
review event. If there is no controlling holder (no single entity
holds a majority of the Class Principal Amount of the most
subordinate class of certificates outstanding), the trustee shall,
upon receipt of a direction of the certificate holders of more than
25% of the aggregate voting interest of all certificates and upon
receipt of the deposit, appoint an independent reviewer at a cost
to the trust. However, if the controlling holder does not hire the
independent reviewer, the holders of more than 50% of the aggregate
voting interests of all outstanding certificates may direct (at
their expense) the trustee to appoint an independent reviewer. In
this transaction, the controlling holder can be the depositor or a
seller (or an affiliate of these parties). If the controlling
holder is affiliated with the depositor, seller or Sponsor, then
the controlling holder may not be motivated to discover and enforce
R&W breaches for which its affiliate is responsible.
The servicer will not commence foreclosure proceedings on a
mortgage loan unless the servicer has notified the controlling
holder at least five business days in advance of the foreclosure
and the controlling holder has not objected to such action. If the
controlling holder objects, the servicer has to obtain three
appraisals from the appraisal firms as listed in the pooling and
servicing agreement. The cost of the appraisals is borne by the
controlling holder. The controlling holder will be required to
purchase such mortgage loan at a price equal to the highest of the
three appraisals plus accrued and unpaid interest on such mortgage
loan as of the purchase date. If the servicer cannot obtain three
appraisals there are alternate methods for determining the purchase
price. If the controlling holder fails to purchase the mortgage
loan within the time frame, the controlling holder forfeits any
foreclosure rights thereafter. Moody's consider this credit neutral
because a) the appraiser is chosen by the servicer from the
approved list of appraisers, b) the fair value of the property is
decided by the servicer, based on third party appraisals, and c)
the controlling holder will pay the fair price and accrued
interest.
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.
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.
CITIGROUP COMMERCIAL 2018-C5: Fitch Rates Class G-RR Certs 'B-sf'
-----------------------------------------------------------------
Fitch Ratings affirmed 13 classes of Citigroup Commercial Mortgage
Trust (CGCMT) 2018-C5 commercial mortgage pass-through
certificates, series 2018-C5.
DEBT RATING PRIOR
---- ------ -----
CGCMT 2018-C5
A-1 17291DAA1 LT PIFsf Paid In Full AAAsf
A-2 17291DAB9 LT PIFsf Paid In Full AAAsf
A-3 17291DAC7 LT AAAsf Affirmed AAAsf
A-4 17291DAD5 LT AAAsf Affirmed AAAsf
A-AB 17291DAE3 LT AAAsf Affirmed AAAsf
A-S 17291DAF0 LT AAAsf Affirmed AAAsf
B 17291DAG8 LT AA-sf Affirmed AA-sf
C 17291DAH6 LT A-sf Affirmed A-sf
D 17291DAJ2 LT BBB-sf Affirmed BBB-sf
E-RR 17291DAL7 LT BBB-sf Affirmed BBB-sf
F-RR 17291DAN3 LT BB-sf Affirmed BB-sf
G-RR 17291DAQ6 LT B-sf Affirmed B-sf
X-A 17291DAU7 LT AAAsf Affirmed AAAsf
X-B 17291DAV5 LT AA-sf Affirmed AA-sf
X-D 17291DAW3 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Overall Stable Loss Expectations: The majority of the pool has
exhibited stable performance. Loss expectations were relatively
flat since the last rating action, despite an increase since
issuance. There are seven Fitch Loans of Concern (FLOCs; 18.9%) due
to the loss of large tenants and/or declining performance as a
result of the coronavirus pandemic. No loans are in special
servicing or defeased. There have been no realized losses to date.
Fitch's current ratings incorporate a base case loss of 5.6%. The
Negative Outlook reflects losses that could reach 5.8% when
factoring in additional coronavirus-related stresses.
Fitch Loans of Concern: The largest FLOC and largest contributor to
losses is Retreat by Watermark (5.7%), the fifth-largest loan in
the pool. The loan is secured by a 324-unit multi-family property
located in Corpus Christi, TX. The subject is located approximately
five miles southeast of the Corpus Christi CBD. Corpus Christi is
home to Naval Air Station Corpus Christi, the largest employer in
the city.
The Corpus Christi economy is also heavily dependent on the
petroleum and petrochemical industry. Property performance declined
yoy and is below Fitch expectations at issuance due to higher than
expected operating expenses. Servicer reported occupancy and debt
service coverage ratio (DSCR) were 87% and 1.18x, respectively, at
YE 2020, down from 95.7% and 1.44x at YE 2019. New supply concerns
were also noted at issuance. The loan is currently cash managed.
The second-largest FLOC and seventh-largest loan, 650 South Exeter
Street (4.1%), is secured by a 206,335-sf mixed used property
(Office/Parking) located in Baltimore, MD. Laureate Education Inc.,
the largest tenant representing a 50% net rentable area (NRA) and
60% base rent with its lease expiring on June 30, 2027, exercised
its right on March 19, 2021 to terminate the lease by providing
15-months' notice to terminate effective June 30, 2022. The
second-largest tenant, Morgan Stanley Smith Barney (19% NRA),
expires in September 2022. Fitch requested a leasing status update
and is awaiting a response.
The third-largest FLOC and 11th-largest loan, Santa Fe Springs
Marketplace (3.1% of the pool), is secured by a 100,258-sf retail
property located in Santa Fe Springs, CA. The servicer reported
occupancy and DSCR were 78% and 1.58x, respectively, as of YE 2020,
down from 82% and 1.74x at YE 2019 and 99% and 1.79x at issuance.
Occupancy remains low at 79.9% per the March 2021 rent roll. The
second-largest tenant, Rite Aid (17.8%) vacated at its May 31, 2019
lease expiration. Approximately 4.8% and 8.2% NRA expire in 2021
and 2022, respectively.
Limited Improvement in Credit Enhancement: There have been minimal
increases in credit enhancement since issuance. As of the May 2021
distribution date, the pool paid down approximately 9.6% to $604.1
million from $668.2 million at issuance. Since the last rating
action, a $59.0 million-dollar loan was disposed with no loss prior
to its 2028 maturity date. No loans are defeased and 15 loans
(57.7%) are full-term interest only. There were 12 loans (27.9%)
structured with partial interest only periods and eight loan
(14.1%) have exited their interest only period. The transaction has
not experienced any principal losses to date.
Additional Stresses Applied due to Coronavirus: Nine loans (36.3%)
are secured by multi-family properties, 13 loans (19.5%) are
secured by retail properties and three loans (4.3%) are secured by
hotel properties. Fitch applied additional coronavirus-related
stresses to three retail loans and one hotel loans.
Investment-Grade Credit Opinion Loans: Two loans, representing
16.1% of the pool had investment-grade credit opinions at issuance:
65 Bay Street (9.0% of the pool) at 'BBBsf*' and DreamWorks Campus
(5.6% of the pool) at 'BBB-sf*', respectively. While performance
remained stable for DreamWorks Campus, occupancy at 65 Bay Street
declined to 87.9% as of September 2020 from 95% at YE 2019 and 100%
at YE 2018. Fitch expects the decline in performance to be
temporary, the result of the pandemic's effects on market vacancy,
and will continue to monitor performance.
RATING SENSITIVITIES
The Stable Outlooks on classes A-3 through E-RR reflect the overall
stable performance of the majority of the pool and expected
continued amortization. The Negative Outlook on classes F-RR and
J-RR reflect the potential for downgrade due to concerns
surrounding The Retreat by Watermark and the performance concerns
associated with the other FLOCs.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with paydown
and/or defeasance.
-- Upgrades to classes B and C would likely occur with
significant improvement in credit enhancement and/or
defeasance. However, adverse selection, increased
concentrations or the underperformance of particular loan(s)
may limit the potential for future upgrades.
-- An upgrade to class D is considered unlikely and would be
limited based on the sensitivity to concentrations or the
potential for future concentrations. Classes would not be
upgraded above 'Asf' if there is a likelihood for interest
shortfalls.
-- Upgrades to classes E-RR through G-RR are not likely until the
later years of the transaction, and only if the performance of
the remaining pool is stable and the senior classes pay off.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses from underperforming or
specially serviced loans.
-- Downgrades to the senior classes are unlikely due to high
credit enhancement but may occur if these classes incur
interest shortfalls.
-- A downgrade to classes B, C and D may occur should several
loans transfer to special servicing and/or as pool losses
significantly increase.
-- A downgrade to classes E-RR, F-RR and G-RR would occur as
losses materialize or if property performance, specifically of
the FLOCs, fail to stabilize in a prolonged economic slowdown.
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.
CITIGROUP MORTGAGE 2021-RP2: Fitch Assigns B Rating on B-2 Debt
---------------------------------------------------------------
Fitch Ratings has assigned ratings to Citigroup Mortgage Loan Trust
2021-RP2 (CMLTI 2021-RP2).
DEBT RATING PRIOR
---- ------ -----
CMLTI 2021-RP2
A-1 LT AAAsf New Rating AAA(EXP)sf
A-1-IO 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
A-4 LT BBBsf New Rating BBB(EXP)sf
A-5 LT AAsf New Rating AA(EXP)sf
A-6 LT Asf New Rating A(EXP)sf
A-7 LT BBBsf New Rating BBB(EXP)sf
A-8 LT AAAsf New Rating AAA(EXP)sf
M-1 LT AAsf New Rating AA(EXP)sf
M-2 LT Asf New Rating A(EXP)sf
M-3 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
B-4 LT NRsf New Rating NR(EXP)sf
B-5 LT NRsf New Rating NR(EXP)sf
PT LT NRsf New Rating NR(EXP)sf
PT-1 LT NRsf New Rating NR(EXP)sf
PT-2 LT NRsf New Rating NR(EXP)sf
PT-3 LT NRsf New Rating NR(EXP)sf
PT-4 LT NRsf New Rating NR(EXP)sf
PT-5 LT NRsf New Rating NR(EXP)sf
PT-6 LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
C LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
SA LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The notes are supported by a collateral group consisting of 3,821
seasoned performing loans (SPLs) and re-performing loans (RPLs)
with a total balance of approximately $717.2 million, including
$100.1 million, or 14%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts, as of the
cut-off.
Distributions of principal and interest (P&I) and loss allocations
are based on a traditional senior-subordinate, sequential
structure. The sequential-pay structure locks out principal to the
subordinated notes until the most senior notes outstanding are paid
in full. The servicer will not advance delinquent monthly payments
of P&I.
KEY RATING DRIVERS
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage SPLs and RPLs. After the
adjustment for coronavirus-related forbearance loans, 1% of the
pool was 30 days delinquent as of the cut-off date, and 25% of
loans are current but have had recent delinquencies (after being
adjusted for Fitch's treatment of coronavirus-related forbearance
and deferral loans). Roughly 96% (by UPB) have been modified. Fitch
increased its loss expectations to account for the delinquent loans
and the high percentage of "dirty current" loans.
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
those classes in the absence of servicer advancing.
No Servicer P&I Advances (Mixed): The servicer will not advance
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.
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data,
and the unexpected development in the health crisis arising from
the advancement and availability of coronavirus vaccines, Fitch
reconsidered the application of the coronavirus-related ERF floors
of 2.0 and used ERF Floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf'
rating stresses, respectively. Fitch's March 2021 Global Economic
Outlook and related base-line economic scenario forecasts have been
revised to a 6.2% U.S. GDP growth for 2021 and 3.3% for 2022
following a -3.5% GDP growth in 2020. Additionally, Fitch's U.S.
unemployment forecasts for 2021 and 2022 are 5.8% and 4.7%,
respectively, which is down from 8.1% in 2020. These revised
forecasts support Fitch reverting back to the 1.5 and 1.0 ERF
floors described in Fitch's "U.S. RMBS Loan Loss Model Criteria."
CMLTI 2021-RP2 has an ESG Relevance Score of '4' for transaction
parties and operational risk. Operational risk is well controlled
for in CMLTI 2021-RP2, including strong R&Ws and transaction due
diligence, as well as a strong servicer, which resulted in a
reduction in expected losses. See the ESG Navigator in the presale
for further details.
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.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to negative MVDs at the national
level, or positive home price growth with no assumed
overvaluation. The analysis assumes positive home price growth
of 10%. Excluding the senior class, which is already 'AAAsf',
the analysis indicates there is potential positive rating
migration for all of the rated classes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 40.3% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
-- 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.
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. The third-party due diligence review was
completed on 100% of the loans in this transaction. The scope of
the due diligence review was consistent with Fitch criteria for
seasoned collateral. While all but one loan is seasoned 24 months
or greater, 128 loans received a credit and property valuation
review in additional to a regulatory compliance review. All loans
received an updated tax and title search and review of servicing
comments.
Fitch considered this information in its analysis and, as a result,
Fitch made the following adjustments to its analysis: increased the
loss severity due to HUD-1 issues, increased liquidation timelines
for loans missing modification agreements, treated loans as second
liens due to an active lien on the property from a prior mortgage
that was not covered by the title policy in place and haircut the
BPO values for loans where the due diligence showed property
damage. These adjustment resulted in an increase in the expected
loss of approximately 0.35%.
ESG CONSIDERATIONS
CMLTI 2021-RP2 has an ESG Relevance Score of '+4' for Transaction
Parties & Operational Risk. Operational risk is well controlled for
in CMLTI 2021-RP2, including strong R&Ws and transaction due
diligence, as well as a strong servicer, which resulted in a
reduction in expected losses.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CITIGROUP MORTGAGE 2021-RP3: Fitch Assigns B Rating on B2 Debt
--------------------------------------------------------------
Fitch Ratings has assigned ratings to Citigroup Mortgage Loan Trust
2021-RP3 (CMLTI 2021-RP3).
DEBT RATING PRIOR
---- ------ -----
CMLTI 2021-RP3
A1 LT AAAsf New Rating AAA(EXP)sf
A2 LT AAsf New Rating AA(EXP)sf
A3 LT AAsf New Rating AA(EXP)sf
A4 LT Asf New Rating A(EXP)sf
A5 LT BBBsf New Rating BBB(EXP)sf
M1 LT Asf New Rating A(EXP)sf
M2 LT BBBsf New Rating BBB(EXP)sf
B1 LT BBsf New Rating BB(EXP)sf
B2 LT Bsf New Rating B(EXP)sf
B3 LT NRsf New Rating NR(EXP)sf
B4 LT NRsf New Rating NR(EXP)sf
B5 LT NRsf New Rating NR(EXP)sf
B LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
X LT NRsf New Rating NR(EXP)sf
SA LT NRsf New Rating NR(EXP)sf
PT LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The notes are supported by a collateral group consisting of 10,137
seasoned performing loans (SPLs) and re-performing loans (RPLs)
with a total balance of approximately $1,357.8 million, including
$130 million, or 9.6%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts, as of the cut-off
date.
Distributions of principal and interest (P&I) and loss allocations
are based on a traditional senior-subordinate, sequential
structure. The sequential-pay structure locks out principal to the
subordinated notes until the most senior notes outstanding are paid
in full. The servicer will not advance delinquent monthly payments
of P&I.
KEY RATING DRIVERS
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage SPLs and RPLs. After the
adjustment for coronavirus-related forbearance loans, 3% of the
pool was 30 days delinquent as of the cut-off date, and 55% of
loans are current but have had recent delinquencies within the last
24 months (after being adjusted for Fitch's treatment of
coronavirus-related forbearance and deferral loans). Roughly 89%
(by UPB) have been modified. Fitch increased its loss expectations
to account for the delinquent loans and the high percentage of
"dirty current" loans. See Asset Analysis section for additional
color.
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
those classes in the absence of servicer advancing.
No Servicer P&I Advances (Mixed): The servicer will not advance
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.
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of coronavirus vaccines, Fitch reconsidered the
application of the Coronavirus-related ERF floors of 2.0 and used
ERF Floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf' rating stresses,
respectively. Fitch's March 2021 Global Economic Outlook and
related base-line economic scenario forecasts have been revised to
a 6.2% U.S. GDP growth for 2021 and 3.3% for 2022 following a -3.5%
GDP growth in 2020.
Additionally, Fitch's U.S. unemployment forecasts for 2021 and 2022
are 5.8% and 4.7%, respectively, which is down from 8.1% in 2020.
These revised forecasts support Fitch reverting back to the 1.5 and
1.0 ERF floors described in Fitch's "U.S. RMBS Loan Loss Model
Criteria."
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the metropolitan statistical area (MSA) level.
Sensitivity analysis was conducted at the state and national level
to assess the effect of higher MVDs for the subject pool as well as
lower MVDs, illustrated by a gain in home prices.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model projected 41% 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.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
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. The third-party due diligence review was
completed on 100% of the loans in this transaction. The scope of
the due diligence review was consistent with Fitch criteria for
seasoned collateral. While all but 11 loans are seasoned 24 months
or greater, 336 loans received a credit and property valuation
review in additional to a regulatory compliance review. All loans
received an updated tax and title search and review of servicing
comments.
Fitch considered this information in its analysis and, as a result,
Fitch made the following adjustments to its analysis: increased the
loss severity due to HUD-1 issues, increased liquidation timelines
for loans missing modification agreements, treated loans as second
liens due to an active lien on the property from a prior mortgage
that was not covered by the title policy in place and haircut the
BPO values for loans where the due diligence showed property
damage. These adjustments resulted in an increase in the 'AAAsf'
expected loss of approximately 0.60%.
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 2013-CCRE11 MORTGAGE: Fitch Lowers Class F Tranche to 'CCC'
----------------------------------------------------------------
Fitch Ratings has downgraded one and affirmed 10 classes of COMM
2013-CCRE11 Mortgage Trust.
DEBT RATING PRIOR
---- ------ -----
COMM 2013-CCRE11
A-3 12626LAD4 LT AAAsf Affirmed AAAsf
A-4 12626LAE2 LT AAAsf Affirmed AAAsf
A-M 12626LBN1 LT AAAsf Affirmed AAAsf
A-SB 12626LAC6 LT AAAsf Affirmed AAAsf
B 12626LBP6 LT AA-sf Affirmed AA-sf
C 12626LAW2 LT A-sf Affirmed A-sf
D 12626LAY8 LT BBB-sf Affirmed BBB-sf
E 12626LBA9 LT BBsf Affirmed BBsf
F 12626LBC5 LT CCCsf Downgrade Bsf
X-A 12626LAF9 LT AAAsf Affirmed AAAsf
X-B 12626LAL6 LT AA-sf Affirmed AA-sf
KEY RATING DRIVERS
Majority of Pool Has Stable Performance: The majority of the pool
continues to exhibit stable performance. The overall loss
expectations have increased slightly, primarily due to the
continued underperformance of Oglethorpe Mall. Since Fitch's last
rating action, one loan (1.2%) has transferred to special servicing
due to issues related to the coronavirus. There are eight Fitch
Loans of Concern (FLOCs) (24.5%) including the one specially
serviced loan. Fitch's current ratings incorporate a base case loss
of 5.1%.
Fitch Loans of Concern: The largest loan, Miracle Mile Shops
(12.7%), is secured by a regional mall located at the base of the
Planet Hollywood Resort & Casino on the Las Vegas Strip. The mall
tenancy is made up of a variety of retail shops, restaurants and
entertainment venues. The largest tenant is a theater and the
third-largest tenant is a Race and Sports Book.
The former second-largest tenant, Saxe Theater at 5% net rentable
area (NRA), vacated in 2020 during the pandemic. With the loss of
several other tenants, occupancy fell to 87% as of February 2021
from 98% at YE 2019. Historically, the mall had strong comparable
inline sales. While sales fell to $348psf as of TTM January 2021
due largely to closures related to the pandemic, sales were $835psf
as of TTM February 2020, $817psf as of TTM March 2019 and $868psf
at issuance in 2013.
The mall was temporarily closed due to the coronavirus pandemic in
March 2020 and re-opened in July 2020. The loan transferred to the
special servicer in August 2020 due to coronavirus relief. The loan
was modified which allowed for the partial deferral of principal
payments and was subsequently returned to the master servicer later
in August. The loan remains on the watchlist. Fitch's analysis
includes a 20% stress to the YE 2019 NOI to account for the
occupancy decline and other performance concerns. The loan did not
model a loss.
The largest contributor to loss expectations and the next largest
FLOC is the fourth-largest loan, Oglethorpe Mall (7.8%), which is
secured by a 626,966-sf portion of a 942,726-sf regional mall
located in Savannah, GA. The property is anchored by JCPenney
(13.7% of NRA, through July 2022), Macy's (21.5%, through Feb.
2023), Belk (non-collateral) and a dark former Sears
(non-collateral). Other large tenants include Overstock Furniture
and Mattress (5.9% of NRA, through December 2021), DSW (2.7%,
through January 2027), Barnes & Noble (4.3%, through January 2022)
and H&M (3.2% through January 2028). The servicer reported 2020 NOI
debt service coverage ratio (DSCR) was 1.47x.
Per the Dec. 31, 2020 rent roll, the collateral was 91.4% occupied
compared with 96% in March 2020; total mall occupancy was 77.7%.
Approximately 18% of the collateral NRA rolls over the next 12
months. Stein Mart (5.9% of NRA) vacated in 2020 at or prior to its
lease expiration after the company's bankruptcy. The space was
released on a one-year term to Overstock Furniture and Mattress.
In line tenant sales have been trending downward over the past few
years. YE 2020 comparable in line sales were $340psf; however, they
reflect performance during the pandemic. YE 2019 comparable inline
sales were reported at $385psf compared with $397psf at YE 2018.
JCPenney reported YE 2020 sales at $80psf compared with $114psf at
YE 2019 and $122psf at YE 2018. Macy's sales were stable at $92psf
for YE 2020 compared with $87psf at YE 2019 and $90psf at YE 2018.
Fitch's base case loss of 47% reflects an implied cap rate of 20%
to YE 2019 NOI.
The loan in special servicing is 380 Lafayette Street (1.2%). The
loan is secured by the 15,000-sf basement and ground level floor of
a six-story commercial condo located in Manhattan's NoHo
neighborhood. The property is 100% leased to Lafayette, an upscale
cafe and restaurant, through March 2028.
The loan transferred in June 2020 due to payment default. The
restaurant closed in April 2020 due to the pandemic and reopened
for takeout/delivery in August 2020. Per NYC and NYS guidance,
indoor dining is now allowed at full capacity. The special servicer
is continuing to pursue its rights and remedies under the loan
documents and is planning to move forward with foreclosure.
Increasing Credit Enhancement: Credit enhancement continues to
increase through loan amortization. As of the May 2021 distribution
date, the pool was paid down by 13% to $1.10 billion from $1.27
billion at issuance. There are 13 defeased loans (29.7%) including
one that has defeased since Fitch's prior rating action. There are
six loans (27%) that are full-term interest only. The remaining 39
loans are all amortizing. The entirety of the pool matures between
July and October 2023. The transaction has not experienced any
principal losses to date.
Coronavirus Exposure: Significant economic effects to certain
hotels, retail and multifamily properties, is expected due to the
pandemic and the lack of clarity at this time on the potential
length of the impact. There are three non-defeased loans (2.2%)
secured by hotel properties and there are 10 non-defeased,
non-specially serviced loans (29.2%) that are secured by retail
properties.
The hotel properties have a weighted average (WA) NOI DSCR of 2.16x
and can sustain a WA decline in NOI of 49% before DSCR would fall
below 1.0x. The retail properties have a WA NOI DSCR of 1.57x and
can sustain a WA decline in NOI of 36% before DSCR would fall below
1.0x.
Fitch's analysis included additional NOI stresses to three hotel,
five retail, and one multifamily loan to account for potential cash
flow disruptions due to the adverse effects of the pandemic. Fitch
will continue to monitor any declines in loan performance and will
adjust ratings and Rating Outlooks accordingly.
RATING SENSITIVITIES
The Negative Rating Outlook on Class E reflects concerns regarding
two large regional mall loans, high retail concentration (29.2%),
and uncertainty about the ultimate timeline and effects of the
coronavirus pandemic. The Stable Rating Outlooks for Classes A-3
through D reflect increasing credit enhancement, continued
amortization and stable performance for a majority of the loans in
the pool.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with paydown
and/or defeasance. Classes would not be upgraded above 'Asf'
if there is a likelihood for interest shortfalls. Upgrades to
Classes B and C would likely occur with improvements in credit
enhancement and/or defeasance.
-- However, adverse selection, increased concentrations or the
underperformance of particular loan(s) may limit the potential
for future upgrades. An upgrade to Class D would be limited
based on the sensitivity to loan concentrations. Fitch
considers upgrades to Classes E and F unlikely but could occur
with significant improvement in performance of the FLOCs,
namely Miracle Mile Shops and Oglethorpe Mall.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool-level losses from underperforming or
specially serviced loans/assets. Downgrades to the senior
Classes, A-3 through A-M, are not expected given the high
credit enhancement, but may occur should the classes realize
interest shortfalls.
-- A downgrade to Classes B and C would likely occur should
several large loans transfer to special servicing and/or if
pool losses significantly increase. A downgrade to Classes D
and E would occur with further performance declines of Miracle
Mile Shops and Oglethorpe Mall or if the loans fail to pay off
at maturity. Further downgrades to the distressed Class F
would occur with increased certainty of losses and as credit
enhancement becomes eroded.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021.
Should this scenario play out, Fitch expects that a greater
percentage of classes may be assigned a Negative Rating Outlook or
those with Negative Rating Outlooks will be downgraded one or more
categories.
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.
COMM 2021-CCRE4: Fitch Lowers Rating on 2 Debt Classes to 'Dsf'
---------------------------------------------------------------
Fitch has downgraded three classes of Deutsche Bank Securities,
Inc.'s COMM 2012-CCRE4 commercial mortgage pass-through
certificates, series 2012-CCRE4. An additional seven classes have
been placed on Rating Watch Negative.
DEBT RATING PRIOR
---- ------ -----
COMM 2012-CCRE4
A-3 12624QAR4 LT AAAsf Rating Watch On AAAsf
A-M 12624QAT0 LT AAsf Rating Watch On AAsf
A-SB 12624QAQ6 LT AAAsf Rating Watch On AAAsf
B 12624QBA0 LT BBBsf Rating Watch On BBBsf
C 12624QAC7 LT BBsf Rating Watch On BBsf
D 12624QAE3 LT Csf Downgrade CCCsf
E 12624QAG8 LT Dsf Downgrade CCsf
F 12624QAJ2 LT Dsf Downgrade Csf
X-A 12624QAS2 LT AAsf Rating Watch On AAsf
X-B 12624QAA1 LT BBsf Rating Watch On BBsf
KEY RATING DRIVERS
Liquidation of Distressed Asset: The downgrades follow the recent
disposition of Fashion Outlets of Las Vegas, which was previously
the third largest loan in the pool and the primary driver of
Fitch's projected losses. The REO asset, an enclosed outlet mall
located in Primm, Nevada, was sold via auction in April 2021.
According to May 2021 remittance data, approximately $400,000 in
liquidation proceeds were received on sale. This resulted in a full
reduction to class F as well as the unrated class G certificate and
a 70% reduction to class E. Classes E and F have been downgraded to
'Dsf' as a result. Both classes carried distressed ratings prior to
this event.
In addition, the loan carried an appraisal reduction amount of
$57.3 million at disposition. The lack of sale proceeds left
approximately $12.5 million in outstanding servicer advances
unpaid. With the May 2021 distribution, the servicer recouped $1
million in reimbursable advances from available principal. There is
a remaining reimbursable amount of $11.4 million that the servicer
may recoup from principal collections so long as there are
performing loans left in the pool. The certainty of additional
principal losses, in addition to Fitch's existing loss projections,
contributed to the downgrade of class D as well as the revision of
classes B, C and X-B to Rating Watch Negative.
Propensity for Interest Shortfalls: The servicer has indicated that
it intends to recoup outstanding advances from available principal
each month; however, it is unclear what the timeline is for full
reimbursement or what the servicer's strategy will be in the event
only non-performing assets are left in the pool. All of the
remaining loans are scheduled to mature in 2022, and it is
considered likely that one or more large loans default at
maturity.
Fitch remains concerned about the two remaining regional malls in
the Top 15, one of which is in special servicing and in foreclosure
proceedings. This uncertainty has contributed to the revision of
classes A-SB, A-3, A-M, and X-A to Rating Watch Negative, pending
further clarification on the ongoing interest liabilities. Fitch
plans to conduct a full analysis of all remaining loans and
repayment schedules in the coming months.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades are not likely given the pool's increasing
concentration and recent deterioration in credit support.
Class A-M could be upgraded with stabilization of the Fitch
loans of concern (FLOCs), paydown from maturing loans or
increased defeasance. Upgrades of classes B and C would only
occur with significant improvement in credit enhancement and
pool performance. Classes would not be upgraded above 'Asf' if
there is likelihood for interest shortfalls.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades are possible at 'AAAsf' or 'AAsf' should interest
shortfalls occur. Downgrades to classes B and C are possible
should the malls fail to refinance or loss expectations
increase. Downgrades to the distressed classes are expected as
losses are realized.
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-CCRE4 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to significantly high retail exposure including
regional malls that are underperforming as a result of changing
consumer preferences in shopping, which has a negative impact on
the credit profile, and is highly relevant to the ratings. This has
contributed to the downgrades of classes D, E and F and the
revision to Rating Watch Negative for the remaining 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.
COMM MORTGAGE 2000-C1: Fitch Affirms D Rating on 6 Tranches
-----------------------------------------------------------
Fitch Ratings has taken various actions on already distressed bonds
across three U.S. commercial mortgage-backed securities (CMBS)
transactions.
DEBT RATING PRIOR
---- ------ -----
COMM Mortgage Trust 2000-C1
G 20046PAJ7 LT Dsf Downgrade Csf
G 20046PAJ7 LT WDsf Withdrawn Csf
H 20046PAK4 LT Dsf Affirmed Dsf
H 20046PAK4 LT WDsf Withdrawn Dsf
J 20046PAL2 LT Dsf Affirmed Dsf
J 20046PAL2 LT WDsf Withdrawn Dsf
K 20046PAM0 LT Dsf Affirmed Dsf
K 20046PAM0 LT WDsf Withdrawn Dsf
L 20046PAN8 LT Dsf Affirmed Dsf
L 20046PAN8 LT WDsf Withdrawn Dsf
N 20046PAQ1 LT Dsf Affirmed Dsf
N 20046PAQ1 LT WDsf Withdrawn Dsf
Morgan Stanley Dean Witter Capital I Trust 2001-TOP3
F 61746WHN3 LT Dsf Affirmed Dsf
F 61746WHN3 LT WDsf Withdrawn Dsf
G 61746WHP8 LT Dsf Affirmed Dsf
G 61746WHP8 LT WDsf Withdrawn Dsf
H 61746WHQ6 LT Dsf Affirmed Dsf
H 61746WHQ6 LT WDsf Withdrawn Dsf
J 61746WHR4 LT Dsf Affirmed Dsf
J 61746WHR4 LT WDsf Withdrawn Dsf
K 61746WHS2 LT Dsf Affirmed Dsf
K 61746WHS2 LT WDsf Withdrawn Dsf
L 61746WHT0 LT Dsf Affirmed Dsf
L 61746WHT0 LT WDsf Withdrawn Dsf
M 61746WHU7 LT Dsf Affirmed Dsf
M 61746WHU7 LT WDsf Withdrawn Dsf
J. P. Morgan Chase Commercial Mortgage Securities Corp.
2005-CIBC13
B 46625YWB5 LT Dsf Affirmed Dsf
B 46625YWB5 LT WDsf Withdrawn Dsf
C 46625YWC3 LT Dsf Affirmed Dsf
C 46625YWC3 LT WDsf Withdrawn Dsf
D 46625YWD1 LT Dsf Affirmed Dsf
D 46625YWD1 LT WDsf Withdrawn Dsf
E 46625YWJ8 LT Dsf Affirmed Dsf
E 46625YWJ8 LT WDsf Withdrawn Dsf
F 46625YWL3 LT Dsf Affirmed Dsf
F 46625YWL3 LT WDsf Withdrawn Dsf
G 46625YWN9 LT Dsf Affirmed Dsf
G 46625YWN9 LT WDsf Withdrawn Dsf
H 46625YWQ2 LT Dsf Affirmed Dsf
H 46625YWQ2 LT WDsf Withdrawn Dsf
J 46625YWS8 LT Dsf Affirmed Dsf
J 46625YWS8 LT WDsf Withdrawn Dsf
K 46625YWU3 LT Dsf Affirmed Dsf
K 46625YWU3 LT WDsf Withdrawn Dsf
L 46625YWW9 LT Dsf Affirmed Dsf
L 46625YWW9 LT WDsf Withdrawn Dsf
M 46625YWY5 LT Dsf Affirmed Dsf
M 46625YWY5 LT WDsf Withdrawn Dsf
N 46625YXA6 LT Dsf Affirmed Dsf
N 46625YXA6 LT WDsf Withdrawn Dsf
P 46625YXC2 LT Dsf Affirmed Dsf
P 46625YXC2 LT WDsf Withdrawn Dsf
All ratings of the 26 classes in these three transactions have
subsequently been withdrawn, as there is no remaining collateral
and their trust balances have been reduced to zero. Thus, the 26
classes are no longer considered by Fitch to be relevant to the
agency's coverage.
KEY RATING DRIVERS
Fitch has affirmed five classes of COMM Mortgage Trust 2000-C1, 13
classes of J. P. Morgan Chase Commercial Mortgage Securities Corp.
2005-CIBC13, and seven classes of Morgan Stanley Dean Witter
Capital I Trust 2001-TOP3 at 'Dsf' as a result of previously
incurred losses.
Fitch has downgraded class G of COMM Mortgage Trust 2000-C1 to
'Dsf' as the class has incurred a full loss from the liquidation of
the sole remaining REO Saks - Stratford Square asset, a vacant
retail property located in Bloomingdale, IL that was formerly
single-tenanted by Carson Pirie Scott. The class was previously
rated 'Csf,' which indicated default was inevitable.
RATING SENSITIVITIES
The ratings have been withdrawn and no further rating changes are
possible.
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 Mortgage Trust 2000-C1 has an ESG Relevance Score of '5' for
Exposure to Social Impacts due to exposure to sustained structural
shifts in secular preferences affecting consumer trends, occupancy
trends, etc., which has a negative impact on the credit profile,
and is highly relevant to the rating, resulting in an implicitly
lower 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.
COMPASS DATACENTERS 2021-1: S&P Assigns BB- (sf) Rating on C Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to Compass Datacenters
Issuer LLC/Compass Datacenters Canada Issuer L.P.'s series 2021-1
class B and C data center revenue notes. Series 2021-1 shares
collateral with series 2020-1 and 2020-2. The series 2021-1 class B
and C notes are subordinate to the previously issued series 2020-1
and 2020-2 class A notes.
The note issuance is an ABS securitization primarily backed by
mortgages, deeds of trust, and deeds to secure debt, creating
first-mortgage liens on the interests in the data centers; a
perfected security interest in all personal property and fixtures
owned by the issuer's subsidiaries located in the data centers; and
any reserves and escrows related to the data centers.
The ratings reflect S&P's view of the lease portfolio's projected
performance, the real estate value, the manager's and the
servicer's experience, the servicer and indenture trustee-provided
advances, the available cushion as measured by the estimated
closing date debt service coverage ratio of approximately 1.9x, and
the transaction's structure.
Ratings Assigned
Compass Datacenters Issuer LLC/Compass Datacenters Canada Issuer
L.P. (Series 2021-1)(i)
Series 2021-1 class B, $61.00 million: BBB- (sf)
Series 2021-1 class C, $41.00 million: BB- (sf)
(i)The ratings do not address post-ARD additional interest.
ARD--Anticipated repayment date.
CSAIL COMMERCIAL 2017-C8: Fitch Lowers Class F Certs to 'CCCsf'
---------------------------------------------------------------
Fitch Ratings has downgraded two classes and affirmed 14 classes of
CSAIL Commercial Mortgage Trust 2017-C8 commercial mortgage
pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
CSAIL 2017-C8
A-1 12595BAA9 LT AAAsf Affirmed AAAsf
A-2 12595BAB7 LT AAAsf Affirmed AAAsf
A-3 12595BAC5 LT AAAsf Affirmed AAAsf
A-4 12595BAD3 LT AAAsf Affirmed AAAsf
A-S 12595BBF7 LT AAAsf Affirmed AAAsf
A-SB 12595BAE1 LT AAAsf Affirmed AAAsf
B 12595BAH4 LT AA-sf Affirmed AA-sf
C 12595BAJ0 LT A-sf Affirmed A-sf
D 12595BAK7 LT BBB-sf Affirmed BBB-sf
E 12595BAM3 LT B-sf Downgrade BB-sf
F 12595BAP6 LT CCCsf Downgrade B-sf
V1-A 12595BBQ3 LT AAAsf Affirmed AAAsf
V1-B 12595BBR1 LT A-sf Affirmed A-sf
V1-D 12595BBS9 LT BBB-sf Affirmed BBB-sf
X-A 12595BAF8 LT AAAsf Affirmed AAAsf
X-B 12595BAG6 LT A-sf Affirmed A-sf
KEY RATING DRIVERS
High Percentage of Specially Serviced Loans: The downgrades to
classes E and F reflect a greater certainty of loss expectations.
Eleven loans (30% of pool) are Fitch Loans of Concern (FLOCs),
including seven specially serviced loans (16.2%), six (15.7%) of
which that have transferred since Fitch's last rating action and
were considered FLOCs at the last rating action.
Fitch's current ratings incorporate a base case loss of 5.0%. The
Negative Outlooks reflect losses that could reach 5.5% when
factoring in additional pandemic-related stresses.
The largest contributor to overall loss expectations and the
largest change in loss since the last rating action is the Hotel
Eastlund loan (4.9% of pool), which transferred to special
servicing in July 2020 for payment default. The property is a
168-key full-service hotel located near downtown and the convention
center in Portland, OR. Per STR and as of TTM March 2021, the
property's occupancy, ADR and RevPAR were 19.6%, $110 and $21,
respectively, down from 80.4%, $173 and $140 around the time of
issuance as of TTM March 2017. Per the special servicer, a notice
of demand has been sent and a receiver and foreclosure will be
sought as the borrower is unwilling to cure defaults. Fitch's loss
is based upon a discount to a recent appraisal valuation and
reflects a stressed value per key of approximately $196,000.
The next largest contributor to loss is the Northridge Plaza loan
(4%), which is secured by a 209,652 sf anchored retail shopping
center in Olathe, KS. Occupancy was 79.6% as of March 2021, down
slightly from 80.6% in March 2020 and below the 88.2% at issuance.
Pier One (4.8% of NRA) vacated during 2020, and the space remains
dark. Upcoming lease rollover includes 1.4% of the NRA in 2021,
5.7% in 2022, and 9.6% in 2023. The largest tenants are Dick's
Sporting Goods (lease renewed though January 2026), Ross (January
2024), Aldi (September 2032) and Famous Footwear (October 2022).
The next largest contributor to loss is the Broadway Portfolio loan
(4.8%), which is secured by a portfolio of three buildings totaling
77,419 sf with frontage along Broadway between 29th and 30th Street
in Manhattan's Midtown South neighborhood. The portfolio's two
largest tenants, Grind (36% of NRA) and Luminary Legacy LLC (14%)
are coworking spaces. Occupancy declined to 96.6% in March 2021
from 100% at YE 2019. Pinky World (5.8%) vacated in July 2020,
which was prior to its September 2020 lease expiration. Fantasia
World (5.2%) extended its lease for two years to June 2023. Roader
Group USA's lease expired in February 2019; however, a new lease
was signed by the same tenant under a new entity, Beauty Secret
LLC, through February 2024.
The Hilton Garden Inn Forth Washington loan (2%), which is secured
by a 144-key hotel property located in Fort Washington, PA, was
transferred to special servicing in July 2020 due to the borrower's
request for coronavirus relief. Per STR and as of TTM October 2020,
property occupancy, ADR and RevPAR were 36%, $113 and $41,
respectively, compared to 47%, $101 and $48 for the competitive
set. Per the special servicer, foreclosure was filed in January
2021 and the special servicer will continue to pursue foreclosure
while having discussions with the borrower on a possible
modification. Fitch's loss is based upon a discount to a recent
appraisal valuation and reflects a stressed value per key of
approximately $94,000.
The 449 South Broadway loan (4%) is secured by an 88-unit
multifamily property with ground floor retail located in Los
Angeles, CA. Retail tenant, Fallas Paredes, filed for bankruptcy in
August of 2018; the location at the property, which closed briefly
due to the coronavirus but has since reopened, is not on any
closing lists. The multifamily component was 94.3% as of March 2020
with average rent per unit $2,236. The retail occupancy was 93.9%
as of March 2020 with average rent of $21.55 psf. A recent rent
roll was requested of the master servicer, but not received.
Minimal Changes in Credit Enhancement (CE): As of the May 2021
remittance, the transaction's pooled aggregate principal balance
has been paid down by 1.7% to $797.2 million from $811 million at
issuance. Based on the scheduled balance at maturity, the pool is
expected to be reduced by 6.4%. Twelve loans (62.2% of pool) are
full-term, interest-only, 10 loans (24.0%) are partial-term,
interest only and one loan (2.9%) has an anticipated repayment
date. The remainder of the pool consists of 11 balloon loans
representing 13.8% of the pool. Three loans (18.7%) mature in 2022,
one loan (4.4%) in 2026 and the remaining 29 loans (76.9%) in
2027.
Coronavirus Exposure: Loans secured by retail, hotel and
multifamily properties represent 14.3%, 14.5% and 10.3% of the
pool, respectively. Fitch applied additional pandemic-related
stresses to one retail loan (4%); this stress contributed to the
Negative Outlooks.
Investment-Grade Credit Opinion Loans: Four loans, representing
34.9% of the pool, were assigned investment-grade credit opinions
at issuance. The 85 Broad Street (11.3%), 245 Park Avenue (10.0%)
and Apple Sunnyvale (8.8%) loans each had an investment-grade
credit opinion of 'BBB-sf*' on a stand-alone basis at issuance.
Urban Union Amazon (4.8%) had an investment grade credit opinion of
'AAsf' on a stand-alone basis at issuance.
RATING SENSITIVITIES
The Negative Outlooks on classes D, V-1D and E reflect concerns
surrounding the ultimate impact of the pandemic and the performance
concerns associated with the FLOCs. The Stable Outlooks on classes
A-1 through V1-B reflect the sufficient CE relative to expected
losses and expected continued amortization.
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 paydown and/or defeasance.
-- Upgrades to the 'AA-sf' and 'A-sf' rated classes would likely
occur with significant improvement in CE and/or defeasance;
however, adverse selection and increased concentrations, or
the underperformance of the FLOCs, could cause this trend to
reverse.
-- Upgrades to the 'BBB-sf' rated classes are considered unlikely
and would be limited based on sensitivity to concentrations or
the potential for future concentrations. Classes would not be
upgraded above 'Asf' if there is a likelihood of interest
shortfalls.
-- Upgrades to the 'B-sf' and 'CCCsf' rated classes are not
likely until the later years of the transaction, and only if
the performance of the remaining pool is stable and/or if
there is sufficient CE.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- Sensitivity factors that could lead to downgrades include an
increase in pool-level losses from underperforming or
specially serviced loans.
-- Downgrades to the 'AA-sf' through 'AAAsf' rated-classes are
not considered likely due to their position in the capital
structure but may occur should interest shortfalls affect
these classes.
-- Downgrades to the 'BBB-sf' and 'A-sf' rated classes may occur
should expected losses for the pool increase substantially and
all of the loans susceptible to the coronavirus pandemic
suffer losses, which would erode credit enhancement.
-- Downgrades to the 'B-sf' and 'CCCsf' rated classes would occur
with greater certainty of loss or as losses are realized.
In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond 2021;
should this scenario play out, Fitch expects that additional
classes may be assigned Negative Outlooks and/or classes with
Negative Rating Outlooks may 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.
CSMC 2019-ICE4: DBRS Confirms B(high) Rating on Class HRR Certs
---------------------------------------------------------------
DBRS Limited confirmed all classes of Commercial Mortgage
Pass-Through Certificates, Series 2019-ICE4 issued by CSMC
2019-ICE4 as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class HRR at B (high) (sf)
All trends are Stable.
The loan is secured by 64 industrial cold storage and distribution
facilities in 22 states, primarily California (23.8% of the pool
balance), Washington (14.0% of the pool balance), and Texas (13.3%
of the pool balance). The servicer confirmed the receipt of the
sponsor's request to exercise an available extension option for the
loan's initial maturity date of March 2021 and DBRS Morningstar is
awaiting confirmation that the extension was executed. In the event
the extension is not executed, a cash flow sweep will be
triggered.
At issuance, 60 of the properties were master leased by Lineage
Logistics, LLC, an affiliate of the borrower, Lineage Logistics
Holdings, LLC (Lineage), with the remaining four properties master
leased to Southeast Frozen Foods Company, L.P. (SEFF). In April
2021, DBRS Morningstar received a Rating Agency Confirmation
request noting that Lineage will be taking over the operations of
SEFF because of the company's performance difficulties. As of March
2021, SEFF had failed to pay two months of deferred rent and
insurance payments to Lineage since November 2020, triggering an
Event of Default. SEFF pays an annual rent of $2.6 million,
approximately 1.3% of the portfolio's total annual rent of $198.0
million, but as of March 2021, SEFF reported past due amounts
totalling $652,651, of which $217,465 is deferred rent. The
remaining balance is allocated between insurance, property taxes,
interest, and penalties.
Although SEFF had reported financial difficulties, it is noteworthy
that Lineage will be taking over SEFF's operations. The takeover
includes an amendment to the Lineage master lease to include the
remaining four properties from SEFF. The rental rate will be reset
to the market level and the SEFF master lease will be terminated.
As of YE2020, the subject portfolio reported an occupancy rate of
100.0% and a net cash flow (NCF) of $227.3 million, compared with
the YE2019 NCF of $209.8 million and DBRS Morningstar NCF of $226.6
million.
Notes: All figures are in U.S. dollars unless otherwise noted.
CSMC TRUST 2017-MOON: Fitch Affirms BB- Rating on 2 Debt Classes
----------------------------------------------------------------
Fitch Ratings has affirmed all classes of CSMC Trust 2017-MOON
commercial mortgage pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
CSMC 2017-MOON
A 12651XAA2 LT AAAsf Affirmed AAAsf
B 12651XAE4 LT AA-sf Affirmed AA-sf
C 12651XAG9 LT A-sf Affirmed A-sf
D 12651XAJ3 LT BBB-sf Affirmed BBB-sf
E 12651XAL8 LT BB-sf Affirmed BB-sf
HRR 12651XAN4 LT BB-sf Affirmed BB-sf
X 12651XAC8 LT AAAsf Affirmed AAAsf
KEY RATING DRIVERS
Stable Performance and Property Cash Flow: The affirmations reflect
the stable performance of the collateral, which consists of the fee
interest in a 605,897 square foot (sf) office building located at
300 E Street SW in Washington, D.C. and known as Two Independence
Square. Occupancy as of the year-end (YE) 2020 rent roll was 100%,
in line with issuance. The Fitch NCF has increased 3.6% since
issuance and the servicer reported YE 2020 DSCR (NCF) was reported
to be 2.86x
Loan Structure: The total $225.7 million mortgage interest-only
loan consists of four pari passu A-notes totaling $164.0 million,
of which the $64.0 million note A-1 is included in CSMC 2017-MOON,
and a $61.7 million B-note, also included in the trust. The $100
million of companion A-notes will not be part of the assets of the
trust and have been contributed to two conduit securitizations
(WFCM 2017-C39 and CSAIL 2017-CX9).
Fitch Leverage: The $125.7 million mortgage loan has a Fitch DSCR
and LTV of 1.05x and 84.2%, respectively, and debt of $373 psf.
Investment-Grade Tenancy: The office portion of the property (98.6%
of NRA) is 100% leased to the Government Services Administration
(GSA) through August 2028 (six years beyond the loan term with no
early termination or contraction provisions) on behalf of the U.S.
National Aeronautics and Space Administration (NASA). The property
serves as the worldwide headquarters for NASA. The remaining space
is leased to three small retail tenants.
Asset Quality: The LEED Certified Gold building was originally
constructed in 1992 and received approximately $86.3 million in
upgrades from 2012 to 2014 to the building interior and security
features, including NASA investing approximately $45.4 million in
its space. Property amenities include a 235-seat auditorium,
769-space underground parking facility and rooftop terrace.
Specialized construction for NASA includes high-tech computer and
conference rooms, recording studios, sound control, separate
systems for backup and 24-hour operation.
Well Located: Two Independence Square is located in the Southwest
Washington, D.C. submarket, just south of the National Mall and
Capitol Building, an area with a concentration of GSA facilities
and the headquarters for 19 federal agencies.
Coronavirus Exposure: Given the experienced sponsor (Hana Asset
Management Co., Ltd.), and long-term lease to a creditworthy
tenant, Fitch views the coronavirus pandemic as having a more
limited impact on the collateral. According to the servicer as of
May 2021, there have been no COVID-19 relief requests from the
borrower.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch rates the A-1 and A-2 classes 'AAAsf'; therefore,
upgrades are not possible. While not likely in the near term,
upgrades to classes B through E are possible with sustained
cash flow improvement. The Stable Rating Outlooks for all
classes reflect the relatively stable performance since
issuance.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A significant decline in asset occupancy;
-- A significant deterioration in property cash flow.
However, these factors are not expected to materialize due to the
long-term nature of the lease to a creditworthy tenant.
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.
DBJPM MORTGAGE 2017-C6: Fitch Affirms B- Rating on F-RR Certs
-------------------------------------------------------------
Fitch Ratings has affirmed 14 classes of DBJPM Mortgage Trust
commercial mortgage pass-through certificates, series 2017-C6.
DEBT RATING PRIOR
---- ------ -----
DBJPM 2017-C6
A-2 23312JAB9 LT AAAsf Affirmed AAAsf
A-3 23312JAC7 LT AAAsf Affirmed AAAsf
A-4 23312JAE3 LT AAAsf Affirmed AAAsf
A-5 23312JAF0 LT AAAsf Affirmed AAAsf
A-M 23312JAH6 LT AAAsf Affirmed AAAsf
A-SB 23312JAD5 LT AAAsf Affirmed AAAsf
B 23312JAJ2 LT AA-sf Affirmed AA-sf
C 23312JAK9 LT A-sf Affirmed A-sf
D 23312JAQ6 LT BBB-sf Affirmed BBB-sf
E-RR 23312JAS2 LT BB-sf Affirmed BB-sf
F-RR 23312JAU7 LT B-sf Affirmed B-sf
X-A 23312JAG8 LT AAAsf Affirmed AAAsf
X-B 23312JAL7 LT A-sf Affirmed A-sf
X-D 23312JAN3 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Increased Loss Expectations Related to Coronavirus Pandemic: Loss
expectations have increased since issuance primarily driven by a
greater number of Fitch Loans of Concern (FLOCs). The majority of
the increase can be attributed to loans that had performance
declines related to the slowdown in economic activity from the
coronavirus pandemic. Eight loans are FLOCs (19.3% of pool),
including four specially serviced loans (6.1%) and three loans
within the top 15 (14.2%). Fitch anticipates that many of these
loans will recover over the next year as the economy picks up.
Fitch's current ratings incorporate a base case loss of 3.75%. The
Negative Outlooks reflect that losses could reach 5.2% when
factoring in additional coronavirus-related stresses.
The largest contributor to loss is the Cincinnati Eastgate Holiday
Inn loan (1.2%), which is secured by a 212 key hotel located in
Cincinnati, OH. The loan transferred to special servicing in July
2020. The borrower was unable to continue loan payments and is
cooperating in a friendly foreclosure filing. According to servicer
updates, a receiver is in place and a review is under way about the
possibility for a sale once stabilized. Fitch has an outstanding
request for an updated STR report and one has not received one to
date.
Fitch modeled a loss of approximately 40%, which equates to a
$42,453 value per key.
