/raid1/www/Hosts/bankrupt/TCR_Public/210815.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, August 15, 2021, Vol. 25, No. 226
Headlines
ACCESS GROUP 2003-1: Fitch Affirms CC Rating on Class B Notes
ALESCO PREFERRED VII: Fitch Lowers Rating on 5 Tranches to 'Dsf'
AMMC CLO 20: S&P Affirms 'BB- (sf)' Rating on Class E Notes
ANGEL OAK 2021-4: Fitch Assigns B(EXP) Rating on Class B-2 Debt
ARES LI CLO: Moody's Assigns Ba3 Rating to $20MM Class E-R Notes
BANK TRUST 2021-BNK35: Fitch Assigns Final B- Rating on 2 Tranches
BARINGS MIDDLE 2021-I: S&P Assigns BB- (sf) Rating on D Notes
BBCMS MORTGAGE 2019-C4: Fitch Affirms B- Rating on 2 Tranches
BDS 2021-FL8: DBRS Finalizes B(low) Rating on Class G Notes
BENEFIT STREET CLO XVII: S&P Assigns BB- (sf) Rating on E-R Notes
BLACKROCK DLF IX 2020-1: DBRS Confirms B Rating on Class W Notes
BRAVO 2021-NQM2: S&P Assigns Prelim B (sf) Rating on B-2 Notes
BUCKHORN PARK: S&P Assigns BB- (sf) Rating on Class E-R Notes
BX TRUST 2017-CQHP: DBRS Cuts Class F Certs Rating to CCC
CASTLELAKE AIRCRAFT 2017-1R: S&P Assigns B- (sf) Rating on C Notes
CIM TRUST 2021-INV1: Moody's Assigns (P)B2 Rating to Cl. B-5 Certs
COMM 2012-LTRT: DBRS Cuts Class D Certs Rating to B(low)
COMM 2014-CCRE20: Fitch Lowers Class F Certs Rating to 'CC'
CSMC TRUST 2021-980M: Fitch Assigns Final B- Rating on F Certs
DT AUTO 2021-3: S&P Assigns BB- (sf) Rating on Class E Notes
EXETER 2021-3: S&P Assigns Prelim BB (sf) Rating on Class E Notes
FIRST INVESTORS 2021-2: S&P Assigns Prelim 'BB-' Rating on E Notes
FLAGSHIP CREDIT 2021-3: DBRS Gives Prov. BB Rating on Class E Notes
FLAGSHIP VII: S&P Lowers Class F Notes Rating to 'D (sf)'
FLAGSTAR MORTGAGE 2021-7: Fitch to Rate Class B-5 Certs 'B(EXP)'
GOODLEAP 2021-4: S&P Assigns Prelim BB (sf) Rating on Class C Notes
GS MORTGAGE 2010-C1: DBRS Cuts Class D Certs Rating to C
GS MORTGAGE 2021-GR2: Moody's Gives (P)B3 Rating to Cl. B-5 Certs
HUDSON'S BAY: DBRS Cuts Rating of 3 Classes to B(low)
JP MORGAN 2011-C3: S&P Lowers Class J Notes Rating to 'CCC (sf)'
KREST COMMERCIAL 2021-CHIP: DBRS Gives Prov. B Rating on F Trust
MAGNETITE XXXI: S&P Assigns BB- (sf) Rating on Class E Notes
MBRT 2019-MBR: DBRS Confirms B Rating on Class G Certs
MFA 2021-NQM2: S&P Assigns Prelim B (sf) Rating on Class B-2 Certs
MORGAN STANLEY 2013-C11: Moody's Lowers Rating on B Certs to Caa2
MORGAN STANLEY 2015-C25: Fitch Affirms B- Rating on Class F Certs
MORGAN STANLEY 2018-SUN: DBRS Confirms B Rating on Class G Certs
NASSAU 2021-I: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
NEUBERGER BERMAN 43: S&P Assigns BB- (sf) Rating on Class E Notes
NLT 2021-INV2: S&P Assigns B (sf) Rating on Class B-2 Certs
OBX 2021-NQM3: S&P Assigns Prelim B(sf) Rating on Class B-2 Notes
OCTAGON 55: Moody's Assigns (P)Ba3 Rating to $22.5MM Class E Notes
OCTAGON 55: Moody's Assigns Ba3 Rating to $22.5MM Class E Notes
OCTAGON INVESTMENT 46: S&P Assigns Prelim 'BB' Rating on E–R Notes
PALM SQUARE 2018-3: Fitch Raises Class E Debt Rating to 'BB+'
PARALLEL 2019-1: S&P Affirms 'BB- (sf)' Rating on Class E Notes
PPM CLO 2018-1: Moody's Raises Rating on $20.4MM E Notes to Ba3
PROGRESS RESIDENTIAL 2021-SFR7: DBRS Finalizes B Rating on G Certs
RATE MORTGAGE 2021-J2: Fitch to Rate Class B-6 Certs 'B(EXP)'
RATE MORTGAGE 2021-J2: Moody's Assigns (P)B3 Rating to B-5 Certs
READY CAPITAL 2021-FL6: DBRS Gives Prov. B(low) Rating on G Notes
SATURNS SPRINT 2003-2: S&P Raises Class B Units Rating to 'BB+'
TCW CLO 2019-1: S&P Assigns Prelim B-(sf) Rating on Class FR Notes
TICP CLO XII: S&P Assigns Prelim BB- (sf) Rating on Class E-R Notes
TOWD POINT 2021-SL1: DBRS Gives Prov. B Rating on Class F Notes
US AUTO 2021-1: Moody's Assigns B3 Rating to 2 Tranches
WELLFLEET CLO 2021-2: Moody's Gives Ba3 Rating to $21.4MM E Notes
ZAIS CLO 15: Moody's Assigns Ba3 Rating to $13.25MM Cl. E-R Notes
[*] Moody's Hikes $12.4MM Scratch & Dent RMBS Issued 1998-2005
[*] S&P Takes Various Actions on 69 Classes from 7 U.S. RMBS Deals
[*] S&P Takes Various Actions on 81 Classes from 15 U.S. RMBS Deals
[*] S&P Takes Various Actions on 82 Classes from 15 U.S. RMBS Deals
*********
ACCESS GROUP 2003-1: Fitch Affirms CC Rating on Class B Notes
-------------------------------------------------------------
Fitch Ratings has upgraded the class A ratings of Access Group 2002
Indenture of Trust and affirms the ratings of class B. The Rating
Outlook for Series 2004-1 class A-2 is revised to Stable from
Positive. The Rating Outlook for all other class A notes remains
Stable.
DEBT RATING PRIOR
---- ------ -----
Access Group, Inc. - Federal Student Loan Notes, Series 2003-1
A-3 00432CAZ4 LT Asf Upgrade BBBsf
A-4 00432CBA8 LT Asf Upgrade BBBsf
A-5 00432CBB6 LT Asf Upgrade BBBsf
A-6 00432CBC4 LT Asf Upgrade BBBsf
B 00432CBE0 LT CCsf Affirmed CCsf
Access Group, Inc. - Federal Student Loan Notes, Series 2002-1
A-3 00432CAM3 LT Asf Upgrade BBBsf
A-4 00432CAN1 LT Asf Upgrade BBBsf
B 00432CAP6 LT CCsf Affirmed CCsf
Access Group, Inc. - Federal Student Loan Notes, Series 2004-1
A-2 00432CBN0 LT Asf Upgrade BBBsf
A-3 00432CBP5 LT Asf Upgrade BBBsf
A-4 00432CBQ3 LT Asf Upgrade BBBsf
A-5 00432CBR1 LT Asf Upgrade BBBsf
B 00432CBT7 LT CCsf Affirmed CCsf
TRANSACTION SUMMARY
The transaction has performed well since the last review and passes
Fitch's cash flow model stresses for the respective ratings. Series
2004-1 class A-2 passes Fitch's 'AAAsf' rating stresses in cashflow
modelling; however, the notes are upgraded to 'Asf', because this
class of notes are no longer the only notes receiving principal
after meeting the note's amortization schedule earlier this year
and the issuer has started paying down another senior series of
auction rate notes. In addition, there is some uncertainty on
transaction performance in the near future as impacts from the
pandemic caused a sharp reduction in defaults, which are expected
to normalize.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral comprises Federal Family
Education Loan Program (FFELP) loans, with guaranties provided by
eligible guarantors and reinsurance provided by the U.S. Department
of Education (ED) for at least 97% of principal and accrued
interest. The U.S. sovereign rating is currently 'AAA'/Outlook
Negative.
Collateral Performance: Based on transaction specific performance
to date, Fitch maintained its sustainable constant default rate
assumption (sCDR) of 1.7% and sustainable constant prepayment rate
(sCPR; voluntary and involuntary prepayments) of 4.25%. The base
case and 'Asf default rate are 10.75% and 21.0%, respectively. The
TTM levels of deferment and forbearance are approximately 0.66% and
2.96%, respectively. These levels are used as the starting point in
cash flow modeling. Subsequent declines and increases in the above
assumptions are modeled as per criteria.
Basis and Interest Rate Risk: Basis risk for this transaction
arises from any rate and reset frequency mismatch between interest
rate indices for SAP and the securities. As of the end of the June
30, 2021 collection period, all trust student loans are indexed to
either 91-day T-bill or one-month LIBOR. Approximately 10% of the
notes are indexed to 3ML and the remaining are auction rate
securities.