The next largest contributor to loss is the Lake Forest Gateway
loan (3.4%), which is secured by a 77,710 sf unanchored retail
center located in Lake Forest, CA. The loan transferred to special
servicing in June 2020. According to servicer updates, a
forebearance agreement closed in May 2021 and is currently being
documented by the master servicer. The servicer reported YE 2020
NOI debt service coverage ratio (DSCR) was 0.98x compared with
1.80x at YE 2019 and 1.63x at YE 2018. Occupancy reported at 81% as
of the March 2021 rent roll, which is a slight increased from 75%
at YE 2020. The largest tenants at the property are Phenix Salon
Studios (10.4% NRA; through 8/2025) and Peppinos (8.4% NRA; through
December 2025). Upcoming rollover at the property is minimal.
Fitch modeled a loss of approximately 13%, which applied a discount
to the September 2020 appraisal value.
Minimal Change to Credit Enhancement: As of the May 2021
distribution date, the pool's aggregate balance has been reduced by
8.6% to $1.06 billion, from $1.13 billion at issuance. At issuance,
based on the scheduled balance at maturity, the pool was expected
to pay down 5.6%. Fourteen full-term interest-only loans comprise
59.4% of the pool, and three loans representing 5% of the pool
remain in partial interest-only period. There are also two
anticipated repayment date (ARD) loans representing 8.4% of the
pool.
Coronavirus: Significant economic impact to certain hotels, retail
and multifamily properties occurred due to the pandemic. Ten loans
are collateralized by retail properties (21.2% of pool), six
(15.4%) by hotels and six by multifamily properties (12.5%).
Fitch's analysis applied additional stresses to YE 2019 financials
for five hotel loans (7.5%) and five retail loans (11%) due to
ongoing concerns about the strength and breadth of the pandemic
recovery.
RATING SENSITIVITIES
The Stable Outlooks on classes reflect the overall stable
performance of the majority of the pool and expected continued
amortization. The Negative Outlooks reflect concerns over the FLOCs
as well as the unknown impact of the pandemic on the overall pool.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable-to-improved asset performance, coupled with additional
paydown and/or defeasance. Upgrades to the 'A-sf' and 'AA-sf'
rated classes would likely occur with significant improvement
in credit enhancement (CE) and/or defeasance; however, adverse
selection and increased concentrations, or underperformance of
the FLOCs, could cause this trend to reverse.
-- Upgrades to the 'BBB-sf' and below-rated classes are
considered unlikely and would be limited based on sensitivity
to concentrations or the potential for future concentrations.
Classes would not be upgraded above 'Asf' if there is a
likelihood of interest shortfalls. Additionally, an upgrade to
the 'BB-sf' and 'B-sf' rated classes is not likely until later
years of the transaction and only if the performance of the
remaining pool is stable and/or there is sufficient CE, which
would likely occur when the nonrated class is not eroded and
the senior classes pay off.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses due to underperforming or
specially serviced loans. Downgrades to the senior classes,
rated 'AA-sf' through 'AAAsf', are not likely due to their
position in the capital structure and the high CE; however,
downgrades to these classes may occur should interest
shortfalls occur. Downgrades to the classes rated 'BBB-sf' and
below would occur if the performance of the FLOC continues to
decline or fails to stabilize.
In addition to its baseline scenario, Fitch envisions a downside
scenario where the health crisis is prolonged beyond 2021; should
this scenario play out, Fitch expects that classes assigned a
Negative Rating Outlook will be downgraded in one or more
categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
No third-party due diligence was provided or reviewed in relation
to this rating action.
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.
DIAMOND INFRASTRUCTURE: Fitch Assigns BB- Rating on Class C Debt
----------------------------------------------------------------
Fitch expects to rate Diamond Infrastructure Funding LLC, Series
2021-1 and assign Rating Outlooks as follows:
-- $472,000,000 series 2021-1 class A 'Asf'; Outlook Stable;
-- $93,000,000 series 2021-1 class B 'BBB-sf'; Outlook Stable;
-- $100,000,000 series 2021-1 class C 'BB-sf'; Outlook Stable;
The following class is not expected to be rated by Fitch:
-- $73,888,889a series 2021-1 class R.
(a) Horizontal credit risk retention interest representing 10% of
the 2021 certificates.
The transaction is an issuance of notes backed by mortgages
representing approximately 62.1% of the annualized run rate net
cash flow (ARRNCF) on the tower sites and guaranteed by the
borrowers direct parent. This guarantee is secured by a pledge and
first-priority-perfected security interest in 100% of the issuer's
equity interest. The notes are secured by a pledge and first
priority perfected security interest in 100% of the equity
interests of the asset entities, which own or lease 2,358 wireless
communication sites. The notes will be issued pursuant to a
supplement to the third amended and restated indenture dated as of
the expected closing of the series 2021 transaction.
This portfolio includes a number of different wireless assets,
including:
-- Triple-net partnership assets governed by master agreements
with wholly-owned subsidiaries of investment-grade tower
companies or related to assets governed by these agreements.
-- Carrier direct assets, which consist of rooftop towers,
structure towers, and other assets beneath towers, which are
leased directly to carriers.
-- Ground site assets, which are leased to tower companies, which
operate assets above them. These assets are not governed by
a master agreement.
These assets reflect a number of characteristics that are unique
within the sector and are atypical relative to collateral, which
secures other wireless tower transactions. This includes two pools
of wireless tower sites secured by the ground beneath towers, which
are governed by long-term master agreements to investment-grade
counterparties on substantial terms, with a fixed rent payment
through late-2038.
Proceeds from the transaction will be utilized to provide financing
to DCHSCU, LLC, which is sub-managed by Diamond Communications LLC
to fund a portion of its $1.625 billion acquisition of Melody
Wireless Infrastructure.
The ratings reflect a structured finance analysis of the cash flows
from the ownership interest in cellular sites, not an assessment of
Diamond Infrastructure Inc.'s corporate default risk.
KEY RATING DRIVERS
Trust Leverage: Fitch net cash flow (NCF) on the pool is $63.9
million, implying a Fitch stressed debt service coverage ratio
(DSCR) of 1.02x. The debt multiple relative to Fitch's NCF is
11.57x, which equates to a debt yield of 8.65%. Excluding the
non-offered risk retention class R notes, the offered notes have a
Fitch stressed DSCR, debt multiple and debt yield of 1.16x, 10.41x
and 9.61%, respectively.
Technology-Dependent Credit: Due to the specialized nature of the
collateral and potential for changes in technology to affect
long-term demand for tower space, similar to most wireless tower
transactions, the senior classes of this transaction do not achieve
ratings above 'Asf'. The securities have a rated final payment date
over 27 years after closing, and the long-term tenor of the
securities increases the risk that an alternative technology
(rendering obsolete the current transmission of wireless signals
through cellular sites) will be developed. Wireless service
providers (WSPs) currently depend on towers to transmit their
signals and continue to invest in this technology.
Diversified Pool: There are 2,358 wireless sites and 2,898 leases
that are supported by 3,701 wireless carrier leases. The sites are
located in 50 states, Puerto Rico and Washington, D.C. The largest
state (California) represents approximately 13.9% of ARRNCF.
Leases to Strong Tower Tenants: There are 2,898 tenant leases that
support a total of 3,701 wireless carrier leases. Telephony or
Tower Operator tenants represent approximately 96.0% of the
annualized run rate revenue (ARRR), and 62.1% of the ARRR is from
investment-grade tenants. The tenant leases have weighted average
annual escalators of approximately 2.8% and a weighted average
final remaining term, including renewals, of 33.4 years. The
largest tenant is T-Mobile (BB+/Stable; 28.2% of ARRR).
Tower Operator Master Agreements: Approximately 1,060 sites are
governed by master agreements between Diamond and investment-grade
tower operators. These agreements provide a fixed minimum rent
amounts for this portion of the collateral through late-2038, which
equate to nearly a third of the in-place issuer revenue. The
sponsor is also entitled to a percentage of revenue on these sites
to the extent the amount exceeds the fixed minimum amounts in
aggregate. As a result, the transaction also benefits from rent
escalators, lease amendments, or incremental leasing on these
sites.
Sites Without NDAs: In this transaction, sites totaling 84.7% of
ARRNCF either do not require an NDA or have obtained NDAs from
mortgage lenders holding a senior security interest in the site. If
an easement or lease is not senior, as a matter of law, to any
recorded mortgage on such site for which the related site owner is
the mortgagor, that easement is typically protected from creditors
of a site owner by a non-disturbance agreement (NDA). Pursuant to
an NDA, the mortgagee agrees that the lease or easement and related
assignments of rents will survive a foreclosure of the senior
mortgage. For the sites where no NDA has been obtained, Fitch
applied additional stresses, resulting in an approximately $1.7
million reduction in Fitch stressed cash flow.
T-Mobile and Sprint Consolidation: T-Mobile US, Inc. and Sprint
Corporation (combined 28.2% of ARRR) merged in April 2020 to form
The New T-Mobile; approximately 12.0% of transaction-level ARRR
from The New T-Mobile is attributable to Sprint legacy leases.
Leases from those tenants could experience churn if overlapping
sites are decommissioned. Fitch's NCF assumes 50% of co-located
Sprint leases will not renew at lease maturity, resulting in
approximately a $0.6 million reduction in Fitch stressed cash
flow.
Sites Located in Top 100 Basic Trading Areas: Of the ARRNCF, 75.6%
is from sites located in the top 100 basic trading areas (BTAs).
BTAs are ranked by population, with the top 100 BTAs representing
the 100 highest populated BTAs out of a total of 489 BTAs. BTAs are
geographic boundaries that are used by the FCC to segment the U.S.
wireless market for licensing purposes.
First Security Interest: Sites representing approximately 62.1% of
the ARRNCF are secured by a first leasehold mortgage and perfected
security interests in the personal property owned by the asset
entities. The pledge of the equity of the asset entities provides
security holders with the ability to foreclose on the ownership of
the asset entities in the event of default under the indenture
structure. Within a few months of closing, mortgages are expected
to be filed on sites such that a total of 90% of ARRNCF will be
derived from sites which are secured by mortgages. Approximately
$34 million in transaction proceeds will be held back and released
as mortgages are filed up to such 90% threshold.
Importance of Towers to Wireless Service Providers: Increased
smartphone penetration and data usage have increased the need for
cell towers. With WSPs continuing to densify 4G networks and roll
out 5G networks to handle increased demands for data capacity,
there is a need for additional towers. The emergence of tablets and
other devices adds additional demand for higher speeds and network
build-outs.
Additional Notes: The transaction allows for the issuance of
additional notes. Such additional notes may rank senior to, pari
passu with or subordinate to the 2021 notes. Any additional notes
will be pari passu with any class of notes bearing the same
alphabetical class designation. Additional notes may be issued
without the benefit of additional collateral, provided, among other
things, the post-issuance DSCR is not less than 2.0x. The
possibility of upgrades may be limited due to this provision.
Coronavirus Risk: Fitch believes the risk of the coronavirus
pandemic on the operational performance of the telecom sector,
including the tower operators, is low relative to other sectors.
The lower risk is due to the integral nature of wireless services
in consumers' day-to-day lives. As such, wireless phone services
have a high position in consumer priority payments. Nonetheless,
demands on infrastructure due to changes in work and usage
patterns, as well as the ability of network suppliers to provide
products and services to wireless carriers, could have an impact.
The ultimate impact is mixed as some factors could also increase
demand for certain products and services.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Increasing cash flow without an increase in corresponding
debt, from contractual lease escalators, new tenant leases, or
lease amendments could lead to upgrades. However, upgrades are
unlikely given the provision to issue additional debt,
increasing leverage without the benefit of additional
collateral. Upgrades may also be limited given the ratings are
capped at 'Asf', given the risk of technological obsolescence.
-- A 10% increase in Fitch's NCF indicates the following model
implied rating sensitivities: class A to 'Asf' from 'Asf';
class B to 'BBBsf' from 'BBB-sf'; class C to 'BBsf' from 'BB
sf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Declining cash flow as a result of higher site expenses or
lease churn, and the development of an alternative technology
for the transmission of wireless signal could lead to
downgrades.
-- Fitch's NCF was 3.5% above the issuer's underwritten cash
flow. A further 10% decline in Fitch's NCF indicates the
following model-implied rating sensitivities: class A to 'BBB
sf' from 'Asf'; class B to 'BBsf' from 'BBB-sf'; and class C
to 'B-sf' from 'BB-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.
CRITERIA VARIATION
The transaction included three variations from criteria:
-- The cash flow approach for a portion of the assets includes
rent bumps for 15 years for the portion of the collateral
attributable to ground lease assets subject to master
agreements from investment-grade tower operators. This is
beyond the 5.5-year straight-line rent bump credit Fitch
outlines in its criteria.
-- The proposed refinance constant for the above-mentioned
collateral is 7.50%, which is below the published range of
9.25%-11.50%.
-- The ratio of investment-grade rated debt to Fitch adjusted NCF
is above the 8.0x, Fitch generally limits no more than 8.0x.
Fitch believes the variations are warranted for each item as
follows:
These assets are governed by two master agreement and receive
pass-through contractual rent bump credit of approximately 2.9% and
3.4%, on a weighted average basis, in addition to incremental cash
flow from lease amendments or additional leases. While the increase
in cash flow is not directly attributable to investment grade
tenants, the tenants are predominantly wireless carriers, AT&T
(BBB+), Verizon (A-), and T-Mobile (BB+), which carry high ratings
and support an essential service. The agreements are also long-term
and all or nothing, with very limited ability to eliminate
individual sites.
The total leverage levels are more conservative than that observed
in several of Fitch's CMBS transactions backed by the ground
beneath assets of similar quality, which has historically informed
Fitch's analysis in this sector. In addition, the diversity by
asset count and market, the "micro-monopolies" in which many of
these assets operate as a result of strict zoning, the essentiality
of the service, and the unique nature of the assets owned, warrant
a refinance constant below the low end of the observable range.
The total leverage for investment-grade ratings is above 8.0x as a
result of the lower refinance constant utilized. The total leverage
levels are more conservative than that observed in several of
Fitch's CMBS transactions backed by the ground beneath assets of
similar quality, which has historically informed Fitch's analysis
in this sector. In addition, the diversity by asset count and
market, the "micro-monopolies" in which many of these assets
operate as a result of strict zoning, the essentiality of the
service, and the unique nature of the assets owned, warrant a
refinance constant below the low end of the observable range.
The impact of the criteria variations to the ratings results in a
change of an average of four notches for all of the rated classes
of the transaction. Absent the variation, these classes would be
rated as follows:
-- Class A would be rated 'BBB-sf' instead of 'Asf';
-- Class B would be rated 'B+sf' instead of 'BBB-sf';
-- Class C would be rated 'CCCsf' instead of 'BB-sf'.
SUMMARY OF FINANCIAL ADJUSTMENTS
ESG Considerations:
Diamond Infrastructure Funding, Series 2021-1 has an ESG Relevance
Score of '4' for Transaction & Collateral Structure due to several
factors, including the issuer's ability to issue additional debt,
which has a negative impact on the credit profile and is relevant
to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3. 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.
DRYDEN 77: S&P Assigns B- (sf) Rating on $5MM Class F-R Notes
-------------------------------------------------------------
S&P Global Ratings assigned its ratings to the class X-R, A-R, B-R,
C-R, D-R, E-R, and F-R replacement notes from Dryden 77 CLO
Ltd./Dryden 77 CLO LLC, a CLO managed by PGIM Inc. This is a
refinancing of its May 2020 transaction.
On the May 27, 2021, refinancing date, the proceeds from the
replacement notes were used to redeem the original notes. As a
result, we withdraw our ratings on the original notes and assigned
ratings to the replacement notes.
The replacement notes were issued via a supplemental indenture,
which outlines the terms of the replacement notes. According to the
supplemental indenture:
-- The replacement class X-R, A-R, B-R, C-R, and E-R notes were
issued at a lower spread over three-month LIBOR than the original
notes.
-- The original class D-1 and D-2 notes were combined into a
single replacement class, the class D-R notes.
-- The transaction issued two additional replacement class: the
class X-R and F-R notes. The class X-R notes are expected to be
paid down over 16 payment dates, beginning with the payment date in
August 2022.
-- The transaction was upsized by 25%, compared with the original
transaction.
-- The non-call period was extended by two years, and the stated
maturity and reinvestment period are extended by three years each.
S&P said, "Our review of this transaction included a cash flow
analysis, based on the portfolio and transaction data 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. Our analysis also considered the
transaction's ability to pay timely interest and/or ultimate
principal 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 take rating actions as we deem
necessary."
Ratings Assigned
Dryden 77 CLO Ltd./Dryden 77 CLO LLC
Class X-R, $5 million: AAA (sf)
Class A-R, $310 million: AAA (sf)
Class B-R, $70 million: AA (sf)
Class C-R (deferrable), $30 million: A (sf)
Class D-R (deferrable), $30 million: BBB- (sf)
Class E-R (deferrable), $20 million: BB- (sf)
Class F-R (deferrable), $5 million: B- (sf)
Subordinated notes, $38 million: Not rated
Ratings Withdrawn
Dryden 77 CLO Ltd./Dryden 77 CLO LLC
Class X from 'AAA (sf)' to not rated
Class A from 'AAA (sf)' to not rated
Class B from 'AA (sf)' to not rated
Class C (deferrable) from 'A (sf)' to not rated
Class D-1 (deferrable) from 'BBB (sf)' to not rated
Class D-2 (deferrable) from 'BBB- (sf)' to not rated
Class E (deferrable) from 'BB- (sf)' to not rated
ELLINGTON FINANCIAL 2021-2: Fitch Gives 'B(EXP)' Rating to B-2 Debt
-------------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage pass-through
certificates to be issued by Ellington Financial Mortgage Trust
2021-2, Mortgage Pass-Through Certificates, Series 2021-2 (EFMT
2021-2) as follows:
DEBT RATING
---- ------
EFMT 2021-2
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AA(EXP)sf Expected Rating
A-3 LT A(EXP)sf Expected Rating
M-1 LT BBB(EXP)sf Expected Rating
B-1 LT BB(EXP)sf Expected Rating
B-2 LT B(EXP)sf Expected Rating
B-3 LT NR(EXP)sf Expected Rating
A-IO-S LT NR(EXP)sf Expected Rating
X LT NR(EXP)sf Expected Rating
R LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The EFMT 2021-2 certificates are supported by 661 loans with a
balance of $331.78 million as of the cut-off date. This will be the
second Ellington Financial Mortgage Trust transaction rated by
Fitch.
The certificates are secured mainly by non-qualified mortgages
(Non-QM) as defined by the Ability to Repay (ATR) rule.
Approximately 99.5% of the loans were originated by LendSure
Mortgage Corporation, a joint venture between LendSure Financial
Services, Inc. (LFS) and Ellington Financial, Inc. (EFC). The
remaining 0.5% of loans were originated by third-party originators.
Rushmore Loan Management Services LLC will be the servicer and
Nationstar Mortgage LLC will be the master servicer for the
transaction.
Of the pool, 70.8% of the loans are designated as Non-QM, and the
remaining 29.2% are investment properties not subject to ATR.
Finally, 33.6% of the loans in the pool are from prior non-QM
transactions that have been called while the remaining 66.4% are
newly originated.
Consistent with the majority of the NQM transactions issued to
date, this transaction has a modified sequential payment structure.
The structure distributes collected principal pro rata among the
class A notes while excluding the subordinate bonds from principal
until all three classes are reduced to zero. To the extent that
either a cumulative loss trigger event or delinquency trigger event
occurs in a given period, principal will be distributed
sequentially to the class A-1, A-2 and A-3 bonds until they are
reduced to zero.
There is no Libor exposure in this transaction. 78.8% of the loans
in the collateral pool comprise fixed-rate mortgages, and the
offered certificates are fixed rate and capped at the net weighted
average coupon (WAC) or pay the net WAC.
KEY RATING DRIVERS
Non-Prime Credit Quality (Mixed): The collateral consists mainly of
30-year or 40-year fully amortizing loans that are either
fixed-rate, or adjustable rate, and 21.9% of the loans have an
interest only period. The pool is seasoned approximately 13 months
in aggregate, as determined by Fitch. The borrowers in this pool
have relatively strong credit profiles with a 733 WA FICO score and
38.7% DTI, as determined by Fitch, and moderate leverage with an
original CLTV of 67.3%, which translates to a Fitch calculated sLTV
of 73.9%.
Of the pool, 67.5% consists of loans where the borrower maintains a
primary residence, while 32.5% comprises an investor property or
second home; 100% of the loans were originated through a non-retail
channel. Additionally, 70.8% are designated as Non-QM, while the
remaining 29.2% are exempt from QM since they are investor loans.
The pool contains 75 loans over $1 million, with the largest $3.3
million. Self-employed non-DSCR borrowers make up 63.5% of the
pool, salaried non-DSCR borrowers, 21.9%; and 14.6% are investor
cash flow DSCR loans.
29.2% of the pool comprises loans on investor properties (14.6%
underwritten to the borrowers' credit profile and 14.6% comprising
investor cash flow loans), and Fitch considered 67 loans in the
pool (6.4%) to be to non-permanent residents. There are no second
liens in the pool and only 0.8% of the loans have subordinate
financing.
Overall, the pool characteristics resemble non-prime collateral,
and therefore, the pool was analyzed using Fitch's non-prime
model.
Geographic Concentration (Negative): Approximately 46% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in Los Angeles MSA
(18.5%) followed by the San Francisco MSA (14.2%) and the Miami MSA
(6.0%). The top three MSAs account for 38.7% of the pool. As a
result, there was a 1.02x adjustment for geographic concentration.
Loan Documentation (Negative): Approximately 79% of the pool was
underwritten to borrowers with less than full documentation, as
determined by Fitch. Of this amount, 48.2% was underwritten to a
12- or 24-month bank statement program for verifying income, which
is not consistent with Appendix Q standards and Fitch's view of a
full documentation program.
To reflect the additional risk, Fitch increases the PD by 1.5x on
the bank statement loans. Besides loans underwritten to a bank
statement program, 7.4% is an asset depletion product, and 14.6% is
a DSCR product. The pool does not have any loans underwritten to a
CPA or PnL product, which Fitch viewed as a positive.
Limited Advancing (Mixed): The deal is structured to six months of
servicer advances for delinquent principal and interest. The
limited advancing reduces loss severities, as there is a lower
amount repaid to the servicer when a loan liquidates and
liquidation proceeds are prioritized to cover principal repayment
over accrued but unpaid interest. The downside to this is the
additional stress on the structure side, as there is limited
liquidity in the event of large and extended delinquencies.
Macro or Sector Risks (Positive): Consistent with the "Additional
Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of COVID vaccines, Fitch reconsidered the application
of the Coronavirus-related ERF floors of 2.0 and used ERF Floors of
1.5 and 1.0 for the 'BBsf' and 'Bsf' rating stresses,
respectively.
Fitch's March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
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. Sensitivity analyses was conducted at the
state and national levels to assess the effect of higher MVDs for
the subject pool as well as lower MVDs, illustrated by a gain in
home prices.
Factor 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 positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 41.3% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
-- 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.
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 Evolve, AMC, and Covius. The third-party due diligence
described in Form 15E focused on compliance, credit and valuations.
Fitch considered this information in its analysis. In reviewing the
due diligence results, Fitch found that there are four loans graded
C for TRID related issues; Fitch did not make an adjustment for
these loans since Fitch considered the adjustment not to be
material as the 0.02% increase to the loss severity would not have
increased Fitch's loss expectations. Due to the 100% of the pool
having undergone a due diligence review with no material findings,
the pool's 'AAAsf' loss expectation was reduced by 41 bps.
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."
Evolve, AMC, and Covius 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 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
EFMT 2021-2 has an ESG Relevance Score of '4[+]' for Transaction
Parties & Operational Risk. Operational risk is well controlled for
in EFMT 2021-2, including strong transaction due diligence as well
as '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.
FLAGSHIP CREDIT 2021-2: DBRS Finalizes BB Rating on Class E Notes
-----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by Flagship Credit Auto Trust 2021-2:
-- $248,330,000 Class A Notes at AAA (sf)
-- $32,890,000 Class B Notes at AA (sf)
-- $41,760,000 Class C Notes at A (sf)
-- $24,950,000 Class D Notes at BBB (sf)
-- $14,780,000 Class E Notes at BB (sf)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization
(OC), subordination, amounts held in the reserve account, and
excess spread. Credit enhancement levels are sufficient to support
the DBRS Morningstar-projected cumulative net loss (CNL) assumption
under various stress scenarios.
(2) DBRS Morningstar's projected losses include the assessment of
the possible impact on consumer behavior as a result of the
Coronavirus Disease (COVID-19). The DBRS Morningstar CNL assumption
is 11.65% based on the expected Cut-Off Date pool composition.
(3) The transaction assumptions consider DBRS Morningstar's set of
macroeconomic scenarios for select economies related to the
coronavirus, available in its commentary "Global Macroeconomic
Scenarios: March 2021 Update," published on March 17, 2021. DBRS
Morningstar initially published macroeconomic scenarios on April
16, 2020, that have been regularly updated. The scenarios were last
updated on March 17, 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.
(4) The consistent operational history of Flagship Credit
Acceptance, LLC (Flagship or the Company) and the strength of the
overall Company and its management team.
-- The Flagship senior management team has considerable experience
and a successful track record within the auto finance industry.
(5) The capabilities of Flagship with regard to originations,
underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Flagship
and considers the entity to be an acceptable originator and
servicer of subprime automobile loan contracts with an acceptable
backup servicer.
(6) DBRS Morningstar exclusively used the static pool approach
because Flagship has enough data to generate a sufficient amount of
static pool projected losses.
-- DBRS Morningstar was conservative in the loss forecast analysis
performed on the static pool data.
(7) The Company indicated that it may be subject to various
consumer claims and litigation seeking damages and statutory
penalties. Some litigation against Flagship could take the form of
class-action complaints by consumers; however, the Company
indicated that there is no material pending or threatened
litigation.
(8) 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 Flagship, 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."
Flagship is an independent, full-service automotive financing and
servicing company that provides (1) financing to borrowers who do
not typically have access to prime credit-lending terms to purchase
late-model vehicles and (2) refinancing of existing automotive
financing.
The rating on the Class A Notes reflects 33.80% of initial hard
credit enhancement provided by subordinated notes in the pool
(30.95%), the reserve account (1.00%), and OC (1.85%). The ratings
on the Class B, C, D, and E Notes reflect 24.90%, 13.60%, 6.85%,
and 2.85% of initial hard credit enhancement, respectively.
Additional credit support may be provided from excess spread
available in the structure.
Notes: All figures are in U.S. dollars unless otherwise noted.
FLAGSTAR MORTGAGE 2021-3INV: Moody's Gives B3 Rating to B-5 Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned Definitive ratings to
fourty-eight classes of residential mortgage-backed securities
issued by Flagstar Mortgage Trust 2021-3INV ("FSMT 2021-3INV"). The
ratings range from Aaa (sf) to B3 (sf).
Flagstar Mortgage Trust 2021-3INV (FSMT 2021-3INV) is the third
issue from Flagstar Mortgage Trust in 2021 and the first issue with
investor-property loans in 2021. Flagstar Bank, FSB (Flagstar) is
the sponsor of the transaction. FSMT 2021-3INV is a securitization
of GSE eligible first-lien investment property mortgage loans.
100.0% of the pool by loan balance were originated by Flagstar
Bank, FSB.
All the loans are underwritten in accordance with Freddie Mac or
Fannie Mae guidelines, which take into consideration, among other
factors, the income, assets, employment and credit score of the
borrower as well as loan-to-value (LTV). These loans were run
through one of the government-sponsored enterprises' (GSE)
automated underwriting systems (AUS) and received an "Approve" or
"Accept" recommendation.
All of the personal-use loans are "qualified mortgages" under
Regulation Z as result of the temporary provision allowing
qualified mortgage status for loans eligible for purchase,
guaranty, or insurance by Fannie Mae and Freddie Mac (and certain
other federal agencies). If the Sponsor or the Reviewer determines
a Personal Use Loan is no longer a "qualified mortgage" under the
ATR Rules, the Sponsor will be required to repurchase such Personal
Use Loan. With the exception of personal-use loans, all other
mortgage loans in the pool are not subject to TILA because each
such mortgage loan is an extension of credit primarily for a
business purpose and is not a "covered transaction" as defined in
Section 1026.43(b)(1) of Regulation Z.
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.
In this transaction, the Class A-11 notes' coupon is indexed to
SOFR. In addition, the coupon on Class A-11X is also impacted by
changes in SOFR. However, based on the transaction's structure, the
particular choice of benchmark has no credit impact. First,
interest payments to the notes, including the floating rate notes,
are subject to the net WAC cap, which prevents the floating rate
notes from incurring interest shortfalls as a result of increases
in the benchmark index above the fixed rates at which the assets
bear interest. Second, the shifting-interest structure pays all
interest generated on the assets to the bonds and does not provide
for any excess spread.
Issuer: Flagstar Mortgage Trust 2021-3INV
Cl. A-1, Assigned Aaa (sf)
Cl. A-2, Assigned Aaa (sf)
Cl. A-3, Assigned Aaa (sf)
Cl. A-4, Assigned Aaa (sf)
Cl. A-5, Assigned Aaa (sf)
Cl. A-6, Assigned Aaa (sf)
Cl. A-7, Assigned Aaa (sf)
Cl. A-8, Assigned Aaa (sf)
Cl. A-9, Assigned Aaa (sf)
Cl. A-10, Assigned Aaa (sf)
Cl. A-11, Assigned Aaa (sf)
Cl. A-12, Assigned Aaa (sf)
Cl. A-13, Assigned Aaa (sf)
Cl. A-14, Assigned Aaa (sf)
Cl. A-15, Assigned Aaa (sf)
Cl. A-16, Assigned Aa1 (sf)
Cl. A-17, Assigned Aa1 (sf)
Cl. A-18, Assigned Aaa (sf)
Cl. A-19, Assigned Aaa (sf)
Cl. A-20, Assigned Aaa (sf)
Cl. A-21, Assigned Aaa (sf)
Cl. A-22, Assigned Aaa (sf)
Cl. A-23, Assigned Aa1 (sf)
Cl. A-24, Assigned Aa1 (sf)
Cl. A-X-1*, Assigned Aa1 (sf)
Cl. A-X-4*, Assigned Aaa (sf)
Cl. A-X-6*, Assigned Aaa (sf)
Cl. A-X-8*, Assigned Aaa (sf)
Cl. A-X-10*, Assigned Aaa (sf)
Cl. A-11X*, Assigned Aaa (sf)
Cl. A-X-13*, Assigned Aaa (sf)
Cl. A-X-15*, Assigned Aaa (sf)
Cl. A-X-16*, Assigned Aa1 (sf)
Cl. A-X-17*, Assigned Aa1 (sf)
Cl. A-X-19*, Assigned Aaa (sf)
Cl. A-X-20*, Assigned Aaa (sf)
Cl. A-X-22*, Assigned Aaa (sf)
Cl. A-X-24*, Assigned Aa1 (sf)
Cl. B-1, Assigned Aa3 (sf)
Cl. B-1-A, Assigned Aa3 (sf)
Cl. B-1-X*, Assigned Aa3 (sf)
Cl. B-2, Assigned A2 (sf)
Cl. B-2-A, Assigned A2 (sf)
Cl. B-2-X*, Assigned A2 (sf)
Cl. B-3, Assigned Baa2 (sf)
Cl. B-4, Assigned Ba2 (sf)
Cl. B-5, Assigned B3 (sf)
Cl. RR-A, Assigned Aaa (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 0.78%
at the mean, 0.52% at the median, and reaches 6.05% at a stress
level consistent with Moody's Aaa ratings.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's increased its model-derived median expected losses by 10%
(7.4% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's base its 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 2021-3INV (FSMT 2021-3INV) is the third
issue from Flagstar Mortgage Trust in 2021 and the first in 2021
with investor-property loans. Flagstar Bank, FSB (Flagstar) is the
sponsor of the transaction.
FSMT 2021-3INV is a securitization of GSE eligible first-lien
investment property mortgage loans. 100.0% of the pool by loan
balance were originated by Flagstar Bank, FSB. All the loans are
underwritten in accordance with Freddie Mac or Fannie Mae
guidelines, which take into consideration, among other factors, the
income, assets, employment and credit score of the borrower as well
as loan-to-value (LTV). As of the cut-off date of May 1, 2021, the
$515,789,220 pool consisted of 2,020 mortgage loans secured by
first liens on residential investment properties. The average
stated principal balance is $255,341 and the weighted average (WA)
current mortgage rate is 3.36%. The majority of the loans have a
30-year term, with 21 loans with terms ranging from 20 to 25 years.
All of the loans have a fixed rate. The WA original credit score is
774 for the primary borrower only and the WA combined original LTV
(CLTV) is 63.2%. The WA original debt-to-income (DTI) ratio is
37.5%. Approximately, 21.6% by loan balance of the borrowers have
more than one mortgage loan in the mortgage pool.
All of the mortgage loans originated by Flagstar were either
directly or indirectly originated through correspondents and
brokers.
Approximately half of the mortgage loans by loan balance (48.2%)
are backed by properties located in California. The next largest
geographic concentration of properties are Texas, which represents
5.8% by loan balance, New York which represents 4.4% by loan
balance and Washington and Arizona, which represents 4.2% by loan
balance each. All other states each represent less than 4% by loan
balance. Approximately 20.4% (by loan balance) of the pool is
backed by properties that are 2-4 unit residential properties
whereas loans backed by single family residential properties
represent 47.7% (by loan balance) of the pool.
Origination Quality
Flagstar Bank, FSB (Flagstar) originated 100% of the loans in the
pool. The loans in the pool are underwritten in conformity with GSE
guidelines. Moody's consider Flagstar conforming and non-conforming
mortgage origination quality to be adequate. As a result, Moody's
did not make any adjustments to Moody's base case and Aaa stress
loss assumptions based on Moody's review of the underwriting, QC,
audit and loan performance.
Servicing arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate. Flagstar will service the mortgage loans. Servicing
compensation is subject to a step-up incentive fee structure. Wells
Fargo Bank, N.A. (Wells Fargo) will be the master servicer.
Flagstar will be responsible for principal and interest advances as
well as servicing advances. The master servicer will be required to
make principal and interest advances if Flagstar is unable to do
so.
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 $20.50 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 fee-for-service
compensation is reasonable and adequate for this transaction. It
also better aligns the servicer's costs with the deal's performance
and structure. The Class B-6-C (NR) is first in line to absorb any
increase in servicing costs above the base servicing costs.
Delinquency and incentive fees will be deducted from the Class
B-6-C interest payment amount first and could result in interest
shortfall to the certificates depending on the magnitude of the
delinquency and incentive fees.
Trustee and master servicer
The transaction trustee is Wilmington Savings Fund Society, FSB.
The custodian functions will be performed by Wells Fargo Bank, N.A.
The paying agent and cash management functions will be performed by
Wells Fargo Bank, N.A., rather than the trustee. In addition, Wells
Fargo, as master servicer, is responsible for servicer oversight,
and termination of servicers and for the appointment of successor
servicers. The master servicer will be required to make principal
and interest advances if Flagstar is unable to do so.
Third-party review
Moody's applied an adjustment to Moody's Aaa and expected losses
due to the sample size. The credit, compliance, property valuation,
and data integrity portion of the third party review (TPR) was
conducted on a total of approximately 15.7% of the pool (by loan
count). Canopy Financial Technology Partners (Canopy) conducted due
diligence for a total random sample of 321 (of which 318 are
included in the final pool, out of 2,020 loans in total) loans. The
TPR results indicated compliance with the originators' underwriting
guidelines for most of the loans without any material compliance
issues or appraisal defects. 100% of the loans reviewed received a
grade B or higher with 73.2% 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 318 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 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 other private-label 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 subordination floor and a subordinate floor. Funds
collected, including principal, are first used to make interest
payments and then principal payments on pro rata basis up to the
senior bonds principal distribution amount, and then interest and
principal payments on sequential basis up to each subordinate bond
principal distribution amount. 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 of time, and increasing amounts of prepayments to
the subordinate bonds thereafter, but only if loan performance
satisfies delinquency and loss tests.
In this transaction, the Class A-11 notes' coupon is indexed to
SOFR. In addition, the coupon on Class A-11X is also impacted by
changes in SOFR. However, based on the transaction's structure, the
particular choice of benchmark has no credit impact. First,
interest payments to the notes, including the floating rate notes,
are subject to the net WAC cap, which prevents the floating rate
notes from incurring interest shortfalls as a result of increases
in the benchmark index above the fixed rates at which the assets
bear interest. Second, the shifting-interest structure pays all
interest generated on the assets to the bonds and does not provide
for any excess spread.
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 and subordination floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 1% of the cut-off date pool balance,
and as subordination lock-out amount of 1% of the cut-off date pool
balance. The floors are consistent with the credit neutral floors
for the assigned ratings according to Moody's methodology.
COVID-19 Impacted Borrowers
As of the cut-off date, no borrower in the pool has entered into a
COVID-19 related forbearance plan with the servicer. 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. Any principal
forbearance amount created in connection with any modification
(whether as a result of a COVID-19 forbearance or otherwise) will
result in the allocation of a realized loss and to the extent any
such amount is later recovered, will result in the allocation of a
subsequent recovery.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in April 2020.
GPMT LTD 2021-FL3: DBRS Finalizes B(low) Rating on Class G Notes
----------------------------------------------------------------
DBRS, Inc. finalized provisional ratings on the following classes
of notes to be issued by GPMT 2021-FL3, Ltd:
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
Coronavirus Overview
With regard to the Coronavirus Disease (COVID-19) pandemic, the
magnitude and extent of performance stress posed to global
structured finance transactions remains highly uncertain. This
considers the fiscal and monetary policy measures and statutory law
changes that have already been implemented or will be implemented
to soften the impact of the crisis on global economies. Some
regions, jurisdictions, and asset classes are, however, feeling
more immediate effects. Accordingly, DBRS Morningstar may apply
additional short-term stresses to its rating analysis. For example,
DBRS Morningstar may front-load default expectations and/or assess
the liquidity position of a structured finance transaction with
more stressful operational risk and/or cash flow timing
considerations.
The initial collateral consists of 27 floating-rate mortgages
secured by 32 mostly transitional properties, with a cut-off
balance totaling $823.7 million, excluding approximately $143.3
million of future funding commitments. The collateral comprises one
combined loan, 23 participations in mortgage loans, two
participations in combined loans, and one senior participation in a
mortgage loan. Combined loans include a mortgage loan and related
mezzanine loan and are treated as a single loan. Most loans are in
a period of transition with plans to stabilize and improve the
asset value. During the Companion Participation Acquisition Period,
the Issuer may acquire future funding commitments subject to the
Acquisition Criteria. The transaction does not include RAC for the
acquisition of companion participations if there is already a
participation of the underlying loan in the trust.
For the floating-rate loans, DBRS Morningstar used the one-month
Libor index, which is based on the lower of a DBRS Morningstar
stressed rate that corresponded to the remaining fully extended
term of the loans or the strike price of the interest rate cap with
the respective contractual loan spread added to determine a
stressed interest rate over the loan term. When the cut-off
balances were measured against the DBRS Morningstar As-Is net cash
flow (NCF), 20 loans, comprising 73.1% of the initial pool, had a
DBRS Morningstar As-Is debt service credit ratio (DSCR) below 1.00
times (x), a threshold indicative of default risk. However, the
DBRS Morningstar Stabilized DSCRs for only four loans, comprising
17.1% of the initial pool balance, are below 1.00x. 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. The transaction will have a sequential-pay structure.
The transaction benefits from strong DBRS Morningstar Market Ranks
with 66.5% of the properties in the pool are located in a DBRS
Morningstar Market Rank 6, 7, or 8, which is considerably higher
than recent commercial real estate collateralized loan obligation
(CRE CLO) transactions rated by DBRS Morningstar. The DBRS
Morningstar Market Rank range is 1 to 8, with 8 representing the
highest-density markets with the greatest amount of liquidity and
most origination activity. DBRS Morningstar recognizes market
liquidity by giving credit to loans secured by properties in dense
urban locations and penalizing loans in less populated areas and
areas with lower economic activity. Also, the historical commercial
mortgage-backed securities (CMBS) conduit loan data shows that
probability of default (POD) increases in middle markets (Market
Rank 3 or 4); moderates in tertiary and rural markets (Market Rank
1 or 2); and greatly improves in primary urban markets (Market Rank
6, 7, or 8). Historical loan data further supports the idea that
loss given default (LGD) increases in tertiary and rural markets,
and the lowest LGDs were noted in Market Rank 8. The initial pool
consists of 28.8% of the cut-off date loan balance in Market Rank
6, 19.9% in Market Rank 7, and 17.8% in Market Rank 8.
The weighted-average (WA) DBRS Morningstar Stabilized loan-to-value
ratio (LTV) and DSCR are 65.0% and 1.35x, respectively. These
credit metrics compare favorably with recent CRE CLO transactions
rated by DBRS Morningstar and, by comparison, result in lower loan
level PODs and LGDs. Approximately 16 collateral interests (56.4%
of the pool) have an As-Is DSCR below 1.00x (excluding loan debt
service reserve/deal structure).
The Sponsor for the transaction, Granite Point Mortgage Trust
(GPMT), is an experienced CRE CLO issuer and collateral manager. As
of December 31, 2020, GPMT had an equity capitalization of more
than $930 million and managed a commercial mortgage debt portfolio
of approximately $4.4 billion. GPMT has completed two CRE CLO
securitizations: GPMT 2018-FL1 and GPMT 2019-FL2. Additionally,
GPMT CLO Holdings LLC, a wholly owned indirect subsidiary of GPMT
will purchase and retain 100.0% of the Class F Notes, the Class G
Notes, the Class H Notes, and the Preferred Shares, which total
16.75% of the transaction total.
The loans are generally secured by traditional property types
(i.e., office, multifamily, and mixed-use), with only 4.2% of the
pool secured by hotels. Additionally, only one of the multifamily
loans (The Rowan, representing 0.8% of initial pool balance) in the
pool is currently secured by student housing properties, which
often exhibit higher cash flow volatility than traditional
multifamily properties. The initial loan pool exhibits a Herfindahl
score of 20.9 (27 collateral interests), which is favorable for a
CRE CLO transaction and higher than most recent CRE CLO
transactions rated by DBRS Morningstar.
All of the loans in the pool were originated before April 2020 and
16 collateral interest (56.4% of the pool) have an As-Is DSCR below
1.00x (without considering loan debt service reserves/deal
structure). Low cash flows have directly affected many of the loans
in the pool, with 12 loans receiving some form of loan modification
since origination, and, as of the date of this report, four loans
were in the process of being modified. The loan modifications vary,
depending on the needs of the borrower but may include an increase
in the loan amount, extension of the maturity date, reset of the
forced funding date, and/or reduction in the Libor floor. DBRS
Morningstar received coronavirus and business plan updates for all
loans in the pool and incorporated these findings into the DBRS
Morningstar NCF analysis and Business Plan Scores. Furthermore, all
debt service payments have been received in full through March
2021. All of the properties were re-appraised in 2021 and the
latest appraisals took into account recent property performance,
market trends since the onset of the pandemic, and general property
condition observations. The issuer provided DBRS Morningstar recent
property financial statements and rent rolls, which are preferred
for a more accurate view into underlying property cash flow
performance. This information will continue to be shared with DBRS
Morningstar throughout the transaction and be subject to periodic
reviews.
DBRS Morningstar has analyzed the loans to a stabilized cash flow
that is, in some instances, above the in-place cash flow. It is
possible that the sponsors will not successfully execute their
business plans and that the higher stabilized cash flow will not
materialize during the loan term, particularly with the ongoing
coronavirus pandemic and its impact on the overall economy. A
sponsor's failure to execute the business plan could result in a
term default or the inability to refinance the fully funded loan
balance. DBRS Morningstar sampled a large portion of the loans,
representing 73.4% of the pool cut-off date balance. Physical site
inspections were also performed, including management meetings.
Most site inspections were completed in early 2020, prior to the
onset of the pandemic and closer to loan origination. DBRS
Morningstar made relatively conservative stabilization assumptions
and, in each instance, considered the business plan to be rational
and the loan structure to be sufficient to execute such plans. In
addition, DBRS Morningstar analyzes LGD based on the as-is credit
metrics, assuming the loan is fully funded with no NCF or value
upside. Future Funding companion participations will be held by
affiliates of GPMT and have the obligation to make future advances.
GPMT agrees to indemnify the Issuer against losses arising out of
the failure to make future advances when required under the related
participated loan. Furthermore, GPMT will be required to meet
certain liquidity requirements on a quarterly basis.
Four of the sampled loans, comprising 22.9% of the pool balance,
were analyzed with Weak sponsorship strengths. Three of the
loans—Times Square West, Mid Main, and SunTrust Center—are
among the pool's 10 largest loans. DBRS Morningstar applied a POD
penalty to loans analyzed with Weak sponsorship strength.
All 27 loans have floating interest rates, and all loans are
interest only during the original term and have original terms of
24 months to 37 months, creating interest rate risk. All loans are
short-term loans, and, even with extension options, they have a
fully extended maximum loan term of five to six years. For the
floating-rate loans, DBRS Morningstar used the one-month Libor
index, which is based on the lower of a DBRS Morningstar stressed
rate that corresponded to the remaining fully extended term of the
loans or the strike price of the interest rate cap with the
respective contractual loan spread added to determine a stressed
interest rate over the loan term.
The property condition assessments for all mortgaged properties are
dated more than 12 months prior to the cut-off date. GPMT's
third-party asset manager coordinates site visits to each of the
properties in the pool annually and has conducted site visits on
all of the assets in the pool within the past 12 months (with the
exception of Indico Nashville and Cornerstone Corporate, which were
originated in 2020). In most cases, the business plan includes
capital improvements to the property, which are expected to improve
the overall property condition. Active construction sites are
monitored by consultants that visit properties and evaluate the
progress of renovation work.
Notes: All figures are in U.S. dollars unless otherwise noted.
GRAND AVENUE 2020-FL2: DBRS Hikes Class F Notes Rating to B(sf)
---------------------------------------------------------------
DBRS, Inc. upgraded the ratings on five classes of notes issued by
Grand Avenue CRE 2020-FL2 Ltd. as follows:
-- Class B to AA (sf) from AA (low) (sf)
-- Class C to A (high) (sf) from A (low) (sf)
-- Class D to BBB (high) (sf) from BBB (low) (sf)
-- Class E to BB (sf) from BB (low) (sf)
-- Class F to B (sf) from B (low) (sf)
DBRS Morningstar also confirmed the ratings on the remaining
classes as follows:
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
All trends are Stable.
The rating upgrades reflect the collateral reduction to date, with
the rating confirmations generally a reflection of the overall
stable performance of the remaining collateral in the transaction.
Since issuance in June 2020, seven of the initial 18 loans have
repaid from the trust and there has been additional paydown from
another two loans originally secured by multiple properties. As a
result, there has been total collateral reduction of 39.4%. The
remaining 11 loans are secured by seven multifamily properties
(73.6% of the pool balance), two office properties (17.2% of the
pool balance), and two mixed-use properties (9.2% of the pool
balance). The transaction is also concentrated by loan size as the
largest loan, Cape Coral Portfolio (Prospectus ID#1), represents
26.6% of the pool balance and the largest four loans cumulatively
represent 67.7% of the pool balance.
All loans in the pool are secured by transitional assets in the
process of stabilization. At issuance, eight of the remaining 11
loans in the transaction had outstanding future funding, with a
total available balance of $31.6 million to fund capital
expenditures, leasing costs, and operating shortfalls to aid in
property stabilization. As of May 2021, a total of $23.1 million of
future funding has yet to be released; the majority of the
unreleased funds are allocated to the 9300 Wilshire loan
(Prospectus ID#3; 14.6% of the pool balance), which has $12.7
million available in future funding. The transaction is structured
with a 24-month Permitted Funded Companion Participation
Acquisition Period whereby the Issuer can contribute funded
participations of loans into the Trust. The period ends with the
June 2022 Payment Date. As of the May 2021 remittance, there was
$8.8 million available in the Permitted Funded Companion
Participation Acquisition Account.
There are no loans in special servicing and all loans are current.
There are five loans on the servicer's watchlist, representing
41.6% of the pool balance, which have been flagged for low
occupancy rates and/or debt service coverage ratios. As initial
performance declines were expected for many loans given individual
borrower's business plans to implement capital expenditure programs
and the existence of upfront operating shortfall reserves, a loan's
placement on the servicer's watchlist is not necessarily indicative
of increased risks from issuance.
Notes: All figures are in U.S. dollars unless otherwise noted.
GS MORTGAGE 2017-GS7: Fitch Affirms B- Rating on Class H-RR Certs
-----------------------------------------------------------------
Fitch Ratings has affirmed 16 classes of GS Mortgage Securities
Trust 2017-GS7 commercial mortgage pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
GSMS 2017-GS7
A-1 36254CAS9 LT AAAsf Affirmed AAAsf
A-2 36254CAT7 LT AAAsf Affirmed AAAsf
A-3 36254CAU4 LT AAAsf Affirmed AAAsf
A-4 36254CAV2 LT AAAsf Affirmed AAAsf
A-AB 36254CAW0 LT AAAsf Affirmed AAAsf
A-S 36254CAZ3 LT AAAsf Affirmed AAAsf
B 36254CBA7 LT AA-sf Affirmed AA-sf
C 36254CBB5 LT A-sf Affirmed A-sf
D 36254CAA8 LT BBB+sf Affirmed BBB+sf
E 36254CAE0 LT BBB-sf Affirmed BBB-sf
F-RR 36254CAG5 LT BBB-sf Affirmed BBB-sf
G-RR 36254CAJ9 LT BB-sf Affirmed BB-sf
H-RR 36254CAL4 LT B-sf Affirmed B-sf
X-A 36254CAX8 LT AAAsf Affirmed AAAsf
X-B 36254CAY6 LT A-sf Affirmed A-sf
X-D 36254CAC4 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Generally Stable Pool Performance: Loss expectations have improved
slightly since the last rating with many loans experiencing less
severe coronavirus related declines than expected at the prior
rating action. The majority of the loans in the pool (81.1%) have
reported YE 2020 financials and all loans remain current. There are
eight loans (27.6%) that have been designated as Fitch Loans of
Concern (FLOCs), including three hotel loans (11%) in the top 15
that are continuing to recover from pandemic related performance
declines. Fitch's current ratings incorporate a base case loss of
4.5%.
The largest FLOC is the Long Island Prime Portfolio - Melville loan
(6.8%), which is secured by three suburban office properties. All
three properties are located in the primary business district of
Melville, NY, approximately 34 miles east of New York City.
Performance since issuance has been stable with YE 2020 NOI DSCR
and occupancy reported to be 3.17x and 92%, respectively. Fitch has
concerns with the loan due to significant rollover in 2022 when 30%
of the NRA is scheduled to expire. Citibank accounts for 25.4% of
the portfolio NRA with a lease expiration in March 2022. However,
the borrower reports that Citibank is likely to vacate and may
retain approximately 10% of the space; Citibank subleases roughly
60% of their space. The loan is structured with a springing cash
flow sweep that is expected to accumulate a reserve of
approximately $9.4 million after whole loan debt service. Fitch
will continue to monitor for leasing updates.
The second largest FLOC is the Marriott Quorum loan (5.6%), which
is secured by a 547 key full-service hotel located in Dallas, TX,
approximately 14 miles north of the CBD. In 2018, the property
completed a property improvement plan (PIP) of approximately $9.01
million ($19,694 per key) for full case and soft goods replacement.
As of December 2020, the trailing 12-month occupancy was reported
to be 31% compared to 63% at issuance. As part of a relief
agreement in May 2020, the borrower (Deason Capital Services) was
granted to the ability to make payments from reserve funds. Despite
the relief, the loan transferred to special servicing in December
2020 for payment default; however, no additional relief or
modification was provided. The borrower has brought the loan
current and the loan is expected to be returned to the master
servicer. Fitch's loss expectations for the loan account for fees
associated with the transfer to special servicing.
The third largest FLOC is the 5-15 West 125th Street loan, which is
secured by a 119,341sf mixed use (retail/office/multi-family)
building located in Harlem, NY. Physical occupancy for the
commercial component has declined to 80.5% from 87% at issuance due
to a dark New York & Company that vacated in 2020 ahead of a lease
expiration in 2031. The NOI DSCR has also declined and was reported
to be 0.96x as of YE 2020 compared to 1.14x at YE 2018. Fitch has
concerns with the loan due to the high leverage, decline in
occupancy and exposure to WeWork, who accounts for 28% of the NRA.
Expected losses for the loan are partially offset by a $10 million
upfront reserve structured at origination; the holdback will be
released upon the loan achieving a debt yield above 7.0% (current
debt yield is 4.4%).
Minimal Change in Credit Enhancement (CE): CE has had minimal
change since issuance due to limited amortization, no loan payoffs
and no defeasance. As of the May 2021 distribution period, the
pool's aggregate balance has been paid down by 1.16% to $1.07
billion from $1.08 billion at issuance. There are 12 loans (65.5%
of the pool) that are full-term, IO and two loans (3.3%) that are
partial IO that have not yet begun to amortize; the remaining18
loans are amortizing.
Pool Concentrations: The pool is concentrated and consists of 32
loans, which is well below other Fitch-rated 2017 vintage
transactions that average 49 loans. The largest 10 loans compose
64.7% of the pool.
The largest property-type concentration is office at 50.9% of the
pool, followed by retail at 16.7% and mixed-use at 14.6%. The
pool's office concentration is substantially above the 2017 and the
2016 averages for office of 39.8% and 28.7%, respectively, for
other Fitch-rated multi-borrower transactions.
Coronavirus Exposure: The three loans (11%) that are secured by
hotel properties have a weighted average (WA) NOI DSCR of 1.32x.
Eleven loans (16.7%), which have a WA NOI DSCR of 1.78x, are
secured by retail properties. Additional stresses were only applied
to one hotel loan due to the use of the YE 2019 NOI to account for
the expected performance decline in the 2020 figures; additional
coronavirus stresses were not applied to the remaining loans due to
availability of YE 2020 reporting.
RATING SENSITIVITIES
The Negative Outlook on class H-RR reflects exposure to five FLOCs
in the top 15, including three hotel properties that continue to
underperform. The Stable Outlooks on classes A-1 through G-RR
reflect the overall stable pool performance for the majority of the
pool and expected continued paydown.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with pay down
and/or defeasance. Upgrades to the 'Asf' and 'AAsf' categories
would likely occur with significant improvement in CE and/or
defeasance; however, adverse selection, increased
concentrations and/or further underperformance of the FLOCs or
loans expected to be negatively affected by the coronavirus
pandemic could cause this trend to reverse.
-- Upgrades to the 'BBBsf' category would also take into account
these factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if there were
likelihood for interest shortfalls.
-- Upgrades to the 'Bsf' and 'BBsf' categories are not likely
until the later years in a transaction and only if the
performance of the remaining pool is stable and/or properties
vulnerable to the coronavirus return to pre-pandemic levels,
and there is sufficient CE to the classes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses from underperforming or
specially serviced loans. Downgrades to the 'Asf', 'AAsf' and
'AAAsf' categories are not likely due to the position in the
capital structure but may occur at the 'AAsf' and 'AAAsf'
categories should interest shortfalls occur.
-- Downgrades to the 'BBBsf' category would occur if a high
proportion of the pool defaults and expected losses increase
significantly. Downgrades to the 'Bsf' and 'BBsf' categories
would occur should loss expectations increase due to an
increase in specially serviced loans and/or the loans
vulnerable to the coronavirus pandemic not stabilize.
-- The Outlook on class H-RR may be revised back to Stable if the
performance of the FLOC's and/or properties vulnerable to the
coronavirus stabilize once the pandemic is over.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
additional negative rating actions, including downgrades or
Negative Outlook revisions. For more information on Fitch's
original rating sensitivity on the transaction, please refer to the
new issuance report.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
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 2018-GS10: Fitch Affirms B- Rating on G-RR Certs
------------------------------------------------------------
Fitch Ratings has affirmed 16 classes of GS Mortgage Securities
Trust 2018-GS10 Commercial Mortgage Pass-Through Certificates.
DEBT RATING PRIOR
---- ------ -----
GSMS 2018-GS10
A-1 36250SAA7 LT AAAsf Affirmed AAAsf
A-2 36250SAB5 LT AAAsf Affirmed AAAsf
A-3 36250SAC3 LT AAAsf Affirmed AAAsf
A-4 36250SAD1 LT AAAsf Affirmed AAAsf
A-5 36250SAE9 LT AAAsf Affirmed AAAsf
A-AB 36250SAF6 LT AAAsf Affirmed AAAsf
A-S 36250SAJ8 LT AAAsf Affirmed AAAsf
B 36250SAK5 LT AA-sf Affirmed AA-sf
C 36250SAL3 LT A-sf Affirmed A-sf
D 36250SAM1 LT BBBsf Affirmed BBBsf
E 36250SAR0 LT BBB-sf Affirmed BBB-sf
F 36250SAT6 LT BB-sf Affirmed BB-sf
G-RR 36250SAV1 LT B-sf Affirmed B-sf
X-A 36250SAG4 LT AAAsf Affirmed AAAsf
X-B 36250SAH2 LT AA-sf Affirmed AA-sf
X-D 36250SAP4 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Stable Performance: The affirmations reflect the overall stable
performance and loss expectations for the pool since issuance.
Fitch's current ratings incorporate a base case loss of 3.75%.
There are no delinquent or specially serviced loans as of the May
2021 distribution.
Four loans outside of the top 15 (combined, 5.0% of the pool) are
Fitch Loans of Concern (FLOCs); two are secured by hotel properties
that have experienced performance declines caused by the pandemic
and the other two include a retail and an office property with
declining occupancy from vacating tenants at and prior to lease
expiration.
Minimal Change in Credit Enhancement (CE): As of the May 2021
distribution date, the pool's aggregate balance has paid down by
0.7% to $804.8 million from $810.7 million at issuance. No loans
have been repaid or defeased since issuance. Based on the scheduled
balance at maturity, the pool is expected to pay down by 5.2%.
Fourteen loans (60.8%), including 10 of the top 15 loans, are
full-term interest-only and seven loans (15.9%) remain in partial
interest-only periods. Loan maturities are concentrated in 2028
(82.6%), with 9.3% in 2023 and 8.1% in 2025.
Coronavirus Exposure: Two loans (2.5%) are secured by hotel
properties. Thirteen loans (24.1%) are secured by retail
properties. One loan, 3300 East 1st Avenue (3.0%), is secured by a
97,770-sf mixed-use property located in Denver, Co, whereby the
largest tenant is Zone Athletic Clubs (27.2% of NRA), a gym that
reopened in June 2020 after coronavirus restrictions were eased in
Denver. Additional coronavirus specific stresses were applied to
both hotel loans, two retail loans and the one mixed-use loan;
these additional stresses did not affect the current ratings or
Outlooks.
Single Tenant Exposure: Four loans (23.2%) in the top 15 are
secured by single tenant properties or portfolios of single tenant
properties. The largest loan, GSK North American HQ (9.3%), is
secured by a 207,779-sf suburban office property located in the
Navy Yards district of Philadelphia, PA that was built-to-suit for
British pharmaceutical company GlaxoSmithKline, which leases the
entire building on a NNN basis through September 2028, with two
five-year extension options and no termination options.
The sixth largest loan, FXI Portfolio (5.3%), is secured by a
portfolio of seven manufacturing properties totaling 2.1 million-sf
and located across six U.S. states and the Mexican city of
Cuautitlán Izcalli. The portfolio is 100% leased by FXI, an
American foam products manufacturer, through June 2038. The
Portland, OR property is currently vacant as of the December 2020
rent roll. FXI continues to pay full rent for the entire
portfolio.
The seventh largest loan, U.S. Industrial Portfolio (5.2%), is
secured by a portfolio of 11 single-tenant industrial properties
totaling 2.7 million-sf and located across seven U.S. states. The
portfolio is occupied by nine different tenants including Dialog
Direct (21.3% of portfolio NRA; through March 2030), JIT Packaging
(16.3%; June 2028) and Rohrer Corporation (13.9%; December 2025).
The 11th largest loan, Marina Heights State Farm (3.4%), is secured
by the leasehold interest in a 2.0 million-sf office property
located in Tempe, AZ that is 96.8% occupied by State Farm through
at least 2032.
Credit Opinion Loan: Two loans, 1000 Wilshire (8.1%) and Aliso
Creek Apartments (7.8%), received investment-grade credit opinions
of BBB-sf* on a stand-alone basis at issuance.
RATING SENSITIVITIES
The Stable Rating Outlooks on all classes reflect sufficient CE,
expected continued amortization and stable performance of the
pool.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- Stable to improved asset performance coupled with pay down
and/or defeasance. Upgrades to the 'Asf' and 'AAsf' categories
would likely occur with significant improvement in CE and/or
defeasance; however, adverse selection, increased
concentrations and further underperformance of the FLOCs or
loans expected to be negatively affected by the coronavirus
pandemic could cause this trend to reverse.
-- Upgrades to the 'BBBsf' category would also take into account
these factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if there were
likelihood for interest shortfalls.
-- Upgrades to the 'Bsf' and 'BBsf' categories are not likely
until the later years in a transaction and only if the
performance of the remaining pool is stable and/or properties
vulnerable to the coronavirus return to pre-pandemic levels,
and there is sufficient CE to the classes.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- An increase in pool level losses from underperforming or
specially serviced loans. Downgrades to the 'AAsf' and 'AAAsf'
categories are not likely due to the position in the capital
structure, but may occur should interest shortfalls occur.
-- Downgrades to the 'BBBsf' and 'Asf' categories would occur
should overall pool losses increase significantly and/or one
or more large loans have an outsized loss, which would erode
CE.
-- Downgrades to the 'Bsf' and 'BBsf' category would occur should
loss expectations increase due to an increase in defaulted
and/or specially serviced loans and continued performance
deterioration of the FLOCs and/or loans vulnerable to the
coronavirus pandemic not stabilize.
In addition to its baseline scenario related to the coronavirus,
Fitch also envisions a downside scenario where the health crisis is
prolonged beyond 2021; should this scenario play out, Fitch expects
further negative rating actions, including additional 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
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-GC40: Fitch Affirms B- Rating on G-RR Certs
------------------------------------------------------------
Fitch Ratings has affirmed 16 classes of GS Mortgage Securities
Trust 2019-GC40 commercial mortgage pass-through certificates,
series 2019-GC40. In addition, Fitch has revised the Rating Outlook
on one class to Negative from Stable.
DEBT RATING PRIOR
---- ------ -----
GSMS 2019-GC40
A-1 36257HBL9 LT AAAsf Affirmed AAAsf
A-2 36257HBM7 LT AAAsf Affirmed AAAsf
A-3 36257HBN5 LT AAAsf Affirmed AAAsf
A-4 36257HBP0 LT AAAsf Affirmed AAAsf
A-AB 36257HBQ8 LT AAAsf Affirmed AAAsf
A-S 36257HBT2 LT AAAsf Affirmed AAAsf
B 36257HBU9 LT AA-sf Affirmed AA-sf
C 36257HBV7 LT A-sf Affirmed A-sf
D 36257HAA4 LT BBBsf Affirmed BBBsf
E 36257HAE6 LT BBB-sf Affirmed BBB-sf
F 36257HAG1 LT BB-sf Affirmed BB-sf
G-RR 36257HAL0 LT B-sf Affirmed B-sf
X-A 36257HBR6 LT AAAsf Affirmed AAAsf
X-B 36257HBS4 LT A-sf Affirmed A-sf
X-D 36257HAC0 LT BBB-sf Affirmed BBB-sf
X-F 36257HAJ5 LT BB-sf Affirmed BB-sf
KEY RATING DRIVERS
Increased Loss Expectations Related to Coronavirus Pandemic: Loss
expectations have increased since issuance, primarily driven by a
greater number of Fitch Loans of Concern (FLOCs) with performance
affected by the slowdown in economic activity related to the
coronavirus pandemic. Fitch's current ratings incorporate a base
case loss of 3.8%. The Negative Outlook on class G-RR reflects
losses that could reach 4.0% when factoring in additional
coronavirus-related stresses.
Four loans (7.4% of the pool) are FLOCs, three of which are secured
by hotels with performance down significantly for YE 2020. One of
these loans was granted forbearance relief in 2020. All have
remained current.
The largest FLOC is Waterford Lakes Towne Center (3.7% of the
pool). The subject is a power center located in a suburban area
11.5 miles east of Downtown Orlando, and is anchored by a Regal
Movie Theater (12.5% of the NRA) and shadow-anchored by a Target.
In-line and anchor store sales were $480 psf and $363 psf,
respectively for YE 2018. The loan transferred to special servicing
in March 2021 for imminent non-monetary default, and the borrower
is reportedly working with the special servicer to cure the loan
default.
The Waterford Lakes Towne Center loan is sponsored by Washington
Prime Group, Inc. (WPG). In May 2021, Fitch Ratings downgraded
Washington Prime Group, Inc.'s Long-Term Issuer Default Rating
(IDR) to 'RD' from 'C', following an indication of a near-term
restructuring event or a potential bankruptcy filing. Fitch's
stressed property value is based on ongoing concerns with retail
performance in conjunction with the sponsor's weakened financial
standing. This treatment contributed to the Negative Outlook on
class G-RR.
Minimal Change to Credit Enhancement: As of the May 2021
distribution date, the Fitch-rated pool's aggregate principal
balance has paid down by .58% to $908.9 million (which excludes the
non-pooled Diamondback Industrial Portfolio 1 & 2 Subordinate
Notes) from $914.2 million at issuance. At issuance, based on the
scheduled balance at maturity, the Fitch-rated pool was expected to
pay down by only 4.9%. No loans are scheduled to mature until 2024.
There are 27 loans (74.8% of the pool) that are interest only for
the full term.
Investment-Grade Credit Opinion Loans: Six loans comprising 32.5%
of the transaction were assigned an investment-grade credit opinion
at issuance. ARC Apartments (3.9% of the pool) received a credit
opinion of 'A-sf*' on a stand-alone basis at issuance. Diamondback
Industrial Portfolio 2 (8.6% of the pool), Moffett Towers II
Building V (6.9% of the pool), 101 California Street (5.5% of the
pool), Newport Corporate Center (5.5% of the pool) and Diamondback
Industrial Portfolio 1 (2.2% of the pool) each received stand-alone
credit opinions of 'BBB-sf*' at issuance.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance, coupled with additional
paydown and/or defeasance. Upgrades to classes B and C could
occur with significant improvement in CE and/or defeasance
and/or the stabilization to the properties impacted from the
coronavirus pandemic.
-- Upgrades to classes D and E would be limited based on
sensitivity to concentrations or the potential for future
concentrations. Classes would not be upgraded above 'Asf' if
there were a likelihood of interest shortfalls.
-- An upgrade to classes F and G-RR is 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 bonds.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool-level losses from underperforming or
specially serviced loans/assets. Downgrades to the classes
rated 'AAAsf' are not considered likely due to the position in
the capital stack, but may occur at 'AAAsf' or 'AA-sf' should
interest shortfalls occur.
-- Downgrades to classes C, D and E are possible should any
additional loan defaults occur. Classes F and G-RR could be
downgraded should the specially serviced loan not resolve or
the other FLOCs fail to re-stabilize to pre-pandemic levels.
-- In addition to its baseline scenario related to the
coronavirus, Fitch also envisions a downside scenario where
the health crisis is prolonged beyond 2021; should this
scenario play out, Fitch expects additional negative rating
actions, including downgrades and/or additional 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.
GS MORTGAGE-BACKED 2021-PJ5: Fitch Gives B+ Rating on Cl. B5 Certs
------------------------------------------------------------------
Fitch Ratings rates the residential mortgage-backed certificates
issued by GS Mortgage-Backed Securities Trust 2021-PJ5 (GSMBS
2021-PJ5).
DEBT RATING PRIOR
---- ------ -----
GSMBS 2021-PJ5
A1 LT AAAsf New Rating AAA(EXP)sf
A10 LT AAAsf New Rating AAA(EXP)sf
A11 LT AAAsf New Rating AAA(EXP)sf
A11X LT AAAsf New Rating AAA(EXP)sf
A12 LT AAAsf New Rating AAA(EXP)sf
A13 LT AAAsf New Rating AAA(EXP)sf
A14 LT AAAsf New Rating AAA(EXP)sf
A2 LT AAAsf New Rating AAA(EXP)sf
A3 LT AA+sf New Rating AA+(EXP)sf
A4 LT AA+sf New Rating AA+(EXP)sf
A5 LT AAAsf New Rating AAA(EXP)sf
A6 LT AAAsf New Rating AAA(EXP)sf
A7 LT AAAsf New Rating AAA(EXP)sf
A7X LT AAAsf New Rating AAA(EXP)sf
A8 LT AAAsf New Rating AAA(EXP)sf
A9 LT AAAsf New Rating AAA(EXP)sf
AIOS LT NRsf New Rating NR(EXP)sf
AR LT NRsf New Rating NR(EXP)sf
AX1 LT AA+sf New Rating AA+(EXP)sf
AX13 LT AAAsf New Rating AAA(EXP)sf
AX2 LT AAAsf New Rating AAA(EXP)sf
AX3 LT AA+sf New Rating AA+(EXP)sf
AX5 LT AAAsf New Rating AAA(EXP)sf
AX9 LT AAAsf New Rating AAA(EXP)sf
B1 LT AAsf New Rating AA(EXP)sf
B2 LT Asf New Rating A(EXP)sf
B3 LT BBBsf New Rating BBB(EXP)sf
B4 LT BBsf New Rating BB(EXP)sf
B5 LT B+sf New Rating B+(EXP)sf
B6 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The certificates are supported by 590 prime jumbo nonconforming
loans with a total balance of approximately $597 million as of the
cut-off date.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The collateral consists of
30-year fixed-rate mortgage (FRM) fully amortizing loans seasoned
approximately three months in aggregate. The borrowers in this pool
have strong credit profiles (766 model FICO) and relatively low
leverage with a 75.1% sustainable loan-to-value ratio (sLTV).
The 100% full documentation collateral is comprised of 100%
nonconforming prime-jumbo loans, while 100% of the loans are safe
harbor qualified mortgages (SHQM). Of the pool, 99.3% are loans for
which the borrower maintains a primary residence, while 0.7% are
for second homes. Additionally, 78% of the loans were originated
through a retail channel.
Shifting-Interest Deal Structure (Mixed): The mortgage cash flow
and loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. While there is
only minimal leakage to the subordinate bonds early in the life of
the transaction, the structure is more vulnerable to defaults
occurring at a later stage compared with a sequential or modified
sequential structure.
To help mitigate tail risk, which arises as the pool seasons and
fewer loans are outstanding, a subordination floor of 1.10% of the
original balance will be maintained for the senior certificates,
and a subordination floor of 1.05% of the original balance will be
maintained for the subordinate certificates. Shellpoint Mortgage
Servicing (SMS) will provide full advancing for the life of the
transaction. While this helps the liquidity of the structure, it
also increases the expected loss due to unpaid servicer advances.
Low Operational Risk (Neutral): Operational risk is well controlled
for this transaction. Goldman Sachs is assessed as an 'Above
Average' aggregator by Fitch due to its robust sourcing strategy
and seller oversight, experienced senior management and staff, and
strong risk management and corporate governance controls. Fitch has
conducted reviews on over 85% of the originators in this
transaction, all of which are considered at least an 'Average'
originator by industry standards. Primary servicing
responsibilities are performed by SMS, rated 'RPS2' by Fitch. Fitch
did not adjust Fitch's expected losses based on these operational
assessments.
Updated Economic Risk Factor (Positive): Consistent with the
additional scenario analysis section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section. Fitch will do this to
remain consistent with significant revisions to Fitch's
macroeconomic baseline scenario, or if actual performance data
indicate the current assumptions require reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of coronavirus vaccines, Fitch reconsidered the
application of the coronavirus-related ERF floors of 2.0 and used
ERF floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf' rating stresses,
respectively.
Fitch's "Global Economic Outlook - March 2021" and related baseline
economic scenario forecasts were revised to 6.2% U.S. GDP growth
for 2021 and 3.3% for 2022 following negative 3.5% GDP growth in
2020. Fitch's U.S. unemployment forecasts for 2021 and 2022 are
5.8% and 4.7%, respectively, down from 8.1% in 2020. These revised
forecasts support Fitch reverting to the 1.5 and 1.0 ERF floors
described in Fitch's "U.S. RMBS Loan Loss Model Criteria." The
lower expected losses in the non-investment grade rating stresses
led to higher ratings for the class B5 compared to prior
transactions.
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. Sensitivity analyses 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 positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
-- This section provides insight into the model-implied
sensitivities the transaction faces when one assumption is
modified, while holding others equal. The modeling process
uses the modification of these variables to reflect asset
performance in up- and down environments. The results should
only be considered as one potential outcome, as the
transaction is exposed to multiple dynamic risk factors and
should not be used as an indicator of possible future
performance.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 40.0% 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.
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).
Third-party due diligence was performed on 100% of the loans in the
transaction.
Due diligence was performed by AMC, Opus, Evolve, and Digital Risk,
which Fitch assesses as Acceptable - Tier 1, Acceptable - Tier 2,
Acceptable - Tier 3, and Acceptable - Tier 2 respectively. The
review scope is consistent with Fitch criteria, and the results are
generally similar to prior prime RMBS transactions.
Credit exceptions were supported by strong mitigating factors, and
compliance exceptions were primarily cured with subsequent
documentation.
DATA ADEQUACY
Fitch relied in its analysis on an independent third-party due
diligence review performed on 100% of the pool. The third-party due
diligence was consistent with Fitch's "U.S. RMBS Rating Criteria."
SitusAMC, Opus, Evolve and Digital Risk 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.
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
Unless otherwise disclosed in this section, the highest level of
Environmental, Social and Corporate Governance (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-BACKED 2021-PJ5: Moody's Rates Cl. B-5 Certs 'B2'
-------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 27
classes of residential mortgage-backed securities issued by GS
Mortgage-Backed Securities Trust (GSMBS) 2021-PJ5. The ratings
range from Aaa (sf) to B2 (sf).
GS Mortgage-Backed Securities Trust 2021-PJ5 (GSMBS 2021-PJ5) is
the fifth prime jumbo transaction in 2021 issued by Goldman Sachs
Mortgage Company (GSMC), the sponsor and the primary mortgage loan
seller. The certificates are backed by 590 prime jumbo
(non-conforming), primarily 30-year, fully-amortizing fixed-rate
mortgage loans with an aggregate stated principal balance
$597,356,778.17 as of the May 1, 2021 cut-off date. Overall, pool
strengths include the high credit quality of the underlying
borrowers, indicated by high FICO scores, strong reserves for prime
jumbo borrowers, mortgage loans with fixed interest rates and no
interest-only loans. As of the cut-off date, all of the mortgage
loans are current and no borrower has entered into a COVID-19
related forbearance plan with the servicer.
GSMC is a wholly owned subsidiary of Goldman Sachs Bank USA and
Goldman Sachs. The mortgage loans for this transaction were
acquired by GSMC, the sponsor and the primary mortgage loan seller
(97.93% by UPB), and MTGLQ Investors, L.P. (MTGLQ) (2.07% by UPB),
a mortgage loan seller, from certain of the originators or the
aggregator, MAXEX Clearing LLC (which aggregated 11.86% of the
mortgage loans by UPB).
NewRez LLC (formerly known as New Penn Financial, LLC) d/b/a
Shellpoint Mortgage Servicing (Shellpoint) will service 100% of the
pool. Wells Fargo Bank, N.A. (Wells Fargo, long term deposit, Aa1;
long term debt Aa2) will be the master servicer and securities
administrator. U.S. Bank Trust National Association will be the
trustee. Pentalpha Surveillance LLC will be the representations and
warranties (R&W) breach reviewer.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. In addition, Moody's
adjusted Moody's losses based on qualitative attributes, including
origination quality, the strength of the R&W framework and
third-party review (TPR) results.
Distributions of principal and interest and loss allocations are
based on a typical shifting interest structure with a five-year
lockout period that benefits from a senior and subordination floor.
Moody's coded the cash flow to each of the certificate classes
using Moody's proprietary cash flow tool.
Issuer: GS Mortgage-Backed Securities Trust 2021-PJ5
Cl. A-1, Assigned Aaa (sf)
Cl. A-2, Assigned Aaa (sf)
Cl. A-3, Assigned Aa1 (sf)
Cl. A-4, Assigned Aa1 (sf)
Cl. A-5, Assigned Aaa (sf)
Cl. A-6, Assigned Aaa (sf)
Cl. A-7, Assigned Aaa (sf)
Cl. A-8, Assigned Aaa (sf)
Cl. A-9, Assigned Aaa (sf)
Cl. A-10, Assigned Aaa (sf)
Cl. A-11, Assigned Aaa (sf)
Cl. A-12, Assigned Aaa (sf)
Cl. A-13, Assigned Aaa (sf)
Cl. A-14, Assigned Aaa (sf)
Cl. A-X-1*, Assigned Aa1 (sf)
Cl. A-X-2*, Assigned Aaa (sf)
Cl. A-X-3*, Assigned Aa1 (sf)
Cl. A-X-5*, Assigned Aaa (sf)
Cl. A-7-X*, Assigned Aaa (sf)
Cl. A-X-9*, Assigned Aaa (sf)
Cl. A-11-X*, Assigned Aaa (sf)
Cl. A-X-13*, Assigned Aaa (sf)
Cl. B-1, Assigned Aa3 (sf)
Cl. B-2, Assigned A1 (sf)
Cl. B-3, Assigned Baa2 (sf)
Cl. B-4, Assigned Ba2 (sf)
Cl. B-5, Assigned B2 (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
0.36%, in a baseline scenario-median is 0.19%, and reaches 3.84% at
stress level consistent with Moody's Aaa rating.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's increased its model-derived median expected losses by 10%
(6.6% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any mortgage loans to borrowers who are not currently
making payments. For newly originated mortgage loans, post-COVID
underwriting takes into account the impact of the pandemic on a
borrower's ability to repay the mortgage. For seasoned mortgage
loans, as time passes, the likelihood that borrowers who have
continued to make payments throughout the pandemic will now become
non-cash flowing due to COVID-19 continues to decline.
Moody's base its 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, strength of the TPR and the R&W framework of the
transaction.
Collateral Description
Moody's assessed the collateral pool as of May 1, 2021, the cut-off
date. The mortgage loans consist of conventional, fully amortizing,
first lien residential mortgage loans, none of which have the
benefit of primary mortgage guaranty insurance. The aggregate
collateral pool as of the cut-off date consists of 590 prime jumbo
mortgage loans with an aggregate unpaid principal balance (UPB) of
$597,356,778.17 and a weighted average (WA) mortgage rate of 2.9%.
The WA current FICO score of the borrowers in the pool is 771. The
WA Original LTV ratio of the mortgage pool is 69.3%, which is in
line with GSMBS 2021-PJ4 and also with other prime jumbo
transactions. All the loans are subject to the Qualified Mortgage
(QM) rule. The other characteristics of the mortgage loans in the
pool are generally comparable to that of GSMBS 2021-PJ4 and recent
prime jumbo transactions.
The mortgage loans in the pool were originated mostly in California
(49.4%) and in high cost metropolitan statistical areas (MSAs) of
Los Angeles (18.6%), San Francisco (13.5%), Chicago (7.3%), San
Diego (5.9%) and others (27.5%), by UPB, respectively. The high
geographic concentration in high cost MSAs is reflected in the high
average balance of the pool ($$1,012,469). Moody's made adjustments
to Moody's losses to account for this geographic concentration
risk. Top 10 MSAs comprise 67.2% of the pool, by UPB.
Aggregator/Origination Quality
GSMC is the loan aggregator and the primary mortgage seller for the
transaction. GSMC's general partner is Goldman Sachs Real Estate
Funding Corp. and its limited partner is Goldman Sachs Bank USA.
Goldman Sachs Real Estate Funding Corp. is a wholly owned
subsidiary of Goldman Sachs Bank USA. GSMC is an affiliate of
Goldman Sachs & Co. LLC. GSMC is overseen by the mortgage capital
markets group within Goldman Sachs. Senior management averages 16
years of mortgage experience and 15 years of Goldman Sachs tenure.
The mortgage loans for this transaction were acquired by GSMC, the
sponsor and a mortgage loan seller (97.93% by UPB), and MTGLQ
Investors, L.P. (MTGLQ) (2.07% by UPB), a mortgage loan seller,
from certain of the originators or the aggregator, MAXEX Clearing
LLC (11.86% by UPB, in total). The mortgage loan sellers do not
originate any mortgage loans, including the mortgage loans included
in the mortgage pool. Instead, the mortgage loan sellers acquired
the mortgage loans pursuant to contracts with the originators or
the aggregator.
Overall, Moody's consider GSMC's aggregation platform to be
comparable to that of peer aggregators and therefore did not apply
a separate loss-level adjustment for aggregation quality. In
addition to reviewing GSMC as an aggregator, Moody's have also
reviewed each of the originators which contributed at least 10% of
the mortgage loans (by UPB) to the transaction. For these
originators, Moody's reviewed their underwriting guidelines,
performance history, and quality control and audit processes and
procedures (to the extent available, respectively). As such,
approximately 19.7% and 11.9% of the mortgage loans, by UPB as of
the cut-off date, were originated by CrossCountry Mortgage, LLC
(CrossCountry) and aggregated by Maxex Clearing, LLC, respectively.
In addition, approximately 23%, 4.7% and 1.1% of the mortgage
loans, by UPB as of the cut-off date (44.9% by UPB, in total), were
originated by Guaranteed Rate, Inc. (GRI), Guaranteed Rate
Affinity, LLC (GRA) and Proper Rate, LLC (collectively, the
Guaranteed Rate Parties), respectively. The Guaranteed Rate Parties
are affiliates. No other originator or group of affiliated
originators originated more than 10% of the mortgage loans in the
aggregate.
Because Moody's consider CrossCountry and Guaranteed Rate Parties
to have adequate residential prime jumbo loan origination practices
and to be in line with peers due to: (1) adequate underwriting
policies and procedures, (2) consistent performance with low
delinquency and repurchase and (3) adequate quality control,
Moody's did not make any adjustments to Moody's loss levels for
mortgage loans originated by these parties.
Servicing Arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate, and as a result Moody's did not make any adjustments
to Moody's base case and Aaa stress loss assumptions based on the
servicing arrangement.
Shellpoint will be the named primary servicer for this transaction
and will service 100% of the pool. Shellpoint is an approved
servicer in good standing with Ginnie Mae, Fannie Mae and Freddie
Mac. Shellpoint's primary servicing location is in Greenville,
South Carolina. Shellpoint services residential mortgage assets for
investors that include banks, financial services companies, GSEs
and government agencies. Wells Fargo will act as master servicer.
Wells Fargo is a national banking association and a wholly-owned
subsidiary of Wells Fargo & Company. Moody's consider the presence
of an experienced master servicer such as Wells Fargo to be a
mitigant for any servicing disruptions. Wells Fargo is committed to
act as successor servicer if no other successor servicer can be
engaged.
Third-party Review
The transaction benefits from TPR on 100% of the mortgage loans for
regulatory compliance, credit and property valuation. The due
diligence results confirm compliance with the originators'
underwriting guidelines for the vast majority of mortgage loans, no
material compliance issues, and no material valuation defects. The
mortgage loans that had exceptions to the originators' underwriting
guidelines had significant compensating factors that were
documented.
Representations & Warranties
GSMBS 2021-PJ5's R&W framework is in line with that of prior GSMBS
transactions Moody's have rated where an independent reviewer is
named at closing, and costs and manner of review are clearly
outlined at issuance. Moody's review of the R&W framework takes
into account the financial strength of the R&W providers, scope of
R&Ws (including qualifiers and sunsets) and the R&W enforcement
mechanism. The loan-level R&Ws meet or exceed the baseline set of
credit-neutral R&Ws Moody's have identified for US RMBS. R&W
breaches are evaluated by an independent third-party using a set of
objective criteria. The transaction requires mandatory independent
reviews of mortgage loans that become 120 days delinquent and those
that liquidate at a loss to determine if any of the R&Ws are
breached. There is a provision for binding arbitration in the event
of a dispute between the trust and the R&W provider concerning R&W
breaches.
The creditworthiness of the R&W provider determines the probability
that the R&W provider will be available and have the financial
strength to repurchase defective loans upon identifying a breach.
An investment-grade rated R&W provider lends substantial strength
to its R&Ws. Moody's analyze the impact of less creditworthy R&W
providers case by case, in conjunction with other aspects of the
transaction. Here, because most of the R&W providers are unrated
and/or exhibit limited financial flexibility, Moody's applied an
adjustment to the mortgage loans for which these entities provided
R&Ws.
Tail Risk and Locked Out Percentage
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
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 1.10% of the cut-off date pool
balance, and as subordination lock-out amount of 1.05% of the
cut-off date pool balance. The floors are consistent with the
credit neutral floors for the assigned ratings according to Moody's
methodology.
COVID-19 Impacted Borrowers
As of the cut-off date, none of the mortgage loans had previously
been, but no longer were, subject to a COVID-19 related forbearance
plan.
In the event the servicer enters into a forbearance plan with a
COVID-19 impacted borrower, the servicer will report such mortgage
loan as delinquent (to the extent payments are not actually
received from the borrower) and the servicer will be required to
make advances in respect of delinquent interest and principal (as
well as servicing advances) on such loan during the forbearance
period (unless the servicer determines any such advances would be a
nonrecoverable advance). At the end of the forbearance period, if
the borrower is able to make the current payment on such mortgage
loan but is unable to make the previously forborne payments as a
lump sum payment or as part of a repayment plan, then such
principal forbearance amount will be recognized as a realized loss.
At the end of the forbearance period, if the borrower repays the
forborne payments via a lump sum or repayment plan, advances will
be recovered via the borrower payment(s). In an event of
modification, Shellpoint will recover advances made during the
period of COVID-19 related forbearance from pool level
collections.
Any principal forbearance amount created in connection with any
modification (whether as a result of a COVID-19 forbearance or
otherwise) will result in the allocation of a realized loss and to
the extent any such amount is later recovered, will result in the
allocation of a subsequent recovery.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in April 2020.
GUGGENHEIM PRIVATE: Fitch Affirms B Rating on 6 Note Classes
------------------------------------------------------------
Fitch Ratings has affirmed all rated notes issued by Guggenheim
Private Debt Fund Note Issuer 2.0, LLC (Guggenheim PDFNI 2.0, the
issuer). The notes were removed from Rating Watch Evolving (RWE)
and assigned Stable Outlooks.
The ratings were placed on RWE in December 2020 due to the issuer's
hedging strategy of its foreign currency exposure through forward
currency contracts that require two-way margin collateral posting
funded by principal collections and settlement at contracts'
expiration funded from interest collections, both of which are not
always subject to payment date waterfalls.
The issuer has since implemented a hedge reserve account that, in
Fitch's view, mitigates risks stemming from the hedging strategy of
the issuer's foreign currency exposure.
DEBT RATING PRIOR
---- ------ -----
Guggenheim Private Debt Fund Note Issuer 2.0, LLC
A Notes, Series A-1 40168PAA6 LT A-sf Affirmed A-sf
A Notes, Series A-2 40168PAB4 LT A-sf Affirmed A-sf
A Notes, Series A-3 40168PAC2 LT A-sf Affirmed A-sf
A Notes, Series A-4 40168PAD0 LT A-sf Affirmed A-sf
A Notes, Series A-5 40168PAE8 LT A-sf Affirmed A-sf
A Notes, Series A-6 40168PAF5 LT A-sf Affirmed A-sf
B Notes, Series B-1 40168PAH1 LT BBB-sf Affirmed BBB-sf
B Notes, Series B-2 40168PAJ7 LT BBB-sf Affirmed BBB-sf
B Notes, Series B-3 40168PAK4 LT BBB-sf Affirmed BBB-sf
B Notes, Series B-4 40168PAL2 LT BBB-sf Affirmed BBB-sf
B Notes, Series B-5 40168PAM0 LT BBB-sf Affirmed BBB-sf
B Notes, Series B-6 40168PAN8 LT BBB-sf Affirmed BBB-sf
C Notes, Series C-1 40168PAQ1 LT BBsf Affirmed BBsf
C Notes, Series C-2 40168PAR9 LT BBsf Affirmed BBsf
C Notes, Series C-3 40168PAS7 LT BBsf Affirmed BBsf
C Notes, Series C-4 40168PAT5 LT BBsf Affirmed BBsf
C Notes, Series C-5 40168PAU2 LT BBsf Affirmed BBsf
C Notes, Series C-6 40168PAV0 LT BBsf Affirmed BBsf
D Notes, Series D-1 40168PAX6 LT Bsf Affirmed Bsf
D Notes, Series D-2 40168PAY4 LT Bsf Affirmed Bsf
D Notes, Series D-3 40168PAZ1 LT Bsf Affirmed Bsf
D Notes, Series D-4 40168PBA5 LT Bsf Affirmed Bsf
D Notes, Series D-5 40168PBB3 LT Bsf Affirmed Bsf
D Notes, Series D-6 40168PBC1 LT Bsf Affirmed Bsf
TRANSACTION SUMMARY
Guggenheim PDFNI 2.0 is a U.S. collateralized loan obligation (CLO)
backed by a portfolio of middle-market private debt instruments
(PDIs) and managed by Guggenheim Partners Investment Management,
LLC (GPIM). The CLO originally closed in April 2016, with investors
funding the capital structure through six separate funding dates,
and became fully drawn in September 2017.
Each class of rated notes consists of six series, or sub-classes,
of notes issued on each funding date that share the same seniority
and are pari-passu with each other in interest and principal
payments. The CLO exited its reinvestment period in April 2020.
For purposes of this commentary, references made to a specific
class of notes shall include all series of notes in the class
(e.g., class A notes shall refer to the class A Series A-1, A-2,
A-3, A-4, A-5 and A-6 notes collectively).
KEY RATING DRIVERS
FX Exposure, Portfolio Management and Composition
GPIM implemented a hedge reserve account in which amounts on
deposit will be solely available to pay hedge related expenses
until FX exposure has been reduced to $0. Approximately 8.1% of the
portfolio consists of Pound sterling-denominated assets, down from
8.5% at the last rating action in December 2020. The amount in the
reserve currently totals $10.5 million, which Fitch believes is
sufficient to mitigate liquidity risks from collateral posting
requirements and settlement payments associated with the hedging
strategy for the portfolio's current FX exposure.
The modelled portfolio remains highly concentrated with 28 issuers,
with the top 10 comprising approximately 62%. Due to concentration
risks of the portfolio and optionality surrounding how the hedge
reserve account funds will be managed, relative to the portfolio's
changing FX exposure, Fitch did not upgrade the notes to the model
implied ratings, as detailed below, and affirmed the notes at their
current ratings levels.
The notes were assigned Stable Rating Outlooks to reflect Fitch's
expectation that the notes have sufficient levels of credit
protection to withstand potential deterioration in portfolio credit
quality but will not likely be upgraded while FX exposure remains
in the amortizing portfolio.
Cash Flow Analysis
Fitch's cash flow analysis shows notes performing above current
rating levels in scenarios where credit is given to funds in the
hedge reserve account and used to pay for additional administrative
expenses that may accrue from the issuer's hedging strategy.
The results of the cash flow analysis under this base case scenario
show that the model-implied rating (MIR) is four notches higher
than the current rating for the class A notes, five notches higher
for the class B notes, and seven notches higher for the class C and
class D notes.
Due to optionality surrounding how the hedge reserve account funds
will be managed, relative to the portfolio's changing FX exposure,
Fitch also analyzed a downside sensitivity scenario in which no
credit was given to the hedge reserve account. In the sensitivity
scenario, the class A notes fail to make timely interest payments
under their current rating stress in certain front-default timing
scenarios when the Pound sterling appreciates relative to the U.S.
dollar in accordance with Category 3 stress assumptions described
in Fitch's Foreign Currency Stress Assumptions for Residual
Foreign-Exchange Exposures in Covered Bonds and Structured
Finance.
Fitch will continue to monitor the transaction and the management
of the portfolio's FX exposure, the funding of the reserve amounts,
and will update the analysis as necessary. For more details on the
issuer's FX hedging strategy, refer to the rating action commentary
titled "Fitch Places Guggenheim Private Debt Fund Note Issuer 2.0,
LLC on Rating Watch Evolving", dated December 9, 2020.
Asset Credit Quality and Asset Security
Credit enhancement (CE) levels for the notes have increased since
the last review in December 2020. The increased CE levels for class
C and D notes were driven by excess spread used to partially redeem
outstanding class C and D note balances on each payment date and
overall increase in CE levels were further driven by the full
repayment of the leverage tranche and amortization of the class A
notes after the CLO exited the reinvestment period. Approximately
39% of the original aggregate notional amount of the class A notes
have amortized as of the April 2021 trustee report.
For this review, Fitch excluded qualifying preferred items,
non-ratable items, and payment-in-kind (PIK) par amounts for the
portfolio analysis. The portfolio's exposure to assets 'CCC'
category and below (excluding defaults and nonrated assets)
increased to 21.2% from 16.9% at last review in December 2020. The
Fitch-weighted average rating factor (WARF) is 50 (B-/CCC+) under
standard assumptions. The Fitch-weighted average recovery rate is
approximately 62%, and the Fitch-calculated weighted average spread
is approximately 6.4%. Defaults and permitted deferrable exposures
are 2.2% and 10.7%, respectively.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- It is possible for the ratings to be upgraded if non-U.S.
dollar exposure is eliminated in the transaction. It is also
possible that ratings on the class A notes could be subject to
a rating cap at the current rating if unhedged FX exposure
remains residual in the portfolio and if Fitch views the level
of tail-end risks to be incompatible with higher investment
grade ratings for the class A notes, further limiting upgrades
on the other classes of notes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades of the CLO notes and possible withdrawal of the
ratings could occur if funds held in the hedge reserve account
are no longer considered adequate relative to the size of
outstanding FX exposure or if FX exposure continues to grow as
a percentage of the portfolio, which could deem market value
risk as excessive and no longer appropriate to maintain credit
ratings.
-- Downgrades may also occur if realized and projected losses of
the portfolio are higher than what was assumed at the last
Fitch Stressed Portfolio analysis used to assign ratings (at
the last funding date) and are not offset by the increase in
the CLO notes' CE levels.
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
The cash flow analysis applied three criteria variations from
Fitch's criteria. Fitch's Foreign Currency Stress Assumptions for
Residual Foreign-Exchange Exposures in Covered Bonds and Structured
Finance does not include stress assumptions for the GBP/USD
currency pair. Fitch applied High Investment Grade (High IG), Low
Investment Grade (Low IG) and Below Investment Grade (BIG) stress
levels associated with Category 3 assumptions as a proxy for the
GBP/USD stresses, which is considered a criteria variation.
The Category 3 assumptions are typically used for the EUR/USD
currency pair and are considered appropriate for this analysis due
to past performance of the GBP/USD currency pair and the close
trade-link between the UK and the EU. Fitch had previously applied
the Category 4 stress in December 2020 as the most conservative of
the four categories in light of uncertainty on the impact of a
Brexit event. However, post-Brexit, Fitch believes the economic
rationale still holds to apply Category 3 assumptions, as Fitch
still expects economic proximity between the EU and the UK to be a
determining factor on a forward-looking basis.
In addition, Fitch's CLOs and Corporate CDOs Rating Criteria does
not include assumptions for the interest rate differential cap
between UK pound Libor and USD Libor. Fitch assumed a 6% interest
rate differential cap between UK pound Libor and USD Libor, which
is the same differential applied between UK pound Libor and Euribor
in Fitch's CLOs and Corporate CDOs Rating Criteria. The variation
is based on historical data spanning the last 35 years, which
showed that the interest rate differential did not exceed 6% over a
3.5-year period (the approximate max WAL of the transaction). Fitch
viewed that the 6% interest rate differential cap would be
commensurate for an 'A' rating category stress.
There is no measurable rating impact on the rated notes from these
variations since Fitch's criteria does not address these
assumptions. Further information can be found in Fitch's CLO and
Corporate CDOs Rating Criteria report and the Foreign-Currency
Stress Assumptions for Residual Foreign-Exchange Exposures in
Covered Bonds and Structured Finance - Supplementary Data File,
available on Fitch's website.
Additionally, the cash flow modelling results under base case
assumptions show that the model-implied ratings (MIRs) for all
classes of notes are more than three notches higher than the
assigned ratings. This is also a variation from the CLOs and
Corporate CDOs Rating Criteria, which stipulates no larger than a
three-notch deviation between assigned and model-implied ratings
for surveillance reviews. The rating impact from this criteria
variation is one notch for the class A notes, two notches for the
class B notes, and four notches for the class C and class D notes.
GULF STREAM 4: S&P Assigns BB- (sf) Rating on Class E Notes
-----------------------------------------------------------
S&P Global Ratings assigned its ratings to Gulf Stream Meridian 4
Ltd./Gulf Stream Meridian 4 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 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.
Ratings Assigned
Gulf Stream Meridian 4 Ltd./Gulf Stream Meridian 4 LLC
Class A-1, $307.50 million: AAA (sf)
Class A-2, $62.50 million: AA (sf)
Class B (deferrable), $40.00 million: A (sf)
Class C (deferrable), $30.00 million: BBB- (sf)
Class D (deferrable), $18.65 million: BB- (sf)
Subordinated notes, $40.75 million: Not rated
HALCYON LOAN 2015-2: Moody's Lowers Rating on Class E Notes to Caa3
-------------------------------------------------------------------
Moody's Investors Service downgraded the rating on the following
notes issued by Halcyon Loan Advisors Funding 2015-2 Ltd.:
US$26,000,000 Class E Secured Deferrable Floating Rate Notes due
2027 (current outstanding balance of $27,754,300) (the "Class E
Notes"), Downgraded to Caa3 (sf); previously on August 19, 2020
Downgraded to Caa1 (sf)
Moody's also upgraded the rating on the following notes:
US$28,750,000 Class C-R Secured Deferrable Floating Rate Notes due
2027 (the "Class C-R Notes"), Upgraded to Aa1 (sf); previously on
October 25, 2018 Assigned A1 (sf)
Halcyon Loan Advisors Funding 2015-2 Ltd., originally issued in
June 2015 and partially refinanced in October 2018, is a managed
cashflow CLO. The notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. The
transaction's reinvestment period ended in July 2019.
RATINGS RATIONALE
The downgrade on the Class E Notes reflects the specific risks to
the junior notes posed by par loss and credit deterioration
observed in the underlying CLO portfolio. Based on the trustee's
April 2021 report, the OC ratio for the Class E Notes is reported
[1] at 97.34% versus 99.50% in the trustee's July 2020 report [2].
The upgrade on the Class C-R Notes is primarily a result of
deleveraging of the senior notes. The Class A-R Notes have been
paid down by approximately 65% or $115.6 million since July 2020.
Based on the trustee's April 2021 report [3], the OC ratio for the
Class C-R Notes is reported at 126.67% versus 120.60% in the
trustee's July 2020 report [4].
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and 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: $205,106,334
Defaulted par: $10,136,022
Diversity Score: 47
Weighted Average Rating Factor (WARF): 3188
Weighted Average Spread (WAS) (before accounting for LIBOR floors):
3.66%
Weighted Average Recovery Rate (WARR): 46.5%
Weighted Average Life (WAL): 3.3 years
Par haircut in OC tests and interest diversion test: 2.6%
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; 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 pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in the US economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology Used for 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.
HGI CRE 2021-FL1: DBRS Finalizes B(low) Rating on Class G Notes
---------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by HGI CRE CLO 2021-FL1, Ltd:
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
The initial collateral includes 23 mortgage loans or senior notes,
consisting of 10 whole loans and 13 fully funded senior, senior
pari passu, or pari passu participations secured by multifamily
real estate properties with an initial cut-off date balance
totaling $498.2 million. All 23 of the mortgages have floating
interest rates tied to the Libor index. The transaction is a
managed vehicle, which includes a ramp-up acquisition period and
subsequent 18-month reinvestment period. The ramp-up acquisition
period will be used to increase the trust balance by $60.0 million
to an aggregate deal balance of $558.2 million. DBRS Morningstar
assessed the $60.0 million ramp component using a conservative pool
construct, and, as a result, the ramp loans have expected losses
(E/Ls) above the weighted-average pool E/L. During the reinvestment
period, so long as the note protection tests are satisfied and no
event of default has occurred and is continuing, the collateral
manager may direct the reinvestment of principal proceeds to
acquire reinvestment collateral interest, including funded
companion participations that meet the eligibility criteria. The
eligibility criteria, among other things, has minimum debt service
coverage ratio (DSCR), loan-to-value ratio (LTV), and loan size
limitations. Lastly, the eligibility criteria stipulates Rating
Agency Confirmations on ramp loans, reinvestment loans, and a $1.0
million threshold on pari passu participation acquisitions if a
portion of the underlying loan is already included in the pool,
thereby allowing DBRS Morningstar to review the new collateral
interest and any potential impacts to the overall ratings.
For the floating-rate loans, DBRS Morningstar used the one-month
Libor index, which is based on the lower of a DBRS Morningstar
stressed rate that corresponded to the remaining fully extended
term of the loans or the strike price of the interest rate cap with
the respective contractual loan spread added to determine a
stressed interest rate over the loan term. When the cut-off
balances were measured against the DBRS Morningstar As-Is Net Cash
Flow (NCF), 21 loans, representing 92.6% of the initial pool
balance, had a DBRS Morningstar As-Is DSCR of 1.00 times (x) or
below, a threshold indicative of default risk. Additionally, 15
loans, representing 66.1% of the initial pool balance, had a DBRS
Morningstar Stabilized DSCR of 1.00x or below, which is indicative
of elevated refinance risk. Most properties are transitioning with
potential upside in cash flow; however, DBRS Morningstar does not
give full credit to the stabilization if there are no holdbacks or
if the other loan structural features are insufficient to support
such treatment. Furthermore, even with the structure provided, DBRS
Morningstar generally does not assume the assets to stabilize above
current market levels.
The transaction will have a sequential-pay structure.
All loans in the total pool are secured by multifamily properties
across 11 states including California, Texas, Florida, and New
Jersey. Multifamily properties have historically seen lower
probability of default (POD) and typically see lower E/Ls within
the DBRS Morningstar model. Multifamily properties benefit from
staggered lease rollover and generally low expense ratios compared
with other property types. While revenue is quick to decline in a
downturn because of the short-term nature of the leases, it is also
quick to respond when the market improves. Additionally, most loans
in the pool are secured by traditional multifamily properties, such
as garden-style communities or midrise/high-rise buildings, with no
independent living/assisted-living/memory care facilities included
in this pool.
Eighteen loans, composing of 73.4% of the initial trust balance,
represent acquisition financing wherein sponsors contributed
significant cash equity as a source of initial funding in
conjunction with the mortgage loan, resulting in a moderately high
sponsor cost basis in the underlying collateral.
Lower Business Plan Execution Risk: The business plan score (BPS)
for loans DBRS Morningstar analyzed was between 1.38 and 3.00, with
an average of 2.26. On a scale of 1 to 5, a higher DBRS Morningstar
BPS indicates more risk in the sponsor's business plan. DBRS
Morningstar considers the anticipated lift at the property from
current performance, planned property improvements, sponsor
experience, projected time horizon, and overall complexity.
Compared with similar transactions, this pool has a lower average
BPS, which is indicative of lower risk.
The ongoing Coronavirus Disease (COVID-19) pandemic continues to
pose challenges and risks to the commercial real estate (CRE)
sector, and while DBRS Morningstar expects multifamily (100.0% of
the pool) to fare better than most other property types, the
long-term effects on the general economy and consumer sentiment are
still unclear. DBRS Morningstar received coronavirus and business
plan updates for all loans in the pool, confirming that the
sponsors have made all debt service payments in full through March
2021. Furthermore, no loans are in forbearance or other debt
service relief, and no borrowers requested loan modifications. All
loans in the pool have been originated after March 2020, or the
beginning of the pandemic in the U.S. Loans originated after the
pandemic include timely property performance reports and recently
completed third-party reports, including appraisals.
The sponsor for the transaction, HGI CFI REIT, is a first-time CRE
collateralized loan obligation issuer and collateral manager. HGI
CFI REIT will purchase and retain 100.0% of the eligible horizontal
residual interest in accordance with the U.S. Credit Risk Retention
Rules. DBRS Morningstar met with the sponsor to better understand
its investment strategy, organization structure, and origination
practices. Based on this meeting, DBRS Morningstar found that HGI
CFI REIT met its issuer standards.
The transaction is managed and includes three delayed-close loans,
a ramp-up component, a reinvestment period, and a replenishment
period, which could result in negative credit migration and/or an
increased concentration profile over the life of the transaction.
Eligibility criteria for ramp and reinvestment assets partially
offsets the risk of negative credit migration. The criteria
outlines DSCR, LTV, Herfindahl, and property type limitations. DBRS
Morningstar can provide a no-downgrade confirmation for new ramp
loans, companion participations above $1.0 million, and new
reinvestment loans. Before the loans come into the pool, DBRS
Morningstar will analyze them for any potential ratings impact.
DBRS Morningstar accounted for the uncertainty introduced by the
ramp-up period by running a ramp scenario that simulates the
potential negative credit migration in the transaction based on the
eligibility criteria.
Transitional Properties: DBRS Morningstar has analyzed the loans to
a stabilized cash flow that is, in some instances, above the as-is
cash flow. It is possible that the sponsors will not successfully
execute their business plans and that the higher stabilized cash
flow will not materialize during the loan term, particularly with
the ongoing coronavirus pandemic and its impact on the overall
economy. A sponsor's failure to execute the business plan could
result in a term default or the inability to refinance the fully
funded loan balance. DBRS Morningstar made relatively conservative
stabilization assumptions and, in each instance, considered the
business plan to be rational and the loan structure to be
sufficient to execute such plans. In addition, DBRS Morningstar
analyzed loss severity given default based on the as-is credit
metrics, assuming the loan was fully funded with no NCF or value
upside.
Because of the ongoing coronavirus pandemic, DBRS Morningstar was
only able to perform site inspections on two loan in the pool,
Transit Village and Park Terrace. As a result, DBRS Morningstar
relied more heavily on third-party reports, online data sources,
and information from the Issuer to determine the overall DBRS
Morningstar property quality score for each loan. DBRS Morningstar
made relatively conservative property quality adjustments with only
three loans, Cobalt Apartments (2.9% of the pool), Avery Pompano
Beach (5.9% of pool), and Harper Place ( 5.6% of pool), having
Average + property quality. Furthermore, no loans received an
Excellent or Above Average property quality distinction, and three
loans, representing 14.1% of the pool, had Average - property
quality.
All 23 loans in the pool, have floating interest rates and are
interest only during the initial loan term, creating interest rate
risk should interest rates increase. For the floating-rate loans,
DBRS Morningstar used the one-month Libor index, which is based on
the lower of a DBRS Morningstar stressed rate that corresponded to
the remaining fully extended term of the loans or the strike price
of the interest rate cap with the respective contractual loan
spread added to determine a stressed interest rate over the loan
term. Additionally, all loans have extension options, and, to
qualify for these options, the loans must meet minimum DSCR and LTV
requirements. All loans are short term and, even with extension
options, have a fully extended loan term of five years maximum,
which based on historical data DBRS Morningstar model treats more
punitively. The borrowers for eight loans, totaling 24.5% of the
trust balance, have purchased Libor rate caps that range between
0.50% and 2.00% to protect against rising interest rates over the
term of the loan.
Three loans, representing 22.1% of the initial cut-off pool
balance, have a sponsor with negative credit history and/or limited
financial wherewithal, including Transit Village (Prospectus ID#2),
Riverdale Portfolio 2 (Prospectus ID#3), and Harper Place
(Prospectus ID#7). For more information about these loans, see the
individual write-ups on pages 20, 25, and 31, respectively. DBRS
Morningstar deemed these loans to have Weak sponsorship strength,
effectively increasing the POD for each loan.
Notes: All figures are in U.S dollars unless otherwise noted.
HUNDRED ACRE 2021-INV1: Moody's Assigns (P)B2 Rating to B5 Certs
----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to
fifty-seven classes of residential mortgage-backed securities
(RMBS) issued by Hundred Acre Wood Trust 2021-INV1 (HAWT
2021-INV1). The ratings range from (P)Aaa (sf) to (P)B2 (sf).
Hundred Acre Wood Trust 2021-INV1 (HAWT 2021-INV1) is the first
issue from Finance of America Mortgage LLC in 2021 backed by
investor properties and second home loans. Finance of America
Mortgage LLC (FAM) is the sponsor of the transaction.
HAWT 2021-INV1 is a securitization of GSE eligible first-lien
investment property and second homes mortgage loans. 100.0% of the
pool by loan balance were originated by Finance of America
Mortgage, LLC. All the loans are underwritten in accordance with
Freddie Mac or Fannie Mae guidelines, which take into
consideration, among other factors, the income, assets, employment
and credit score of the borrower as well as loan-to-value (LTV).
These loans were run through one of the government-sponsored
enterprises' (GSE) automated underwriting systems (AUS) and
received an "Approve" or "Accept" recommendation.
In this transaction, the Class A-11 notes' coupon is indexed to
SOFR. In addition, the coupon on Class A-11X is also impacted by
changes in SOFR. However, based on the transaction's structure, the
particular choice of benchmark has no credit impact. First,
interest payments to the notes, including the floating rate notes,
are subject to the net WAC cap, which prevents the floating rate
notes from incurring interest shortfalls as a result of increases
in the benchmark index above the fixed rates at which the assets
bear interest. Second, the shifting-interest structure pays all
interest generated on the assets to the bonds and does not provide
for any excess spread.
Issuer: Hundred Acre Wood Trust 2021-INV1
Cl. A1, Assigned (P)Aaa (sf)
Cl. A2, Assigned (P)Aaa (sf)
Cl. A3, Assigned (P)Aaa (sf)
Cl. A4, Assigned (P)Aaa (sf)
Cl. A5, Assigned (P)Aaa (sf)
Cl. A6, Assigned (P)Aaa (sf)
Cl. A7, Assigned (P)Aaa (sf)
Cl. A8, Assigned (P)Aaa (sf)
Cl. A9, Assigned (P)Aaa (sf)
Cl. A10, Assigned (P)Aaa (sf)
Cl. A11, Assigned (P)Aaa (sf)
Cl. A11X*, Assigned (P)Aaa (sf)
Cl. A12, Assigned (P)Aaa (sf)
Cl. A13, Assigned (P)Aaa (sf)
Cl. A14, Assigned (P)Aaa (sf)
Cl. A15, Assigned (P)Aaa (sf)
Cl. A16, Assigned (P)Aaa (sf)
Cl. A17, Assigned (P)Aaa (sf)
Cl. A18, Assigned (P)Aaa (sf)
Cl. A19, Assigned (P)Aaa (sf)
Cl. A20, Assigned (P)Aaa (sf)
Cl. A21, Assigned (P)Aaa (sf)
Cl. A22, Assigned (P)Aaa (sf)
Cl. A23, Assigned (P)Aaa (sf)
Cl. A24, Assigned (P)Aaa (sf)
Cl. A25, Assigned (P)Aaa (sf)
Cl. A26, Assigned (P)Aa1 (sf)
Cl. A27, Assigned (P)Aa1 (sf)
Cl. A28, Assigned (P)Aa1 (sf)
Cl. A29, Assigned (P)Aaa (sf)
Cl. A30, Assigned (P)Aaa (sf)
Cl. A31, Assigned (P)Aaa (sf)
Cl. AX1*, Assigned (P)Aaa (sf)
Cl. AX4*, Assigned (P)Aaa (sf)
Cl. AX5*, Assigned (P)Aaa (sf)
Cl. AX6*, Assigned (P)Aaa (sf)
Cl. AX8*, Assigned (P)Aaa (sf)
Cl. AX10*, Assigned (P)Aaa (sf)
Cl. AX13*, Assigned (P)Aaa (sf)
Cl. AX15*, Assigned (P)Aaa (sf)
Cl. AX17*, Assigned (P)Aaa (sf)
Cl. AX19*, Assigned (P)Aaa (sf)
Cl. AX21*, Assigned (P)Aaa (sf)
Cl. AX25*, Assigned (P)Aaa (sf)
Cl. AX26*, Assigned (P)Aa1 (sf)
Cl. AX27*, Assigned (P)Aa1 (sf)
Cl. AX28*, Assigned (P)Aa1 (sf)
Cl. AX30*, Assigned (P)Aaa (sf)
Cl. B1, Assigned (P)Aa3 (sf)
Cl. B1A, Assigned (P)Aa3 (sf)
Cl. BX1*, Assigned (P)Aa3 (sf)
Cl. B2, Assigned (P)A2 (sf)
Cl. B2A, Assigned (P)A2 (sf)
Cl. BX2*, Assigned (P)A2 (sf)
Cl. B3, Assigned (P)Baa2 (sf)
Cl. B4, Assigned (P)Ba2 (sf)
Cl. B5, Assigned (P)B2 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 0.55%
at the mean, 0.32% at the median, and reaches 5.78% at a stress
level consistent with Moody's Aaa ratings.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's increased its model-derived median expected losses by 10.0%
(7.04% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's base its 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
As of the cut-off date of May 1, 2021, the $301,508,511 pool
consisted of 971 mortgage loans secured by first liens on
residential investment properties and second homes. The average
stated principal balance is $310,513 and the weighted average (WA)
current mortgage rate is 3.41%. The majority of the loans have a
30-year term, with 106 loans with terms ranging from 10 to 25
years. All of the loans have a fixed rate. The WA original credit
score is 768 for the primary borrower only and the WA combined
original LTV (CLTV) is 63.4%. The WA original debt-to-income (DTI)
ratio is 36.2%. Approximately, 20.2% by loan balance of the
borrowers have more than one mortgage loan in the mortgage pool.
Approximately half of the mortgage loans by loan balance (45.3%)
are backed by properties located in California. The next largest
geographic concentration of properties are Arizona, which
represents 8.8% by loan balance, Oregon, which represents 6.9% by
loan balance, New York, which represents about 5.0% by loan
balance, Washington, which represents 4.4% by loan balance and New
Jersey, which represents 4.3% by loan balance. All other states
each represents less than 4% by loan balance. Loans backed by
single family residential properties represent 60.2% (by loan
balance) of the pool.
Approximately 12.9% of the mortgage loans by count are "Appraisal
Waiver" (AW) loans, whereby the sponsor obtained an AW for each
such mortgage loan from Fannie Mae or Freddie Mac through their
respective programs. In each case, neither Fannie Mae nor Freddie
Mac required an appraisal of the related mortgaged property as a
condition of approving the related mortgage loan for purchase by
Fannie Mae or Freddie Mac, as applicable.
Origination quality
Finance of America Mortgage LLC originated 100% of the loans in the
pool. These loans were underwritten in conformity with GSE
guidelines with overlays. However, these overlays are predominantly
non-material with the exception of verbal verification of
employment and reserves for investment properties. Overall, Moody's
consider Finance of America Mortgage to be an adequate originator
of conforming and nonconforming mortgages. As a result, Moody's did
not make any adjustments to Moody's base case and Aaa stress loss
assumptions based on Moody's review of the loan performance and
origination practices.
Headquartered in Horsham, Pennsylvania, Finance of America Mortgage
LLC ("FAM") is a wholly-owned subsidiary of Finance of America
Holdings LLC, a Delaware limited liability company ("FAH"). FAH is
ultimately owned by Finance of America Companies Inc., a publicly
traded company, and certain other investors, including funds
affiliated with The Blackstone Group Inc. Finance of America
Mortgage is licensed as a residential mortgage lender in all fifty
states.
Servicing arrangements
Moody's consider the overall servicing arrangement for this pool to
be adequate. Moody's did not make any adjustments to Moody's base
case and Aaa stress loss assumptions based on the servicing
arrangement. Moody's also consider the presence of a strong master
servicer to be a mitigant against the risk of any servicing
disruptions.
Although Finance of America Mortgage LLC (Finance of America) is
the named servicer, ServiceMac, LLC and LoanCare, LLC will be the
subservicers, servicing approximately 57.2% and 42.8% of the
mortgage loans, respectively. Nationstar Mortgage LLC will be the
master servicer. Finance of America will be responsible for
principal and interest advances as well as servicing advances. The
master servicer will be required to make principal and interest
advances if Finance of America is unable to do so. The securities
administrator, Citibank, N.A., will make the required advances to
the extent the master servicer is unable to do so.
Third-party review
The independent third party review firm, Evolve Mortgage Services,
was engaged to conduct due diligence for the credit, regulatory
compliance, property valuation, and data accuracy on a total of
approximately 28.5% of the pool (by loan count). Evolve conducted
due diligence for a total random sample of 278 loans originated by
Finance of America Mortgage LLC in this transaction. Of note,
within these 278 loans all the loans (of 971 total loan count in
pool) are included in the final data tape. Based on the sample size
reviewed, the TPR results indicate that there are no material
compliance, credit, or data issues and no appraisal defects.
Moody's took into account the sample size that was reviewed and
made an adjustment to Moody's losses because the sample size does
not meet Moody's credit neutral threshold.
Representations and Warranties Framework
Moody's increased its loss levels to account for weakness in the
overall R&W framework due to the financial weakness of the R&W
provider and the lack of repurchase mechanism for loans
experiencing an early payment default. The R&W provider may not
have the financial wherewithal to purchase defective loans.
Moreover, unlike other comparable transactions that Moody's have
rated, the R&W framework for this transaction does not include a
mechanism whereby loans that experience an early payment default
(EPD) are repurchased. However, the results of the independent due
diligence review revealed a high level of compliance with
underwriting guidelines and regulations, as well as overall strong
valuation quality. These results give us a clear indication that
the loans most likely do not breach the R&Ws. Also, the transaction
benefits from unqualified R&Ws and an independent breach reviewer.
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 other private-label
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.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior subordination 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 of time, and increasing
amounts of prepayments to the subordinate bonds thereafter, but
only if loan performance satisfies delinquency and loss tests.
Realized losses are allocated in a reverse sequential order, first
to the lowest subordinate bond. After the balances of the
subordinate bonds are written off, losses from the pool begin to
write off the principal balances of the senior support bonds until
their principal balances are reduced to zero. Next, realized losses
are allocated to super senior bonds until their principal balance
is written off.
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 1.20% 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 1.20% 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 1.20% and 1.20%,
respectively, 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.
ICG US CLO 2016-1: S&P Assigns BB- (sf) Rating on Class DR-R Notes
------------------------------------------------------------------
S&P Global Ratings assigned ratings to ICG US CLO 2016-1 Ltd./ICG
US CLO 2016-1 LLC's floating-rate notes.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' and lower) senior secured term
loans. The transaction is managed by ICG Debt Advisors LLC.
The ratings reflect:
-- The diversification of the collateral pool.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral 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
ICG US CLO 2016-1 Ltd. /ICG US CLO 2016-1 LLC
Class X, $4.00 million: AAA (sf)
Class A1R-R, $246.00 million: AAA (sf)
Class A2R-R, $58.00 million: AA (sf)
Class BR-R (deferrable), $24.00 million: A (sf)
Class CR-R (deferrable), $24.00 million: BBB- (sf)
Class DR-R (deferrable), $16.00 million: BB- (sf)
Subordinated notes, $44.75 million: Not rated
JP MORGAN 2021-7: Fitch Assigns Final B+ Rating on Class B-5 Debt
-----------------------------------------------------------------
Fitch Ratings has assigned final ratings to JP Morgan Mortgage
Trust 2021-7 (JPMMT 2021-7).
DEBT RATING PRIOR
---- ------ -----
JPMMT 2021-7
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
A-3-A LT AAAsf New Rating AAA(EXP)sf
A-3-X LT AAAsf New Rating AAA(EXP)sf
A-4 LT AAAsf New Rating AAA(EXP)sf
A-4-A LT AAAsf New Rating AAA(EXP)sf
A-4-X LT AAAsf New Rating AAA(EXP)sf
A-5 LT AAAsf New Rating AAA(EXP)sf
A-5-A LT AAAsf New Rating AAA(EXP)sf
A-5-B LT AAAsf New Rating AAA(EXP)sf
A-5-X LT AAAsf New Rating AAA(EXP)sf
A-6 LT AAAsf New Rating AAA(EXP)sf
A-6-A LT AAAsf New Rating AAA(EXP)sf
A-6-X LT AAAsf New Rating AAA(EXP)sf
A-7 LT AAAsf New Rating AAA(EXP)sf
A-7-A LT AAAsf New Rating AAA(EXP)sf
A-7-B LT AAAsf New Rating AAA(EXP)sf
A-7-X LT AAAsf New Rating AAA(EXP)sf
A-8 LT AAAsf New Rating AAA(EXP)sf
A-8-A LT AAAsf New Rating AAA(EXP)sf
A-8-X LT AAAsf New Rating AAA(EXP)sf
A-9 LT AAAsf New Rating AAA(EXP)sf
A-9-A LT AAAsf New Rating AAA(EXP)sf
A-9-X LT AAAsf New Rating AAA(EXP)sf
A-10 LT AAAsf New Rating AAA(EXP)sf
A-10-A LT AAAsf New Rating AAA(EXP)sf
A-10-X LT AAAsf New Rating AAA(EXP)sf
A-11 LT AAAsf New Rating AAA(EXP)sf
A-11-X LT AAAsf New Rating AAA(EXP)sf
A-11-A LT AAAsf New Rating AAA(EXP)sf
A-11-AI LT AAAsf New Rating AAA(EXP)sf
A-11-B LT AAAsf New Rating AAA(EXP)sf
A-11-BI LT AAAsf New Rating AAA(EXP)sf
A-12 LT AAAsf New Rating AAA(EXP)sf
A-13 LT AAAsf New Rating AAA(EXP)sf
A-14 LT AAAsf New Rating AAA(EXP)sf
A-15 LT AAAsf New Rating AAA(EXP)sf
A-16 LT AAAsf New Rating AAA(EXP)sf
A-17 LT AAAsf New Rating AAA(EXP)sf
A-X-1 LT AAAsf New Rating AAA(EXP)sf
A-X-2 LT AAAsf New Rating AAA(EXP)sf
A-X-3 LT AAAsf New Rating AAA(EXP)sf
A-X-4 LT AAAsf New Rating AAA(EXP)sf
B-1 LT AA-sf New Rating AA-(EXP)sf
B-1-A LT AA-sf New Rating AA-(EXP)sf
B-1-X LT AA-sf New Rating AA-(EXP)sf
B-2 LT A-sf New Rating A-(EXP)sf
B-2-A LT A-sf New Rating A-(EXP)sf
B-2-X LT A-sf New Rating A-(EXP)sf
B-3 LT BBB-sf New Rating BBB-(EXP)sf
B-4 LT BBsf New Rating BB(EXP)sf
B-5 LT B+sf New Rating B+(EXP)sf
B-6 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The certificates are supported by 991 loans with a total balance of
approximately $957.10 million as of the cutoff date. The pool
consists of prime quality fixed-rate mortgages (FRMs) from various
mortgage originators. The servicers in the transactions consist of
JP Morgan Chase Bank and various other servicers. Nationstar
Mortgage LLC (Nationstar) will be the master servicer.
All of the loans qualify as either Safe Harbor Qualified Mortgages
(SHQM) or Agency Safe Harbor QM loans.
There is no exposure to LIBOR in this transaction. The collateral
comprises 100% fixed-rate loans, and the certificates are fixed
rate based off of the net weighted average coupon (WAC), or
floating/inverse floating rate based off of the SOFR index, and
capped at the net WAC. This is the sixth 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 fixed-rate fully amortizing loans with maturities up
to 30 years. All of the loans qualify as SHQM 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 at 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 88.8% (as determined by Fitch) of the loans have a
borrower with an original FICO score above 750. In addition, the
original WA combined loan-to-value ratio (CLTV) of 65.6%,
translating to a sustainable loan-to-value ratio (sLTV) of 71.0%,
represents substantial borrower equity in the property and reduced
default risk.
96.1% of the pool comprises nonconforming loans, while the
remaining 3.9% represents conforming loans. 100% of the loans are
designated as QM loans, with roughly 75.3% of the pool being
originated by a retail channel.
The pool consists of 90.6% of loans where the borrower maintains a
primary residence, while 6.4% comprises second homes and 3.0%
represents nonpermanent residences that were treated as investor
properties. Single-family homes comprise 93.8% of the pool, and
condominiums make up 4.9%. Cashout refinances comprise 11.3% of the
pool, purchases comprise 32.0% of the pool and rate-term refinances
comprise 56.7% of the pool.
A total of 347 loans in the pool are over $1.0 million, and the
largest loan is $2.92 million.
Fitch determined that 3.0% of the loans were made to foreign
nationals/nonpermanent residents. These loans were treated as
investor-occupied to reflect the additional risk they may pose.
Geographic Concentration (Negative): Approximately 49.9% of the
pool is concentrated in California. The largest MSA concentration
is in the San Francisco-Oakland-Fremont, CA MSA (16.6%), followed
by Los Angeles-Long Beach-Santa Ana, CA MSA (12.8%), and the San
Jose-Sunnyvale-Santa Clara, CA MSA (9.0%). The top three MSAs
account for 38.4% of the pool. As a result, there was a 1.01x
probability of default (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 to 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 to mitigate potential tail end risk and loss
exposure for senior tranches as the pool size declines and
performance volatility increases due to adverse loan selection and
small loan count concentration. Additionally, a junior
subordination floor of 0.45% has been considered to mitigate
potential tail-end risk and loss exposure for subordinate tranches
as the pool size declines and performance volatility increases due
to adverse loan selection and small loan count concentration.
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data,
and the unexpected development in the health crisis arising from
the advancement and availability of coronavirus vaccines, Fitch
reconsidered the application of the Coronavirus-related ERF floors
of 2.0 and used ERF Floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf'
rating stresses, respectively. Fitch's March 2021 Global Economic
Outlook and related base-line economic scenario forecasts have been
revised to a 6.2% U.S. GDP growth for 2021 and 3.3% for 2022
following a -3.5% GDP growth in 2020. Additionally, Fitch's U.S.
unemployment forecasts for 2021 and 2022 are 5.8% and 4.7%,
respectively, which is down from 8.1% in 2020. These revised
forecasts support Fitch reverting back to the 1.5 and 1.0 ERF
floors described in Fitch's "U.S. RMBS Loan Loss Model Criteria."
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. Sensitivity analyses was conducted at the
state and national levels to assess the effect of higher MVDs for
the subject pool as well as lower MVDs, illustrated by a gain in
home prices.
Factor that could, individually or collectively, lead to a negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 40.0% 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.
Factor 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 positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
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, Digital Risk, Covius, Inglet Blair,
and Opus. 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. However losses were reduced by 0.18% at AAAsf due
to no material findings on the 100% of due diligence that was
provided.
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, Digital Risk, Covius, Inglet Blair, and Opus
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 provided by the issuer on its SEC
Rule 17g-5 designated website. Fitch received loan-level
information based on the ResiPLS data layout format, and the data
are considered comprehensive. The data contained in the ResiPLS
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.
The issuer indicated that two of the sellers have ESG programs that
either improve access to capital markets liquidity for Minority,
Woman or Veteran owned lenders or promote and support renewable
energy conscious residential lending. Loans with these ESG features
are included in JPMMT 2021-7. Fitch did not take these ESG programs
into consideration when assigning Fitch's ESG score of '3' and did
not take it into consideration in the analysis of the transaction.
As a result, these ESG programs did not impact Fitch's ratings.
JP MORGAN 2021-7: Moody's Assigns B3 Rating to Class B-5 Certs
--------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 53
classes of residential mortgage-backed securities (RMBS) issued by
J.P. Morgan Mortgage Trust (JPMMT) 2021-7. The ratings range from
Aaa (sf) to B3 (sf).
JPMMT 2021-7 is the seventh prime jumbo transaction in 2021 issued
by J.P. Morgan Mortgage Acquisition Corporation (JPMMAC). The
credit characteristic of the mortgage loans backing this
transaction is similar to both recent JPMMT transactions and other
prime jumbo issuers that Moody's have rated. Moody's consider the
overall servicing framework for this pool to be adequate given the
servicing arrangement of the servicers, as well as the presence of
an experienced master servicer to oversee the servicers.
JPMMT 2021-7 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool. In
coding the cash flow, Moody's took into account the step-up
incentive servicing fee structure.
In this transaction, the Class A-11 notes' coupon is indexed to
SOFR. However, based on the transaction's structure, the particular
choice of benchmark has no credit impact. First, interest payments
to the notes, including the floating rate notes, are subject to the
net WAC cap, which prevents the floating rate notes from incurring
interest shortfalls as a result of increases in the benchmark index
above the fixed rates at which the assets bear interest. Second,
the shifting-interest structure pays all interest generated on the
assets to the bonds and does not provide for any excess spread.
Moody's base its definitive 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 review (TPR)
and the representations and warranties (R&W) framework of the
transaction.
The complete rating actions are as follows:
Issuer: J.P. Morgan Mortgage Trust 2021-7
Cl. A-1, Assigned Aaa (sf)
Cl. A-2, Assigned Aaa (sf)
Cl. A-3, Assigned Aaa (sf)
Cl. A-3-A, Assigned Aaa (sf)
Cl. A-3-X*, Assigned Aaa (sf)
Cl. A-4, Assigned Aaa (sf)
Cl. A-4-A, Assigned Aaa (sf)
Cl. A-4-X*, Assigned Aaa (sf)
Cl. A-5, Assigned Aaa (sf)
Cl. A-5-A, Assigned Aaa (sf)
Cl. A-5-B, Assigned Aaa (sf)
Cl. A-5-X*, Assigned Aaa (sf)
Cl. A-6, Assigned Aaa (sf)
Cl. A-6-A, Assigned Aaa (sf)
Cl. A-6-X*, Assigned Aaa (sf)
Cl. A-7, Assigned Aaa (sf)
Cl. A-7-A, Assigned Aaa (sf)
Cl. A-7-B, Assigned Aaa (sf)
Cl. A-7-X*, Assigned Aaa (sf)
Cl. A-8, Assigned Aaa (sf)
Cl. A-8-A, Assigned Aaa (sf)
Cl. A-8-X*, Assigned Aaa (sf)
Cl. A-9, Assigned Aaa (sf)
Cl. A-9-A, Assigned Aaa (sf)
Cl. A-9-X*, Assigned Aaa (sf)
Cl. A-10, Assigned Aaa (sf)
Cl. A-10-A, Assigned Aaa (sf)
Cl. A-10-X*, Assigned Aaa (sf)
Cl. A-11, Assigned Aaa (sf)
Cl. A-11-X*, Assigned Aaa (sf)
Cl. A-11-A, Assigned Aaa (sf)
Cl. A-11-AI*, Assigned Aaa (sf)
Cl. A-11-B, Assigned Aaa (sf)
Cl. A-11-BI*, Assigned Aaa (sf)
Cl. A-12, Assigned Aaa (sf)
Cl. A-13, Assigned Aaa (sf)
Cl. A-14, Assigned Aaa (sf)
Cl. A-15, Assigned Aaa (sf)
Cl. A-16, Assigned Aaa (sf)
Cl. A-17, Assigned Aaa (sf)
Cl. A-X-1*, Assigned Aaa (sf)
Cl. A-X-2*, Assigned Aaa (sf)
Cl. A-X-3*, Assigned Aaa (sf)
Cl. A-X-4*, Assigned Aaa (sf)
Cl. B-1, Assigned Aa3 (sf)
Cl. B-1-A, Assigned Aa3 (sf)
Cl. B-1-X*, Assigned Aa3 (sf)
Cl. B-2, Assigned A3 (sf)
Cl. B-2-A, Assigned A3 (sf)
Cl. B-2-X*, Assigned A3 (sf)
Cl. B-3, Assigned Baa3 (sf)
Cl. B-4, Assigned Ba3 (sf)
Cl. B-5, Assigned B3 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Moody's expected loss for this pool in a baseline scenario-mean is
0.27%, in a baseline scenario-median is 0.14%, and reaches 2.59% at
a stress level consistent with Moody's Aaa ratings.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's increased its model-derived median expected losses by
10.00% (8.85% for the mean) and Moody's Aaa loss by 2.50% to
reflect the likely performance deterioration resulting from the
slowdown in US economic activity due to the coronavirus outbreak.
These adjustments are lower than the 15% median expected loss and
5% Aaa loss adjustments Moody's made on pools from deals issued
after the onset of the pandemic until February 2021. Moody's
reduced adjustments reflect the fact that the loan pool in this
deal does not contain any loans to borrowers who are not currently
making payments. For newly originated loans, post-COVID
underwriting takes into account the impact of the pandemic on a
borrower's ability to repay the mortgage. For seasoned loans, as
time passes, the likelihood that borrowers who have continued to
make payments throughout the pandemic will now become non-cash
flowing due to COVID-19 continues to decline.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Collateral Description
Moody's assessed the collateral pool as of April 1, 2021, the
cut-off date. The deal will be backed by 991 fully amortizing
fixed-rate mortgage loans with an aggregate unpaid principal
balance (UPB) of $957,097,999 and an original term to maturity of
up to 30 years. The pool consists of prime jumbo non-conforming
(96.1% by UPB) and GSE-eligible conforming (3.9% by UPB) mortgage
loans. The GSE-eligible loans were underwritten pursuant to GSE
guidelines and were approved by DU/LP.
Overall, the pool is of strong credit quality and includes
borrowers with high FICO scores, low loan-to-value ratios, high
monthly incomes (about $32,704) and substantial liquid cash
reserves (about $429,284), on a weighted-average basis,
respectively, which have been verified as part of the underwriting
process and reviewed by the TPR firms. Approximately 49.9% of the
mortgage loans (by balance) were originated in California which
includes metropolitan statistical areas (MSAs) San Francisco
(16.6%) and Los Angeles (12.8%). The high geographic concentration
in high-cost MSAs is reflected in the high average balance of the
pool ($965,097). All the mortgage loans are designated as safe
harbor Qualified Mortgages (QM) and meet Appendix Q to the QM
rules.
As of the cut-off date, none of the borrowers of the mortgage loans
are currently subject to a forbearance plan or are in the process
of being subject to a forbearance plan, including as a result of
COVID-19. In the event a borrower enters into a forbearance plan,
including as a result of COVID-19, after the cut-off date, such
mortgage loan will remain in the pool.
Aggregation/Origination Quality
Moody's consider JPMMAC's aggregation platform to be adequate and
Moody's did not apply a separate loss-level adjustment for
aggregation quality. In addition to reviewing JPMMAC aggregation
quality, Moody's have also reviewed the origination quality of
originator(s) contributing a significant percentage of the
collateral pool (above 10%) and MAXEX Clearing LLC (an
aggregator).
LoanDepot.com, LLC (loanDepot) and Guaranteed Rate (Guaranteed Rate
Inc, Guaranteed Rate Affinity and Proper Rate) originated
approximately 19.7% and 10.9% of the mortgage loans (by UPB),
respectively. The remaining originators each account for less than
10.0% (by UPB) of the loans in the pool (69.4% by UPB in the
aggregate). Approximately 35.9% and 1.3% (by UPB) of the mortgage
loans were acquired by JPMMAC from MAXEX and Verus Mortgage Trust
1A (collectively, aggregators), respectively, which purchased such
mortgage loans from the related originators or from an unaffiliated
third party which directly or indirectly purchased such mortgage
loans from the related originators.
Moody's did not make an adjustment for GSE-eligible loans, since
those loans were underwritten in accordance with GSE guidelines.
Moody's increased Moody's base case and Aaa loss expectations for
certain originators (neutral for Guaranteed Rate and loanDepot) of
non-conforming loans where Moody's do not have clear insight into
the underwriting practices, quality control and credit risk
management.
Servicing Arrangement
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement of the servicers, as
well as the presence of an experienced master servicer. Nationstar
Mortgage LLC (Nationstar) (Nationstar Mortgage Holdings Inc.
corporate family rating B2) will act as the master servicer.
NewRez LLC f/k/a New Penn Financial, LLC d/b/a Shellpoint Mortgage
Servicing (Shellpoint) and loanDepot.com, LLC (loanDepot)
(subserviced by Cenlar, FSB) are the principal servicers in this
transaction and will service approximately 79.51% and 19.55% loans
(by UPB) of the mortgage, respectively. Shellpoint will act as
interim servicer for these mortgage loans from the closing date
until the servicing transfer date, which is expected to occur on or
about August 1, 2021 (but which may occur after such date). After
the servicing transfer date, these mortgage loans will be serviced
by JPMorgan Chase Bank, National Association.
The servicers are required to advance P&I on the mortgage loans. To
the extent that the servicers are unable to do so, the master
servicer will be obligated to make such advances. In the event that
the master servicer, Nationstar, is unable to make such advances,
the securities administrator, Citibank, N.A. (rated Aa3) will be
obligated to do so to the extent such advance is determined by the
securities administrator to be recoverable. The servicing fee for
loans in this transaction will be predominantly based on a step-up
incentive fee structure with a monthly base fee of $40 per loan and
additional fees for delinquent or defaulted loans (fixed fee
framework servicers, which will be paid a monthly flat servicing
fee equal to one-twelfth of 0.25% of the remaining principal
balance of the mortgage loans, account for less than 1.00% of
UPB).
Third-Party Review
The transaction benefits from a TPR on 100% of the loans for
regulatory compliance, credit and property valuation. The TPR
results confirm compliance with the originator's underwriting
guidelines for the vast majority of loans, no material regulatory
compliance issues, and no material property valuation issues. The
loans that had exceptions to the originator's underwriting
guidelines had significant compensating factors that were
documented.
R&W Framework
Moody's review of the R&W framework takes into account the
financial strength of the R&W providers, scope of R&Ws (including
qualifiers and sunsets) and enforcement mechanisms. JPMMT 2021-7's
R&W framework is in line with that of other JPMMT transactions
Moody's have rated where an independent reviewer is named at
closing, and costs and manner of review are clearly outlined at
issuance. The loan-level R&Ws meet or exceed the baseline set of
credit-neutral R&Ws Moody's have identified for US RMBS. The R&W
framework is "prescriptive", whereby the transaction documents set
forth detailed tests for each R&W.
The originators and the aggregators each makes a comprehensive set
of R&Ws for their loans. The creditworthiness of the R&W provider
determines the probability that the R&W provider will be available
and have the financial strength to repurchase defective loans upon
identifying a breach. JPMMAC does not backstop the originator R&Ws,
except for certain "gap" R&Ws covering the period from the date as
of which such R&W is made by an originator or an aggregator,
respectively, to the cut-off date or closing date. In this
transaction, Moody's made adjustments to Moody's base case and Aaa
loss expectations for R&W providers that are unrated and/or
financially weaker entities.
Transaction Structure
The transaction has a shifting interest structure in which the
senior bonds benefit from a number of protections. Funds collected,
including principal, are first used to make interest payments to
the senior bonds. Next, principal payments are made to the senior
bonds. Next, available distribution amounts are used to reimburse
realized losses and certificate write-down amounts for the senior
bonds (after subordinate bonds have been reduced to zero i.e. the
credit support depletion date). Finally, interest and then
principal payments are paid to the subordinate bonds in sequential
order. Realized losses are allocated in a reverse sequential order,
first to the lowest subordinate bond. After the balance of the
subordinate bonds is written off, losses from the pool begin to
write off the principal balance of the senior support bond, and
finally losses are allocated to the super senior bonds.
The Class A-11 Certificates will have a pass-through rate that will
vary directly with the SOFR rate and the Class A-11-X Certificates
will have a pass-through rate that will vary inversely with the
SOFR rate.
Tail Risk & Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinate bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinate bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.55% of the cut-off date pool
balance, and as subordination lockout amount of 0.45% of the
cut-off date pool balance. Moody's calculate the credit neutral
floors as shown in Moody's principal methodology.
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.
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.
JP MORGAN 2021-INV1: Fitch Assigns Final B- Rating on Cl. B-5 Debt
------------------------------------------------------------------
Fitch Ratings has assigned final ratings to JP Morgan Mortgage
Trust 2021-INV1.
DEBT RATING PRIOR
---- ------ -----
JPMMT 2021-INV1
A-1 LT AAAsf New Rating AAA(EXP)sf
A-1-A LT AAAsf New Rating AAA(EXP)sf
A-1-X LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-2-A LT AAAsf New Rating AAA(EXP)sf
A-2-X LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
A-3-A LT AAAsf New Rating AAA(EXP)sf
A-3-X LT AAAsf New Rating AAA(EXP)sf
A-4 LT AAAsf New Rating AAA(EXP)sf
A-4-A LT AAAsf New Rating AAA(EXP)sf
A-4-X LT AAAsf New Rating AAA(EXP)sf
A-5 LT AAAsf New Rating AAA(EXP)sf
A-5-A LT AAAsf New Rating AAA(EXP)sf
A-5-X LT AAAsf New Rating AAA(EXP)sf
A-X-1 LT AAAsf New Rating AAA(EXP)sf
B-1 LT AA-sf New Rating AA-(EXP)sf
B-2 LT A-sf New Rating A-(EXP)sf
B-3 LT BBB-sf New Rating BBB-(EXP)sf
B-4 LT BB-sf New Rating BB-(EXP)sf
B-5 LT B-sf New Rating B-(EXP)sf
B-6 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Fitch rates the residential mortgage-backed certificates issued by
JP Morgan Mortgage Trust 2021-INV1 (JPMMT 2021-INV1), as
indicated.
The certificates are supported by 513 loans with a total balance of
approximately $268.04 million as of the cutoff date. The pool
consists of investor occupancy fixed-rate mortgages (FRMs) from
various mortgage originators. The servicers in the transactions
consist of JP Morgan Chase Bank and various other servicers.
Nationstar Mortgage LLC (Nationstar) will be the master servicer.
Of the loans, 11.96% qualify as either Safe Harbor Qualified
Mortgages (SHQM) or Agency Safe Harbor QM loans. The remaining
88.04% of the loans were underwritten to the underlying seller's
guidelines and were full-documentation loans. All loans were
underwritten to the borrower's credit risk, unlike investor cash
flow loans, which are underwritten to the property's income.
There is no exposure to LIBOR in this transaction. The collateral
comprises 100% fixed-rate loans, and the certificates are fixed
rate based off of the net weighted average coupon (WAC), and capped
at the net WAC.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The pool consists of very
high-quality 30-year, 25-year, 20-year, and 15-year fixed-rate
fully amortizing loans. The loans were made to borrowers with
strong credit profiles, relatively low leverage and large liquid
reserves. The loans are seasoned at an average of 11 months
according to Fitch. The pool has a weighted average (WA) original
FICO score of 776, as determined by Fitch, which is indicative of
very high credit quality borrowers.
Approximately 85.6% of the loans have a borrower with an original
FICO score above 750. In addition, the original WA combined
loan-to-value ratio (CLTV) of 59.2%, translating to a sustainable
loan-to-value ratio (sLTV) of 63.1%, represents substantial
borrower equity in the property and reduced default risk.
Nonconforming loans comprise 44.6% of the pool, while the remaining
55.4% represents conforming loans. There is 79.4% of the pool
originated by a retail channel, including correspondent loans that
were originated through a retail channel.
The pool consists of 100% investor properties. Single-family homes
comprise 61.6% of the pool, and condominiums make up 11.0%. Cash
out refinances comprise 15.6% of the pool, purchases comprise 28.0%
of the pool and rate-term refinances comprise 56.4% of the pool. A
total of 32 loans in the pool are over $1 million, and the largest
loan is $1.99 million. Fitch determined that 2.7% of the loans were
made to foreign nationals/nonpermanent residents. These loans were
treated as investor-occupied to reflect the additional risk they
may pose.
Geographic Concentration (Negative): Approximately 49.7% of the
pool is concentrated in California. The largest MSA concentration
is in the San Francisco-Oakland-Fremont, CA MSA (18.4%), followed
by Los Angeles-Long Beach-Santa Ana, CA MSA (16.8%), and the
Seattle-Tacoma-Bellevue, WA MSA (9.1%). The top three MSAs account
for 44.3% of the pool. As a result, there was a probability of
default (PD) penalty of 1.04 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 to 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.
Multi-Family (Negative): Multi-family loans comprise 27.4% of the
loans in the pool, which Fitch views as riskier than single-family
homes, since the borrower may be relying on the rental income to
pay the mortgage payment on the property. To account for this risk,
Fitch adjusts the PD upward by 25% from the baseline for
multi-family homes.
CE Floor (Positive): A CE or senior subordination floor of 1.60%
was considered to mitigate potential tail-end risk and loss
exposure for senior tranches as the pool size declines and
performance volatility increases due to adverse loan selection and
small loan count concentration. Additionally, a junior
subordination floor of 1.05% was considered to mitigate potential
tail-end risk and loss exposure for subordinate tranches as the
pool size declines and performance volatility increases due to
adverse loan selection and small loan count concentration.
100% Investor Loans (Negative): Of the loans in the pool, 100% were
made to investors and almost 55.4% of the loans in the pool are
conforming loans, which were underwritten to Fannie Mae and Freddie
Mac's guidelines and were approved per Desktop Underwriter (DU) or
Loan Product Advisor (LPA), Fannie Mae and Freddie Mac's automated
underwriting systems, respectively.
The remaining 45.6% of the loans were underwritten to the
underlying sellers' guidelines and were full documentation loans.
All loans were underwritten to the borrower's credit risk, unlike
investor cash flow loans, which are underwritten to the property's
income. Additionally, 22 borrowers in the pool have multiple
loans.
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions. This will be performed as described in the section to
remain consistent with significant revisions to Fitch's
macroeconomic baseline scenario or if actual performance data
indicates the current assumptions require reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of coronavirus vaccines, Fitch reconsidered the
application of the Coronavirus-related ERF floors of 2.0 and used
ERF Floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf' rating stresses,
respectively.
Fitch's March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Fitch's U.S. unemployment forecasts for 2021 and 2022 are
5.8% and 4.7%, respectively, which is down from 8.1% in 2020. These
revised forecasts support Fitch reverting back to the 1.5 and 1.0
ERF floors described in Fitch's "U.S. RMBS Loan Loss Model
Criteria."
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. Sensitivity analyses 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 a
negative rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 40.1% at 'AAA';
-- The analysis indicates that there is some potential rating
migration with higher MVDs for all rated classes, compared
with the model projection. Specifically, a 10% additional
decline in home prices would lower all rated classes by one
full category.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation;
-- Excluding the senior class, which is already rated 'AAAsf',
the analysis indicates there is potential positive rating
migration for all of the rated classes. Specifically, a 10%
gain in home prices would result in a full category upgrade
for the rated class excluding those being assigned ratings of
'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal.
The modeling process uses the modification of these variables to
reflect asset performance in up- and down environments. The results
should only be considered as one potential outcome, as the
transaction is exposed to multiple dynamic risk factors. It should
not be used as an indicator of possible future performance.
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, Digital Risk, and Opus. 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, Digital Risk and Opus 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 provided by the issuer on its SEC
Rule 17g-5 designated website. Fitch received loan-level
information based on the ResiPLS data layout format, and the data
are considered comprehensive. The data contained in the ResiPLS
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.
KAYNE CLO III: Moody's Assigns Ba3 Rating to $25MM Class ER Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned ratings to four classes of
refinancing notes issued by Kayne CLO III, Ltd. (the "Issuer").
Moody's rating action is as follows:
US$48,700,000 Class BR Senior Secured Floating Rate Notes Due 2032
(the "Class BR Notes"), Assigned Aa1 (sf)
US$20,550,000 Class CR Mezzanine Secured Deferrable Floating Rate
Notes Due 2032 (the "Class CR Notes"), Assigned A2 (sf)
US$26,800,000 Class DR Mezzanine Secured Deferrable Floating Rate
Notes Due 2032 (the "Class DR Notes"), Assigned Baa3 (sf)
US$25,900,000 Class ER Junior Secured Deferrable Floating Rate
Notes Due 2032 (the "Class ER 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.
Kayne Anderson Capital Advisors, L.P. (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 other class of secured notes and
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
for the Refinancing Notes; the inclusion of updated alternative
benchmark replacement provisions; and changes to the definition of
"Adjusted Weighted Average Moody's Rating Factor".
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, weighted average spread, 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: $447,595,693
Diversity Score: 83
Weighted Average Rating Factor (WARF): 3004
Weighted Average Spread (WAS): 3.37%
Weighted Average Recovery Rate (WARR): 47.87%
Weighted Average Life (WAL): 5.92 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: 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 pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in the US economic activity.
Moody's regard 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.
KODIAK CDO I: Moody's Raises Rating on Class B Notes to B3
----------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Kodiak CDO I, Ltd.:
US$103,500,000 Class A-2 Second Priority Senior Secured Floating
Rate Notes Due 2037 (current balance of $44,338,372.49) (the "Class
A-2 Notes"), Upgraded to Aa3 (sf); previously on January 16, 2020
Upgraded to A1 (sf)
US$83,000,000 Class B Third Priority Senior Secured Floating Rate
Notes Due 2037 (the "Class B Notes"), Upgraded to B3 (sf);
previously on January 29, 2014 Upgraded to Caa2 (sf)
Kodiak CDO I, Ltd., issued in September 2006, is a collateralized
debt obligation (CDO) backed mainly by a portfolio of REIT trust
preferred securities (TruPS), with exposure to bank TruPS,
insurance notes, corporate bonds and structured finance
securities.
RATINGS RATIONALE
The rating actions are primarily a result of the deleveraging of
the Class A-2 notes, an increase in the transaction's
over-collateralization (OC) ratios, and the improvement in the
credit quality of the underlying portfolio since May 2020.
The Class A-2 notes have paid down by approximately 28.6% or $17.8
million since May 2020, using principal proceeds from the
redemption of the underlying assets and the diversion of excess
interest proceeds. Based on Moody's calculations, the OC ratios for
the Class A-2 and Class B notes have improved to 480.1% and 153.5%,
respectively, from May 2020 levels of 343.7% and 137.2%,
respectively. The Class A-2 notes will continue to benefit from the
diversion of excess interest and the use of proceeds from
redemptions of any assets in the collateral pool.
The deal has also benefited from improvement in the credit quality
of the underlying portfolio. According to Moody's calculations, the
weighted average rating factor (WARF) improved to 2653 from 3631 in
May 2020.
The action also reflects the consideration that an event of default
(EoD) is continuing for the transaction, and that as a remedy to
the EoD, 66 2/3% of each class, voting separately, can direct the
trustee to proceed with the sale and liquidation of the collateral.
The EoD occurred in February 2014 due to failure to pay interest on
the Class B notes. In March 2014, the controlling class voted to
accelerate the deal. Class A-2 notes became the senior-most notes
after Class A-1 notes were paid in full in February 2018. As a
result of the acceleration of the deal, the Class A-2 notes have
been receiving all proceeds and will continue to receive until they
are paid in full.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, and weighted average recovery rate,
are based on its methodology and could differ from the trustee's
reported numbers. In its base case, Moody's analyzed the underlying
collateral pool as having a performing par of $212.9 million,
defaulted par of $93.4 million, a weighted average default
probability of 31.69% (implying a WARF of 2653), and a weighted
average recovery rate upon default of 11.57%.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in the US economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology Used for the Rating Action
The principal methodology used in these ratings was "Moody's
Approach to Rating TruPS CDOs" published in June 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 portfolio consists primarily
of unrated assets whose default probability Moody's assesses
through credit scores derived using RiskCalc(TM) or credit
estimates. Because these are not public ratings, they are subject
to additional estimation uncertainty.
LAKE SHORE I: Moody's Assigns Ba3 Rating to $29MM Class E-R Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned ratings to seven classes of
CLO refinancing notes issued by Lake Shore MM CLO I Ltd. (the
"Issuer").
Moody's rating action is as follows:
US$4,000,000 Class X Senior Secured Floating Rate Notes Due 2033
(the "Class X Notes"), Assigned Aaa (sf)
US$205,000,000 Class A-1R Senior Secured Floating Rate Notes Due
2033 (the "Class A-1R Notes"), Assigned Aaa (sf)
US$25,000,000 Class A-2R Senior Secured Floating Rate Notes Due
2033 (the "Class A-2R Notes"), Assigned Aaa (sf)
US$36,000,000 Class B-R Senior Secured Floating Rate Notes Due 2033
(the "Class B-R Notes"), Assigned Aa2 (sf)
US$37,000,000 Class C-R Mezzanine Secured Deferrable Floating Rate
Notes Due 2033 (the "Class C-R Notes"), Assigned A3 (sf)
US$20,000,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes Due 2033 (the "Class D-R Notes"), Assigned Baa3 (sf)
US$29,000,000 Class E-R Junior Secured Deferrable Floating Rate
Notes Due 2033 (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 middle market loans. At least 96.75% of the portfolio must
consist of senior secured loans, permitted non-loan assets and
eligible investments, and up to 3.25% of the portfolio may consist
of assets other than senior secured loans and eligible
investments.
First Eagle Alternative Credit, 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 extended
four year reinvestment period. Thereafter, subject to certain
restrictions, the Manager may reinvest unscheduled principal
payments and proceeds from sales of credit risk assets.
In addition to the issuance of the Refinancing Notes, a variety of
other changes to transaction features will occur in connection with
the refinancing. These include: reinstatement and 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 Libor
replacement provisions; additions to the CLO's ability to hold
workout and restructured assets; 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 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:
Performing par and principal proceeds balance: $400,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 3760
Weighted Average Spread (WAS): 5.20%
Weighted Average Coupon (WAC): 7.50%
Weighted Average Recovery Rate (WARR): 45.0%
Weighted Average Life (WAL): 8.0 years
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard 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.
LENDMARK FUNDING 2021-1: DBRS Gives Prov. BB Rating on D Notes
--------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Lendmark Funding Trust 2021-1 (Lendmark
2021-1):
-- $287,650,000 Class A Notes rated AA (sf)
-- $38,020,000 Class B Notes rated A (sf)
-- $32,200,000 Class C Notes rated BBB (sf)
-- $42,130,000 Class D Notes rated BB (sf)
The provisional ratings on the Notes are based on a review by DBRS
Morningstar of the following considerations:
-- 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: March 2021 Update," published on March 17,
2021. DBRS Morningstar initially published macroeconomic scenarios
on April 16, 2020, which have been regularly updated. The scenarios
were last updated on March 17, 2021, and are reflected in DBRS
Morningstar's rating analysis.
-- The assumptions consider the moderate macroeconomic scenario
outlined in the commentary, with the moderate scenario serving as
the primary anchor for current ratings. The moderate scenario
factors in increasing success in containment during the first half
of 2021, enabling the continued relaxation of restrictions.
-- The transaction's form and sufficiency of available credit
enhancement.
-- Overcollateralization, note subordination, reserve account
amounts, and excess spread create credit enhancement levels that
are commensurate with the proposed ratings.
-- The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms under which
they have invested. For this transaction, the ratings address the
timely payment of interest on a monthly basis and principal by the
legal final maturity date.
-- Lendmark's capabilities with regard to originations,
underwriting and servicing.
-- The credit quality and performance of the Lendmark's consumer
loan portfolio.
-- DBRS Morningstar has performed an operational review of
Lendmark and considers the entity to be an acceptable originator
and servicer of unsecured personal loans with an acceptable back-up
servicer.
-- The legal structure and expected legal opinions that will
address the true sale of the student loans, the nonconsolidation of
the trust, that the trust has a valid first-priority security
interest in the assets, and the consistency with DBRS Morningstar's
"Legal Criteria for U.S. Structured Finance."
Notes: All figures are in U.S. dollars unless otherwise noted.
LSTREET II 2012-10: DBRS Lowers Rating of Class A Notes to D
------------------------------------------------------------
DBRS, Inc. downgraded its ratings on LStreet II, LLC's Series
2012-10 Class A-1 Notes, Series 2012-10 Class A-2 Notes, Series
2012-10 Class A-3 Notes, Series 2012-10 Class A-4 Notes, Series
2012-10 Class A-5 Notes, and Series 2012-10 Class A-6 Notes to D
(sf) (Default) from A (low) (sf). With this rating action, DBRS
Morningstar also removed the ratings from Under Review with
Negative Implications.
DBRS Morningstar downgraded the Class A Notes to D (sf) because of
an interest payment default on the Class A Notes as of the most
recent payment date (the April 2021 Distribution Date) in
accordance with the related transaction documents. DBRS Morningstar
previously placed the Class A Notes Under Review with Negative
Implications on May 7, 2021, pending clarification of whether the
missed payment was because of an administrative error subsequent to
the resignation of Davis Square Funding II, Ltd.'s (DSF2 CDO)
Cayman Administrator. The Class A Notes are collateralized by the
Class A-1A LT and Class A-1B LT Notes issued by DSF2 CDO, which is
itself collateralized by a pool of subprime and Alt-A residential
mortgage-backed securities, commercial mortgage-backed securities,
asset-backed securities, and collateralized loan obligations.
Based on the most recent Trustee report (April 2021), the DSF2 CDO
collateral was generating sufficient cash flow to pay the DSF2 CDO
Class A-1A LT and Class A-1B LT Notes (the DSF2 CDO Notes).
However, the Controlling Class in DSF2 CDO elected to not replace
the Cayman Administrator, the absence of which created an event of
default under the DSF2 CDO documents. Consequently, the DSF2 CDO
transaction was precluded from paying interest to its noteholders.
The DSF2 CDO Notes generate the cash flows that are used to service
the Class A Notes; therefore, an interest payment default on the
DSF2 CDO Notes created a default with respect to the interest
payments due under the Class A Notes. The current balance of the
Class A Notes is $5,000,000 and has amortized from its original
balance of $150,000,000. American International Group, Inc. (AIG)
and its affiliates formed LStreet II, LLC and contributed the
collateral (the DSF2 CDO Notes) that secures the Class A Notes.
LStreet II, LLC, through its ownership of the DSF2 CDO Notes, is
the Controlling Class of DSF2 CDO. Affiliates of AIG are also
investors in the Class A Notes.
DBRS Morningstar's ratings address (1) the timeliness of Series
2012-10 Class A Interest payments to the Class A Noteholders and
(2) the likelihood of the Class A Noteholders receiving all
principal distributions to which such Noteholders are entitled in
accordance with the priorities of payment outlined in the Amended
and Restated Series 2012-10 Supplement to the Base Indenture on or
before the Final Maturity Date in May 2039.
For the avoidance of doubt, DBRS Morningstar's ratings described
herein address the timely payment of the Series 2012-10 Class A-1
Interest, the Series 2012-10 Class A-2 Interest, the Series 2012-10
Class A-3 Interest, the Series 2012-10 Class A-4 Interest, the
Series 2012-10 Class A-5 Interest, and the Series 2012-10 Class A-6
Interest (one-month Libor plus 0.45% per annum for all the Class A
Notes) and the ultimate payment of the Series 2012-10 Class A-1
Principal, Series 2012-10 Class A-2 Principal, Series 2012-10 Class
A-3 Principal, Series 2012-10 Class A-4 Principal, Series 2012-10
Class A-5 Principal, and Series 2012-10 Class A-6 Principal
(initial par of $150,000,000 as at November 27, 2012; $92,500,000
as at October 21, 2013; $45,000,000 as at November 20, 2014;
$60,000,000 as at December 4, 2015; $68,000,000 as at April 26,
2017; and $20,200,000 as of April 29, 2020, respectively).
Notes: All figures are in U.S. dollars unless otherwise noted.
MAD MORTGAGE 2017-330M: DBRS Confirms BB Rating on Class E Certs
----------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2017-330M issued by MAD Mortgage
Trust 2017-330M as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction. The loan is collateralized by the fee and
leasehold interests in an 849,372-square foot (sf) Class A office
property with a Leadership in Energy and Environmental Design Gold
designation at 330 Madison Avenue in Midtown Manhattan, New York.
The loan is interest only over its seven-year term.
The subject property is one block west of Grand Central Terminal
and two blocks east of Bryant Park on the corner of Madison Avenue
and 42nd Street. Originally constructed in 1965, the 39-story
building has a progressive, tiered floor design with the largest
floorplates (approximately 42,000 sf) on Floors 2 through 12,
various setbacks on Floors 13 through 21, and the smallest
floorplates (approximately 9,700 sf) on Floors 22 through 39,
making it attractive to smaller boutique firms. In 2014, the
original sponsorship funded a $121.0 million award-winning
renovation and reposition, which included a new exterior glass
facade and reconfigured/modernized lobby and subsequently executed
over 600,000 sf of new and renewal leases.
In early 2020, Munich Reinsurance Company closed its acquisition of
the subject property from the Abu Dhabi Investment Authority, which
owned it through its wholly owned subsidiary, Chadison Investment
Company, LLC. The deal implied a total asset value of $900.0
million, down from the as-is appraised value of $950.0 million at
issuance.
As of the March 2021 rent roll, the three largest tenants,
representing a combined 54.3% of the net rentable area (NRA), are
Guggenheim Partners (28.5% of the NRA), which uses the property as
its headquarters and whose lease expires in March 2028; Jones Lang
Lasalle Incorporated (18.3% of the NRA), whose lease expires in May
2032; and Glencore (7.5% of the NRA), whose lease expires in August
2030. The fourth-largest tenant, Point72 Asset Management, L.P.
(6.9% of the NRA), has vacated from the subject property and
consolidated its offices into the new 55 Hudson Yards development
ahead of its August 2021 lease expiration. At issuance, HSBC Bank
USA was the second-largest tenant representing 13.3% of the total
NRA with an initial lease expiration in April 2020. Upon its
initial lease expiration, the tenant downsized its footprint at the
subject to 4.0% of the NRA.
As of March 2021, the property was 90.0% occupied at an average
gross rental rate of $78.74 per sf (psf), compared with the
December 2019 occupancy rate of 95.1% and average gross rental rate
of $76.83 psf. The YE2020 debt service coverage ratio (DSCR) was
2.47 times (x) compared with the YE2019 DSCR of 2.37x.
As of Q1 2021 Reis data, comparable office properties within the
Grand Central submarket reported an average rental rate of $62.57
psf and a vacancy rate of 9.5%. However, these figures have changed
since Q1 2020 when Reis reported figures of $66.77 psf and 7.7%.
Notes: All figures are in U.S. dollars unless otherwise noted.
MAPS 2021-1 TRUST: Moody's Assigns (P)Ba1 Rating to Class C Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to the
class A, class B and class C notes (the notes) to be issued by MAPS
2021-1 Trust, a Delaware statutory trust. The ultimate assets
backing the rated notes will consist primarily of a portfolio of
aircraft and their related initial and future leases. Apollo
Navigator Holdings US LLC and Apollo Navigator Holdings (Ireland)
Designated Activity Company (together, Navigator), affiliated with
and managed by Apollo Global Management (Apollo), will be the
sellers of the assets and the sponsors of the transaction. Merx
Aviation Servicing Limited (Merx), an affiliate of Merx Aviation
Finance, LLC (together with their affiliates, Merx Group), will be
the servicer of the underlying assets and related leases. MAPS will
be the third aircraft lease securitization serviced by Merx since
2018.
The aircraft lease asset-backed securities (ABS) will be primarily
repaid by cash flows from payments on initial and subsequent leases
attached to the portfolio of aircraft to be securitized and
proceeds from aircraft dispositions. As of the cut-off date, the
initial assets will primarily consist of 20 aircraft subject to
initial leases to 12 lessees domiciled in 10 countries.
The complete rating actions are as follows:
Issuer: MAPS 2021-1 Trust
Class A Notes, Assigned (P)A1 (sf)
Class B Notes, Assigned (P)Baa1 (sf)
Class C Notes, Assigned (P)Ba1 (sf)
MAPS will use the proceeds from the issuance of the notes to
acquire the series A, series B and series C AOE notes (the AOE
notes) to be issued by each of MAPS 2021-1 Aviation (Ireland)
Designated Activity Company (MAPS Ireland) and MAPS 2021-1 Aviation
(US) LLC (MAPS US), the underlying asset-owning entity (AOE)
issuers, incorporated under Irish law and Delaware law,
respectively. Upon satisfaction of certain conditions within 270
days after the transaction closing date (the purchase period), each
of the AOE issuers expects to use the proceeds from the issuance of
the AOE notes to acquire from the sellers beneficial interests in
asset owning entities (AOEs) that directly or indirectly own in the
aggregate 20 aircraft and their related leases. In exchange for the
sale of their ownership interests in the AOEs, the sellers will
receive a portion of the AOE note issuance proceeds and the E notes
from the AOE issuers.
RATINGS RATIONALE
The provisional ratings of the notes are based on (1) the results
of Moody's quantitative modeling analyses, including sensitivity
analyses with respect to certain model assumptions, (2) the initial
and expected Moody's assumed cumulative loan-to-value (Moody's
CLTV) ratios for each class of notes, using Moody's assumed value
(MAV) of the aircraft portfolio to be securitized, (3) the credit
quality of the underlying aircraft portfolio, their related initial
and subsequent leases and their expected performance, (4) the
transaction structure and priority of payments, (5) the ability,
experience and expertise of Merx as the servicer of the assets to
be securitized, and (6) qualitative considerations for risks
related to asset diversity as well as legal, operational,
jurisdiction, data quality, bankruptcy remoteness, and ESG
(environmental, social and governance) risks, among others. The
provisional ratings also consider the heightened risk and continued
global economic disruption resulting from the COVID-19 pandemic.
The class A, B, and C notes have a Moody's initial CLTV ratio of
around 72.7%, 85.3% and 94.0%, respectively, using the MAV of the
aircraft portfolio to be securitized. The MAV reflects the minimum
of several third-party appraisers' initial half-life current market
values, adjusted by the appraised maintenance adjustment from Alton
Aviation Consultancy Ireland Limited (Alton). Moody's CLTV ratio
reflects the loan-to-value ratio of the combined amounts of each
class of notes and the classes that are senior to it. Moody's CLTV
ratios do not reflect Alton's projected end of lease (EOL) payments
due from most of the airlines when their leases expire. Moody's
initial CLTV ratios of each class of notes would be five to seven
percentage points lower after reflecting the credit that it
ascribed to the aggregate projected EOL payments, assuming no EOL
payments leak to the E notes.
Unless otherwise noted, all percentages below represent a
percentage of the portfolio MAV.
Key credit strengths of the transaction include (1) mostly strong
leasing assets, (2) strong initial contractual cash flows from
lessees of relatively strong credit quality, (3) limited lease
maturities through 2023, and 65% after the anticipated repayment
date (ARD) in 2028, reducing exposure to near-term COVID-19-related
re-leasing risks, and (4) large EOL payments that will bolster
transaction cash flows.
Key credit challenges of the transaction include (1) improving,
albeit still-challenging, commercial aviation industry that
heightens asset risks, (2) volatility in aircraft values and lease
rates, (3) potential adverse changes in portfolio composition and
concentration, (4) potential large maintenance expenses upon lessee
default, (5) unrated servicer, (6) novation and acquisition risk,
and (7) leakage of cash flows to the E notes. In assessing the
impact of the credit challenges on the transaction, Moody's
considered the various mitigants to the risks and performed
sensitivity analyses in its quantitative modeling.
CREDIT QUALITY OF UNDERLYING AIRCRAFT
The aircraft portfolio to be securitized is stronger than most
aircraft lease ABS pools with limited risk layering. The pool
includes a relatively homogeneous mix of relatively young, highly
liquid narrowbody aircraft (83%). The aircraft are leased to 12
lessees of relatively strong credit quality, mostly domiciled in
the US and developed Europe. The WA remaining term of the leases is
nine years, longer than the seven-year ARD and that of pools
backing most aircraft lease ABS issued since 2017. The mostly long
leases to relatively strong lessees should support strong
contractual cash flows through the pandemic and beyond the ARD and
decrease the deal's exposure to re-leasing risk.
Highly liquid, narrowbody aircraft less than nine years in age
comprise 83% of the portfolio to be securitized, of which 48% are
new technology A220s, A320neos and a B737MAX less than three years
in age and 35% are current technology A320-200s and B737-800s six
to nine years in age. These narrowbody aircraft are strong leasing
assets owing to their large diversified installed or expected
operator bases. The portfolio contains no widebody passenger
aircraft. The remaining two aircraft are widebody freighters (17%),
which will benefit from continued strong demand for air cargo. The
high proportion of relatively young aircraft in the pool, with a WA
age of 5.8 years (4.2 years excluding the freighters), that Moody's
expects will be in service for at least 16 years on average will
provide a strong source of cash flows to repay the notes and allow
the transaction more time to recover from unexpected declines in
cash flows owing to temporary market disruptions.
The pool consists of 10% young-midlife aircraft. Risks typically
associated with mid-life aircraft include diminished re-leasing
prospects, higher volatility in values, technological obsolescence
and higher costs related to ongoing maintenance.
CREDIT QUALITY OF INITIAL LEASES AND LESSEES
Around 89% of the aircraft are subject to leases that will expire
after 2023, when Moody's expects a recovery in global air travel
demand to pre-pandemic (2019) levels, protecting the transaction
from COVID-19-related re-leasing risks unless lessees default.
The relatively long initial leases to initial lessees of relatively
strong credit quality will provide a strong and steady source of
cashflow to the transaction. Around 88% of the initial contractual
lease rent comes from airlines that are rated or have credit
estimates (CE), with a WA rating or CE of Ba3. Around 45% of the
initial contracted rent comes from four airlines that Moody's
rates: Delta Air Lines, Inc. (Baa3 negative), Wizz Air (Baa3
negative), Spirit Airlines, Inc. (B1 negative) and Gol Linhas
Aereas Inteligentes S.A. (B3 stable). Around 64% of the aircraft
are leased to initial lessees domiciled in the US and developed
Europe. As of May 15, 2021, only one initial lessee had due but
unpaid scheduled lease payments under its second COVID-19-related
deferral agreement.
Noteholders will benefit from EOL payments received from certain
lessees at the end of their leases, provided the lessee is
performing, which will accelerate the pay down of the notes. Alton
projects aggregate EOL payments of $125 million from the initial
leases at lease expiry, or 23% of the aggregate note balance. In
its analysis, Moody's reduced the projected EOL payments to account
for (1) the potential volatility in Alton's projected EOL amounts
owing to uncertainty around utilization of the aircraft during the
lease terms, (2) the projected costs required to ensure that the
maintenance condition of the plane is sufficient to attract a
subsequent lessee at reasonable terms, (3) the possibility that
some aircraft may be sold prior to the end of their leases and
therefore the notes will not receive the related EOL payments, and
(4) the probability of lessee defaults prior to lease expiry.
STRENGTH OF TRANSACTION STRUCTURE
The MAPS 2021-1 transaction structure is similar to pre-COVID
aircraft lease ABS transaction structures, except that it has DSCR
triggers for cash trap and cash sweep that have a shorter look back
period of three-months, which will allow the transaction to respond
faster to performance deterioration.
Similar to other aircraft lease ABS transactions, the pro-rata
payments among the classes of notes and the E notes limits
de-leveraging of the notes prior to the ARD, assuming no rapid
amortization event is occurring. In contrast, deals in most ABS
asset classes generally have stronger structures that preclude the
erosion of credit enhancement through maintaining credit
enhancement levels without trigger breaches.
Prior to the ARD, assuming no rapid amortization event is
occurring, a disproportionate share of collections will be paid to
the class C notes owing to their faster scheduled amortization,
compared with that of the class A and class B notes, and
collections in excess of the scheduled note payments will be
diverted to the E notes. Owing to the pro-rata payment structure,
EOL payments and aircraft sales proceeds will accelerate debt
amortization, and except for (1) certain amounts earned on the
disposition of aircraft, including the greater of (a) 5% of the
debt associated with an aircraft that is sold or (b) 5% of the
leverage-adjusted net sales proceeds of an aircraft that is sold,
and (2) 5% multiplied by the pro-rata percentage of a series
multiplied by the EOL payments collected from an asset, will not
result in any de-leveraging of the notes. The immediate debt
acceleration will be partially offset by reduced future scheduled
principal payments on the notes through the ARD. Any aircraft sales
proceeds or EOL payments received after the ARD will be fully
utilized to delever the notes. Around 75% of the EOL payments are
tied to leases expiring after the ARD.
The risks posed by the pro-rata structure are mitigated by (1) the
lower initial CLTVs of the notes, compared with most ABS backed by
young aircraft portfolios, (2) the strong contractual cash flows,
and (3) the likely decreasing CLTVs over time owing to the slower
aircraft portfolio value depreciation, compared with scheduled note
amortization. In addition, a strong recovery in the commercial
aviation industry would enhance the CLTVs if aircraft values were
to recover meaningfully. Also, if aircraft are sold, the
noteholders can receive at least 105% of the outstanding debt
associated with that aircraft. Moreover, performance triggers that
result in a full cash sweep reduce the negative impact of the
pro-rata structure.
NOVATION AND ACQUISITION RISK
At transaction closing, the AOE issuers will not have an interest
in the AOEs that directly or indirectly own the aircraft collateral
securing the AOE notes, and therefore, the transaction will be
exposed to the risk that the AOE issuers do not acquire the
ownership interests in certain of the AOEs during the 270-day
purchase period. The relatively homogeneous, young, highly liquid
aircraft portfolio of relatively strong quality mitigates the risk
of aircraft not being delivered during the purchase period,
resulting in a weaker and more volatile asset mix with higher
concentrations. In addition, the conditions for the seller to
substitute a replacement aircraft for an undelivered aircraft
during the purchase period mitigate the risk of adverse changes in
the portfolio.
On the closing date, the sellers will indirectly own or have
interests in the AOEs that directly or indirectly own 18 of the 20
aircraft in the portfolio. The sellers will cause the AOEs to be
transferred to MAPS Ireland and MAPS US by beneficial interest
transfers or membership interest transfers, respectively, during
the purchase period in exchange for the AOE note issuance proceeds
and the E notes, which will be held by the sellers. Since the AOE
issuers will acquire the beneficial interest or membership
interests of the AOEs rather than title to the aircraft, the leases
will not need to be novated, and aircraft acquisition will be less
complex. Lessee involvement will likely be limited to executing a
standard acknowledgment of assignment and updating the insurance
certificate. Lessee involvement will likely be limited to executing
a standard acknowledgment of assignment and updating the insurance
certificate.
As of May 15, 2021, two A320neos (16%) subject to existing leases
to S7 Airlines were not yet owned by the applicable seller or its
affiliates acquired by the applicable AOE. The sellers recently
entered into a purchase agreement to acquire, from a third-party,
the beneficial interest in these two aircraft. The airline must
enter into novation agreements and ancillary documents. The Issuer
Group expects to acquire the beneficial interest in the aircraft
during the purchase period. In its cash flow analyses, Moody's
considered scenarios in which it assumed certain AOEs and/or
related planes, including the two A320neos, were not acquired
during the purchase period.
QUANTATIVE MODELING ASSUMPTIONS
Moody's initial assumed value: Moody's initial assumed
maintenance-adjusted current market value (MAV) of the aircraft
portfolio is $574.6 million. The MAV of each asset is equal to (A)
the minimum of (i) the average of three half-life current market
value (CMV) appraisals for each asset provided by sponsor-selected
third-party appraisal firms (AVITAS, Inc., IBA Group Limited and
Morten, Beyer & Agnew, Inc.) and (ii) the minimum of two half-life
CMV appraisals for each asset from two independent third-party
appraisal firms that Moody's traditionally uses, plus (B) Alton's
maintenance adjustment for the asset as of May 2021. All half-life
CMV appraisals are as of as of first-quarter 2021. Alton's
aggregate maintenance adjustment was only $7.7 million as of May
2021, or 1.3% of the portfolio MAV. The MAV is 9% lower than the
average of the three maintenance-adjusted half-life base values
provided by the sponsor.
Lessee defaults: Moody's inferred the probability of default of
each initial airline using either its (1) actual credit rating
where available (45% of the initial contracted lease rent with a WA
rating of around Ba1), (2) credit estimate where available (43% of
the initial contracted lease rent with a WA credit estimate of
around B2), after applying required notching downward in accordance
with Moody's Approach to Using Credit Estimates in Its Rating
Analysis, March 2020, or (3) Caa1 (12% of the initial contracted
rent), which reflects the weakened credit quality of the global
airline industry owing to COVID-19. Moody's assumed default risk
consistent with a B3 rating for subsequent lessees. When a lessee
renews an existing lease, Moody's assumes no change in the credit
quality of the lessee.
Out-of-production adjustment: 12 years for the new technology
A220s, A320neos and B737MAX; 24 months for the current technology
A320-200 and B737-800; 10 years for the B777F; and 0 years for the
B747-400F.
EOL payments: Moody's assumed a 40% haircut to Alton's projected
EOL payments at lease expiry, prior to further reductions related
to the probability of lessee default prior to lease expiry.
Payment deferrals: Moody's assumed that 25% of the lease rent under
leases to airlines in Southeast Asia and Latin America (21%) was
deferred until the end of 2022, reflecting current market
conditions in those regions, and 75% of the deferred rent was
recovered in 2023. Additionally, Moody's cash flow modeling
analyses reflects the current reduced rent that one lessee is
paying under a deferral agreement.
Recession timing: Moody's typically assumes a downturn occurs once
every 10 years and lasts for three years, roughly consistent with
historical experience. Consequently, in Moody's analysis, a typical
aircraft lease securitization will experience two or three
downturns prior to legal maturity.
Remarketing and repossession periods: For the return of an aircraft
at lease expiry, Moody's assumes aircraft downtime of five months
outside of a recession and eight months during a recession. For a
lease default and aircraft repossession, Moody's assumes aircraft
downtime of eight months outside of a recession and 11 months
during a recession.
ESG CONSIDERATIONS
Environmental risk
The environmental risk for this transaction is moderate, though
lower than most aircraft lease ABS transactions. Current and future
carbon and air emission regulations for aircraft could make older
and fuel inefficient aircraft more expensive to operate or require
retrofits that may make them even less attractive to airlines,
reducing demand for these aircraft. The lower demand could
negatively affect both the values and lease rates of aged aircraft
and relegate older aircraft to airlines with lower credit quality
or those operating in jurisdictions where regulations have not been
implemented. The transaction has a long legal final maturity and is
therefore likely to be exposed to regulatory changes. However, the
relatively young pool of mostly highly liquid narrowbody aircraft
(83%), of which 48% are new technology models that are the most
fuel-efficient, mitigates these environmental risks.
Social risk
The social risk for this transaction is moderate. Aircraft lease
ABS are exposed to social risks that could decrease demand for
aircraft, reducing the revenue available to repay the notes.
Demographic shifts can affect air travel demand, and in turn
aircraft values and lease rates. Health pandemics, such as the
current COVID-19 pandemic, could result in a sharp decline in air
travel demand growth, reducing the demand for aircraft or weakening
the credit profiles of the airlines that are lessees in the
securitization.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Governance risk
This securitization's governance risk is moderate and typical of
other aircraft lease transactions in the market. As described in
Moody's publication "Governance considerations are a key
determinant of credit quality for all issuers," September 2019,
Moody's examine five governance considerations in Moody's analysis
as described below.
1) Financial strategy and risk management -- this transaction
limits the ability of MAPS, and the AOE issuers and their
respective subsidiary AOEs to engage in activities other than the
ones related to the underlying assets and this transaction,
including in respect of the issuance of additional notes and other
actions.
2) Management credibility and track record -- while Moody's does
not rate the sponsor and servicer, the legal structure and
documentation of the transaction mitigates the governance risk.
3) The organizational/transaction structure -- MAPS is structured
as a bankruptcy remote statutory trust and the AOE Issuer Group
Members are structured as bankruptcy remote special purpose
entities that could have misalignment of interests among the
transaction parties, and specifically between the holders of the E
notes and the note holders. The AOE issuers' Boards initially will
have a majority of directors affiliated with the Merx Group. The
majority of each Board (including the independent director) could
approve certain actions, such as aircraft sales, that could be
disadvantageous to noteholders in order to unlock the equity.
4) The board structure -- includes a Board for each AOE issuer,
each with one independent director that makes decisions that will
maximize the value of the collateral, such as engaging a successor
servicer upon termination of the servicer and selling aircraft, as
well as an independent managing agent, trustee and paying agent.
However, the requirement for the independent director is somewhat
weaker than those of most transactions in other asset classes that
Moody's rate.
5) Compliance and reporting -- Moody's considered the sufficiency
and frequency of this securitization's reporting in the form of
servicing reports and other reports.
In addition, the servicer may have potential conflicts of interest
in servicing the aircraft portfolio to be securitized because it
also services the Merx Group's aircraft portfolio and the aircraft
portfolios backing MAPS 2018-1 and MAPS 2019-1. However, the
servicer covenants not to discriminate among the securitization
assets and the other assets it owns or manages, partially
mitigating this governance risk.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Securities Backed by Aircraft and Associated
Leases" published in July 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Factors that could lead to an upgrade of the ratings on the notes
are (1) collateral cash flows that are significantly greater than
Moody's initial expectations and (2) a significant improvement in
the credit quality of the airlines leasing the aircraft. Moody's
updated expectations of collateral cash flows may be better than
its original expectations because of a lower frequency of lessee
defaults, a recovery in aircraft values and lease rates owing to
stronger global air travel demand, lower than expected depreciation
in the value of the aircraft that secure the lessees' promise of
payment under the leases, higher than expected aircraft disposition
proceeds, and higher than expected EOL payments at lease expiry
that are used to prepay the notes. As the primary drivers of
performance, positive changes in the condition of the global
commercial aviation industry could also affect the ratings.
Down
Factors that could lead to a downgrade of the ratings on the notes
are (1) collateral cash flows that are materially below Moody's
initial expectations and (2) a significant decline in the credit
quality of the airlines leasing the aircraft. Other reasons for
worse-than-expected transaction performance could include poor
servicing of the assets, for example aircraft sales disadvantageous
to noteholders, or error on the part of transaction parties.
Moody's updated expectations of collateral cash flows may be worse
than its original expectations because of a higher frequency of
lessee defaults, greater than expected depreciation in the value of
the aircraft that secure the lessees' promise of payment under the
leases, owing to weak global air travel demand, lower than expected
aircraft disposition proceeds, and lower than expected EOL payments
received at lease expiry. Transaction performance also depends
greatly on the strength of the global commercial aviation industry.
MELLO MORTGAGE 2021-MTG2: DBRS Gives Prov. B Rating on B5 Certs
---------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Mortgage Pass-Through Certificates, Series 2021-MTG2 to be issued
by Mello Mortgage Capital Acceptance 2021-MTG2 (MELLO 2021-MTG2):
-- $297.3 million Class A1 at AAA (sf)
-- $297.3 million Class A2 at AAA (sf)
-- $297.3 million Class A3 at AAA (sf)
-- $178.4 million Class A4 at AAA (sf)
-- $178.4 million Class A5 at AAA (sf)
-- $178.4 million Class A6 at AAA (sf)
-- $118.9 million Class A7 at AAA (sf)
-- $118.9 million Class A8 at AAA (sf)
-- $118.9 million Class A9 at AAA (sf)
-- $223.0 million Class A10 at AAA (sf)
-- $223.0 million Class A11 at AAA (sf)
-- $223.0 million Class A12 at AAA (sf)
-- $74.3 million Class A13 at AAA (sf)
-- $74.3 million Class A14 at AAA (sf)
-- $74.3 million Class A15 at AAA (sf)
-- $44.6 million Class A16 at AAA (sf)
-- $44.6 million Class A17 at AAA (sf)
-- $44.6 million Class A18 at AAA (sf)
-- $35.0 million Class A19 at AAA (sf)
-- $35.0 million Class A20 at AAA (sf)
-- $35.0 million Class A21 at AAA (sf)
-- $332.2 million Class A22 at AAA (sf)
-- $332.2 million Class A23 at AAA (sf)
-- $332.2 million Class A24 at AAA (sf)
-- $332.2 million Class AX1 at AAA (sf)
-- $297.3 million Class AX2 at AAA (sf)
-- $297.3 million Class AX3 at AAA (sf)
-- $297.3 million Class AX4 at AAA (sf)
-- $178.4 million Class AX5 at AAA (sf)
-- $178.4 million Class AX6 at AAA (sf)
-- $178.4 million Class AX7 at AAA (sf)
-- $118.9 million Class AX8 at AAA (sf)
-- $118.9 million Class AX9 at AAA (sf)
-- $118.9 million Class AX10 at AAA (sf)
-- $223.0 million Class AX11 at AAA (sf)
-- $223.0 million Class AX12 at AAA (sf)
-- $223.0 million Class AX13 at AAA (sf)
-- $74.3 million Class AX14 at AAA (sf)
-- $74.3 million Class AX15 at AAA (sf)
-- $74.3 million Class AX16 at AAA (sf)
-- $44.6 million Class AX17 at AAA (sf)
-- $44.6 million Class AX18 at AAA (sf)
-- $44.6 million Class AX19 at AAA (sf)
-- $35.0 million Class AX20 at AAA (sf)
-- $35.0 million Class AX21 at AAA (sf)
-- $35.0 million Class AX22 at AAA (sf)
-- $332.2 million Class AX23 at AAA (sf)
-- $332.2 million Class AX24 at AAA (sf)
-- $332.2 million Class AX25 at AAA (sf)
-- $5.6 million Class B1 at AA (high) (sf)
-- $5.6 million Class B1A at AA (high (sf)
-- $5.6 million Class BX1 at AA (high) (sf)
-- $4.9 million Class B2 at A (sf)
-- $4.9 million Class B2A at A (sf)
-- $4.9 million Class BX2 at A (sf)
-- $3.7 million Class B3 at BBB (sf)
-- $1.7 million Class B4 at BB (sf)
-- $349.0 thousand Class B5 at B (sf)
Classes AX1, AX2, AX3, AX4, AX5, AX6, AX7, AX8, AX9, AX10, AX11,
AX12, AX13, AX14, AX15, AX16, AX17, AX18, AX19, AX20, AX21, AX22,
AX23, AX24, AX25, BX1, and BX2 are interest-only certificates. The
class balances represent notional amounts.
Classes A1, A2, A3, A4, A5, A7, A8, A9, A10, A11, A12, A13, A14,
A16, A17, A19, A20, A22, A23, A24, AX2, AX3, AX4, AX5, AX8, AX9,
AX10, AX11, AX12, AX13, AX14, AX17, AX20, AX23, AX24, AX25, B1 and
B2 are exchangeable certificates. These classes can be exchanged
for combinations of exchange certificates.
Classes A1, A2, A3, A4, A5, A6, A7, A8, A9, A10, A11, A12, A13,
A14, A15, A16, A17, and A18 are super-senior certificates. These
classes benefit from additional protection from the senior support
certificates (Classes A19, A20, and A21) with respect to loss
allocation.
The AAA (sf) ratings on the Certificates reflect 5.00% of credit
enhancement provided by subordinated certificates. The AA (high)
(sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 3.40%,
2.00%, 0.95%, 0.45%, and 0.35% of credit enhancement,
respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
This securitization is a portfolio of first-lien fixed-rate prime
conventional residential mortgages funded by the issuance of the
Certificates. The Certificates are backed by 552 loans with a total
principal balance of $349,732,039 as of the Cut-Off Date (May 1,
2021).
MELLO 2021-MTG2 is the fourth prime securitization issued from the
MELLO shelf MTG series and comprises fully amortizing fixed-rate
mortgages with original terms to maturity of primarily 30 years.
The first two MELLO deals were issued in 2018 and consisted of a
combination of nonagency and agency-eligible prime collateral.
Unlike the first two securitizations, all loans in the MELLO
2021-MTG2 pool are conforming, high-balance mortgage loans which
were underwritten by loanDepot.com, LLC (loanDepot) using an
automated underwriting system designated by Fannie Mae or Freddie
Mac and were eligible for purchase by such agencies. In addition,
the pool contains a large concentration of loans (43.9%) that were
granted appraisal waivers by the agencies. In its analysis, DBRS
Morningstar applied property value haircuts to such loans, which
increased the expected losses on the collateral.
loanDepot is the Originator, Seller, and Servicing Administrator of
the mortgage loans, and Artemis Management LLC is the Sponsor of
the transaction. LD Holdings Group LLC, the parent company of the
Sponsor and Seller, will serve as Guarantor with respect to the
remedy obligations of the Seller. LDPMF LLC, a subsidiary of the
Sponsor and an affiliate of the Seller, will act as Depositor of
the transaction.
Cenlar FSB will act as the Servicer. Wells Fargo Bank, N.A. (rated
AA with a Negative trend by DBRS Morningstar) will act as the
Master Servicer and Securities Administrator. Wilmington Savings
Fund Society, FSB will serve as Trustee, and Deutsche Bank National
Trust Company will serve as Custodian.
The transaction employs a senior-subordinate, shifting-interest
cash flow structure that is enhanced from a pre-crisis structure.
As of the Cut-Off Date, no borrower within the pool has entered
into a Coronavirus Disease (COVID-19)-related forbearance plan with
a servicer. In the event a borrower requests or enters into a
forbearance plan after the Closing Date, such loan will remain in
the pool.
Coronavirus Pandemic Impact
The coronavirus pandemic and the resulting isolation measures have
caused an economic contraction, leading to sharp increases in
unemployment rates and income reductions for many consumers. DBRS
Morningstar anticipates that delinquencies may continue to rise in
the coming months for many residential mortgage-backed securities
(RMBS) asset classes, some meaningfully.
The prime mortgage sector is a traditional RMBS asset class that
consists of securitizations backed by pools of residential home
loans originated to borrowers with prime credit. Generally, these
borrowers have decent FICO scores, reasonable equity, and robust
income and liquid reserves.
As a result of the coronavirus, DBRS Morningstar has seen increased
delinquencies and loans on forbearance plans, and expects 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: March 2021 Update,"
published on March 17, 2021), for the prime 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 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 prime asset class, while the full effect of the coronavirus
may not occur until a few performance cycles later, DBRS
Morningstar generally believes that this sector should have low
intrinsic credit risk. Within the prime asset class, loans
originated to (1) self-employed borrowers or (2) higher
loan-to-value ratio (LTV) borrowers may be more sensitive to
economic hardships resulting from higher unemployment rates and
lower incomes. Self-employed borrowers are potentially exposed to
more volatile income sources, which could lead to reduced cash
flows generated from their businesses. Higher LTV borrowers, with
lower equity in their properties, generally have fewer refinance
opportunities and therefore slower prepayments. In addition,
certain pools with elevated geographic concentrations in densely
populated urban metropolitan statistical areas may experience
additional stress from extended lockdown periods and the slowdown
of the economy.
Notes: All figures are in U.S. dollars unless otherwise noted.
MELLO MORTGAGE 2021-MTG2: Moody's Rates Class B5 Certs 'B1'
-----------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to
fifty-eight classes of residential mortgage-backed securities
(RMBS) issued by Mello Mortgage Capital Acceptance (MMCA)
2021-MTG2. The ratings range from Aaa (sf) to B1 (sf).
MMCA 2021-MTG2 is a securitization of first-lien hfigh-balance
GSE-eligible mortgage loans. The transaction is backed by 552,
30-year (98.8% by balance), 28-year (0.2% by balance), and 25-year
(1.0% by balance) fixed-rate mortgage loans, with an aggregate
stated principal balance of $349,732,040, originated by
loanDepot.com, LLC (loanDepot). The average stated principal
balance is $633,573. All mortgage loans are designated as Qualified
Mortgages (QM) under the QM safe harbor rules.
Approximately 43.9% of the mortgage loans by aggregate unpaid
principal balance (UPB) are "Appraisal Waiver" (AW) loans, whereby
the sponsor obtained an AW for each such mortgage loan from Fannie
Mae or Freddie Mac through their respective programs. In each case,
neither Fannie Mae nor Freddie Mac required an appraisal of the
related mortgaged property as a condition of approving the related
mortgage loan for purchase by Fannie Mae or Freddie Mac, as
applicable.
Cenlar FSB (Cenlar) will service all the mortgage loans in the
transaction. Wells Fargo Bank, N.A. (Long term debt Aa2) will serve
as the master servicer. The servicing administrator, loanDepot,
will be primarily responsible for funding certain servicing
advances of delinquent scheduled interest and principal payments
for the mortgage loans, unless the servicer determines that such
amounts would not be recoverable. The master servicer will be
obligated to fund any required monthly advance if the servicing
administrator fails in its obligation to do so.
One third-party review (TPR) firm verified the accuracy of the loan
level information that Moody's received from the sponsor. Of the
552 loans in the pool, detailed credit, compliance, property
valuation and data accuracy reviews were conducted on 205 (37.1% by
loan count) mortgage loans. Additional valuation products were
ordered on the remaining 347 loans. Based on the review, the TPR
results indicate that there are no material compliance, credit, or
data issues and no appraisal defects. Moody's calculated the
credit-neutral sample size using a confidence interval, error rate,
and a precision level of 95%/5%/2%. The number of loans that went
through a full due-diligence review is below Moody's calculated
threshold, Moody's therefore applied an adjustment to Moody's
losses.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. Moody's also compared the
collateral pool to MMCA 2021-MTG1, MMCA 2018-MTG1, MMCA 2018-MTG2,
Provident Funding Mortgage Trust 2020-2, Provident Funding Mortgage
Trust 2020-1, and Provident Funding Mortgage Trust 2019-1
transactions. Overall, this pool has a weaker credit risk profile
as compared to that of recent comparable transactions with respect
to FICO distribution.
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: Mello Mortgage Capital Acceptance 2021-MTG2
Cl. A1, Assigned Aaa (sf)
Cl. A2, Assigned Aaa (sf)
Cl. A3, Assigned Aaa (sf)
Cl. A4, Assigned Aaa (sf)
Cl. A5, Assigned Aaa (sf)
Cl. A6, Assigned Aaa (sf)
Cl. A7, Assigned Aaa (sf)
Cl. A8, Assigned Aaa (sf)
Cl. A9, Assigned Aaa (sf)
Cl. A10, Assigned Aaa (sf)
Cl. A11, Assigned Aaa (sf)
Cl. A12, Assigned Aaa (sf)
Cl. A13, Assigned Aaa (sf)
Cl. A14, Assigned Aaa (sf)
Cl. A15, Assigned Aaa (sf)
Cl. A16, Assigned Aaa (sf)
Cl. A17, Assigned Aaa (sf)
Cl. A18, Assigned Aaa (sf)
Cl. A19, Assigned Aa1 (sf)
Cl. A20, Assigned Aa1 (sf)
Cl. A21, Assigned Aa1 (sf)
Cl. A22, Assigned Aaa (sf)
Cl. A23, Assigned Aaa (sf)
Cl. A24, Assigned Aaa (sf)
Cl. AX1*, Assigned Aaa (sf)
Cl. AX2*, Assigned Aaa (sf)
Cl. AX3*, Assigned Aaa (sf)
Cl. AX4*, Assigned Aaa (sf)
Cl. AX5*, Assigned Aaa (sf)
Cl. AX6*, Assigned Aaa (sf)
Cl. AX7*, Assigned Aaa (sf)
Cl. AX8*, Assigned Aaa (sf)
Cl. AX9*, Assigned Aaa (sf)
Cl. AX10*, Assigned Aaa (sf)
Cl. AX11*, Assigned Aaa (sf)
Cl. AX12*, Assigned Aaa (sf)
Cl. AX13*, Assigned Aaa (sf)
Cl. AX14*, Assigned Aaa (sf)
Cl. AX15*, Assigned Aaa (sf)
Cl. AX16*, Assigned Aaa (sf)
Cl. AX17*, Assigned Aaa (sf)
Cl. AX18*, Assigned Aaa (sf)
Cl. AX19*, Assigned Aaa (sf)
Cl. AX20*, Assigned Aa1 (sf)
Cl. AX21*, Assigned Aa1 (sf)
Cl. AX22*, Assigned Aa1 (sf)
Cl. AX23*, Assigned Aaa (sf)
Cl. AX24*, Assigned Aaa (sf)
Cl. AX25*, Assigned Aaa (sf)
Cl. B1, Assigned Aa3 (sf)
Cl. B1A, Assigned Aa3 (sf)
Cl. BX1*, Assigned Aa3 (sf)
Cl. B2, Assigned A2 (sf)
Cl. B2A, Assigned A2 (sf)
Cl. BX2*, Assigned A2 (sf)
Cl. B3, Assigned Baa2 (sf)
Cl. B4, Assigned Ba2 (sf)
Cl. B5, Assigned B1 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 0.22%
at the mean, 0.07% at the median, and reaches 4.92% at a stress
level consistent with Moody's Aaa ratings.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's increased its model-derived median expected losses by 10.0%
(5.6% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's base its 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
MMCA 2021-MTG2 is a securitization of first-lien high-balance
GSE-eligible mortgage loans. The transaction is backed by 552,
30-year (98.8% by balance), 28-year (0.2% by balance), and 25-year
(1.0% by balance) fixed-rate mortgage loans, with an aggregate
stated principal balance of $349,732,040, originated by
loanDepot.com, LLC (loanDepot). The average stated principal
balance is $633,573 and the weighted average (WA) current mortgage
rate is 2.8%. 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 764 and 65.8%, respectively. The WA original
debt-to-income (DTI) ratio is 31.5%. Approximately, 29% by loan
balance of the borrowers in the pool have more than one mortgage.
Also, there is one borrower with two mortgages in this pool. All of
the loans are designated as Qualified Mortgages (QM) under the QM
safe harbor rules. All loans are underwritten to Freddie Mac or
Fannie Mae guidelines with minimal overlays from loanDepot.
Approximately half of the mortgages (49.3% by loan balance) are
backed by properties located in California. The next largest
geographic concentration is Washington (15.7% by loan balance),
Virginia (11.8% by loan balance), and New Jersey (8.6% by loan
balance). All other states each represent 4% or less by loan
balance. Approximately 1.5% (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
62.3% (by loan balance) of the pool.
Approximately 86.1% (by loan balance) of the loans were originated
through the retail channel and 13.9% (by loan balance) of the loans
were originated through the broker channel.
Origination Quality and Underwriting Guidelines
loanDepot has originated all the mortgage loans in the pool. All
mortgage loans were originated generally in accordance with Federal
Housing Finance Agency (FHFA) standards, under loanDepot's
conforming high balance loan program, with no material overlays
imposed by the originator. The underwriting guidelines evaluate,
among others, the borrowers' ability to repay, employment history,
credit history and FICO scores, debt to income ratio (DTI) and
residual income. The mortgage loans were originated using an
automated underwriting system (AUS), DU for Fannie Mae and LP for
Freddie Mac loans, as both a risk screening tool and also to ensure
that the only ineligible factor is the loan amount. For a loan to
get approved, a DU response of "Approve/Eligible" or LP response of
"Accept" is required. Manual underwriting of any loans is not
allowed under the program.
Moody's consider loanDepot's origination quality to be in line with
its peers due to: (1) adequate underwriting policies and
procedures, (2) acceptable performance with low delinquency and
repurchase and (3) adequate quality control. Therefore, Moody's
have not applied an additional adjustment for origination quality.
Servicing arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate. Cenlar FSB (Cenlar) will service all the mortgage
loans in the transaction. Wells Fargo Bank, N.A. (Long term debt
Aa2) will serve as the master servicer. The servicing
administrator, loanDepot, will be primarily responsible for funding
certain servicing advances of delinquent scheduled interest and
principal payments for the mortgage loans, unless the servicer
determines that such amounts would not be recoverable. The master
servicer will be obligated to fund any required monthly advance if
the servicing administrator fails in its obligation 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
In the event that a borrower enters into or requests a COVID-19
related forbearance plan on or after the closing date, such
mortgage loan will remain in the mortgage pool and the servicing
administrator will be required to make advances in respect of
delinquent interest and principal (as well as servicing advances)
on such mortgage loan during the forbearance period (to the extent
such advances are deemed recoverable). Forbearances are being
offered in accordance with applicable state and federal regulatory
guidelines and the homeowner's individual circumstances. At the end
of the forbearance period, as with any other modification, to the
extent the related borrower is not able to make a lump sum payment
of the forborne amount, the servicer may, subject to the servicing
matrix, offer the borrower a repayment plan, enter into a
modification with the borrower (including a modification to defer
the forborne amounts) or utilize any other loss mitigation option
permitted under the pooling and servicing agreement.
The servicing fee rate will be equal to 8 bps. Under the
transaction documents, the servicing administrator may increase the
servicer fee rate up to 25 bps in the event that servicing
administrator terminates Cenlar as the servicer. The successor
servicer chosen by the servicing administrator must be reasonably
acceptable to the master servicer. The master servicer may increase
the servicing fee up to an amount that in its good faith judgment
is necessary or advisable to engage a successor servicer. In
modeling this transaction, Moody's assumed a 25 bps servicing fee
rate in line with other transactions that have similar servicing
fee structure.
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 37.1% (205 loans) of the pool (by loan count).
Additional valuation products were ordered on the remaining 347
loans. For each appraisal waiver (AW) loan, there was an Automatic
Valuation Model (AVM) review conducted in connection with this
offering by a third-party vendor with respect to the related
mortgaged properties. There were no AW loans in the pool with AVM
value that was more than 10% less than the stated value.
The TPR results indicated compliance with the originators'
underwriting guidelines for most of the loans, no material
compliance issues and no material appraisal defects. Moody's
calculated the credit-neutral sample size using a confidence
interval, error rate, and a precision level of 95%/5%/2%. The
number of loans that went through a full due-diligence review is
below Moody's calculated threshold, Moody's therefore applied an
adjustment to Moody's losses.
Also, AW loans, which constitute approximately 43.9% of the
mortgage loans by aggregate cut-off date balance, may present a
greater risk as the value of the related mortgaged properties may
be less than the value ascribed to such mortgaged properties.
Moody's made an adjustment in Moody's analysis to account for the
increased risk associated with such loans.
Representations and Warranties Framework
The R&W provider and the guarantor are both loanDepot entities,
which may not have the financial wherewithal to purchase defective
loans. The Guarantor (LD Holdings Group LLC) will guarantee certain
performance obligations of the R&W provider (loanDepot.com, LLC).
Moreover, unlike other transactions that Moody's have rated, the
R&W framework for this transaction does not include a mechanism
whereby loans that experience an early payment default (EPD) are
repurchased. Moody's have adjusted Moody's Aaa CE and expected
losses to account for these weaknesses in the R&W framework.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior subordination 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 of time, and increasing
amounts of prepayments to the subordinate bonds thereafter, but
only if loan performance satisfies delinquency and loss tests.
Realized losses are allocated in a reverse sequential order, first
to the lowest subordinate bond. After the balances of the
subordinate bonds are written off, losses from the pool begin to
write off the principal balances of the senior support bonds until
their principal balances are reduced to zero. Next, realized losses
are allocated to super senior bonds until their principal balance
is written off.
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 0.60% 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 0.60% 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 0.60% and 0.60%,
respectively, 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.
MILL CITY 2018-2: Fitch Assigns B- Rating to B3 Debt
----------------------------------------------------
Fitch Ratings has assigned Ratings and Outlooks to four previously
unrated classes from four Mill City transactions issued in 2017 and
2018.
Fitch has rated other classes within these transactions at deal
close. The four classes with ratings assigned today are more junior
than the classes with existing ratings and were unrated at deal
close. All of the transactions have performed well since closing
with many of the previously rated bonds have been upgraded or
assigned a Positive Rating Outlook. All of the transactions are
U.S. RMBS transactions collateralized by pools of re-performing
loans (RPL) in which the majority have been modified.
DEBT RATING PRIOR
---- ------ -----
MCMLT 2017-3
B3 59980CAK9 LT BBsf New Rating NR(EXP)sf
Mill City Mortgage Loan Trust 2018-2
B3 59980MAM3 LT B-sf New Rating NR(EXP)sf
Mill City Mortgage Loan Trust 2018-1
B3 59980VAL5 LT B-sf New Rating NR(EXP)sf
Mill City Mortgage Loan Trust 2017-2
B4 59980AAH0 LT B-sf New Rating NR(EXP)sf
KEY RATING DRIVERS
Higher Achievable Ratings than at Issuance (Positive):
Since transaction close credit protection for the subordinate bonds
is materially higher than when Fitch initially assigned ratings to
these four transactions. This is mostly driven by the increase in
credit enhancement (CE) but also by lower loss expectations. Since
issuance, the senior bonds have de-levered significantly increasing
the CE %s for the subordinate bonds. Additionally, due to modelling
changes and significant home price appreciation, Fitch's model
losses are down from issuance.
Higher Percentage of Non-Cashflowing Loans (Negative)
In Fitch's analysis, all non-cashflowing loans were treated as
delinquent, so loans that were on deferral or forbearance plans
that were not cash flowing were treated as delinquent for
determining loan-level probability of default (PD). As many loans
remain delinquent or non-cashflowing, the delinquencies remain
elevated compared to pre-pandemic levels. The average non-cash
flowing percentage increased to 11% as of the most recent
remittance period. However, loans that were on forbearance plans
during the pandemic but have fully reinstated and are current were
not penalized for the hardship related delinquencies and were
treated as current. Otherwise, non-cash flowing loans or loans that
are contractually delinquent were assigned a higher PD.
Home Price Appreciation and Overvaluation (Mixed)
National home prices grew approximately 10.4% in 2020, the highest
annual growth since 2014. In Fitch's analysis home prices are
indexed off the updated value used when the deal is initially
rated.
The rapid home price growth outpaced the improvement in underlying
economic fundamentals in 4Q20. Favorable mortgage rates and
demand/supply imbalance are causing home prices to continue to
accelerate even as unemployment levels flatten and personal income
levels benefit from the temporary boost from a new round of fiscal
stimulus.
In April 2021, Fitch updated its Sustainable Home Price (SHP)
model, which reflects greater national price overvaluation. Fitch
now estimates that national home prices are 8.2% overvalued on a
population-weighted average basis, compared with 5.5% in 4Q20.
The increased overvaluation estimates resulted in higher
sustainable market value declines (sMVDs) assumed in the PD and
loss severity calculations. Home prices are currently viewed by
Fitch as overvalued by 10% or more in over one-third of the
country's metropolitan statistical areas. The average mark to
market combined loan to value ratio (cLTV) is 68%, but after
applying updated sMVDs, the average base-case sustainable LTV
(sLTV) is 74%.
Sequential Structures (Positive)
These transactions are structured as straight sequential payment
priorities with 100% of principal allocated to the senior bond
first and losses allocated reverse sequentially. This is a
supportive structure to the senior notes, especially through
economic stress because principal is allocated to the most senior
bond first, the structures benefit from significant deleveraging,
and increased credit enhancement (CE) over time. For the most
subordinate classes, in which this rating assignment addresses,
these classes are most at risk because they will not begin to
receive principal allocation for a number of years, and will be
subject to losses earlier in the life of the deal as compared to
more senior notes.
Lack of Advancing (Negative)
These transactions do not include servicer advancing, which impacts
the liquidity to the bonds. Due to the lack of advancing, the
classes which are currently getting ratings assigned generally take
interest shortfalls in severe delinquency stresses. The lack of
advancing does reduce Fitch's expected losses, as there is no risk
of the servicer reimbursing itself for P&I advances when loans
liquidate.
Updated Economic Risk Factor (Positive):
Consistent with the "Additional Scenario Analysis" section of
Fitch's "U.S. RMBS Coronavirus-Related Analytical Assumptions"
criteria, Fitch will consider applying additional scenario analysis
based on stressed assumptions as described in the section to remain
consistent with significant revisions to Fitch's macroeconomic
baseline scenario or if actual performance data indicates the
current assumptions require reconsideration. In response to
revisions made to Fitch's macroeconomic baseline scenario, observed
actual performance data, and the unexpected development in the
health crisis arising from the advancement and availability of
COVID vaccines, Fitch reconsidered the application of the
Coronavirus-related ERF floors of 2.0 and used ERF Floors of 1.5
and 1.0 for the 'BBsf' and 'Bsf' rating stresses, respectively.
Fitch's March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
RATING SENSITIVITIES
value declines (MVDs) than assumed at the MSA level.
Sensitivity analyses was conducted at the state and national levels
to assess the effect of higher MVDs for the subject pool, as well
as lower MVDs, illustrated by a gain in home prices.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- This defined negative stress sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0%, in
addition to the model projected decline at the base case. This
analysis indicates that there is some potential rating
migration with higher MVDs compared with the model projection.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth with
no assumed overvaluation. The analysis assumes positive home
price growth of 10.0%. Excluding the senior classes already
rated 'AAAsf' as well as classes that are constrained due to
qualitative rating caps, the analysis indicates there is
potential positive rating migration for all of the other rated
classes.
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.
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 15-E was provided at issuance, and Due Diligence adjustments
were accounted for in this analysis, however Due Diligence was not
updated for this 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.
MORGAN STANLEY 2012-C6: Fitch Cuts Class H Certs Rating to 'CC'
---------------------------------------------------------------
Fitch Ratings has downgraded four classes and affirmed eight
classes of Morgan Stanley Bank of America Merrill Lynch Trust
(MSBAM) commercial mortgage pass-through certificates, series
2012-C6.
DEBT RATING PRIOR
---- ------ -----
MSBAM 2012-C6
A-4 61761DAD4 LT AAAsf Affirmed AAAsf
A-S 61761DAE2 LT AAAsf Affirmed AAAsf
B 61761DAF9 LT AAsf Affirmed AAsf
C 61761DAH5 LT Asf Affirmed Asf
D 61761DAQ5 LT BBB+sf Affirmed BBB+sf
E 61761DAS1 LT BBsf Downgrade BBB-sf
F 61761DAU6 LT Bsf Downgrade BBB-sf
G 61761DAW2 LT CCCsf Downgrade BBsf
H 61761DAY8 LT CCsf Downgrade Bsf
PST 61761DAG7 LT Asf Affirmed Asf
X-A 61761DAJ1 LT AAAsf Affirmed AAAsf
X-B 61761DAL6 LT Asf Affirmed Asf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades reflect the increased
loss expectations primarily from two regional malls (15% of the
pool), three specially serviced loans (7.4%), and an office and
retail property in the top 15 loans with declines in occupancy.
There are 14 Fitch Loans of Concern (FLOCs; 34%) which included
three specially serviced loans. Fitch's current ratings incorporate
a base case loss of 12.8%, which may increase should performance of
the malls decline further or should loans have difficulty
refinancing as they approach respective maturity dates.
Fitch Loans of Concern/Specially Serviced Loans: The largest
increase in losses since the prior rating action is the Greenwood
Mall loan (8.9% of the pool), an 849,486 sf regional mall located
in Bowling Green, KY, is anchored by JC Penney, Dillard's and Belk.
Sears vacated their anchor space in early 2019 and there are no
known replacements at this time. The loan transferred to the
special servicer in October 2020 for payment default and returned
to the master servicer in May 2021 after the loan became current.
The property had a decline in in-line sales with YE 2020 comparable
inline sales for tenants less than 10,000 sf at $280 psf compared
to $356 psf as of YE 2019, $312 psf as of YE 2018 and $342 psf as
of the February 2012 TTM. Per the March 2021 rent roll, collateral
occupancy was reported at 75.1% compared to 80% at YE 2019 and 95%
at YE 2018. The property NOI has declined to $7.3 million at YE
2020 from $9.1 million at YE 2019, $9.9 million at YE 2018 and
$10.4 million at YE 2017. The NOI debt service coverage ratio
(DSCR) is reported at 1.97x at YE 2020 from 2.45x at YE 2019, 2.69x
at YE 2018 and 3.35x at YE 2017. The loan is sponsored by
Brookfield Property Partners, which acquired the property and
subject loan in August 2018. Fitch modeled a base case loss of 54%
which reflects a 26.7% implied cap rate to the YE 2020 NOI.
The second largest increase in losses since the prior rating action
is the Cumberland Mall (6.1%), a 943,897 sf regional mall located
in Vineland, NJ that is anchored by Home Depot, Dicks Sporting
Goods, Marshalls, Regal Cinemas, BJ's Wholesale Club, and Boscov's.
Burlington vacated when their lease expired in February 2021 and
Best Buy extended their lease until 2026. The loan transferred to
the special servicer in May 2020 for imminent monetary default and
returned to the master servicer in October 2020 after the special
servicer provided relief by temporarily waiving reserve payments.
The property NOI has declined by 14.2% at YE December 2020 from YE
December 2019. DSCR is reported at 1.65x for YE 2020 versus 1.93x
at YE 2019, 2.07x at YE 2018 and 1.99x at YE 2017. Per the March
2021 rent roll, collateral occupancy was 79% compared to 92% at
December 2020, 89% in December 2019, and 93% in December 2018. Toys
R US vacated the mall in 2018 and the space remains vacant except
for short term tenants. Fitch modeled a base case loss of 47% which
reflects a 26.7% implied cap rate to the YE 2020 NOI.
The third largest increase in losses since the prior rating action
is the specially serviced 470 Broadway (2.7%), 6,600-sf single
tenant retail property located in the Soho neighborhood of
Manhattan. The loan transferred to the special servicer in May 2020
due to imminent monetary default when Aldo (lease expiration in
December 2023) filed Chapter 15 bankruptcy in May 2020 and has
since rejected the lease. There are no prospects to backfill the
space. The special servicer will dual track workout options and
consider foreclosure once state restrictions are removed. Fitch's
base case loss of 48% reflects a recent appraised value.
The fourth largest increase in losses since the prior rating action
is 340 West Adams Street (3.3%), secured by the leasehold interest
in a 253, 486 sf office building located in the West Loop
Neighborhood of the Chicago CBD. The loan transferred to the
special servicer in January 2021 due to imminent monetary default.
The borrower is moving forward with the Deed in Lieu of Foreclosure
after initially requesting a waiver of prepayment premium in order
to pay off the loan. The property has had a significant drop in
occupancy to 78% as of February 2021 from 96% in March 2019 and
upcoming tenant rollover of 7% in 2021, and 23% in 2022. Fitch is
concerned about the increasing exposure on the loan as the servicer
will be advancing the ground lease payments. Fitch's expected loss
of approximately 35% is based on a discount to an updated appraisal
value provided by the special servicer.
The fifth largest increase in losses since the prior rating action
is 989 Sixth Avenue (4.0%), a 20-story 95,981-sf office property
located in Manhattan's Garment District. The largest tenant, Knotel
(28% of space) with lease expiration in August 2023, declared
bankruptcy in January 2021 and a Delaware bankruptcy court approved
Newmark Group's acquisition of Knotel in March 2021. As of March
2021, the property was 72% occupied compared to March 2020 at 94%.
Additionally, 7.5% of tenants roll in 2020, 16.7% in 2021, 0% in
2022, and 40% in 2023. YE 2020 NOI of $1.82 million declined by 50%
compared to YE 2019 due to a decline in occupancy and Knotel
declaring bankruptcy. YE 2020 NOI DSCR was 0.92x compared to YE
2019 of 1.97x and YE 2018 of 1.68x. Fitch's analysis included a 5%
stress to YE 2020 NOI to reflect upcoming rollover, resulting in a
22% loss severity.
Alternative Loss Consideration: Fitch's analysis included scenario
that assumed the only remaining loans are the two regional malls
given concerns about potential continued performance deterioration
and ability of the borrowers to refinance the loans in 2022. All
other loans were assumed to liquidate or pay in full at maturity.
The downgrades and Negative Rating Outlooks considered this
scenario.
In addition, an ESG relevance score of '4' for Social Impacts was
applied as a result of exposure to sustained structural shift in
secular preferences affecting consumer trends, occupancy trends,
etc., which, in combination with other factors, impacts the
ratings.
Stable Credit Enhancement; Increased Defeasance: As of the May 2021
distribution date, the pool's aggregate balance has been paid down
by 41.2% to $660.3 million from $1.12 billion at issuance with 44
of the original 61 loans remaining. The top loan in the pool
(18.9%) is full term interest only while all other loans are
currently amortizing. Seven loans (21.5%) are fully defeased
compared to six loans (16.2%) at Fitch's last rating action. No
loans were repaid since the prior review. The pool has experienced
no realized losses to date. Interest shortfalls are currently
affecting the NR class.
Maturity Concentration: All loans in the pool mature from July
through October 2022.
Coronavirus Exposure: Loans secured by retail and hotel properties
represent 50.5% and 11.8% of the pool, respectively. Fitch's
analysis applied additional coronavirus-related stresses on one
retail loan (0.6%) and two hotel loans (2.3%) to account for
potential cash flow disruptions.
RATING SENSITIVITIES
The Negative Outlooks on classes D, E and F reflect the potential
for a near-term rating change should the performance of the two
regional malls and other FLOCs continue to deteriorate or do not
refinance at maturity. The Stable Outlooks on classes A-4, A-S, B,
C, PST, X-A, and X-B reflect the overall stable performance of the
pool, high credit enhancement (CE), and expected paydown from
maturing loans in 2022.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with paydown
and/or defeasance. Upgrades of classes B, C, PST, and X-B may
occur with further improvement in CE or defeasance but would
be limited should the deal be susceptible to a concentration
whereby the underperformance of FLOCs could cause this trend
to reverse.
-- An upgrade to classes D, E and F would also consider these
factors but would be limited based on sensitivity to
concentrations or the potential for future concentration,
especially to the two malls. Classes would not be upgraded
above 'Asf' if there is a likelihood for interest shortfalls.
-- Fitch considers upgrades to classes G and H unlikely but could
occur with significant improvement in performance of the
FLOCs, namely Greenwood Mall and Cumberland Mall.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses from underperforming or
specially serviced loans. Downgrades to the super-senior class
A-4 is not likely due to the high CE but could occur if
interest shortfalls occur or if a high proportion of the pool
defaults and expected losses increase significantly.
-- Downgrades to classes A-S, X-A, B, C, D, PST, and X-B may
occur should overall pool losses increase significantly and if
several large loans, particularly Greenwood Mall and
Cumberland Mall, have an outsized loss. Further downgrades to
class E, F, G, and H would occur should loss expectations
increase due to an increase in specially serviced loans, the
disposition of a specially serviced loan/asset at a high loss,
or a decline in the FLOCs' performance.
-- The Negative Rating Outlooks on classes D, E, and F may be
revised back to Stable if performance of the FLOCs improves
and/or properties vulnerable to the coronavirus stabilize once
the pandemic is over, but it is unlikely to occur unless
Greenwood Mall and Cumberland Mall successfully repays at
maturity.
In addition to its baseline scenario, Fitch envisions a downside
scenario where the health crisis is prolonged beyond 2021; should
this scenario play out, Fitch expects that a greater percentage of
classes may be given a Negative Outlook, or those with Negative
Outlooks will be downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
ESG CONSIDERATIONS
MSBAM 2012-C6 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to two regional malls that are underperforming
as a result of changing consumer preferences to shopping. This has
a negative impact on the credit profile, and is relevant to the
rating(s) in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
MORGAN STANLEY 2015-C21: DBRS Lowers Rating of 3 Classes to C
-------------------------------------------------------------
DBRS Limited downgraded eight classes of the Commercial Mortgage
Pass-Through Certificates, Series 2015-C21 issued by Morgan Stanley
Bank of America Merrill Lynch Trust 2015-C21 as follows:
-- Class X-B to AA (low) (sf) from AAA (sf)
-- Class B to A (high) (sf) from AA (high) (sf)
-- Class C to BBB (low) (sf) from A (sf)
-- Class PST to BBB (low) (sf) from A (sf)
-- Class D to CCC (sf) from BB (high) (sf)
-- Class E to C (sf) from B (sf)
-- Class F to C (sf) from B (low) (sf)
-- Class G to C (sf) from CCC (sf)
DBRS Morningstar changed the trends on Classes X-B, B, C, and PST
to Negative from Stable. Classes D, E, F, and G have ratings that
do not carry trends, and DBRS Morningstar designated those classes
as having Interest in Arrears.
In addition, DBRS Morningstar confirmed its ratings on the
following classes:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class 555A at A (sf)
-- Class 555B at BBB (sf)
DBRS Morningstar changed the trend on Class A-S to Negative from
Stable. All other classes have Stable trends.
DBRS Morningstar also discontinued its ratings on Classes X-E and
X-FG because the lowest-rated reference obligations, Classes F and
G, were downgraded to C (sf).
The rating downgrades and Negative trends reflect the increased
losses to the trust expected by DBRS Morningstar, primarily
attributed to three specially serviced loans in the pool. The
largest loan in special servicing is the Westfield Palm Desert Mall
(Prospectus ID#1, 7.9% of the trust balance) loan, which has been
in special servicing since July 2020 and was last paid in April
2020. In March 2021, the special servicer reported a September 2020
appraised value of $65.9 million, down by 68.9% from the issuance
value of $212.0 million and indicative of an as-is loan-to-value on
the pari passu senior note balance of approximately 190.0%. Based
on the updated value and the likelihood that the loan will be
liquidated by the special servicer, DBRS Morningstar expects a loss
severity in excess of 60.0%, the primary driver for the rating
downgrades as previously outlined.
The interest-only (IO) pari passu loan had a total issuance balance
of $125.0 million, with the other piece held in the WFCM 2015-C27
transaction (also DBRS Morningstar rated). The loan is secured by a
572,724-square-foot (sf) portion of a 977,888-sf regional mall in
Palm Desert, California. Since the loan's transfer to special
servicing, the servicer has been in discussions with the sponsor
regarding a potential workout, with lender remedies also being
tracked as a resolution strategy. The servicer noted that the loan
is structured with a sponsor guaranty that would cover the
difference between the outstanding loan balance and the foreclosure
proceeds. Although the guaranty is noteworthy, the servicer noted
the work remains ongoing to determine the feasibility of enforcing
the guaranty. DBRS Morningstar did not give any credit to the
guaranty in the analysis for this review.
The sharp value decline for the mall is generally the product of
previous cash flow declines that preceded the onset of the
Coronavirus Disease (COVID-19) pandemic; however, the mall's
tertiary location and related limitations in attracting replacement
tenants to backfill existing vacancies were also significant
contributors to the loss in value since the subject loan was made
in 2015. The mall's active anchors are Macy's and JCPenney, with a
dark Sears that was closed in early 2020. None of the anchor boxes
are collateral for the subject loan. The largest collateral tenants
include Dick's Sporting Goods, Tristone Cinemas, and Barnes &
Noble. As of March 2020, the subject reported a debt service
coverage ratio (DSCR) of 1.58 times (x), a decline compared with
the YE2019 and YE2018 DSCR figures of 1.97x and 2.26x,
respectively.
The second specially serviced loan is the Stone Ridge Plaza loan
(Prospectus ID#12, 2.3% of the pool balance), secured by a retail
property located in Rochester, New York. The loan transferred to
special servicing in October 2020 for payment default and, as of
the April 2021 remittance, the loan was more than 90 days
delinquent. The subject had previously reported occupancy declines
from issuance but had kept the loan current until the onset of the
coronavirus pandemic. The former largest tenant, Toys "R" Us, which
represented 26.4% of the net rentable area (NRA), vacated its space
in 2017, which drove the occupancy rate below 70.0% until a portion
of the space was backfilled by Roc Furniture, which took a space
representing 15.2% of the NRA on a lease through July 2024.
Occupancy had rebounded to approximately 86.0% as of June 2020 but
according to the servicer's commentary, the December 2020 occupancy
rate was reported at 67.0%. The loan reported a trailing six months
ended June 30, 2020, DSCR of 0.74x, compared with the YE2019 DSCR
of 0.90x and DBRS Morningstar DSCR at issuance of 1.40x. The
November 2020 appraisal value of $11.7 million was reported with
the February 2021 remittance, which is a 53.8% decline from the
issuance value of $25.3 million, and is below the current loan
balance of $18.3 million. The special servicer and the borrower
continue to discuss the workout strategy with the possibility of a
loan modification; however, the terms have not been finalized to
date. Given the decline in value from issuance and the sustained
performance declines from issuance, this loan was analyzed with a
liquidation scenario, which resulted in a loss severity in excess
of 50.0%.
The Fairfield Inn – Morgantown (Prospectus ID#18, 1.3% of the
pool balance) is the third noteworthy loan in special servicing and
is secured by a limited-service hotel in Morgantown, West Virginia.
The loan transferred to special servicing in October 2020 for
imminent monetary default and, as of the April 2021 remittance, was
more than 90 days delinquent. Based on the servicer's commentary,
the borrower will be transferring ownership of the property to the
trust and, as of March 2021, the receivership motion was granted.
Based on the January 2021 appraisal, the property was valued at
$6.2 million, which is a 63.5% decrease from the issuance value of
$17.0 million and below the current trust balance of $10.4 million.
According to the trailing 12 month ended June 30, 2020, financials,
the loan reported a DSCR of 0.64x, compared with the YE2019 DSCR of
1.04x and DBRS Morningstar DSCR at issuance of 1.82x. This loan's
prior performance declines and sharp drop in the appraised value
were also considered, with a liquidation scenario used for this
review that resulted in a loss severity in excess of 55.0%.
In general, this pool has a high exposure of loans in special
servicing and on the servicer's watchlist, which represented 25.1%
and 26.0% of the pool balance, respectively, as of the April 2021
remittance. The watchlisted loans are being monitored for various
reasons, including a low DSCR or occupancy figure, trigger event,
and/or pandemic-related forbearance requests. Of the original 64
loans, 62 loans remain in the pool, representing a collateral
reduction of 9.5%. Four loans, representing 4.5% of the pool, are
fully defeased.
The Class 555A and Class 555B certificates are rake bonds backed by
the 555 11th Street NW subordinate B note, which is a $57.0 million
loan that is composed of a portion of the $177.0 million whole loan
secured by the collateral property, a Class A office building in
Washington, D.C. The whole loan comprises a $90.0 million pari
passu A note ($60.0 million of which is held in the subject trust
and backs the pooled bonds); a $30.0 million senior B note (not
held in any commercial mortgage-backed securities transactions);
and a $57.0 million subordinate B note, of which a $30.0 million
pari passu portion was contributed to the subject transaction. The
subordinate B note is below the senior B note in payment priority.
The performance of the underlying collateral has been strong since
issuance. As of September 2020, the servicer reported a 97.0%
occupancy rate and a DSCR of 2.69x, compared with the YE2019 DSCR
of 2.39x. The largest tenants are Latham & Watkins (58.1% of the
NRA, expiring January 2031), Silver Cinemas (9.7% of the NRA,
expiring March 2032), and the American Cancer Society (5.9% of the
NRA, expiring October 2021). Given the strength in tenancy with
minimal rollover in the near to moderate term, DBRS Morningstar
considers the risks with this loan to be generally unchanged.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2021-2: Fitch Assigns Final B Rating on B-5 Debt
---------------------------------------------------------------
Fitch Ratings has assigned final ratings to Morgan Stanley
Residential Mortgage Loan Trust 2021-2 (MSRM 2021-2).
DEBT RATING PRIOR
---- ------ -----
MSRM 2021-2
A-1 LT AAAsf New Rating AAA(EXP)sf
A-1-IO LT AAAsf New Rating AAA(EXP)sf
A-1A-IO LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
A-3-A LT AAAsf New Rating AAA(EXP)sf
A-3A-IO LT AAAsf New Rating AAA(EXP)sf
A-4 LT AAAsf New Rating AAA(EXP)sf
A-4-A LT AAAsf New Rating AAA(EXP)sf
A-4A-IO LT AAAsf New Rating AAA(EXP)sf
A-5 LT AAAsf New Rating AAA(EXP)sf
A-5-A LT AAAsf New Rating AAA(EXP)sf
A-5A-IO LT AAAsf New Rating AAA(EXP)sf
A-6 LT AAAsf New Rating AAA(EXP)sf
A-6-IO LT AAAsf New Rating AAA(EXP)sf
A-7 LT AAAsf New Rating AAA(EXP)sf
A-8 LT AAAsf New Rating AAA(EXP)sf
A-8-IO LT AAAsf New Rating AAA(EXP)sf
A-9 LT AAAsf New Rating AAA(EXP)sf
A-9-IO LT AAAsf New Rating AAA(EXP)sf
A-10 LT AAAsf New Rating AAA(EXP)sf
B-1 LT AA-sf New Rating AA-(EXP)sf
B-2 LT A-sf New Rating A-(EXP)sf
B-3 LT BBB-sf New Rating BBB-(EXP)sf
B-4 LT BBsf New Rating BB(EXP)sf
B-5 LT Bsf New Rating B-(EXP)sf
B-6 LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Fitch rates the residential mortgage-backed certificates issued by
Morgan Stanley Residential Mortgage Loan Trust 2021-2 (MSRM 2021-2)
as indicated above.
This is the fifth post-crisis transaction off the Morgan Stanley
Residential Mortgage Loan Trust shelf; the first transaction was
issued in 2014. This is the third MSRM transaction that comprises
loans from various sellers and acquired by Morgan Stanley in its
prime jumbo aggregation process.
The certificates are supported by 547 prime-quality loans with a
total balance of approximately $500.18 million as of the cutoff
date. The pool consists of 100% fixed-rate mortgages (FRMs) from
various mortgage originators. The servicer in this transaction is
Specialized Loan Servicing LLC (SLS). Nationstar Mortgage LLC will
be the master servicer.
Of the loans,100.0% qualify as safe harbor qualified mortgage
(SHQM) or agency-eligible temporary QM loans.
There is no exposure to Libor in this transaction. The collateral
comprise 100% fixed-rate loans, and the certificates are fixed rate
and capped at the net weighted average coupon (WAC), are floating
or inverse floating rate bonds based off of the SOFR index and
capped at the Net WAC or are based on the net WAC.
Like other prime transactions, the transaction utilizes a
senior-subordinate, shifting-interest structure with subordination
floors to protect against tail risk.
Fitch received a final post pricing cash flow structure from Morgan
Stanley, which was analyzed in accordance with Fitch's US RMBS Cash
Flow criteria. Based on the final post pricing cash flow structure,
the B-5 class is now able to achieve a final rating of 'Bsf'. This
is one rating notch higher than the expected rating that was
assigned to the B-5 class on May 17, 2021. The final ratings of the
other rated classes remain unchanged from their expected ratings
that were assigned on May 17, 2021.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The collateral consists of
30-year fixed-rate fully amortizing loans, seasoned approximately
five months in aggregate as determined by Fitch (three months per
the transaction documents). Most of the loans were originated
through the sellers' retail channels. The borrowers in this pool
have strong credit profiles (774 FICO as determined by Fitch) and
relatively low leverage (73.7% sustainable loan to value [sLTV]
ratio as determined by Fitch). 159 loans are over $1 million, and
the largest totals $2.61 million. Fitch considered 100% of the
loans in the pool to be fully documented loans.
Geographic Concentration (Neutral): Approximately 37.4% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in the Los Angeles
MSA (11.6%), followed by the San Francisco MSA (9.3%) and the Miami
MSA (5.1%). The top three MSAs account for 26.0% of the pool. As a
result, there was no adjustment 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 1.10%
has been considered 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 0.70% has been
considered 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.
Macro or Sector Risk (Positive): Consistent with the "Additional
Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of COVID vaccines, Fitch reconsidered the application
of the Coronavirus-related ERF floors of 2.0 and used ERF Floors of
1.5 and 1.0 for the 'BBsf' and 'Bsf' rating stresses, respectively.
Fitch's March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
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. Sensitivity analyses were conducted at
the state and national levels to assess the effect of higher MVDs
for the subject pool as well as lower MVDs, illustrated by a gain
in home prices.
Factor that could, individually or collectively, lead to a negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 40.8% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factor 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 positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up- and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
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 and Digital Risk. 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 adjustments to its analysis based on the findings.
Due to the fact that there was 100% due diligence provided and
there were no material findings, Fitch reduced the 'AAAsf' expected
loss by 0.21%.
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 and Digital Risk 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 of the
presale report 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 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.
NLT 2021-INV1: S&P Assigns B (sf) Rating on Class B-2 Certs
-----------------------------------------------------------
S&P Global Ratings assigned its ratings to NLT 2021-INV1's mortgage
pass-through certificates series 2021-INV1.
The certificate issuance is an RMBS transaction backed by an
aggregate pool comprised of 937 predominantly newly originated,
fixed-rate and adjustable-rate (some with interest-only feature),
business purpose, investor, fully-amortizing residential mortgage
loans that are secured by first liens on primarily one- to
four-family residential properties, planned unit developments,
condominiums, and townhouses with 30-year original terms to
maturity to non-conforming (both prime and nonprime) borrowers. All
the loans are exempt from the qualified mortgage/ability-to-repay
rules.
The ratings are based on information as of May 25, 2021.
The ratings reflect S&P's view of:
-- The pool's collateral composition;
-- The credit enhancement provided for this transaction;
-- The transaction's associated structural mechanics;
-- The representation and warranty framework for this
transaction;
-- The mortgage aggregator and mortgage originators;
-- The geographic concentration; 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.
Ratings Assigned
NLT 2021-INV1(i)
Class A-1, $130,003,000: AAA (sf)
Class A-2, $11,819,000: AA (sf)
Class A-3, $21,811,000: A (sf)
Class M-1, $10,762,000: BBB (sf)
Class B-1, $8,455,000: BB (sf)
Class B-2, $5,477,000: B (sf)
Class B-3, $3,844,129: Not rated
Class A-IO-S, notional(ii): Not rated
Class XS, notional(ii): Not rated
Class R, not applicable: Not rated
(i)The collateral and structural information is as of May 25, 2021.
The ratings address the ultimate payment of interest and principal.
(ii)Notional amount certificates that do not have class principal
balances. The notional amount will equal the aggregate stated
principal balance of the mortgage loans as of the first day of the
related due period.
OCTAGON 51: Moody's Assigns B2 Rating to $5.58MM Class F Notes
--------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by Octagon 51, Ltd. (the "Issuer").
Moody's rating action is as follows:
US$320,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$60,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned Aa2 (sf)
US$25,750,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned A2 (sf)
US$33,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned Baa3 (sf)
US$21,250,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, Assigned Ba3 (sf)
US$5,589,000 Class F Junior Secured Deferrable Floating Rate Notes
due 2034, Assigned B2 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
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.
Octagon 51, Ltd. is a managed cash flow CLO. The issued notes will
be collateralized primarily by broadly syndicated senior secured
corporate loans. At least 90% of the portfolio must consist of
first lien senior secured loans and eligible investments, and up to
10% of the portfolio may consist of non-senior secured loans and
eligible investments of which no more than 5% may consist of bonds
and senior secured floating rate notes. The portfolio is
approximately 92% ramped as of the closing date.
Octagon Credit Investors, LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Notes, the Issuer issued two classes of
subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 65
Weighted Average Rating Factor (WARF): 2855
Weighted Average Spread (WAS): 3.50%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 46.0%
Weighted Average Life (WAL): 9.0 years
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard 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.
PALMER SQUARE 2021-2: Moody's Assigns B3 Rating to Class F Notes
----------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by Palmer Square CLO 2021-2, Ltd. (the "Issuer" or
"Palmer Square 2021-2").
Moody's rating action is as follows:
US$352,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aaa (sf)
US$66,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aa2 (sf)
US$28,750,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned A2 (sf)
US$34,500,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned Baa3 (sf)
US$24,750,000 Class E Secured Deferrable Floating Rate Notes due
2034, Definitive Rating Assigned Ba3 (sf)
US$11,000,000 Class F Secured Deferrable Floating Rate Notes due
2034, Definitive Rating Assigned B3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
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.
Palmer Square 2021-2 is a managed cash flow CLO. The issued notes
will be collateralized primarily by broadly syndicated senior
secured corporate loans. At least 90.0% of the portfolio must
consist of senior secured loans, cash, and eligible investments,
and up to 10.0% of the portfolio may consist of second lien loans
and senior unsecured loans. The portfolio is approximately 90%
ramped as of the closing date.
Palmer Square Capital Management LLC (the "Manager") will direct
the selection, acquisition and disposition of the assets on behalf
of the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Notes, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $550,000,000
Diversity Score: 65
Weighted Average Rating Factor (WARF): 2800
Weighted Average Spread (WAS): 3.30%
Weighted Average Coupon (WAC): 6.00%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 9.0 years
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard 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.
PRIMA CAPITAL 2019-RK1: DBRS Confirms B(low) Rating on C-D Certs
----------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2019-RK1 issued by Prima Capital
CRE Securitization 2019-RK1 as follows:
DreamWorks Campus and Headquarters (Group D):
-- Class A-D at BBB (low) (sf)
-- Class B-D at BB (low) (sf)
-- Class C-D at B (low) (sf)
The Gateway (Group G):
-- Class A-G at A (low) (sf)
-- Class B-G at BBB (low) (sf)
-- Class C-G at BB (high) (sf)
TriBeCa House (Group T):
-- Class A-T at BBB (low) (sf)
-- Class B-T at BB (low) (sf)
-- Class C-T at B (high) (sf)
All trends are Stable. Interest is deferrable on all rated
Certificates other than Classes A-D, A-G, A-T, and B-G.
The rating confirmations reflect the overall stable performance of
the transaction, which remains in line with DBRS Morningstar's
expectations. The transaction has a total mortgage balance of
$152.3 million and consists of three nonpooled B-Notes tied to
previously securitized collateral. The collateral includes one
office property, DreamWorks Campus and Headquarters, and two
multifamily properties, The Gateway and TriBeCa House. The notes
are secured by the grantor trust certificate representing
beneficial interests in a subordinate loan, which is a portion of a
whole loan. The three B-Notes are held within the trust and the
loans are interest only through their respective loan terms. As of
the April 2021 remittance, no loans appear on the servicer's
watchlist and none are in special servicing.
The transaction is composed of three Loan Groups — Group D, Group
G, and Group T — with certificates tied to each of the three
subjects. As nonpooled notes, proceeds from the collateral interest
relating to any Loan Group will not be available to support
shortfalls of any other Loan Group. Additionally, TriBeCa House is
the only loan in the transaction that has existing mezzanine
financing in place. No loans in the transaction are allowed to take
on mezzanine or unsecured debt in the future. The Gateway and
TriBeCa House loans have been determined by DBRS Morningstar to
exhibit investment-grade credit characteristics on a stand-alone
basis.
DreamWorks Campus and Headquarters (Group D, 41.2% of the
transaction) is secured by a 497,403-square foot (sf) office campus
in Glendale, California, roughly 10 miles north of the Los Angeles
central business district. The collateral was built to suit for
DreamWorks Animation SKG, Inc. (DreamWorks) in 1997 and has
remained 100.0% occupied by the tenant since completion. The
subject is improved with a central plant building for the property
and a five-story parking structure that was renovated in 2010. In
addition to 1,006 parking stalls in the structure, the property
offers 417 street-level parking spaces. DreamWorks renewed its
lease on a 20-year triple net lease in 2015, extending through
2035. The lease is structured with four five-year renewal options
and the tenant currently pays $28.10 per sf with annual rent
escalations of 1.5%. As of the December 2020 rent roll, the
property remains 100% occupied.
The Gateway (Group G, 34.5% of the transaction) is secured by a
1,254-unit multifamily complex with approximately 72,000 sf of
retail space located in downtown San Francisco. The property, which
was constructed between 1965 and 1967, and subsequently renovated
between 2010 and 2018, consists of four high-rise buildings and 916
parking stalls. The property has a mix of unit types, composed of
studios to four-bedroom units, ranging in price from $2,470 per
month to $6,300 per month. Since 2015, the sponsor has invested
more than $21.0 million into the boiler system, elevator upgrades,
corridor upgrades, and upgrades to select units. Management has
been able to further increase value by renovating apartments that
are vacant and re-leasing them at market rents. The largest retail
tenants at the property include Safeway (24.5% of the net rentable
area (NRA) through May 2025), The Bay Club at The Gateway (10.2% of
the NRA through July 2032), and Bank of America (9.1% of the NRA
through April 2022). Historically, the property has been well
occupied with a 15-year average occupancy of roughly 97.0%. As of
the December 2020 rent roll, the property was 92.0% occupied,
compared with 94.0% occupied at YE2019.
TriBeCa House (Group T, 24.3% of the transaction) is secured by a
503-unit high-rise multifamily complex located at 50 Murray Street
and 53 Park Place in the southern portion of Tribeca in New York.
The 50 Murray Street building is a 21-story, 388-unit high-rise
multifamily building. Unit sizes average 1,020 sf and there is
38,436 sf in retail space on the first and second floors. The 53
Park Place building is a 12-story multifamily building with 115
units averaging 750 sf and one 8,600-sf retail suite accommodating
one tenant. From 2015 through mid-2018, the sponsor invested about
$12.0 million ($23,842 per unit) in TriBeCa House, which included a
thorough renovation to 319 apartment units and lobby and common
area upgrades in both locations. Additional units are also
renovated as tenants roll. The property has a mix of unit types,
from studios to three-bedroom duplexes, ranging in price from
$4,600 per month to $14,100 per month. According to the December
2020 rent roll, the property was 89.0% occupied, compared with
98.0% occupied at YE2019. DBRS Morningstar notes that occupancy has
decreased at the multifamily properties amid the pandemic; however,
the high property quality and favorable historical performance are
considered noteworthy mitigating factors for both loans.
Notes: All figures are in U.S. dollars unless otherwise noted.
PROVIDENT FUNDING 2021-2: Moody's Gives (P)Ba3 Rating to B-5 Certs
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 23
classes of residential mortgage-backed securities (RMBS) issued by
Provident Funding Mortgage Trust (PFMT) 2021-2. The ratings range
from (P)Aaa (sf) to (P)Ba3 (sf).
PFMT 2021-2 is the second transaction in 2021 backed by loans
originated by the sponsor, Provident Funding Associates, L.P.
(Provident Funding). PFMT 2021-2 is a securitization of
agency-eligible mortgage loans originated and serviced by Provident
Funding (corporate family rating of B1, with stable outlook) and
will be the fifth transaction for which Provident Funding is the
sole originator and servicer. Approximately 45.25% of the mortgage
loans by aggregate unpaid principal balance (UPB) are "Appraisal
Waiver" (AW) loans, whereby the sponsor obtained an appraisal
waiver for each such mortgage loan from Fannie Mae or Freddie Mac
(collective, GSEs) through their respective programs. In each case,
neither GSE required an appraisal of the related mortgaged property
as a condition of approving the related mortgage loan for purchase
by the GSEs.
Overall, the credit quality of the mortgage loans backing this
transaction is similar to the previously sponsored Provident
Funding securitizations which Moody's have rated and to that of
transactions issued by other prime issuers. Borrowers of the
mortgage loans backing this transaction have strong credit profiles
demonstrated by strong credit scores, high percentage of equity and
significant liquid reserves. As of the cut-off date, no borrower
under any mortgage loan is in a COVID-19 related forbearance plan
with the servicer.
Provident Funding will act as the servicer of the mortgage loans.
Wells Fargo Bank, N.A (Wells Fargo, rated Aa1) will be the master
servicer, securities administrator, paying agent and certificate
registrar and the trustee will be Wilmington Savings Fund Society,
FSB.
PFMT 2021-2 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination 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: Provident Funding Mortgage Trust 2021-2
Cl. A-1, Rating Assigned (P)Aaa (sf)
Cl. A-1A, Rating Assigned (P)Aaa (sf)
Cl. A-2, Rating Assigned (P)Aaa (sf)
Cl. A-2A, Rating Assigned (P)Aaa (sf)
Cl. A-3, Rating Assigned (P)Aaa (sf)
Cl. A-3A, Rating Assigned (P)Aaa (sf)
Cl. A-4, Rating Assigned (P)Aaa (sf)
Cl. A-4A, Rating Assigned (P)Aaa (sf)
Cl. A-5, Rating Assigned (P)Aaa (sf)
Cl. A-5A, Rating Assigned (P)Aaa (sf)
Cl. A-6, Rating Assigned (P)Aaa (sf)
Cl. A-6A, Rating Assigned (P)Aaa (sf)
Cl. A-7, Rating Assigned (P)Aaa (sf)
Cl. A-8, Rating Assigned (P)Aaa (sf)
Cl. A-9, Rating Assigned (P)Aa1 (sf)
Cl. A-10, Rating Assigned (P)Aa1 (sf)
Cl. A-10A, Rating Assigned (P)Aa1 (sf)
Cl. A-11, Rating Assigned (P)Aaa (sf)
Cl. B-1, Rating Assigned (P)A1 (sf)
Cl. B-2, Rating Assigned (P)A3 (sf)
Cl. B-3, Rating Assigned (P)Baa2 (sf)
Cl. B-4, Rating Assigned (P)Ba1 (sf)
Cl. B-5, Rating Assigned (P)Ba3 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 0.17%
at the mean (0.06% at the median) and reaches 2.56% at a stress
level consistent with Moody's Aaa ratings.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in US economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's increased its model-derived median expected losses by 10%
(3.38% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's calculated losses on the pool using its US Moody's
Individual Loan Analysis (MILAN) model based on the loan-level
collateral information as of the cut-off date. Moody's base its
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 (TPR), and the
representations & warranties (R&W) framework of the transaction.
Collateral Description
As of the cut-off date of May 1, 2021, the pool contains of 741
mortgage loans with an aggregate principal balance of $341,279,006
secured by first liens on one- to three-family residential
properties, condominiums or planned unit developments, and are
fully amortizing, fixed-rate Agency Safe Harbor Qualified Mortgages
(QM) loans, each with an original term to maturity of up to 30
years. The mortgage loans have principal balances which meet the
requirements for purchase by the GSEs, and were underwritten
pursuant to the guidelines of the GSEs, as applicable, using their
automated underwriting systems (collectively, agency-eligible
loans).
Borrowers of the mortgage loans backing this transaction have
strong credit profiles demonstrated by strong credit scores, high
percentage of equity and significant liquid reserves. The average
stated principal balance is $460,565 and the weighted average (WA)
current mortgage rate is 2.6%. The mortgage pool has a WA original
term of 358 months. The mortgage pool has a WA seasoning of 1.8
months. The borrowers have a WA credit score of 782, WA combined
loan-to-value ratio (CLTV) of 61.7% and WA debt-to-income ratio
(DTI) of 31.6%. Furthermore, approximately 64.3% (by loan balance)
of the properties backing the mortgage loans are located in five
states: California, Washington, Oregon, Colorado and Utah, with
27.9% (by loan balance) of the properties located in California.
Properties located in the states of Texas, Massachusetts, Georgia,
North Carolina and Pennsylvania round out the top ten states by
loan balance. Approximately 85.3% (by loan balance) of the
properties backing the mortgage loans included in PFMT 2021-2 are
located in these ten states.
Third-Party Review
One TPR firm verified the accuracy of the loan level information.
The TPR firm conducted detailed credit, property valuation, data
accuracy and compliance reviews on a random sample of approximately
27% (by loan count) of the mortgage loans in the collateral pool.
The due diligence results confirm compliance with the originator's
underwriting guidelines for the vast majority of loans, no material
regulatory compliance issues, and no material property valuation
issues. Moody's did not make any adjustments to Moody's base case
and Aaa stress loss assumptions based on the TPR results.
However, as described earlier, the compliance, credit, property
valuation, and data integrity portion of the TPR was conducted on a
random sample of approximately 27% (by loan count) of the initial
population of the pre-securitization mortgage loans, up from 24% in
PFMT 2021-1 but down from 30% in PFMT 2020-1 and 100% in PFMT
2019-1, the three most recent transactions issued by the sponsor
that Moody's have rated. With sampling, there is a risk that loan
defects may not be discovered and such loans would remain in the
pool. Moreover, vulnerabilities of the R&W framework, such as the
lack of an automatic review of R&Ws by independent reviewer and the
weaker financial strength of the R&W provider, reduce the
likelihood that such defects would be discovered and cured during
the transaction's life. Moody's made an adjustment to loss levels
to account for this risk.
Representations & Warranties
Moody's assessed Provident Funding Mortgage Trust 2020-2's R&W
framework as adequate, consistent with that of other prime RMBS
transactions. An effective R&W framework protects a transaction
against the risk of loss from fraudulent or defective loans.
Moody's assessed the R&W framework based on three factors: (a) the
financial strength of the R&W provider; (b) the strength of the
R&Ws (including qualifiers and sunsets) and (c) the effectiveness
of the enforcement mechanisms. Moody's evaluated the impact of
these factors collectively on the ratings in conjunction with the
transaction's specific details and in some cases, the strengths of
some of the factors can mitigate weaknesses in others. Moody's also
considered the R&W framework in conjunction with other transaction
features, such as the TPR being conducted on a random sample of
approximately 27% (by loan count) (with no material findings), and
property valuations, as well as any sponsor alignment of interest,
to evaluate the overall exposure to loan defects and inaccurate
information.
However, Moody's applied an adjustment to Moody's losses to account
for the following two risks. First, Moody's accounted for the risk
that Provident Funding (rated B1), the R&W provider, may be unable
to repurchase defective mortgage loans in a stressed economic
environment, given that it is a non-bank entity with a monoline
business (mortgage origination and servicing) that is highly
correlated with the economy. However, Moody's tempered this
adjustment by taking into account Provident Funding' relative
financial strength and the strong TPR results which suggest a lower
probability that poorly performing mortgage loans will be found
defective following review by the independent reviewer.
Second, Moody's accounted for the risk that while the sponsor has
provided R&Ws that are generally consistent with a set of credit
neutral R&Ws that Moody's identified in Moody's methodology, the
R&W framework in this transaction differs from that of some other
prime RMBS transactions Moody's have rated because there is a risk
that some loans with R&W defects may not be reviewed because an
independent reviewer is not named at closing and there is a
possibility that an independent reviewer will not be appointed
altogether. Instead, reviews are performed at the option and
expense of the controlling holder, or if there is no controlling
holder (which is the case at closing, because an affiliate of
sponsor will hold the subordinate classes and thus there will be no
controlling holder initially), a senior holder group.
Origination quality
Moody's consider Provident Funding an adequate originator of
agency-eligible mortgage loans based on the company's staff and
processes for underwriting, quality control, risk management and
performance. The company, a limited partnership that is closely
held by senior management, including CEO Craig Pica, was formed in
1992, as a privately held mortgage banking company headquartered in
Burlingame, California. The company originates, sells and services
residential mortgage loans throughout the US. The company sources
loans through a nationwide network of independent brokers,
correspondent lenders and in-house retail channel.
Servicing arrangement
Provident Funding will service the mortgage loans pursuant to the
pooling and servicing agreement. Moody's consider the overall
servicing arrangement for this pool to be adequate given the
servicing abilities of the Provident Funding as primary servicer.
Moody's also consider the presence of a strong master servicer to
be a mitigant against the risk of any servicing disruptions.
Moody's did not make any adjustments to Moody's base case and Aaa
stress loss assumptions based on the servicing arrangement.
Other Considerations
The servicer has the option to purchase any mortgage loan which is
90 days or more delinquent, which may result in the step-down test
used in the calculation of the senior prepayment percentage to be
satisfied when otherwise it would not have been. Moreover, because
the purchase may occur prior to the breach review trigger of 120
days delinquency, the loan may not be reviewed for breaches of
representations and warranties and thus, systemic defects may
remain undetected. In Moody's analysis, Moody's considered that the
loans will be purchased by the servicer at par and a TPR firm
having performed a review on a random sample of approximately 27%
(by loan count) of the mortgage loans. Moreover, the reporting for
this transaction will list the mortgage loans purchased by the
servicer.
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
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.70% of the closing pool balance,
and a subordination lock-out amount of 0.60% of the closing pool
balance. The floors are consistent with the credit neutral floors
for the assigned ratings according to Moody's methodology.
Transaction Structure
The transaction is structured as a one pool shifting interest
structure in which the senior bonds benefit from a senior floor and
a subordination floor. Funds collected, including principal, are
first used to make interest payments to the senior bonds. Next
principal payments are made to the senior bonds and then interest
and principal payments are paid to the subordinate bonds in
sequential order, subject to the subordinate class percentage of
the subordinate principal distribution amounts.
Realized losses are allocated in a reverse sequential order, first
to the lowest subordinate bond. After the balances of the
subordinate bonds are written off, losses from the pool begin to
write off the principal balances of the senior support bonds until
their principal balances are reduced to zero. Next realized losses
are allocated to the super senior bonds until their principal
balances are written off. As in all transactions with
shifting-interest structures, the senior bonds benefit from a cash
flow waterfall that allocates all prepayments to the senior bonds
for a specified period of time, and allocates increasing amounts of
prepayments to the subordinate bonds thereafter only if loan
performance satisfies both delinquency and loss tests.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in these ratings was "Moody's
Approach to Rating US RMBS Using the MILAN Framework" published in
April 2020.
PSMC TRUST 2021-2: Fitch Gives 'B+(EXP)' Rating to Class B-5 Debt
-----------------------------------------------------------------
Fitch Ratings expects to rate American International Group, Inc.'s
(AIG) PSMC 2021-2 Trust (PSMC 2021-2).
DEBT RATING
---- ------
PSMC 2021-2
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-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-21 LT AAA(EXP)sf Expected Rating
A-22 LT AAA(EXP)sf Expected Rating
A-23 LT AAA(EXP)sf Expected Rating
A-24 LT AAA(EXP)sf Expected Rating
A-25 LT AAA(EXP)sf Expected Rating
A-26 LT AAA(EXP)sf Expected Rating
A-X1 LT AAA(EXP)sf Expected Rating
A-X2 LT AAA(EXP)sf Expected Rating
A-X3 LT AAA(EXP)sf Expected Rating
A-X4 LT AAA(EXP)sf Expected Rating
A-X5 LT AAA(EXP)sf Expected Rating
A-X6 LT AAA(EXP)sf Expected Rating
A-X7 LT AAA(EXP)sf Expected Rating
A-X8 LT AAA(EXP)sf Expected Rating
A-X9 LT AAA(EXP)sf Expected Rating
A-X10 LT AAA(EXP)sf Expected Rating
A-X11 LT AAA(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-2 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 432 loans with a total balance of
approximately $357.00 million as of the cutoff date. The pool
consists of prime fixed-rate mortgages (FRMs) acquired by
subsidiaries of American International Group, Inc. (AIG) from
various mortgage originators. Distributions of principal and
interest and loss allocations are based on a traditional
senior-subordinate, shifting-interest structure.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The pool consists primarily
of very high-quality 30-year fixed-rate fully amortizing Safe
Harbor Qualified Mortgage (SHQM) loans to borrowers with strong
credit profiles, relatively low leverage, and large liquid
reserves. The loans are seasoned an average of six months. The pool
has a weighted average (WA) original FICO score of 777, which is
indicative of very high credit-quality borrowers. Approximately
85.8% of the loans have a borrower with an original FICO score
equal to or above 750. In addition, the original WA CLTV ratio of
66.7% represents substantial borrower equity in the property and
reduced default risk.
Geographic Concentration (Neutral): The pool is geographically
diverse and, as a result, no geographic concentration penalty was
applied. Approximately 35% of the pool is located in California,
which is in line with other recent Fitch-rated transactions. The
top three metropolitan statistical areas (MSAs) account for 29.9%
of the pool. The largest MSA concentration is in the Los Angeles
MSA (14.3%), followed by the Washington, DC MSA (7.8%) and the San
Francisco MSA (7.8%).
Straightforward Deal Structure (Neutral): The mortgage cash flow
and loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained.
Servicer Advancing (Mixed): The servicer is required to make
monthly advances of delinquent principal and interest payments to
the bondholders to the extent that it is deemed recoverable. While
this feature provides liquidity to the bonds, it results in higher
loss severities as these amounts need to be recouped out of
liquidation proceeds. In the event the servicer is unable to make
the advances, they will be funded by Wells Fargo as Master
Servicer.
CE Floor (Positive): To mitigate tail risk, which arises as the
pool seasons and fewer loans are outstanding, a subordination floor
of 1.15% of the original balance will be maintained for the
certificates. Additionally, the stepdown tests do not allow
principal prepayments to subordinate bondholders in the first five
years following deal closing.
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data,
and the unexpected development in the health crisis arising from
the advancement and availability of coronavirus vaccines, Fitch
reconsidered the application of the coronavirus-related ERF floors
of 2.0 and used ERF Floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf'
rating stresses, respectively.
Fitch's March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
Payment Forbearance (Neutral): As of the cutoff date, none of the
borrowers in the pool are on a coronavirus forbearance plan.
Additionally, any loan that enters a coronavirus forbearance plan
between the cutoff date and the settlement date will be removed
from the pool (at par) within 45 days of closing. For borrowers who
enter a coronavirus forbearance plan post-closing, the principal
and interest (P&I) advancing party will advance P&I during the
forbearance period. If at the end of the forbearance period, the
borrower begins making payments, the advancing party will be
reimbursed from any catch-up payment amount. If the borrower does
not resume making payments, the loan will likely become modified
and the advancing party will be reimbursed from principal
collections on the overall pool. This will likely result in
writedowns to the most subordinate class, which will be written
back up as subsequent recoveries are realized. Since there will be
no borrowers on a coronavirus forbearance plan as of the closing
date and forbearance requests have significantly declined, Fitch
did not increase its loss expectation to address the potential for
writedowns due to reimbursement of servicer advances.
Extraordinary Expense Treatment (Neutral): The trust provides for
expenses, including indemnification amounts and costs of
arbitration, to be paid by the net WA coupon of the loans, which
does not affect the contractual interest due on the certificates.
Furthermore, the expenses to be paid from the trust are capped at
$300,000 per annum, which can be carried over each year, subject to
the cap until paid in full.
Low Operational Risk (Neutral): Operational risk is well controlled
for in this transaction. AIG has strong operational practices and
is an 'Above Average' aggregator. The aggregator has experienced
senior management and staff, strong risk management and corporate
governance controls, and a robust due diligence process. Primary
and master servicing Functions will be performed by Cenlar FSB and
Wells Fargo Bank, N.A., rated 'RPS2'/Negative and 'RMS1-'/Negative,
respectively. Fitch did not apply adjustments to the expected
losses as a result of the operational assessments.
Top Tier Representation and Warranty Framework (Positive): The
loan-level representation, warranty and enforcement (RW&E)
framework is consistent with Tier I quality. Fitch reduced its loss
expectations by 16 bps at the 'AAAsf' rating category as a result
of the Tier 1 framework and the 'A' Fitch-rated counterparty
supporting the repurchase obligations of the RW&E providers.
Third-Party Due Diligence Results (Positive): Third-party due
diligence was performed on 100% of loans in the transaction by AMC,
Recovco, EdgeMac, and Infinity. AMC is assessed as 'Acceptable -
Tier 1', and Recovco, EdgeMAC, and Infinity are assessed as
'Acceptable - Tier 3' by Fitch. The results of the review
identified no material exceptions. Credit exceptions were supported
by mitigating factors and compliance exceptions were primarily TRID
related and cured with subsequent documentation. Fitch applied a
credit for the high percentage of loan level due diligence, which
reduced the 'AAAsf' loss expectation by 18 bps.
RATING SENSITIVITIES
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. Sensitivity analyses was conducted at the
state and national levels to assess the effect of higher MVDs for
the subject pool as well as lower MVDs, illustrated by a gain in
home prices.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 41% 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.
-- 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.
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 AMC, Recovco, EdgeMac and Infinity. The third-party due
diligence described in Form 15E focused on credit, compliance, and
property valuation for each loan and is consistent with Fitch's
criteria. The due diligence companies performed a review on 100% of
the loans. The results indicate high quality loan origination
practices that are consistent with non-agency prime RMBS. Fitch
considered this information in its analysis and, as a result, loans
with due diligence received a credit in the loss model. This
adjustment reduced the 'AAAsf' expected losses by 18 bps.
ESG CONSIDERATIONS
PSMC 2021-2 has an ESG Relevance Score of '4[+]' for Transaction
Parties & Operational Risk due to well-controlled operational risk
that includes strong R&W framework, transaction due diligence
results, an 'Above Average' aggregator, and an 'Above Average'
master servicer, all of which resulted in a reduction in the
expected losses. This has a positive impact on the credit profile
and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
REALT 2018-1: Fitch Affirms B Rating on Class G Certs
-----------------------------------------------------
Fitch Ratings has affirmed nine classes of Real Estate Asset
Liquidity Trust, commercial mortgage pass-through certificates,
series 2018-1 (REAL-T 2018-1).
DEBT RATING PRIOR
---- ------ -----
REAL-T 2018-1
A-1 75585RQL2 LT AAAsf Affirmed AAAsf
A-2 75585RQM0 LT AAAsf Affirmed AAAsf
B 75585RQP3 LT AAsf Affirmed AAsf
C 75585RQQ1 LT Asf Affirmed Asf
D-1 75585RQR9 LT BBBsf Affirmed BBBsf
D-2 LT BBBsf Affirmed BBBsf
E LT BBB-sf Affirmed BBB-sf
F LT BBsf Affirmed BBsf
G LT Bsf Affirmed Bsf
KEY RATING DRIVERS
Stable Performance and Loss Expectations: Overall pool performance
and loss expectations remain stable. There are no delinquent or
specially serviced loans. One loan (7.6% of pool) was designated a
Fitch Loan of Concern (FLOC), primarily due to the property being
affected by the coronavirus pandemic.
Fitch Loan of Concern: Gateway Boulevard Retail Edmonton (7.6%),
secured by a 161,431-sf anchored retail center in Edmonton, AB, was
designated a FLOC due to the property being anchored by LA Fitness,
which leases 28% NRA through January 2030 and the loan being
non-recourse to the borrower. Per servicer updates, the borrower
requested coronavirus relief, which included the servicer covering
principal shortfall in May, June and July 2020 and repayment from
August 2020 to March 2021.
The property is fully occupied, and as of the TTM ended March 2020,
the servicer-reported NOI debt service coverage ratio (DSCR) was
1.49x. At issuance, occupancy was 99%, and the servicer-reported
NOI DSCR was 1.46x.
Increasing Credit Enhancement: As of the May 2021 distribution
date, the pool's aggregate balance has been reduced by 14.4% to
$301.2 million from $351.8 million at issuance. Seven loans with a
$6.5 million balance at disposition have been paid off since
Fitch's prior rating action. All loans are amortizing. One loan
(2.3%) is defeased.
Canadian Loan Attributes and Historical Performance: The ratings
reflect strong historical Canadian commercial real estate (CRE)
loan performance, including a low delinquency rate and low
historical losses of less than 0.1%, as well as positive loan
attributes, such as short amortization schedules (no interest-only
loans), recourse to the borrower and additional guarantors on many
loans. At issuance, 60.8% of the pool featured either full or
partial recourse to the borrowers, sponsors or additional
guarantors.
Pool Concentration; Minimal Energy Sector Exposure: The top 10
loans comprise 60.3% of the pool. Two loans (14.6%) are secured by
properties located in Alberta, which has experienced volatility
from the energy sector. Performance of both these loans continues
to remain stable; however, as previously mentioned, Gateway
Boulevard Retail Edmonton (7.6%) was designated a FLOC due to the
property being affected from the coronavirus pandemic. Fitch will
continue to monitor any loans with energy sector exposure and
revise ratings and/or Outlooks, if necessary.
Exposure to the Coronavirus Pandemic: Two loans (4.7%) are secured
by hotel properties, and nine loans (34.3%) are secured by retail
properties. Performance of these loans continues to remain
relatively stable and many of these loans feature either full or
partial recourse to the borrower. However; as previously mentioned,
Gateway Boulevard Retail Edmonton (7.6%) was designated a FLOC due
the property being affected by the coronavirus pandemic. Fitch will
continue to monitor loans with coronavirus exposure and will update
ratings and/or Outlooks, if necessary.
RATING SENSITIVITIES
The Stable Outlooks on classes A-1 through G reflect the overall
stable performance of the pool and expected continued
amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with paydown
and/or defeasance. Upgrades of classes B and C would likely
occur with significant improvement in CE and/or defeasance,
but increased concentrations and FLOCs could cause this trend
to reverse.
-- Upgrades of classes D-1, D-2 and E are considered unlikely and
would be limited based on sensitivity to concentrations or the
potential for future concentration. Classes would not be
upgraded above 'Asf' if there is a likelihood for interest
shortfalls. Upgrades of classes F and G are not likely but
could occur if the non-rated class is not eroded and the
senior classes pay-off.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses from underperforming or
specially serviced loans. Downgrades of classes A-1 through C
are not likely due to the expected receipt of continued
amortization. Downgrades of classes D-1 through G could occur
if additional loans become FLOCs, but any potential losses
could be mitigated by loan recourse provisions.
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.
RLGH TRUST 2021-TROT: DBRS Finalizes B(low) Rating on G Certs
-------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of Commercial Mortgage Pass-Through Certificates issued by
RLGH Trust 2021-TROT:
-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)
All trends are Stable.
DBRS Morningstar discontinued and withdrew its ratings on the Class
X-CP, X-FP, and X-NCP interest-only (IO) certificates initially
contemplated in the offering documents, as they were removed from
the transaction.
The Class A, Class A-Y, Class A-Z, and Class A-IO Certificates (the
CAST Certificates) can be exchanged for other CAST Certificates and
vice versa. Proportions are constant proportions of the original
Certificate Balance or Notional Amount of the CAST Certificates
being exchanged. Following the Closing Date, the Class A
certificates will be exchangeable for the CAST Certificates in the
Exchanged Proportions indicated in the applicable combinations
indicated above (each a Combination) and vice versa (each such
completed exchange, an Exchange). The CAST Certificates required
under the applicable Combination to result in the issuance of the
other CAST Certificates in amounts at least equal to the applicable
minimum denomination for such other Class(es) are referred to as
the Required Exchangeable Proportion, and the proportion so
exchanged, the Exchanged Proportion.
DBRS Morningstar continues to take a favorable view on the
long-term growth and stability of the industrial warehouse and
logistics sector, despite the uncertainty and risk that the
Coronavirus Disease (COVID-19) pandemic has created across all
commercial real estate asset classes. The reliance on e-commerce
and home delivery during the pandemic has only accelerated
prepandemic consumer trends, and DBRS Morningstar continues to
believe that retail's loss is largely industrial's gain. The
subject transaction consists of a portfolio of 53 properties (48
flex industrial properties, three research and development
industrial properties, one 7.06-acre parcel of land, and one
unanchored retail property) located across six business parks in
the Raleigh-Durham market in North Carolina. The sponsor on the
transaction is a joint venture (JV) between Equus Capital Partners
(Equus) and AIG Global Real Estate Investment Corp. (AIG). The loan
is being used to fund AIG's acquisition of 95% of the pool from
Equus, which will retain the remaining 5%.
The borrower sponsors, a JV partnership between Equus and AIG, are
contributing approximately $132.9 million in cash equity as a part
of the transaction to acquire the portfolio for a purchase price of
$422.3 million. DBRS Morningstar generally views acquisition loans
with significant amounts of cash equity more favorably than
cash-out financings, given the stronger alignment of economic
incentives with certificateholders. The sponsor under the mortgage
loan is a JV partnership between Equus and AIG. Equus is a private
real estate investment firm focused on commercial real estate
investments with assets under management of approximately $4.0
billion. AIG is the real estate investment arm of AIG Inc. and
focuses real estate investments globally. The portfolio has a high
in-place occupancy at 95.2% and long track record of stable
occupancy. Since 2007, the portfolio has maintained a WA occupancy
of 95.3% and performance has remained stable through the
coronavirus pandemic. Month-end collections averaged 97.4% through
the trailing 12 months ended March 31, 2021. The transaction
benefits from additional cash flow stability attributable to
multiple property pooling. The portfolio has a property Herfindahl
score of 39.3 by allocated loan amount, which is above the average
for recent DBRS Morningstar-rated industrial portfolios and
provides favorable diversification of cash flow when compared with
a single asset. Six of the portfolio's 53 properties are currently
leased to single-tenant users which highlights the portfolio's
tenant diversity and granularity. The properties collectively
comprise approximately 12.1% of the DBRS Morningstar in-place base
rent, which is significantly lower than other recently analyzed
transactions.
While several of the previously analyzed industrial portfolios are
located in various markets throughout the country, the subject
portfolio is fully concentrated in the Raleigh-Durham market.
Although the portfolio lacks geographic diversification and
diversified economies, the market has performed well historically.
The subject market shows a tight vacancy rate of 3.8% as of Q4 2020
per the appraisal, which is improved over the total 2020 vacancy of
4.0%. Additionally, net absorption was 1.3% in Q4 2020 and 3.1%
over the entire year and has averaged a stable rate of 1.5% over
the past 10 years. The recent trend absorption points to a
strengthening market. As of March 2021, the portfolio has seen 43
tenants granted rent deferrals, totaling approximately 11.7% of the
net rentable area (NRA). The largest tenant in the portfolio by
NRA, World Overcomers, has been granted a rent deferral on its
entire space composition in the portfolio which totals 101,805 sf,
or 3.9% of the NRA. Despite the rent deferrals, the tenant has paid
back a portion of their deferred rent (3.6%) and more importantly
is also paying below market rents, per the appraiser. The tenant
pays $8.26 psf compared with the appraiser's market rent estimation
of $9.50 psf. Given the strong occupancy in the market and at the
property, the ability to re-lease the space appears feasible. Lease
Rollover – Leases representing 81.9% of the portfolio NRA and
cumulative total rent, respectively, expire over the next five
years. The loan has a hard lockbox with springing cash management
provisions for retenanting reserves subject to a 6% debt yield
trigger test using property net operating income for the prior two
consecutive quarters. The DBRS Morningstar LTV on the mortgage loan
is significant at 103.4%. 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.
PARTIAL PRO RATA STRUCTURE
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 WA release premium associated with the paydowns is
116.67% and compares favorably to recent industrial transactions
rated by DBRS Morningstar.
The underlying mortgage loan for the transaction will pay
floating-rate interest, which presents potential benchmark
transition risk as the deadline approaches for the elimination of
Libor. The transaction documents provide for the transition to an
alternative benchmark rate, which is primarily contemplated to be
either Term Secured Overnight Financing Rate (SOFR) or Compounded
SOFR plus the applicable Alternative Rate Spread Adjustment. Term
SOFR does not currently exist and there is no assurance it will
fully develop or be widely adopted. Compounded SOFR, which is
expected to be a backward-looking rate generally calculated using
actual rates during the applicable interest accrual period, is
considered by some servicers to be less practical to implement. The
servicer will have sole discretion over various aspects of a
benchmark transition. Any uncertainty or delay in transitioning to
a Libor alternative could lead to unforeseen issues for both the
mortgage loan borrower and certificates. Additionally, in order to
extend the loan, the borrower must also obtain a replacement
interest rate cap agreement. If a replacement agreement is not
commercially available, the borrower can propose an alternative
hedging instrument that would provide substantially equivalent
protection from increases in the interest rate. However, the
servicer can reject proposal and impose its own hedging solution,
if any.
Notes: All figures are in U.S. dollars unless otherwise noted.
SDART 2021-2: Moody's Assigns B1 Rating to Class E Notes
--------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to the
notes issued by Santander Drive Auto Receivables Trust 2021-2
(SDART 2021-2). This is the second SDART auto loan transaction of
the year for Santander Consumer USA Inc. (SC; unrated). The notes
are backed by a pool of retail automobile loan contracts originated
by SC, who is also the servicer and administrator for the
transaction.
The complete rating actions are as follows:
Issuer: Santander Drive Auto Receivables Trust 2021-2
$256,000,000, 0.14178%, Class A-1 Notes, Definitive Rating Assigned
P-1 (sf)
$606,680,000, 0.28%, Class A-2 Notes, Definitive Rating Assigned
Aaa (sf)
$280,920,000, 0.34%, Class A-3 Notes, Definitive Rating Assigned
Aaa (sf)
$208,140,000, 0.59%, Class B Notes, Definitive Rating Assigned Aaa
(sf)
$329,550,000, 0.90%, Class C Notes, Definitive Rating Assigned Aa1
(sf)
$319,150,000, 1.35%, Class D Notes, Definitive Rating Assigned Baa2
(sf)
$138,760,000, 2.40%, Class E Notes, Definitive Rating Assigned B1
(sf)
RATINGS RATIONALE
The ratings are based on the quality of the underlying collateral
and its expected performance, the strength of the capital
structure, and the experience and expertise of SC as the servicer.
Moody's median cumulative net loss expectation for SDART 2021-2 is
16.50% and loss at a Aaa stress is 42.0%. Moody's based its
cumulative net loss expectation and loss at a Aaa stress on an
analysis of the credit quality of the underlying collateral; the
historical performance of similar collateral, including
securitization performance and managed portfolio performance; the
ability of SC to perform the servicing functions; and current
expectations for the macroeconomic environment during the life of
the transaction.
At closing the Class A notes, Class B notes, Class C notes, Class D
notes and Class E notes will benefit from 51.55%, 42.55%, 28.30%,
14.50%, and 8.50% of hard credit enhancement respectively.
Hard credit enhancement for the notes consists of a combination of
overcollateralization, a non-declining reserve account and
subordination. The notes will also benefit from excess spread.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of consumer assets from a gradual and unbalanced
recovery in U.S. economic activity. Specifically, for auto loan
ABS, loan performance will weaken due to the continued high
unemployment rate that may limit the borrower's income and their
ability to service debt. The softening of used vehicle prices will
reduce recoveries on defaulted auto loans, also a credit negative.
Furthermore, any borrower assistance programs provided to affected
borrowers, such as extensions, may adversely impact scheduled cash
flows to bondholders.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
December 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the subordinate notes if, given current
expectations of portfolio losses, levels of credit enhancement are
consistent with higher ratings. In sequential pay structures, such
as the one in this transaction, credit enhancement grows as a
percentage of the collateral balance as collections pay down senior
notes. Prepayments and interest collections directed toward note
principal payments will accelerate this build of enhancement.
Moody's expectation of pool losses could decline as a result of a
lower number of obligor defaults or appreciation in the value of
the vehicles securing an obligor's promise of payment. Portfolio
losses also depend greatly on the US job market, the market for
used vehicles, and changes in servicing practices.
Down
Moody's could downgrade the notes if, given current expectations of
portfolio losses, levels of credit enhancement are consistent with
lower ratings. Credit enhancement could decline if excess spread is
not sufficient to cover losses in a given month. Moody's
expectation of pool losses could rise as a result of a higher
number of obligor defaults or deterioration in the value of the
vehicles securing an obligor's promise of payment. Portfolio losses
also depend greatly on the US job market, the market for used
vehicles, and poor servicing. Other reasons for worse-than-expected
performance include error on the part of transaction parties,
inadequate transaction governance, and fraud. Moody's could
downgrade the Class A-1 short-term rating following a significant
slowdown in principal collections that could result from, among
other things, high usage of borrower relief programs or a servicer
disruption that impacts obligor's payments.
SFO COMMERCIAL 2021-555: DBRS Finalizes BB Rating on Class F Notes
------------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by SFO Commercial Mortgage Trust 2021-555.
-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class HRR at BB (low) (sf)
All trends are Stable.
SFO 2021-555 is a single-asset/single-borrower transaction
collateralized by the borrower's fee-simple interest in the 555
California Street Campus (the Campus), a 1.8 million-sf Class A
office complex in the North Financial District of San Francisco.
J.P. Morgan will fund the total debt of $1.2 billion for the
refinancing of the Campus. The IO floating-rate $1.2 billion loan
has an initial term of two years with five one-year extension
options. The total capitalization of $2.0 billion includes $850.0
million of sponsor equity, which will be used to refinance $532.7
million of existing debt, return $616.0 million of sponsor equity,
fund $19.8 million of outstanding TI/LC reserves and $12.5 million
of free rent, fund capital improvement reserves for Bank of America
for $6.9 million, and pay $12.0 million of closing costs. The
transaction has a slightly elevated DBRS Morningstar Issuance LTV
of 90.21%, based on the trust debt. The loan-to-value ratio (LTV)
based on the appraised value of $2.1 billion is 58.5%.
The sponsor is a 70/30 joint venture between Vornado Realty L.P.
and Donald J. Trump. The loan is 100% controlled by Vornado Realty
Trust, a publicly traded real estate investment trust and a member
of the S&P 500 Index. Vornado's portfolio is concentrated in New
York City, Chicago, and San Francisco. Vornado acquired the Campus
in 2007 and has invested $164.8 million ($90.63 per square foot
(psf)) into the Campus since 2016.
DBRS Morningstar has a positive view on the near- to midterm
sustainability of the Campus' net cash flow (NCF), based on its
location, tenancy, and historical performance. The Campus is in the
North Financial District in the San Francisco central business
district (CBD) market. According to the Q4 2020 appraisal
information, the North Financial District has 26.3 million sf of
inventory with an overall occupancy rate of 82.4% and a direct
weighted-average (WA) Class A rent of $85.96 psf, compared with the
South Financial District's total inventory of 27.9 million sf,
occupancy rate of 87.7%, and direct WA Class A rent of $85.44 psf.
The North Financial District has no office space under construction
at this time.
Although the North Financial District has a high overall vacancy
rate, the Campus significantly outperforms the submarket. As of the
February 1, 2021, rent roll, the Campus was 92.7% occupied,
including the vacant property, 345 Montgomery, which has completed
its renovation. The Campus has a WA occupancy rate of 95.3% since
2010 and benefits from a granular rent roll with only one tenant,
Bank of America at 18.1% of net rentable area (NRA), accounting for
more than 10.0% of NRA. Additionally, Bank of America is the only
investment-grade-rated tenant receiving any DBRS Morningstar Long
Term Credit Tenant (LTCT) treatment. The second-largest tenant is
Kirkland & Ellis LLP, which accounts for 8.4% of NRA. The rent roll
is well diversified, consisting of 41 unique tenants with 19
investment-grade tenants, accounting for 34.4% of NRA. Such
diversification is credit positive as the cash flow will be less
susceptible to revenue swings, making it more resilient during
economic downturns such as during the Coronavirus Disease
(COVID-19) pandemic.
Although the ongoing pandemic continues to pose challenges and
risks to virtually all major commercial real estate property types,
the property has shown strong performance during these
unprecedented times with approximately 2.1% of the tenants based on
total NRA requesting rent relief and a current vacancy rate of
7.3%. The Campus has demonstrated very strong performance with an
11-year historical occupancy rate of 95.3%, greater than the Reis
submarket's 91.7%. Tenants plan to bring employees back to the
office around May or June for those who want to come into the
office. Currently, the Campus is averaging 200 people per day at
555 California and approximately 15 per day at 315 Montgomery;
pre-pandemic, 555 California averaged approximately 4,500-5,200
people per day.
The Campus has great exposure with a full block frontage on
California Street, a primary two-way, four-lane major arterial that
runs east to west in downtown San Francisco with the San Francisco
Streetcar line, along with full frontage on Pine Street, Montgomery
Street, and Kearny Street. Additionally, the location affords
excellent access to public transportation, with four BART subway
lines that stop twice in the Financial District and transport
commuters to and from San Francisco to the East Bay.
Although 315 Montgomery was built in 1921 and 555 California Street
and 345 Montgomery were built in 1971, the Campus has received
approximately $164.8 million or $90.63 psf of capital improvements.
555 California received $64.3 million ($42.72 psf) in capital
improvements for concourse renovation and retail enhancements, the
opening of the Vault restaurant, roof replacement, new lobby
furnishings, HVAC upgrades, and modernizations to the restrooms.
315 Montgomery received $39.7 million ($168.74 psf), and 345
Montgomery received $60.8 million ($779.56 psf) to complete a full
renovation and restoration transforming the building into a new
creative office building with a five-story atrium. Additionally,
555 California has 30,000-sf office plates with 700,000 sf of
protected, unobstructed views, twice as much as its direct
competitors.
The highly granular rent roll is well diversified, consisting of 41
unique tenants with 19 investment-grade tenants and AM Law rated
tenants, accounting for 68.7% of NRA. Bank of America, at 18.1% of
NRA, is the only tenant at the property accounting for more than
10.0% of NRA. Bank of America recently executed a lease extension
commencing in October 2025 for 10 years. Additionally, only 1.4% of
NRA (25,701 sf) of leases are subleased for a WA rent of $90.12 psf
to FTV Management Company (962 sf), KKR Credit Advisors (4,673 sf),
and Lending Home Corporation (20,066 sf), greater than the in-place
WA rent of $79.85 psf. Five tenants, accounting for 2.1% of NRA
(37,544 sf), have requested rent relief between May 2020 and July
2020 and are scheduled to repay in 2021.
Since 2019, the Campus has renewed or signed approximately 512,825
sf with a WA rent psf of $101.56 equal to $27.0 million of total
net. Most recently, the Goldman Sachs Group (Goldman Sachs)
executed a five-year lease renewal for 90,000 sf at 555 California,
increasing its rent to $110 psf from a base rent of $59-$75 psf.
Additionally, Kohlberg Kravis Roberts & Co. L.P. recently executed
a four-year renewal for 50,515 sf at a base rent of $110 psf.
The ongoing coronavirus pandemic has created an element of
uncertainty around future demand for office space, even in gateway
markets that have historically been highly liquid. While some
tenant spaces are not completely occupied as employees have
continued to work from home during the pandemic, all tenants are
now open and operating. Approximately 2.1% of the tenants based on
total NRA have requested rent relief, most of which are retail
tenants. Between December 2020 and March 2021, collections equated
to approximately 98.0% with deferrals and abatements combined
equating to less than 1% of total revenue. According to management,
daily headcount at the property is still much lower than average.
The Campus has three years during the loan term with tenant
rollover exceeding 10% of NRA: 2023, 2025, and 2026 with 10.4%,
22.6%, and 18.8% rollover, respectively. Leases representing
approximately 64.3% of the NRA at the property will roll over
through 2028. The loan's cash management provisions are based on a
simple 5.5% debt yield trigger in order to sweep excess cash flow
or collect reserves for re-tenanting expenses. Furthermore, the
tenant rollover reserve is capped at $3,637,800 in aggregate, and
the replacement reserve is capped at $1,000,000 in the aggregate.
Also, the borrower is allowed to replace any actual cash reserves
with a letter of credit or guaranty from an affiliate as further
detailed in the loan document.
345 California is currently 100% vacant after undergoing a $60.8
million renovation. The space is not easily subdivided and is best
suited for a single tenant. Management indicates there are no
tenant letters of intents (LOI) issued. However, during the site
inspection on-site management stated there has been interest by
prospective tenants.
The aggregate probable maximum loss (PML) for 555 California and
345 Montgomery according to the seismic consultant is 14%, and the
315 California building PML is 19% due to its much older
construction. The borrower carries an all-risk blanket insurance
policy that includes earthquake coverage.
The loan is IO for the entire term. The lack of principal
amortization during the loan term can increase the refinance risk
at maturity. The loan leverage is considered moderate at a 58.5%
LTV based upon the market appraised value and a DBRS Morningstar
Issuance LTV of 90.21%. Furthermore there is no additional debt
allowed other than trade payables capped at 4% of the initial loan
amount.
Additionally, the sponsor is cashing out approximately $616.0
million of equity, equal to 30.1% of the cost basis. Although the
sponsor is extracting an exceptional amount of capital out of the
assets, it has also invested substantially in the properties since
2016, spending an estimated $164.8 million on the campus to improve
it.
Three of the top five tenants, Bank of America, Kirkland & Ellis
LLP, and UBS Financial Services (collectively 32.0% of NRA and
33.1% of UW base rent) have the options to terminate their leases.
DBRS Morningstar did not give LTCT credit for the Bank of America
spaces on floors 11 and 44 that carry the early termination
options. All of the tenants have spent considerable amounts of
their own capital to improve their spaces, and Bank of America is
currently undertaking a full renovation of its space.
There is no recourse carve-out guarantor for the loan, and
certificate holders must look solely to the net revenues from the
operation of the property and any net proceeds from the refinancing
or sale of the property for payment of amounts due on the loan. The
borrower "Bad Boy"guarantees and consequent access to a guarantor
help mitigate the risk and increased loss severity of bankruptcy,
additional encumbrances, unapproved transfers, fraud,
misappropriation of rents, physical waste, and other potential bad
acts of the borrower or its sponsor. The borrower is a recycled
special purpose entity (SPE) indirectly owned and controlled by a
joint venture between Vornado Realty L.P. (VRLP or Vornado) (70.0%
of the equity interest) and Donald J. Trump or one or more trusts
for such individual or any affiliate (30.0% of the equity
interest).
Transfer of the indirect beneficial interests in the borrower owned
by Trump may occur, provided that Vornado and/or eligible qualified
owners will still control the borrower and directly or indirectly
own at least 20% of the direct or indirect beneficial interests in
borrower in the aggregate. If any transfer results in any person
(together with its affiliates and family members) acquiring more
than 49% of the direct or indirect equity interest in borrower, an
additional insolvency opinion must be delivered that in the
lender's (servicer's) reasonable judgment satisfies the
then-current rating agency criteria. The transfer must meet all
legal requirements including OFAC, the Patriot Act, and ERISA. Any
person that acquires, directly or indirectly, 50% or more of the
equity interests in borrower must be an institutional investor. The
eligible qualified owner and institutional investor definitions
generally require real estate assets owned to be in excess of $2
billion and net worth in excess of $1 billion. The borrower may not
permit any transfer of any Vornado direct or indirect interest in
the borrower to Trump without the express written consent of the
lender, which can granted or withheld in the lender's sole and
absolute discretion, and any such transfer of any direct or
indirect interest in the Borrower held by Vornado to Trump will not
be considered a permitted transfer.
The underlying mortgage loan for the transaction will pay floating
rate, which presents potential benchmark transition risk as the
deadline approaches for the elimination of Libor. The transaction
documents provide for the transition to an alternative benchmark
rate, which is primarily contemplated to be either Term Secured
Overnight Financing Rate (SOFR) or Compounded SOFR plus the
applicable Alternative Rate Spread Adjustment. Term SOFR does not
currently exist and there is no assurance it will fully develop or
be widely adopted. Compounded SOFR, which is expected to be a
backward-looking rate generally calculated using actual rates
during the applicable interest accrual period, is considered by
some servicers to be less practical to implement. The servicer for
the transaction will have sole discretion over various aspects of a
benchmark transition. Any uncertainty or delay in transitioning to
an alternative to Libor could lead to unforeseen issues for both
the mortgage loan borrower and certificate holders. Additionally,
in order to extend the loan, the borrower must also obtain a
replacement interest rate cap agreement. If a replacement agreement
is not commercially available, the borrower can propose an
alternative hedging instrument that would provide substantially
equivalent protection from increases in the interest rate. However,
the servicer can reject any proposal and impose its own hedging
solution, if any.
Notes: All figures are in U.S. dollars unless otherwise noted.
SG COMMERCIAL 2019-787E: DBRS Confirms BB(low) Rating on F Certs
----------------------------------------------------------------
DBRS, Inc. confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2019-787E issued by SG Commercial
Mortgage Securities Trust 2019-787E as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which remains in line with DBRS Morningstar's
expectations. The transaction consists of a $187.5 million portion
of a $410.0 million whole loan that is full term, interest only,
and matures in 2029. The whole loan is divided into $175.0 million
senior companion loans, a $117.5 million subordinate A note, and a
$117.5 million junior B note. The subject securitization contains
the $70.0 million A-1A note and the subordinate $117.5 million A-2
note. Noncontrolling A notes with a combined $105.0 million trust
balance are included in the CSAIL 2019-C16, BBCMS 2019-C3, and
CSAIL 2019-C15 securitizations.
The collateral consists of a 513,638-square-foot (sf), 10-story
Class A mixed-use building with office as well as automotive retail
showroom and service center space. The building is well located in
Manhattan's Automotive Row, which is also home to 20 other
automotive dealers. The retail-auto showroom and service space is
100% leased to Jaguar Land Rover and Nissan/Infiniti, two
high-quality tenants with initial lease terms that run three years
beyond the loan's maturity in 2029. Combined, the two tenants
contribute more than half of the underwritten base rent.
In 2020, the third-largest tenant, Regus (99,337 sf; 19.3%, of the
leasable space), vacated the property ahead of its 2030 lease
expiration. Subsequently, the March 2021 rent roll shows that the
Icahn School of Medicine at Mount Sinai (Mount Sinai) leased
approximately 163,000 sf or 36.2% of the leasable space, which
includes the space previously occupied by Regus, through 2054.
Labs, outpatient clinics, and research space operated by the
healthcare network will occupy three floors. About 36,000 sf will
be built out for a research facility that will be used exclusively
by scientist and inventor Neri Oxman. With this new tenant, the
property is expected to reach full occupancy.
The December 2020 financials reported loan performance metrics that
were weaker than the issuance levels. This was not surprising
because, in addition to the loss of the third-largest tenant, two
tenants were receiving rent abatements. However, those rent
abatements will eventually shrink or burn off over the next several
years, and the property has gained some positive momentum with the
new long-term lease with Mount Sinai. Several online industry
publications, including the Wall Street Journal, reported that this
new lease could generate as much as $600.0 million in rental income
over its 33-year term. This translates to approximately $18.2
million in rental income per year from Mount Sinai, which is well
above the previous tenant's yearly rental rate of $7.2 million.
According to Real Estate Weekly, the borrower, The Georgetown
Company, has obtained $100 million in financing to build out the
Mount Sinai space, which is expected to be completed in 2024. DBRS
Morningstar reached out to the servicer to confirm the terms of the
new Mount Sinai lease, including rental rates, and is awaiting a
response.
Notes: All figures are in U.S. dollars unless otherwise noted.
SMALL BUSINESS 2019-A: Moody's Hikes Rating on Class C Notes to Ba3
-------------------------------------------------------------------
Moody's Investors Service has upgraded ratings on four notes issued
by Small Business Lending Trusts. The notes are backed by loans
granted to small-and medium-sized enterprises (SMEs) and sponsored
by FC Marketplace, LLC (Funding Circle).
The complete rating actions are as follows:
Issuer: Small Business Lending Trust 2019-A
Class A Notes, Upgraded to A1 (sf); previously on Aug 28, 2019
Definitive Rating Assigned A3 (sf)
Class B Notes, Upgraded to Baa1 (sf); previously on Aug 27, 2020
Confirmed at Baa3 (sf)
Class C Notes, Upgraded to Ba3 (sf); previously on Aug 27, 2020
Downgraded to B1 (sf)
Issuer: Small Business Lending Trust 2020-A
Class A Notes, Upgraded to A2 (sf); previously on Jan 30, 2020
Definitive Rating Assigned A3 (sf)
RATINGS RATIONALE
The upgrades are primarily prompted by an increase in credit
enhancement, which includes subordination, overcollateralization,
and reserve funds, for the affected tranches because of significant
deleveraging. Following the May 2021 payment date, the total hard
credit enhancement for Class A, Class B and Class C from Small
Business Lending Trust 2019-A stand at 80.8%, 59.0%, and 32.7%, an
increase of 32.2%, 23.7%, and 13.5%, respectively since the last
rating action in August 2020. Similarly, the total hard credit
enhancement for Class A from Small Business Lending Trust 2020-A
stand at 63.5%, an increase of 22.0% since the last rating action.
The performance of collateral backing both transactions has
improved as reflected in the decline in the total 30+ days
delinquent loans. As of the May 2021 payment date, the total 30+
days delinquent loans stand at 2.9% and 1.0% of current pool
balances, compared to 12.1% and 10.3% in August 2020, for the two
transactions, respectively.
As a result of the collateral performance improvement, Moody´s has
reduced its base case default probability assumptions to 19% of
current balance for both transactions and has maintained the
portfolio credit enhancement assumptions at 55%. Moody's took into
account the characteristics of the portfolio as well as the current
economic environment and its potential impact on the portfolio's
future performance.
Over the past year there has been high turnover of key management
personnel which Moody's consider as governance risk under Moody's
ESG framework, given the potential implications for future deal
performance.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of small businesses from a gradual and unbalanced
recovery in US economic activity. Moody's regard the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating SME Balance Sheet Securitizations" published in
May 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are greater than necessary to
protect investors against Moody's expectations of loss could lead
to an upgrade of the ratings of the notes. Moody's expectation of
pool losses could decline as a result of a lower number of obligor
defaults, or a higher than expected recovery rate. As a primary
driver of performance, positive changes in the US macro economy
could also affect the ratings, as can changes in servicing
practices.
Down
Levels of credit protection that are insufficient to protect
investors against Moody's expectations of loss could lead to a
downgrade of the ratings of the notes. Moody's expectation of pool
losses could increase as a result of a higher number of obligor
defaults or a lower than expected recovery rate. As a primary
driver of performance, negative changes in the US macro economy
could also affect the ratings. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
TALLMAN PARK: S&P Assigns BB- (sf) Rating on $14.8MM Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to Tallman Park CLO
Ltd./Tallman Park CLO 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 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.
Ratings Assigned
Tallman Park CLO Ltd./Tallman Park CLO LLC
Class A, $248.0 million: AAA (sf)
Class B, $56.0 million: AA (sf)
Class C (deferrable), $24.0 million: A (sf)
Class D (deferrable), $24.0 million: BBB- (sf)
Class E (deferrable), $14.8 million: BB- (sf)
Subordinated notes, $42.7 million: Not rated
TPGI TRUST 2021-DGWD: Moody's Assigns (P)B3 Rating to Cl. F Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 11
classes of CMBS securities, issued by TPGI Trust 2021-DGWD,
Commercial Mortgage Pass-Through Certificates, Series 2021-DGWD:
Cl. A, Assigned (P)Aaa (sf)
Cl. A-IO****, Assigned (P)Aaa (sf)
Cl. A-Y**, Assigned (P)Aaa (sf)
Cl. A-Z**, Assigned (P)Aaa (sf)
Cl. B, Assigned (P)Aa3 (sf)
Cl. C, Assigned (P)A3 (sf)
Cl. D, Assigned (P)Baa3 (sf)
Cl. E, Assigned (P)Ba3 (sf)
Cl. F, Assigned (P)B3 (sf)
Cl. X-CP*, Assigned (P)Baa3 (sf)
Cl. X-FP*, Assigned (P)Baa3 (sf)
* Reflects interest-only classes
** Reflects exchangeable classes
**** Reflects interest-only and exchangeable 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 86
properties located across six states. Moody's ratings are based on
the credit quality of the loans and the strength of the
securitization structure.
The portfolio contains a total of 7,195,219 SF comprised of 85
industrial properties and one office building. Construction dates
for properties in the portfolio range between 1960 and 2020, with a
weighted average year built of 1985. Property sizes for assets
range between 1,200 SF and 580,326 SF, with an average size of
approximately 92,246 SF. Clear heights for properties range between
14 feet and 32 feet, with a weighted average, maximum clear height
for the portfolio of approximately 23 feet. As of May 1, 2021, the
portfolio was approximately 96.7% leased to 294 tenants.
The portfolio is geographically diverse as the properties are
located across 16 different markets in six states. The top three
states by allocated loan amount ("ALA") are Georgia (40 properties;
33.9% of ALA), North Carolina (32 properties; 27.4% of ALA), and
Texas (5 properties; 20.0% of ALA). The top three market
concentrations by ALA are Atlanta (40 properties; 33.9% of NOI),
Winston-Salem (28 property; 27.4% of ALA), and Nashville (4
properties; 12.8% of ALA). Additionally, the portfolio has an
average population within a five-mile radius of approximately
192,000 based on ALA.
Moody's approach to rating this transaction involved the
application of Moody's Large Loan and Single Asset/Single Borrower
CMBS 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 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 our 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 securitization consists of a single floating-rate,
interest-only, first lien mortgage loan with an outstanding cut-off
date principal balance of $500,000,000 (the "loan" or "mortgage
loan"). The mortgage loan has an initial two-year term, with three,
one-year extension options. The first mortgage balance of
$500,0000,000 represents a Moody's LTV of 141.7%.
The Moody's first-mortgage DSCR is 2.78x and Moody's first-mortgage
stressed DSCR (at a 9.25% constant) is 0.64x. Moody's DSCR is based
on Moody's assessment of the property's stabilized NCF.
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 Property's quality
grade is 1.35.
Notable strengths of the transaction include: proximity to global
gateway markets, geographic diversity, strong recent leasing and
experienced sponsorship.
Notable credit challenges of the transaction include: age of the
properties, lack of historical operating performance, tenant
roll-over profile, floating-rate/interest-only mortgage loan
profile and certain credit negative legal features.
Moody's rating approach considers sequential pay in connection with
a collateral release as a credit neutral benchmark. Although the
loans' release premium mitigates the risk of a ratings downgrade
due to adverse selection, the pro rata payment structure limits
ratings upgrade potential as mezzanine classes are prevented from
building enhancement. The benefit received from pooling through
cross-collateralization is also reduced.
The principal methodology used in rating all classes except
exchangeable classes and interest-only and exchangeable 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 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 pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of commercial real estate from a gradual and unbalanced
recovery in United States economic activity.
TRAPEZA CDO XI: Moody's Hikes Class C Notes Rating to Caa2
----------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Trapeza CDO XI, Ltd.:
US$53,000,000 Class A-2 Second Priority Senior Secured Floating
Rate Notes Due 2041, Upgraded to Aa2 (sf); previously on January
10, 2019 Upgraded to Aa3 (sf)
US$20,000,000 Class A-3 Third Priority Senior Secured Floating Rate
Notes Due 2041, Upgraded to A1 (sf); previously on January 10, 2019
Upgraded to A2 (sf)
US$25,000,000 Class B Fourth Priority Secured Deferrable Floating
Rate Notes Due 2041, Upgraded to Baa3 (sf); previously on January
10, 2019 Upgraded to Ba1 (sf)
US$33,000,000 Class C Fifth Priority Secured Deferrable Floating
Rate Notes Due 2041 (current balance including deferred interest of
$38,833,456), Upgraded to Caa2 (sf); previously on January 10, 2019
Upgraded to Caa3 (sf)
Trapeza CDO XI, Ltd., issued in November 8, 2006, is a
collateralized debt obligation (CDO) backed by a portfolio of bank
and REIT trust preferred securities (TruPS).
RATINGS RATIONALE
The rating actions are primarily a result of the deleveraging of
the Class A-1 notes and an increase in the transaction's
over-collateralization (OC) ratios since June 2020.
The Class A-1 notes have paid down by approximately 29.5% or $21.1
million since June 2020, using principal proceeds from the
redemption of the underlying assets and a defaulted asset and the
diversion of excess interest proceeds. Based on Moody's
calculations, the OC ratios for the Class A-2, Class A-3, Class B,
and Class C notes have improved to 196.6%, 164.7%, 137.0%, and
108.6%, respectively, from June 2020 levels of 177.8%, 153.1%,
130.6%, and 106.2%, respectively. The Class A-1 notes will continue
to benefit from the diversion of excess interest and the use of
proceeds from redemptions of any assets in the collateral pool.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, and weighted average recovery rate,
are based on its methodology and could differ from the trustee's
reported numbers. In its base case, Moody's analyzed the underlying
collateral pool as having a performing par of $203.3 million,
defaulted par of $63.4 million, a weighted average default
probability of 20.3% (implying a WARF of 1804), and a weighted
average recovery rate upon default of 10.0%.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in US economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology Used for the Rating Action
The principal methodology used in these ratings was "Moody's
Approach to Rating TruPS CDOs" published in June 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 portfolio consists primarily
of unrated assets whose default probability Moody's assesses
through credit scores derived using RiskCalc(TM) or credit
estimates. Because these are not public ratings, they are subject
to additional estimation uncertainty.
TRAPEZA CDO XIII: Moody's Hikes Rating on 2 Tranches to Ba2
-----------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Trapeza CDO XIII, Ltd.:
US$21,000,000 Class A-3 Senior Secured Floating Rate Notes Due
2042, Upgraded to Aa2 (sf); previously on February 13, 2020
Upgraded to Aa3 (sf)
US$65,000,000 Class B Secured Deferrable Floating Rate Notes Due
2042, Upgraded to A2 (sf); previously on February 13, 2020 Upgraded
to Baa1 (sf)
US$58,000,000 Class C-1 Secured Deferrable Floating Rate Notes Due
2042, Upgraded to Ba2 (sf); previously on February 13, 2020
Upgraded to Ba3 (sf)
US$5,000,000 Class C-2 Secured Deferrable Fixed/Floating Rate Notes
Due 2042, Upgraded to Ba2 (sf); previously on February 13, 2020
Upgraded to Ba3 (sf)
Trapeza CDO XIII, Ltd., issued in August 2007, is a collateralized
debt obligation (CDO) backed by a portfolio of bank and insurance
trust preferred securities (TruPS).
RATINGS RATIONALE
The rating actions are primarily a result of the deleveraging of
the Class A-1 notes and an increase in the transaction's
over-collateralization (OC) ratios since May 2020.
The Class A-1 notes have paid down by approximately 15.2% or $18.5
million since May 2020, using principal proceeds from the
redemption of the underlying assets and a defaulted asset and the
diversion of excess interest proceeds. Based on Moody's
calculations, the OC ratios for the Class A-1, Class A-2, Class
A-3, Class B, and Class C notes have improved to 422.77%, 213.01%,
193.27%, 150.18%, and 123.50%, respectively, from May 2020 levels
of 368.40%, 200.74%, 183.54%, 145.07%, and 120.58%, respectively.
The Class A-1 notes will continue to benefit from the diversion of
excess interest and the use of proceeds from redemptions of any
assets in the collateral pool.
The deal has also benefited from improvement in the credit quality
of the underlying portfolio. According to Moody's calculations, the
weighted average rating factor (WARF) improved to 1059 from 1073 in
May 2020.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, and weighted average recovery rate,
are based on its methodology and could differ from the trustee's
reported numbers. In its base case, Moody's analyzed the underlying
collateral pool as having a performing par of $437.9 million,
defaulted par of $34.0 million, a weighted average default
probability of 10.7% (implying a WARF of 1059), and a weighted
average recovery rate upon default of 10.0%.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in the US economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology Used for the Rating Action
The principal methodology used in these ratings was "Moody's
Approach to Rating TruPS CDOs" published in June 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 portfolio consists primarily
of unrated assets whose default probability Moody's assesses
through credit scores derived using RiskCalc(TM) or credit
estimates. Because these are not public ratings, they are subject
to additional estimation uncertainty.
US CAPITAL III: Fitch Affirms D Rating on 2 Debt Tranches
---------------------------------------------------------
Fitch Ratings has affirmed 29 and upgraded four tranches from seven
collateralized debt obligations (CDOs) backed primarily by trust
preferred (TruPS) securities issued by banks and insurance
companies.
DEBT RATING PRIOR
---- ------ -----
ALESCO Preferred Funding I, Ltd./Inc.
A-2 01447YAB0 LT AAsf Affirmed AAsf
B-1 01447YAC8 LT Csf Affirmed Csf
B-2 01447YAD6 LT Csf Affirmed Csf
Preferred Term Securities X, Ltd./Inc.
A-2 74040YAB8 LT AAsf Affirmed AAsf
A-3 74040YAC6 LT AAsf Affirmed AAsf
B-1 74040YAD4 LT Csf Affirmed Csf
B-2 74040YAE2 LT Csf Affirmed Csf
B-3 74040YAF9 LT Csf Affirmed Csf
Tropic CDO IV Ltd./Corp.
A-1L Floating 89707YAA2 LT AAAsf Upgrade AAsf
A-2L Floating 89707YAB0 LT AAsf Upgrade Asf
A-3L Floating 89707YAC8 LT BBBsf Affirmed BBBsf
A-4 Fixed/Floating 89707YAE4 LT Csf Affirmed Csf
A-4L Floating 89707YAD6 LT Csf Affirmed Csf
B-1L Floating 89707YAF1 LT Csf Affirmed Csf
MMCapS Funding XVII, Ltd./Corp
A-1 Floating Rates Notes 55312HAA7 LT AAsf Affirmed AAsf
A-2 Floating Rate Notes 55312HAB5 LT AAsf Affirmed AAsf
B Floating Rate Notes 55312HAC3 LT Asf Affirmed Asf
C-1 Floating Rate Deferable 55312HAD1 LT CCsf Affirmed CCsf
C-2 Fixed Rate Defferable 55312HAE9 LT CCsf Affirmed CCsf
U.S. Capital Funding III, Ltd./Corp.
A-2 Floating 90342BAC7 LT AAsf Affirmed AAsf
B-1 Floating 90342BAE3 LT Dsf Affirmed Dsf
B-2 Fixed / Floating 90342BAG8 LT Dsf Affirmed Dsf
Tropic CDO III Ltd./Corp.
A-2L 89707WAB4 LT AAsf Affirmed AAsf
A-3L 89707WAC2 LT Asf Affirmed Asf
A-4A 89707WAE8 LT Csf Affirmed Csf
A-4B 89707WAF5 LT Csf Affirmed Csf
A-4L 89707WAD0 LT Csf Affirmed Csf
ALESCO Preferred Funding IV, Ltd./Inc.
A-1 01448QAA8 LT AAsf Affirmed AAsf
A-2 01448QAB6 LT Asf Upgrade BBBsf
A-3 01448QAC4 LT Asf Upgrade BBBsf
B-1 01448QAD2 LT Csf Affirmed Csf
B-2 01448QAE0 LT Csf Affirmed Csf
B-3 01448QAF7 LT Csf Affirmed Csf
KEY RATING DRIVERS
The main driver behind the upgrades was deleveraging from
collateral redemptions and excess spread. Five transactions had
paydowns to the senior most notes, ranging between 2% and 53% of
their balances at last review. The magnitude of the deleveraging
for each CDO is reported in the accompanying rating action report.
For two transactions, the credit quality of the collateral
portfolios, as measured by a combination of Fitch's bank scores and
public ratings, improved, with the other five exhibiting negative
credit migration. No new cures, deferrals or defaults have been
reported during this review period.
The ratings on eight classes of notes in four of the transactions
have been capped based on the application of the performing credit
enhancement (CE) cap as described in Fitch's "U.S. Trust Preferred
CDOs Surveillance Rating Criteria."
Fitch considered the rating of the issuer account bank in the
ratings for class A-2 in Alesco Preferred Funding I, Ltd./Inc.,
class A-1 in Alesco Preferred Funding IV, Ltd./Inc., class A-1 in
MMCaps Funding XVII, Ltd./Corp., class A-2 and A-3 in Preferred
Term Securities X, Ltd./Inc. due to the transaction documents not
conforming to Fitch's "Structured Finance and Covered Bonds
Counterparty Rating Criteria". These transactions are allowed to
hold cash, and their account bank does not collateralize cash.
Therefore, these classes of notes are capped at the same rating
category as that of its issuer account bank.
Fitch affirmed the rating on the non-deferrable class B-1 and B-2
notes in U.S. Capital Funding III, Ltd./Corp. at 'Dsf'. An event of
default occurred in September 2020 due to the failure to pay the
entire amount of interest due to such timely classes. The class B
notes have not received their timely interest since the default. In
addition, the Rating Outlook Negative has been maintained for the
class A-2 notes due to the continued risk of interest shortfall at
the 'AAsf' rating stress, given the out of the money interest rate
swap that does not expire until 2030 and the depleted interest
reserve account.
RATING SENSITIVITIES
To address potential risks of adverse selection and increased
portfolio concentration, Fitch applied a sensitivity scenario, as
described in the criteria, to applicable transactions.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Future upgrades to the rated notes may occur if a transaction
experiences improvement in CE through deleveraging from
collateral redemptions and/or interest proceeds being used for
principal repayment.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades to the rated notes may occur if a significant share
of the portfolio issuers defer or default on their TruPS
instruments, which would cause a decline in performing CE
levels.
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.
VENTURE 43: Moody's Assigns Ba3 Rating to $22.25M Class E Notes
---------------------------------------------------------------
Moody's Investors Service has assigned ratings to seven classes of
notes issued by Venture 43 CLO, Limited (the "Issuer" or "Venture
43").
Moody's rating action is as follows:
US$5,000,000 Class X Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aaa (sf)
US$300,000,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$20,000,000 Class A-2 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$60,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aa2 (sf)
US$29,500,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned A2 (sf)
US$28,250,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Baa3 (sf)
US$22,250,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned Ba3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
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.
Venture 43 is a managed cash flow CLO. The issued notes will be
collateralized primarily by broadly syndicated senior secured
corporate loans. At least 90% of the portfolio must consist of
senior secured loans, cash, and eligible investments, and up to 10%
of the portfolio may consist of second lien loans, unsecured loans
and permitted debt securities. The portfolio is approximately 95%
ramped as of the closing date.
MJX Asset Management LLC (the "Manager") will direct the selection,
acquisition and disposition of the assets on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's five-year reinvestment period.
Thereafter, subject to certain restrictions, the Manager may
reinvest unscheduled principal payments and proceeds from sales of
credit risk assets.
In addition to the Rated Notes, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 80
Weighted Average Rating Factor (WARF): 2700
Weighted Average Spread (WAS): 3.50%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 46.5%
Weighted Average Life (WAL): 9 years
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in U.S. economic activity.
Moody's regard 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.
WACHOVIA BANK 2005-C21: Fitch Affirms D Rating on 6 Tranches
------------------------------------------------------------
Fitch Ratings has affirmed the ratings of 37 classes across four
U.S. CMBS transactions. Each transaction has fewer than five
loans/assets remaining.
DEBT RATING PRIOR
---- ------ -----
Wachovia Bank Commercial Mortgage Trust 2005-C21
E 92976BAA0 LT CCCsf Affirmed CCCsf
F 92976BAB8 LT Dsf Affirmed Dsf
G 92976BAC6 LT Dsf Affirmed Dsf
H 92976BAD4 LT Dsf Affirmed Dsf
J 92976BAE2 LT Dsf Affirmed Dsf
K 92976BAF9 LT Dsf Affirmed Dsf
L 92976BAG7 LT Dsf Affirmed Dsf
Morgan Stanley Capital I Trust 1998-WF2
L 61745MHJ5 LT BBBsf Affirmed BBBsf
M 61745MHK2 LT Dsf Affirmed Dsf
Morgan Stanley Capital I Trust 2007-TOP27
A-J 61754JAH1 LT Asf Affirmed Asf
AW34 61754JAZ1 LT AAAsf Affirmed AAAsf
B 61754JAK4 LT BBBsf Affirmed BBBsf
C 61754JAL2 LT Bsf Affirmed Bsf
D 61754JAM0 LT Dsf Affirmed Dsf
E 61754JAN8 LT Dsf Affirmed Dsf
F 61754JAP3 LT Dsf Affirmed Dsf
G 61754JAQ1 LT Dsf Affirmed Dsf
H 61754JAR9 LT Dsf Affirmed Dsf
J 61754JAS7 LT Dsf Affirmed Dsf
K 61754JAT5 LT Dsf Affirmed Dsf
L 61754JAU2 LT Dsf Affirmed Dsf
M 61754JAV0 LT Dsf Affirmed Dsf
N 61754JAW8 LT Dsf Affirmed Dsf
O 61754JAX6 LT Dsf Affirmed Dsf
Morgan Stanley Capital I Trust 2006-HQ10
B 61750HAH9 LT CCsf Affirmed CCsf
C 61750HAJ5 LT Csf Affirmed Csf
D 61750HAK2 LT Csf Affirmed Csf
E 61750HAN6 LT Dsf Affirmed Dsf
F 61750HAP1 LT Dsf Affirmed Dsf
G 61750HAQ9 LT Dsf Affirmed Dsf
H 61750HAR7 LT Dsf Affirmed Dsf
J 61750HAS5 LT Dsf Affirmed Dsf
K 61750HAT3 LT Dsf Affirmed Dsf
L 61750HAU0 LT Dsf Affirmed Dsf
M 61750HAV8 LT Dsf Affirmed Dsf
N 61750HAW6 LT Dsf Affirmed Dsf
O 61750HAX4 LT Dsf Affirmed Dsf
KEY RATING DRIVERS
Stable Loss Expectations; Pool Concentration: The affirmations
reflect stable loss expectations for the remaining loans/assets in
these pools since their prior rating actions. Due to the
concentrated nature of each of the four transactions, Fitch
performed a sensitivity analysis that grouped the remaining loans
based on the likelihood of repayment and expected losses on the
specially serviced assets; the ratings reflect this analysis.
Twenty-eight classes have been affirmed at 'Dsf' due to realized
losses incurred.
For Morgan Stanley Capital I Trust 2007-TOP27, only two loans
remain in the pool: 360 Park Avenue South (98.8% of pool) and
Broadmoor Mini Storage (1.2%). Classes A-J, B, and C are reliant on
recoveries from the 360 Park Avenue South loan, which is secured by
a 20-story, 451,800-sf office property located on the southwest
corner of Park Avenue and East 26th Street in Manhattan.
The property is 100% leased to RELX Group (formerly Reed Elsevier;
BBB+/Stable) through December 2021; however, in 2016, the single
tenant vacated the property and relocated its headquarters. The
property is currently fully subleased by 11 tenants, all through
December 2021. Per the servicer, there are no prospective tenants
at this time. Although the single tenant's NNN master lease expires
prior to the March 2022 maturity, the loan's overall leverage is
low. Classes A-J, B and C need recoveries of $230, $351 and $418
psf, respectively, on the loan to repay, which is low relative to
recent comparable sales averaging $828 psf per REIS as of May
2021.
The class AW34 is reliant on the 330 West 34th Street non-pooled
component, for which performance has remained stable since
issuance. The loan is collateralized by a 46,412-sf parcel of land,
which is ground-leased to Vornado Realty Trust (BBB/Stable) on a
triple net basis until 2149. The parcel is improved with an
18-story, 636,915-sf office property located in Manhattan, NY.
For Morgan Stanley Capital I Trust 1998-WF2, one loan, 1201
Pennsylvania Avenue, remains. The loan, which is fully amortizing
and matures in April 2023, is secured by an office property located
in Washington, D.C. in close proximity to the White House.
The property reported negative cash flow from 2016, when the former
largest tenant vacated at lease expiration, through the first half
of 2020. Occupancy as of the December 2020 rent roll was 59.8%,
slightly up from 49.1% in December 2019. While occupancy and NOI
have improved since the last rating action, with NOI turning
positive for YE 2020, DSCR remains low and the sponsor continues to
fund debt service shortfalls out of pocket as property
stabilization remains ongoing. Class L, rated 'BBBsf', needs to
only recover $16 psf, on the loan to repay.
Loss expectations for MSCI 2006-HQ10 remain high due to the high
certainty of losses from the concentration of REO assets comprising
81.3% of the pool. The largest asset is the REO Gateway Medical
Center (50.4% of pool), a 77,386-sf medical office building located
in Phoenix, AZ, which was originally a part of the larger PPG
Portfolio. Occupancy was only 25% as of March 2021 with one tenant,
Phoenix Orthopaedic Ambulatory Center, that has a lease through
October 2027. The special servicer continues to stabilize the
property and market the vacancies for lease; the asset is not
currently listed for sale.
Default remains a possibility for class E in WBCMT 2005-C21 given
the binary risk associated with the largest remaining loan,
Phillips Lighting, which is secured by a single-tenanted office
property with a lease rolling in December 2021, 14 years prior to
loan maturity. The loan is hyper-amortizing and past its ARD date.
RATING SENSITIVITIES
The Positive Outlook on class A-J of MSCI 2007-TOP27 reflects that
a further upgrade to the class is possible with significant
positive leasing momentum and further stabilization of the 360 Park
Avenue South property prior to loan maturity. The Stable Rating
Outlooks on classes B and C of MSCI 2007-TOP27 and class L of MSC
1998-WF2 reflect expected continued paydown and amortization of the
performing loans in the transactions.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Classes A-J, B and C in MSCI 2007-TOP27, which are all reliant
on the largest loan in the pool, include a full defeasance of
the 360 Park Avenue South loan or significant positive leasing
momentum and stabilization of the property prior to loan
maturity. For MSC 1998-WF2, an upgrade to class L would likely
occur with continued amortization and/or as property occupancy
increases and cash flow turns positive and continues to
further stabilize.
-- For the distressed classes across all four transactions,
although not expected, factors that could lead to upgrades
include significant improvement in valuations, better than
expected recoveries on specially serviced assets, and
improvement in performance of the remaining assets.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Classes A-J, B and C in MSCI 2007-TOP27 include an increase in
pool level losses stemming from significant performance
deterioration of the largest loan in the pool. Downgrades to
classes A-J and B are not considered likely due to the low
recoveries needed on the 360 Park Avenue South loan for these
classes to repay in full relative to significantly higher
recent comparable sales.
-- A downgrade of class C may occur with significant
occupancy/cash flow decline for the 360 Park Avenue South
property and/or a default of the loan at or prior to maturity
due to a prolonged or lack of property stabilization.
-- For MSC 1998-WF2, a downgrade to class L is possible should
property occupancy and performance fail to improve and the
loan is transferred to special servicing.
-- For the distressed classes across all four transactions,
downgrades may occur if expected losses increase due to lower
property valuations and/or higher loan exposure of the assets
in special servicing. Classes rated 'CCCsf', 'CCsf' and 'Csf'
will be downgraded further if losses become more certain or
once realized losses are incurred.
-- Classes currently rated 'Dsf' will remain unchanged as losses
have already been incurred.
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.
WAMU COMMERCIAL 2007-SL2: Fitch Affirms D Rating on 6 Debt Classes
------------------------------------------------------------------
Fitch Ratings has upgraded three and affirmed six classes of WaMu
Commercial Mortgage Securities Trust commercial mortgage
pass-through certificates, series 2007-SL2.
DEBT RATING PRIOR
---- ------ -----
WaMu Commercial Mortgage Securities Trust 2007-SL2
D 933632AF8 LT AAAsf Upgrade AAsf
E 933632AG6 LT BBBsf Upgrade BBsf
F 933632AH4 LT Bsf Upgrade CCCsf
G 933632AJ0 LT Dsf Affirmed Dsf
H 933632AK7 LT Dsf Affirmed Dsf
J 933632AL5 LT Dsf Affirmed Dsf
K 933632AM3 LT Dsf Affirmed Dsf
L 933632AN1 LT Dsf Affirmed Dsf
M 933632AP6 LT Dsf Affirmed Dsf
KEY RATING DRIVERS
Increased Credit Enhancement: The upgrades to classes D, E, and F
reflect the increased credit enhancement (CE) from loans repaying
during their open prepayment period. Class D is now in the first
pay position. As of the May 2021 distribution date, the pool's
aggregate principal balance has been paid down by 95.2% to $40.5
million from $842.1 million at issuance. All of the remaining loans
are past the lockout period and can prepay without penalty. Since
Fitch's prior rating action, five loans (previously 6.8% of the
pool with an aggregate balance at the last rating action of $3.1
million) have been repaid. No loans are defeased.
Stable Loss Expectations: The majority of the pool continues
exhibiting relatively stable performance and pool loss expectations
have remained stable in comparison to Fitch's prior rating action.
Fourteen loans (26% of the current pool balance) have been
designated as Fitch Loans of Concern (FLOCs), including four loans
(15.5%) in the top 15 and one in special servicing (1.3%). The
weighted average Fitch loan-to-value (LTV) for the pool improved to
113.8% from 118.7% at the prior rating action. Interest shortfalls
are currently affecting classes G through N. Additionally, 54 loans
(75.33%) are 100% recourse to the borrower.
Alternative Loss Considerations: Fitch applied a sensitivity
scenario where a 100% loss was modelled on the current balances of
the all loans with an NOI debt service coverage ratio (DSCR) below
1.15x to test the viability of the ratings given the increasing
concentration of the pool. The upgrades to classes D, E, and F
reflect this scenario.
Pool Concentration: The pool consists entirely of small balance
loans which traditionally have high loss severities. Fitch utilized
conservative cap rate, constant and cash flow scenarios for
performing loans to mitigate concerns regarding the pool's
concentration and collateral quality. Loans secured by multifamily
properties account for 84.9% of the pool and mixed-use properties
with a multifamily component account for the remaining 15.1%. 47.2%
of the remaining pool is collateralized by loans in major
metropolitan areas including New York City (14.7%), Los Angeles
(18.8%), and Chicago (13.7%).
Extended Maturity Profile: 99.6% of the pool does not mature until
2036, which could result in performance issues due to future
economic volatility. However, none of the loans have prepayment
restrictions. All remaining loans in the pool are adjustable rate
mortgages with floating interest rates leaving borrowers exposed to
interest rate volatility in the future. Given the collateral
concentration in primary markets where property values have risen
and continued amortization of the remaining loans, it is likely
that most borrowers have enough equity to be able to refinance.
While the majority of these loans are fully amortizing (75.93%),
scheduled monthly principal is limited due to the loans amortizing
over a 30-year schedule.
Coronavirus Exposure and Pool Concentration: The social and market
disruption caused by the effects of the coronavirus pandemic and
related containment measures were not a factor in this review. The
pool is comprised almost entirely of small balance, fully
amortizing loans backed by multifamily properties, with geographic
concentration in California and New York. Given this concentration,
and because many of the asset-level financial statements are
missing or dated, Fitch used conservative NOI haircuts and higher
cap rate and refinance constant assumptions for the pool. The
resulting loan level loss projections may be considered high
relative to the leverage points, but were deemed appropriate in
testing the durability of the ratings.
RATING SENSITIVITIES
The Stable Outlooks on all 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:
-- Stable to improved asset performance coupled with paydown from
unscheduled prepayments and/or defeasance. An additional
upgrade of classes E may occur with further improvement in CE
or defeasance but would be limited should the deal be
susceptible to refinance issues or increased concentration
whereby the underperformance of Fitch Loans of Concern (FLOCs)
could cause this trend to reverse.
-- Classes would not be upgraded above 'Asf' if there is a
likelihood for interest shortfalls. An additional upgrade to
class 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 if
class G is not eroded and the senior classes payoff.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses from underperforming loans or
the transfer of loans to special servicing. Downgrades to
class D are not likely due to the high CE, but may occur
should interest shortfalls occur. Downgrades to class E would
occur should loss expectations increase due to an increase in
specially serviced loans. Downgrade to class F would occur
should loans become delinquent and Fitch's loss projections
increase.
-- In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond
2021; should this scenario play out, Fitch expects that a
greater percentage of classes may be assigned a Negative
Rating Outlook or those with Negative Rating Outlooks will be
downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
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 2013-LC12: Fitch Lowers Rating on 2 Tranches to B-
--------------------------------------------------------------
Fitch Ratings has downgraded four and affirmed nine classes of
Wells Fargo Commercial Mortgage Trust, commercial mortgage
pass-through certificates, series 2013-LC12 (WFCM 2013-LC12). In
addition, Fitch has removed the Rating Watch Negative on four
classes and assigned new Outlooks.
DEBT RATING PRIOR
---- ------ -----
WFCM 2013-LC12
A-3 94988QAE1 LT AAAsf Affirmed AAAsf
A-3FL 94988QBG5 LT AAAsf Affirmed AAAsf
A-3FX 94988QBQ3 LT AAAsf Affirmed AAAsf
A-4 94988QAG6 LT AAAsf Affirmed AAAsf
A-S 94988QAN1 LT Asf Downgrade AAAsf
A-SB 94988QAL5 LT AAAsf Affirmed AAAsf
B 94988QAQ4 LT BBsf Downgrade BBBsf
C 94988QAS0 LT B-sf Downgrade BBsf
D 94988QAU5 LT CCCsf Affirmed CCCsf
E 94988QAW1 LT CCsf Affirmed CCsf
F 94988QAY7 LT Csf Affirmed Csf
PEX 94988QBJ9 LT B-sf Downgrade BBsf
X-A 94988QBC4 LT AAAsf Affirmed AAAsf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades and Negative Outlooks
reflect continued performance declines, increasing refinance risks
and greater certainty of losses on the underperforming regional
mall loans: Carolina Place (7.8% of pool), White Marsh Mall (7.6%),
and Rimrock Mall (7.0%). Fitch's current ratings incorporate a base
case loss of 18.60%, which includes additional stresses on these
three malls due to deteriorating performance, the effects of the
coronavirus pandemic and the secular shift away from regional
malls.
Twenty loans (37.0%) were designated Fitch Loans of Concern
(FLOCs), including six loans currently in special servicing
(16.9%). The 17 non-mall FLOCs (14.6%), include four hotel assets
in special servicing (2.3%), and 13 performing loans (12.3%)
designated as FLOCs primarily due to performance declines and/or
the expected impact from the coronavirus pandemic.
Regional Mall FLOCs: The largest contributor to loss expectations,
Rimrock Mall (7.0%), is secured by 428,661-sf of a 586,446-sf
regional mall in Billings, MT. The loan, which is sponsored by
Starwood Retail Partners, transferred to special servicing for
Imminent Monetary Default in May 2020 at the borrower's request as
a result of the coronavirus pandemic; the loan has been in payment
default since June 2020. Per servicer updates, a receiver has been
appointed and the servicer is working on a deed-in-lieu (DIL).
Fitch's loss expectation of 92% reflects a 30% cap rate off the YE
2020 NOI. Fitch's analysis considers continued performance concerns
exacerbated by the coronavirus pandemic, the regional mall's
tertiary market, declining tenant sales, a vacant anchor space and
the sponsor's unwillingness to further support the property.
The YE 2020 NOI declined 34% from YE 2019 and 62% from the issuers
underwritten NOI. NOI DSCR is low, falling to 0.69x at YE 2020
compared with 1.23x at YE 2019. Collateral occupancy was 82% at YE
2020, compared to 82% at YE 2019 and 97% at YE 2017. The occupancy
declines were largely attributed to Herberger's (previously 14% net
rentable area [NRA]) vacancy in August 2018. In-line tenant sales
for tenants occupying less than 10,000 sf and reporting sales were
$273 psf at YE 2020, down from $325 psf for the TTM ended April
2020 and $445 psf at issuance.
The second largest contributor to loss expectations, White Marsh
Mall (7.6%), is secured by 702,317-sf of a 1.2 million-sf regional
mall in Baltimore, MD. The collateral anchors are Boscov's, Macy's
Home Store and Dave & Buster's. Non-collateral anchors include
Macy's and JCPenney. The loan, which is sponsored by Brookfield
Properties Retail Group, has been in and out of payment default
since transferring to special servicing in August 2020 at the
borrower's request for Imminent Monetary Default. The loan matured
on May 1, 2021 without repayment. Per the most recent servicer
updates, the lender continues to evaluate collateral and
discussions with the borrower are ongoing.
Fitch's loss expectation of 70% reflects a 25% cap rate and a 10%
total haircut to the YE 2020 NOI. Fitch's analysis considers
performance and refinance concerns increased by the coronavirus
pandemic, near term rollover risks, declining sales and significant
market competition.
The YE 2020 NOI was 11.4% below YE 2019 and 18% below the issuers
underwriting driven by lower revenue. Servicer-reported NOI debt
service coverage ratio (DSCR) declined to 2.27x at YE 2020 from
2.55x at YE 2019 and 2.77x at issuance. Per the December 2020 rent
roll, collateral occupancy was 93%. Near term rollover includes
11.9% NRA in 2021 and 11.8% in 2022. Collateral occupancy has been
relatively stable since issuance; however, Sears, a non-collateral
anchor, closed in April 2020. Comparative in-line sales for tenants
occupying less than 10,000 sf and reporting sales were $283 psf for
the TTM ended March 2021, down from $361 psf at YE 2019 and $428
psf at issuance for YE 2012.
The third largest contributor to loss expectations, Carolina Place
(7.8%), is secured by 693,196-sf of a 1.2 million-sf regional mall
in Pineville, NC, approximately 10 miles southwest of the Charlotte
CBD. The loan, which is sponsored by a joint venture between
Brookfield Properties Retail Group and the New York State Common
Retirement Fund, was designated a FLOC due to significant lease
rollover concerns prior to maturity, declining occupancy and sales
since issuance, limited leasing progress on the vacant anchor space
formerly occupied by Sears and significant market competition.
Fitch's loss expectation of 54% reflects a 20% cap rate off the YE
2020 NOI.
The remaining collateral anchor JCPenney (17% NRA) recently
extended its lease for two years through May 2023. The
non-collateral anchors are Dillard's and Belk. In 2019, Dick's
Sporting Goods and Golf Galaxy began leasing a non-collateral
anchor box formerly occupied by Macy's. At YE 2020, collateral
occupancy and servicer-reported NOI DSCR were 73% and 1.48x,
respectively. Near term rollover includes 5.8% NRA in 2021 and
14.2% in 2022. In-line tenant sales were $335-psf as of YE 2020.
The loan has remained current since issuance, and the borrower has
not requested coronavirus relief to date.
Alternative Loss Consideration: Fitch considered an additional
scenario in addition to its base case scenario, where only the
three regional mall FLOCs remain in the pool. These loans face
significant refinance risks including regional mall concerns, low
occupancy and/or low DSCR. Classes B through G and class PEX are
reliant on proceeds from these loans for repayment. This scenario
contributed to the Negative Outlooks on classes B, C and PEX.
The Stable Outlooks on classes A-3, A-3FL, A-3FX, A-4, A-SB and X-A
reflect their senior position in the capital structure and payment
priority. These classes are covered by defeased collateral and
performing loans. The Stable Outlook on class A-S reflects the
class not being reliant on proceeds from the regional mall FLOCs
for repayment.
Exposure to Coronavirus Pandemic: Thirteen loans (8.3%) are secured
by hotel properties. The weighted average NOI DSCR for all hotel
loans is 2.04x. These hotel loans could sustain a weighted average
decline in NOI of 51% before DSCR falls below 1.00x. Thirty-four
loans (48.7%) are secured by retail properties. The weighted
average NOI DSCR for all non-defeased retail loans is 1.96x. These
retail loans could sustain a weighted average decline in NOI of 49%
before DSCR falls below 1.00x. Additional coronavirus specific
stresses were applied to 11 hotel loans (7.6%) and three
non-defeased retail loans (1.9%).
Increase in Credit Enhancement: As of the May 2021 distribution
date, the pool's aggregate principal balance has been reduced by
25.6% to $1.05 billion from $1.41 billion at issuance. Four loans
were disposed since Fitch's December 2020 rating action. Three
loans (totaling $146.8 million) prepaid with yield maintenance, and
one REO asset ($8.7 million) was disposed with a $3.1 million loss
to the trust. Realized losses to date total $14.1 million or 1% of
the original pool balance. Cumulative interest shortfalls totaling
$2.2 million are currently affecting classes E, F and the non-rated
class G. The majority of the pool (81.1%) is currently amortizing.
Fifteen loans (10.3%) are defeased.
Pool Concentration: The top 10 loans comprise 58.4% of the pool.
Loan maturities are concentrated in 2023 (91.8%). The largest
concentrations by property type are retail at 48.7%, office at
25.2% and hotel at 8.6%.
The largest loan, Cumberland Mall (8.6%), is secured by 541,527-sf
of a 1.0 million-sf regional mall located in Atlanta, GA. The
collateral includes a 147,409-sf portion that is ground leased to
Costco. Macy's is a non-collateral anchor. The former Sears box
(non-collateral), owned by a 50/50 joint venture between Brookfield
and Seritage Growth Properties, was re-tenanted with Dick's
Sporting Goods, Planet Fitness and Round 1. Dick's Sporting Goods
and Planet Fitness are open and operating.
At YE 2020, collateral occupancy and servicer-reported NOI DSCR
were 96% and 3.22x, respectively, for this full-term interest-only
loan. As of the TTM ended August 2020, in-line sales were $571-psf
($415-psf excluding Apple). The loan is sponsored by Brookfield
Retail Properties Group and CBRE Group.
RATING SENSITIVITIES
The Negative Outlooks on classes B, C and PEX reflect the potential
for further downgrades given concerns with the regional mall FLOCs.
The Stable Outlooks on classes A-3, A-3FL, A-3FX, A-4, A-SB, X-A
and A-S reflect the defeasance, the expectation of continued
amortization and the anticipated payoff of performing non-FLOCs.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with paydown
and/or defeasance. Upgrades are not likely due to
performance/refinance concerns with the regional mall FLOCs,
but could occur if performance of the FLOCs improves
significantly and/or any of the mall FLOCs pay in full.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level expected losses due to further
clarity on the workout strategy of the specially serviced
malls or the transfer of additional loans to special
servicing.
-- Downgrades of classes A-3, A-3FL, A-3FX, A-4, A-SB and X-A
would occur should overall loss expectations increase but the
payment priority of the classes would be considered. Should
interest shortfalls occur or expected to be incurred, classes
would be capped at 'Asf'. A further downgrade of class A-S is
considered unlikely as the class is not reliant on proceeds
from the regional mall FLOCs for repayment.
-- Classes B, C and PEX would be downgraded further if
performance of the regional mall FLOCs continues to decline
and or loss expectations increase significantly. Distressed
classes D, E and F would be downgraded further with increased
certainty of losses or as losses are realized.
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
WFCM 2013-LC12 has an Environmental, Social and Corporate
Governance (ESG) Relevance Score of '4' for Exposure to Social
Impacts due to malls that are 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
ratings.
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 2015-C27: DBRS Lowers Class F Certs Rating to C
-----------------------------------------------------------
DBRS, Inc. downgraded the ratings of the Commercial Mortgage
Pass-Through Certificates, Series 2015-C27 issued by Wells Fargo
Commercial Mortgage Trust 2015-C27 as follows:
-- Class C to BBB (high) (sf) from A (low) (sf)
-- Class PEX to BBB (high) (sf) from A (low) (sf)
-- Class X-B to BB (sf) from BBB (low) (sf)
-- Class D to BB (low) (sf) from BB (high) (sf)
-- Class X-E to B (low) (sf) from B (high) (sf)
-- Class E to CCC (sf) from B (sf)
-- Class F to C (sf) from CCC (sf)
DBRS Morningstar changed the trends on Classes C and PEX to
Negative from Stable. Classes X-B, D, and X-E continue to have
Negative trends. Classes E and F have ratings that do not carry
trends, and DBRS Morningstar designated these classes as having
Interest in Arrears.
In addition, DBRS Morningstar confirmed the ratings on the
remaining classes as follows:
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
All of the confirmed classes have Stable trends.
DBRS Morningstar discontinued its rating on Class X-F, a notional
class that references Class F which has been downgraded to C (sf).
The rating downgrades and Negative trends reflect the increased
risk of loss to the trust, primarily attributed to the largest
specially serviced loan, Westfield Palm Desert Mall (Prospectus
ID#1, 7.0% of the trust balance). The loan has been in special
servicing since July 2020 and was last paid in April 2020. In March
2021, the special servicer reported a September 2020 appraised
value of $65.9 million, down by 68.9% from the issuance value of
$212.0 million and indicative of an as-is loan-to-value (LTV) on
the pari passu senior note balance of approximately 190.0%. Based
on the updated value and the likelihood that the loan will be
liquidated by the special servicer, DBRS Morningstar expects a loss
severity in excess of 60.0%, the primary driver for the rating
downgrades as previously outlined.
The interest-only (IO) pari passu loan had a total issuance balance
of $125.0 million, with the other piece held in the MSBAM 2015-C21
transaction (also DBRS Morningstar rated). The loan is secured by a
572,724-square-foot (sf) portion of a 977,888-sf regional mall in
Palm Desert, California. Since the loan's transfer to special
servicing, the servicer has been in discussions with the sponsor
regarding a potential workout, with lender remedies also being
tracked as a resolution strategy. The servicer noted that the loan
is structured with a sponsor guaranty that would cover the
difference between the outstanding loan balance and the foreclosure
proceeds. Although the guaranty is noteworthy, the servicer noted
the work remains ongoing to determine the feasibility of enforcing
the guaranty. DBRS Morningstar did not give any credit to the
guaranty in the analysis for this review.
The sharp value decline for the mall is generally the product of
previous cash flow declines that preceded the onset of the
Coronavirus Disease (COVID-19) pandemic; however, the mall's
tertiary location and related limitations in attracting replacement
tenants to backfill existing vacancies were also significant
contributors to the loss in value since the subject loan was made
in 2015. The mall's active anchors are Macy's and JCPenney, with a
dark Sears that was closed in early 2020. None of the anchor boxes
are collateral for the subject loan. The largest collateral tenants
include Dick's Sporting Goods, Tristone Cinemas, and Barnes &
Noble. As of March 2020, the subject reported a debt service
coverage ratio (DSCR) of 1.58 times (x), a decline compared with
the YE2019 and YE2018 DSCR figures of 1.97x and 2.26x,
respectively.
At issuance, the subject trust consisted of 95 loans secured by 124
commercial and multifamily properties, with a total trust balance
of $1.05 billion. As of the April 2021 remittance report, 84 loans
were secured by 112 commercial and multifamily properties remaining
in the trust with a total trust balance of $896.6 million,
representing a 14.4% collateral reduction since issuance. The trust
realized a $949,467 loss in June 2019 following the liquidation of
the Country Club Apartments loan (Prospectus ID#53), and the
overall loss amount has been accruing because of the reimbursement
of nonrecoverable advances related to the Peoria Multifamily
Portfolio loan (Prospectus ID#78, 0.3% of the trust balance).
As of April 2021, 10 loans, representing 10.9% of the trust
balance, were fully defeased. The pool is relatively granular, as
the 15 largest loans represent 51.4% of the trust balance.
Near-term loan maturity risk is minimal, as there is only one loan,
Watson & Taylor Self Storage (Prospectus ID#71, 0.3% of the trust
balance), that has a loan maturity date prior to December 2024. As
previously mentioned, the pool is concentrated by property type,
with retail and hospitality properties representing 46.4% of the
trust balance. These loans displayed sufficient leverage ratios at
issuance with retail exhibiting a weighted-average (WA) LTV ratio
of 65.8% and the lodging exhibiting a WA LTV of 66.5%. Six loans,
representing 8.9% of the trust balance, have sponsorship with
negative credit events prior to issuance. DBRS Morningstar
increased the probability of default for the loans with sponsorship
concerns.
As of the April 2021 remittance report, six loans are in special
servicing, totaling 10.7% of the trust balance. The largest of the
specially serviced loans is the Westfield Palm Desert loan, with
7.0% of the trust balance, and the remaining five specially
serviced loans are relatively small. An additional 30 loans,
totaling 34.7% of the trust balance, are on the servicer's
watchlist. DBRS Morningstar is closely monitoring the 312 Elm
(Prospectus ID#3, 4.9% of the trust balance) and 312 Plum
(Prospectus ID#17, 1.9% of the trust balance) watchlisted loans
because they are secured by Class A office buildings in downtown
Cincinnati that have had significant occupancy rate declines since
issuance. Both properties were less than 65.0% occupied as of June
2020, and one of the properties is facing a significant lease
expiry in the next 18 months. The sponsor simultaneously acquired
the two similar properties in 2015, and both properties have lost
their primary tenants since issuance.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2019-C51: Fitch Affirms B- Rating on G-RR Debt
-----------------------------------------------------------
Fitch Ratings has affirmed 15 classes of Wells Fargo Commercial
Mortgage Trust 2019-C51.
DEBT RATING PRIOR
---- ------ -----
Wells Fargo Commercial Mortgage 2019-C51
A-1 95001VAQ3 LT AAAsf Affirmed AAAsf
A-2 95001VAR1 LT AAAsf Affirmed AAAsf
A-3 95001VAT7 LT AAAsf Affirmed AAAsf
A-4 95001VAU4 LT AAAsf Affirmed AAAsf
A-S 95001VAX8 LT AAAsf Affirmed AAAsf
A-SB 95001VAS9 LT AAAsf Affirmed AAAsf
B 95001VAY6 LT AA-sf Affirmed AA-sf
C 95001VAZ3 LT A-sf Affirmed A-sf
D 95001VAC4 LT BBB+sf Affirmed BBB+sf
E-RR 95001VAE0 LT BBB-sf Affirmed BBB-sf
F-RR 95001VAG5 LT BB-sf Affirmed BB-sf
G-RR 95001VAJ9 LT B-sf Affirmed B-sf
X-A 95001VAV2 LT AAAsf Affirmed AAAsf
X-B 95001VAW0 LT A-sf Affirmed A-sf
X-D 95001VAA8 LT BBB+sf Affirmed BBB+sf
KEY RATING DRIVERS
Increase in Loss Expectations: Loss expectations have increased
since issuance, primarily due to an increase in specially serviced
loans and the underperformance of several Fitch Loans of Concern
(FLOCs). Three hotel loans (2.5%) transferred within the last year
due to performance issues stemming from the coronavirus pandemic.
Along with the specially serviced loans, Fitch identified eight
loans (16%) as FLOCs. Fitch's current ratings incorporate a base
case loss of 4%. Fitch's analysis also included additional
sensitivities related to loans susceptible to the effects of the
coronavirus that indicate losses could reach 4.2%.
Fitch Loans of Concern: El Con Center (6.3%), the third largest
loan, is the largest FLOC in the pool. The loan is secured by a
480,000-sf large anchored retail center located in Tucson, AZ. The
property is anchored by Century Theaters (15% NRA, expires June
2024), Burlington Coat Factory (13.5%, expires April 2025) and
shadow anchored by Home Depot, Target, and WalMart. Former largest
collateral tenant JC Penney (46% NRA and 6% base rent) closed in
October 2020, prior to lease expiration in August 2021. Due to the
loss of JC Penney, property occupancy fell to approximately 54%
from 100% at YE 2019. Only one tenant has a co-tenancy clause tied
to JC Penney; the tenant remains in place at this time. Fitch's
analysis included a 20% stress to YE 2020 NOI to reflect the loss
of JC Penney and reduced traffic, resulting in a 12% loss
severity.
The next largest FLOC, The Chantilly Office Portfolio (3.1%), is
the 10th largest loan in the pool. The loan is secured by a
portfolio of five suburban office properties totaling 429,000 sf,
all located within a half mile of each other in Chantilly, VA. As
of YE 2020, the portfolio occupancy was 84% and the NOI debt
service coverage ratio (DSCR) was 3.04x. The loan was flagged as a
FLOC due to upcoming tenant rollover, which includes 14% of the NRA
in 2021 and another 27% in 2022. The fourth largest tenant,
Community Management (7.4% NRA), has a lease expiring in July 2021.
Additionally, The Teaching Company (second largest tenant, 11.5%
NRA), WEX Inc (third largest, 7.5%) and Aetna (fifth largest, 6.8%)
have leases expiring in 2022. According to an update from the
servicer, Community Management is planning on downsizing by about
half of its space. Fitch's analysis included a 20% stress to YE
2020 NOI to account for tenant rollover; the loan is not modeling a
loss.
The largest FLOC outside of the top 15 is University Square
Shopping Center (1.8%), the 20th largest loan. The loan is secured
by a 76,000-sf retail center located in San Antonio, TX. Former
largest tenant Mega Furniture (34% NRA) closed in second quarter of
2020 prior to lease expiration in April 2026. As a result, property
occupancy fell from 100% in 2019 to 64% as of the March 2021 rent
roll. The space remains vacant and is currently being marketed for
lease. The next largest tenant at the property, Good Sports, only
occupies 9.2% of NRA. The NOI DSCR fell from 2.02x in 2019 to 1.81x
in 2020. Fitch's analysis included a 20% stress to YE 2020 to
capture the loss of Mega Furniture; the loan is not modeling a
loss.
The largest loan in special servicing is the 24th largest loan,
Embassy Suites - Williamsburg (1.3%). The 161-unit full service
hotel is located in Williamsburg, VA. The management agreement with
Hilton expires in July 2033. The loan transferred to special
servicing in November 2020 due to payment default. The property is
located in close proximity to several demand drivers such as
Colonial Williamsburg, Busch Gardens and Water Country USA and, as
such, is reliant on tourism, which suffered during the pandemic. As
of YE 2020, the hotel occupancy had fallen to 24% from 64% in YE
2019 and NOI turned negative in 2020. Fitch's loss severity of
approximately 24% is based on a discount to an updated appraised
value.
Limited Improvement in CE: As of the May 2021 remittance reporting,
the pool's aggregate principal balance has paid down by 1.7% to
$717.4 from $729.5 million at issuance. One loan, a previously
specially serviced hotel (0.8%), was disposed in May 2021. The
liquidation resulted in a loss of approximately $320,000, which
equates to a 6% loss severity. The loss was fully incurred by the
non-rated class H-RR. Interest shortfalls are currently affecting
class H-RR. There are 11 loans (49.7%) that are full term
interest-only. Seventeen loans (21.4%) are structured with partial
interest-only periods; four have begun amortizing. At issuance,
based on the scheduled balance at maturity, the pool was expected
to pay down by 7.6%.
Coronavirus Exposure: There are fifteen loans (28.1%) with reported
financials that are secured by retail properties and three
non-specially serviced loans (3.3%) that are secured by hotel
properties. The retail properties have a weighted average (WA) NOI
DSCR of 1.92x and can sustain a WA NOI decline of 45% before DSCR
would fall below 1.0x. The hotel properties have a WA NOI DSCR of
2.02x and can sustain a WA NOI decline of 50% before DSCR would
fall below 1.0x.
Fitch applied additional coronavirus-related stresses to all three
hotel loans to account for potential cash flow disruptions due to
the coronavirus pandemic.
RATING SENSITIVITIES
The Stable Rating Outlooks reflect sufficient credit enhancement
relative to expected losses and continuing scheduled amortization.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with paydown
and/or defeasance. Classes would not be upgraded above 'Asf'
if there is a likelihood of interest shortfalls. Upgrades to
classes B and C would occur with large improvements in CE
and/or defeasance and with the stabilization of performance of
the FLOCs/Specially Serviced Assets.
-- Upgrades to classes D and E would also consider these factors,
but would be limited based on sensitivity to concentrations or
the potential for future concentrations. Upgrades to classes
F-RR and G-RR are not likely until the later years of the
transaction and only if the performance of the remaining pool
is stable and there is sufficient CE.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool-level losses from underperforming or
specially serviced loans. Downgrades to the senior classes (A
1 through A-S) are less likely due to high CE but may occur if
losses increase substantially or if there is a likelihood for
interest shortfalls.
-- A downgrade to classes B, C, D and E-RR would likely occur if
multiple large loans transfer to special servicing and
expected losses increase significantly. Downgrades to classes
F-RR and G-RR would occur with continued transfer of loans to
special servicing, or if performance of the FLOCs continue to
deteriorate, specifically for El Con Center.
-- In addition to its baseline scenario, Fitch also envisions a
downside scenario where the health crisis is prolonged beyond
2021. Should this scenario play out, Fitch expects that a
greater percentage of classes may be assigned a Negative
Rating Outlook or those with Negative Rating Outlooks will be
downgraded one or more categories.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
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.
ZAIS CLO 2: Moody's Hike Rating on Class D Notes to B1
------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by ZAIS CLO 2, Limited (the "CLO" or "Issuer"):
US$20,900,000 Class B-R Senior Secured Deferrable Mezzanine
Floating Rate Notes due 2026, Upgraded to Aaa (sf); previously on
September 26, 2019 Upgraded to Aa1 (sf)
US$12,000,000 Class C-R Senior Secured Deferrable Mezzanine
Floating Rate Notes due 2026, Upgraded to Aa2 (sf); previously on
September 26, 2019 Upgraded to A2 (sf)
US$20,000,000 Class D Secured Deferrable Floating Rate Notes due
2026, Upgraded to B1 (sf); previously on August 25, 2020 Downgraded
to Caa1 (sf)
The CLO, originally issued in September 2014 and partially
refinanced in April 2017, is a managed cashflow CLO. The notes are
collateralized primarily by a portfolio of broadly syndicated
senior secured corporate loans. The transaction's reinvestment
period ended in October 2018.
RATINGS RATIONALE
These rating actions are primarily a result of deleveraging of the
senior notes and an increase in the transaction's
over-collateralization (OC) ratios since last rating action on
August 2020. The Class A-1AR and the Class A-1BR notes have been
paid off completely since the last rating action on August 2020.
The Class A-2R notes have also been paid down by approximately 60%
or $22 million since the last rating action on August 2020. Based
on the trustee's April 2021 [1] report, the OC ratios for the Class
A-2R, Class B-R, Class C-R, Class D and Class E notes are reported
at 271.26%, 167.03%, 136.84%, 105.16% and 99.70%, respectively,
versus the trustee's July 2020 [2] report levels of 181.60%,
137.55%, 120.73%, 100.30% and 96.62%, respectively.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and 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: $74,802,107
Defaulted par: $3,409,113
Diversity Score: 33
Weighted Average Rating Factor (WARF): 3844
Weighted Average Spread (WAS) (before accounting for LIBOR floors):
4.01%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 46.43%
Weighted Average Life (WAL): 2.89 years
Par haircut in OC tests and interest diversion test: 4.56%
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; and a lower recovery rate assumption on defaulted assets to
reflect declining loan recovery rate expectations.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of corporate assets from a gradual and unbalanced
recovery in the US economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Methodology Used for 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. Language to be included unless
static: The Manager's investment decisions and management of the
transaction will also affect the performance of the rated notes.
[*] Moody's Takes Action on $1.2BB of US RMBS Issued 1998-2007
--------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of 11 bonds,
confirmed the ratings of 28 bonds and downgraded the ratings of 25
bonds from 24 US RMBS transactions issued by multiple issuers.
Complete rating actions are as follows:
Issuer: CWABS Asset-Backed Certificates Trust 2005-13
Cl. AF-4, Confirmed at Caa2 (sf); previously on Apr 8, 2021 Caa2
(sf) Placed Under Review for Possible Downgrade
Cl. AF-5, Currently Rated Caa1 (sf), previously on Oct 26,2016
Confirmed at Caa1 (sf)
Underlying Rating: Confirmed at Caa2 (sf); previously on Apr 8,
2021 Caa2 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: MBIA Insurance Corporation to (Affirmed Caa1,
Outlook Negative on Dec 17, 2020)
Cl. MV-1, Confirmed at B1 (sf); previously on Apr 8, 2021 B1 (sf)
Placed Under Review for Possible Downgrade
Cl. MV-2, Confirmed at B3 (sf); previously on Apr 8, 2021 B3 (sf)
Placed Under Review for Possible Downgrade
Issuer: CWABS Asset-Backed Certificates Trust 2006-11
Cl. 2-AV, Confirmed at Aa3 (sf); previously on Apr 8, 2021 Aa3 (sf)
Placed Under Review for Possible Downgrade
Cl. 3-AV-2, Upgraded to Ba3 (sf); previously on Apr 8, 2021 B2 (sf)
Placed Under Review for Possible Downgrade
Cl. 3-AV-3, Confirmed at Caa1 (sf); previously on Apr 8, 2021 Caa1
(sf) Placed Under Review for Possible Downgrade
Issuer: CWABS Asset-Backed Certificates Trust 2006-13
Cl. 2-AV, Confirmed at Aa2 (sf); previously on Apr 8, 2021 Aa2 (sf)
Placed Under Review for Possible Downgrade
Cl. 3-AV-3, Confirmed at A2 (sf); previously on Apr 8, 2021 A2 (sf)
Placed Under Review for Possible Downgrade
Cl. MV-1, Confirmed at Caa3 (sf); previously on Apr 8, 2021 Caa3
(sf) Placed Under Review for Possible Downgrade
Issuer: CWABS Revolving Home Equity Loan Asset Backed Notes, Series
2004-L
Cl. 1-A, Confirmed at Baa1 (sf); previously on Apr 8, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Issuer: CWABS Revolving Home Equity Loan Asset Backed Notes, Series
2004-M
Cl. 1-A, Confirmed at Baa1 (sf); previously on Apr 8, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Issuer: CWABS Revolving Home Equity Loan Trust, Series 2004-R
Cl. 1-A, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba2 (sf)
Placed Under Review for Possible Downgrade
Issuer: CWALT, Inc. Mortgage Pass-Through Certificates, Series
2005-34CB
Cl. 1-A-1, Downgraded to Ca (sf); previously on Sep 29, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-2*, Downgraded to Ca (sf); previously on Oct 27, 2017
Confirmed at Caa2 (sf)
Cl. 1-A-3, Currently Rated Caa1 (sf), previously on Sep 29, 2016
Confirmed at Caa1 (sf)
Underlying Rating: Downgraded to Ca (sf); previously on Sep 29,
2016 Confirmed at Caa2 (sf)
Financial Guarantor: MBIA Insurance Corporation to (Affirmed Caa1,
Outlook Negative on Dec 17, 2020)
Cl. 1-A-4, Downgraded to Ca (sf); previously on Sep 29, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-5*, Downgraded to Ca (sf); previously on Sep 29, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-7, Downgraded to Ca (sf); previously on Sep 29, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-8, Downgraded to Ca (sf); previously on Apr 8, 2021 Caa2
(sf) Placed Under Review for Possible Downgrade
Cl. 1-A-9, Downgraded to Ca (sf); previously on Apr 8, 2021 Caa2
(sf) Placed Under Review for Possible Downgrade
Cl. 1-A-10, Downgraded to Ca (sf); previously on Sep 29, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-11, Downgraded to Ca (sf); previously on Sep 29, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-12*, Downgraded to Ca (sf); previously on Sep 29, 2016
Confirmed at Caa2 (sf)
Cl. PO, Downgraded to Ca (sf); previously on Sep 29, 2016 Confirmed
at Caa2 (sf)
Issuer: CWHEQ Revolving Home Equity Loan Trust, Series 2005-G
Cl. 1-A, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba1 (sf)
Placed Under Review for Possible Downgrade
Issuer: CWHEQ Revolving Home Equity Loan Trust, Series 2005-H
Cl. 1-A, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba1 (sf)
Placed Under Review for Possible Downgrade
Issuer: DSLA Mortgage Loan Trust 2005-AR2
Cl. 2-A1A, Downgraded to Ba3 (sf); previously on Apr 8, 2021 Ba1
(sf) Placed Under Review for Possible Downgrade
Issuer: DSLA Mortgage Loan Trust 2005-AR6
Cl. 2A-1A, Downgraded to Ba1 (sf); previously on Apr 8, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Issuer: DSLA Mortgage Loan Trust 2007-AR1
Cl. 1A-1A, Confirmed at B3 (sf); previously on Apr 8, 2021 B3 (sf)
Placed Under Review for Possible Downgrade
Cl. 2A-1A, Confirmed at B3 (sf); previously on Apr 8, 2021 B3 (sf)
Placed Under Review for Possible Downgrade
Issuer: HarborView Mortgage Loan Trust 2006-10
Cl. 1A-1A, Confirmed at Caa2 (sf); previously on Apr 8, 2021 Caa2
(sf) Placed Under Review for Possible Downgrade
Cl. 2A-1A, Downgraded to Ba1 (sf); previously on Apr 8, 2021 Baa3
(sf) Placed Under Review for Possible Downgrade
Issuer: HarborView Mortgage Loan Trust 2006-BU1
Cl. 2A-1A, Confirmed at B3 (sf); previously on Apr 8, 2021 B3 (sf)
Placed Under Review for Possible Downgrade
Issuer: Impac CMB Trust Series 2004-10
Cl. 1-A-1, Downgraded to B2 (sf); previously on Apr 8, 2021 Ba3
(sf) Placed Under Review for Possible Downgrade
Underlying Rating: Downgraded to B2 (sf); previously on Apr 8, 2021
Ba3 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: Financial Guaranty Insurance Company (Insured
Rating Withdrawn Mar 25, 2009)
Issuer: Impac CMB Trust Series 2004-8 Collateralized Asset-Backed
Bonds, Series 2004-8
Cl. 2-A-1, Confirmed at Ba1 (sf); previously on Apr 8, 2021 Ba1
(sf) Placed Under Review for Possible Downgrade
Underlying Rating: Confirmed at Ba1 (sf); previously on Apr 8, 2021
Ba1 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: Financial Guaranty Insurance Company (Insured
Rating Withdrawn Mar 25, 2009)
Cl. 2-A-2, Confirmed at Ba3 (sf); previously on Apr 8, 2021 Ba3
(sf) Placed Under Review for Possible Downgrade
Underlying Rating: Confirmed at Ba3 (sf); previously on Apr 8, 2021
Ba3 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: Financial Guaranty Insurance Company (Insured
Rating Withdrawn Mar 25, 2009)
Issuer: Impac Secured Assets Corp. Mortgage Pass-Through
Certificates, Series 2006-3
Cl. A-6, Downgraded to Ca (sf); previously on Apr 8, 2021 Caa3 (sf)
Placed Under Review for Possible Downgrade
Cl. A-7, Confirmed at Ca (sf); previously on Apr 8, 2021 Ca (sf)
Placed Under Review for Possible Downgrade
Issuer: Morgan Stanley Mortgage Loan Trust 2006-17XS
Cl. A-1, Downgraded to Ca (sf); previously on Nov 25, 2013
Downgraded to Caa3 (sf)
Cl. A-2-A, Downgraded to Ca (sf); previously on Apr 8, 2021 Caa3
(sf) Placed Under Review for Possible Downgrade
Cl. A-2-W, Currently Rated Caa1 (sf), previously on May 20, 2016
Downgrade at Caa1 (sf)
Underlying Rating: Downgraded to Ca (sf); previously on Apr 8, 2021
Caa3 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: MBIA Insurance Corporation to (Affirmed Caa1,
Outlook Negative on Dec 17, 2020)
Cl. A-3-A, Downgraded to Ca (sf); previously on Apr 8, 2021 Caa3
(sf) Placed Under Review for Possible Downgrade
Cl. A-4, Downgraded to Ca (sf); previously on Apr 8, 2021 Caa3 (sf)
Placed Under Review for Possible Downgrade
Cl. A-6, Downgraded to Ca (sf); previously on Apr 8, 2021 Caa3 (sf)
Placed Under Review for Possible Downgrade
Cl. A-5-W, Currently Rated Caa1 (sf), previously on May 20, 2016
Downgrade at Caa1 (sf)
Underlying Rating: Downgraded to Ca (sf); previously on Apr 8, 2021
Caa3 (sf) Placed Under Review for Possible Downgrade
Financial Guarantor: MBIA Insurance Corporation to (Affirmed Caa1,
Outlook Negative on Dec 17, 2020)
Issuer: CWHEQ Revolving Home Equity Loan Resecuritization Trust
2006-RES
Cl. 04L-1a, Confirmed at Baa1 (sf); previously on Apr 8, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Cl. 04L-1b, Confirmed at Baa1 (sf); previously on Apr 8, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Cl. 04M-1a, Confirmed at Baa1 (sf); previously on Apr 8, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Cl. 04M-1b, Confirmed at Baa1 (sf); previously on Apr 8, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Cl. 04R-1a, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba2
(sf) Placed Under Review for Possible Downgrade
Cl. 04R-1b, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba2
(sf) Placed Under Review for Possible Downgrade
Cl. 05G-1a, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba1
(sf) Placed Under Review for Possible Downgrade
Cl. 05G-1b, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba1
(sf) Placed Under Review for Possible Downgrade
Cl. 05H-1a, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba1
(sf) Placed Under Review for Possible Downgrade
Cl. 05H-1b, Upgraded to Baa3 (sf); previously on Apr 8, 2021 Ba1
(sf) Placed Under Review for Possible Downgrade
Issuer: AMRESCO Residential Mortgage Loan Trust 1998-3
A-7, Confirmed at Aa2 (sf); previously on Apr 8, 2021 Aa2 (sf)
Placed Under Review for Possible Downgrade
M-1A, Confirmed at Baa3 (sf); previously on Apr 8, 2021 Baa3 (sf)
Placed Under Review for Possible Downgrade
Issuer: Bear Stearns Mortgage Funding Trust 2006-AR4
Cl. A-1, Upgraded to Baa1 (sf); previously on Apr 8, 2021 Baa3 (sf)
Placed Under Review for Possible Downgrade
Issuer: Lehman XS Trust Series 2005-7N
Cl. 1-A1A, Downgraded to Ba3 (sf); previously on Apr 8, 2021 Baa3
(sf) Placed Under Review for Possible Downgrade
Issuer: Lehman XS Trust Series 2005-8
Cl. 1-A3, Confirmed at Caa3 (sf); previously on Apr 8, 2021 Caa3
(sf) Placed Under Review for Possible Downgrade
Issuer: RASC Series 2003-KS4 Trust
Cl. A-I-5, Confirmed at Aa1 (sf); previously on Apr 8, 2021 Aa1
(sf) Placed Under Review for Possible Downgrade
Cl. A-I-6, Confirmed at Aaa (sf); previously on Apr 8, 2021 Aaa
(sf) Placed Under Review for Possible Downgrade
Cl. M-I-1, Confirmed at B1 (sf); previously on Apr 8, 2021 B1 (sf)
Placed Under Review for Possible Downgrade
*Reflects Interest Only Classes
RATINGS RATIONALE
The rating actions resolve the review of certain bonds which were
placed on watch on April 8, 2021 due to an error in Moody's earlier
analysis. The prior analysis did not appropriately account for the
amounts owed to the financial guarantors of these transactions, for
reimbursement of previously paid out claims. The actions reflect
the proper allocation of reimbursement amounts owed to the
financial guarantors, as well as recent performance of the
transactions and Moody's updated loss expectations on the
underlying pools.
The reimbursement of financial guarantors can reduce funds
available to bonds through excess cashflow, principal collections,
or cross collateralization between groups. The magnitude of
reduction will depend on the amount of reimbursement claims
outstanding as well as the waterfall priority of such reimbursement
in the transaction's legal documents.
Some of the ratings previously placed on review have been confirmed
as the correction of the error did not have a negative rating
impact, because the bonds' paydown was not particularly sensitive
to changes in the funds from excess cashflow or
cross-collateralization, or the reimbursement claim outstanding was
too small. Other ratings have been confirmed because an adverse
impact of the error correction was offset by the positive impact of
performance.
The ratings of other bonds have been upgraded as their levels of
credit enhancement have increased significantly over the last 12
months, and the correction of the error did not have an impact.
The downgrade actions are driven either by the adverse impact of
the reimbursement error correction or weak collateral performance.
The rating actions on the bonds from the resecuritization
transaction CWHEQ Revolving Home Equity Loan Resecuritization Trust
2006-RES reflect the rating actions on the bonds underlying that
transaction.
In light of the current macroeconomic environment, Moody's revised
loss expectations based on the extent of performance deterioration
of the underlying mortgage loans, resulting from a slowdown in
economic activity and increased unemployment due to the coronavirus
outbreak. Specifically, Moody's have observed an increase in
delinquencies, payment forbearance, and payment deferrals since the
start of pandemic, which could result in higher realized losses.
Moody's analysis considers the current proportion of loans granted
payment relief in each individual transaction. Moody's identified
these loans based on a review of loan level cashflows over the last
few months. In cases where loan level data is not available,
Moody's assumed that the proportion of borrowers enrolled in
payment relief programs would be equal to levels observed in
transactions of comparable asset quality. Based on Moody's
analysis, the proportion of borrowers that are currently enrolled
in payment relief plans varied greatly, ranging between
approximately 2% and 19% among RMBS transactions issued before
2009. In Moody's analysis, Moody's assume these loans to experience
lifetime default rates that are 50% higher than default rates on
the performing loans.
In addition, for borrowers unable to make up missed payments
through a short-term repayment plan, servicers will generally defer
the forborne amount as a non-interest-bearing balance, due at
maturity of the loan as a balloon payment. Moody's analysis
considered the impact of six months of scheduled principal payments
on the loans enrolled in payment relief programs being passed to
the trust as a loss. The magnitude of this loss will depend on the
proportion of the borrowers in the pool subject to principal
deferral and the number of months of such deferral. The treatment
of deferred principal as a loss is credit negative, which could
incur write-downs on bonds when missed payments are deferred.
The coronavirus pandemic has had a significant impact on economic
activity. Although global economies have shown a remarkable degree
of resilience to date and are returning to growth, the uneven
effects on individual businesses, sectors and regions will continue
throughout 2021 and will endure as a challenge to the world's
economies well beyond the end of the year. While persistent virus
fears remain the main risk for a recovery in demand, the economy
will recover faster if vaccines and further fiscal and monetary
policy responses bring forward a normalization of activity. As a
result, there is a heightened degree of uncertainty around Moody's
forecasts. Moody's analysis has considered the effect on the
performance of residential mortgage loans from a gradual and
unbalanced recovery in US economic activity.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Principal Methodologies
The principal methodology used in rating all deals except CWHEQ
Revolving Home Equity Loan Resecuritization Trust 2006-RES and
interest-only classes was "US RMBS Surveillance Methodology"
published in July 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's expectations as a
result of a higher number of obligor defaults or deterioration in
the value of the mortgaged property securing an obligor's promise
of payment. Transaction performance also depends greatly on the US
macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions. In addition, improvements in
reporting formats and data availability across deals and trustees
may provide better insight into certain performance metrics such as
the level of collateral modifications.
*********
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