Payment Structure: Credit enhancement (CE) is provided by excess
spread and the class A notes benefit from subordination provided by
the class B notes. Reported senior and total parity are
approximately 107.4% and 93.8%, respectively. Liquidity support is
provided by a reserve account sized at $2.9 million. No cash is
currently being released from the trust as the cash release
threshold of 101% total parity has not been met.
Operational Capabilities: Day-to-day servicing is provided by
Nelnet, Inc., which Fitch believes to be an acceptable servicer of
student loans due to its long servicing history.
Coronavirus Impact: Fitch has revised up the U.S. GDP growth
forecast for 2021 to 6.8%.GDP growth will improve unemployment, but
this will be tempered by a recovery in labor force participation as
restrictions are eased and Fitch expects unemployment to remain
above 4.0% through YE 2022. Payment rates and IBR utilization are
susceptible to unemployment levels. To account for current pandemic
economic conditions, Fitch performed maturity risk rating
sensitivities representing a 25% decrease in CPR, 25% increase in
IBR usage and 25% increase in remaining term. These stresses
indicate changes in model-implied ratings of one to four rating
categories as shown in Rating Sensitivities.
RATING SENSITIVITIES
'AAAsf' rated tranches of most FFELP securitizations will likely
move in tandem with the U.S. sovereign rating given the strong
linkage to the U.S. sovereign, by nature of the reinsurance
provided by the Department of Education. Aside from the U.S.
sovereign rating, defaults, basis risk and loan extension risk
account for the majority of the risk embedded in FFELP student loan
transactions.
This section provides insight into the model-implied sensitivities
the transactions face when one assumption is modified, while
holding others equal. Fitch conducts credit and maturity stress
sensitivity analysis by increasing or decreasing key assumptions by
25% and 50% over the base case. The credit stress sensitivity is
viewed by stressing both the base case default rate and the basis
spread. The maturity stress sensitivity is viewed by stressing
remaining term, IBR usage and prepayments. The results below 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 positive
rating action/upgrade:
Credit Stress Rating Sensitivity
-- Default decrease 25%: class A 'AAAsf', class B 'CCCsf'
-- Basis Spread decrease 0.25%: class A 'AAAsf', class B 'CCCsf'
Maturity Stress Rating Sensitivity
-- CPR increase 25%: class A 'AAAsf', class B 'CCCsf'
-- IBR Usage decrease 25%: class A 'AAsf', class B 'CCCsf'
-- Remaining Term decrease 25%: class A 'AAAsf', class B 'CCCsf'
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Credit Stress Rating Sensitivity
-- Default increase 25%: class A 'AAAsf'; class B 'CCCsf'
-- Default increase 50%: class A 'AAAsf'; class B 'CCCsf'
-- Basis Spread increase 0.25%: class A 'AAAsf'; class B 'CCCsf'
-- Basis Spread increase 0.5%: class A 'AAAsf'; class B 'CCCsf'
Maturity Stress Rating Sensitivity
-- CPR decrease 25%: class A 'Asf'; class B 'CCCsf'
-- CPR decrease 50%: class A 'Asf'; class B 'CCCsf'
-- IBR Usage increase 25%: class A 'Asf'; class B 'CCCsf'
-- IBR Usage increase 50%: class A 'Asf'; class B 'CCCsf'
-- Remaining Term increase 25%: class A 'CCCsf'; class B 'CCCsf'
-- Remaining Term increase 50%: class A 'CCCsf'. class B '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.
CRITERIA VARIATION
The rating of 'Asf' for series 2004-1 class A-2 is more than one
category lower than the model implied rating of 'AAAsf'. As noted
in the FFELP criteria, if the final ratings are different from the
model results by more than one rating category, it would constitute
a criteria variation. The rating upgrade was tempered by the
payment characteristics for the senior notes changing earlier this
year. The A-2 class of notes are no longer the only notes receiving
principal after meeting the note's amortization schedule and the
issuer has started paying down another senior series of auction
rate notes. Another factor is the continued uncertainty about how
changing economic conditions stemming from the pandemic will change
trust performance. Had Fitch not applied this variation, the class
A-2 notes could have been upgraded to 'AAAsf'
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.
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured
finance, one or more of the transaction parties participated in the
rating process except that the following issuer(s), if any, did not
participate in the rating process, or provide additional
information, beyond the issuer’s available public disclosure.
ALESCO PREFERRED VII: Fitch Lowers Rating on 5 Tranches to 'Dsf'
----------------------------------------------------------------
Fitch Ratings has downgraded the class C-1, C-2, C-3, C-4 and C-5
notes (collectively, the C notes) of ALESCO Preferred Funding VII,
Ltd./Inc. to 'Dsf' from 'Csf', due to the failure to pay the entire
amount of their principal balances from the transaction's
liquidation in July 2021.
DEBT RATING PRIOR
---- ------ -----
ALESCO Preferred Funding VII, Ltd./Inc.
C-1 01448YAE3 LT Dsf Downgrade Csf
C-2 01448YAF0 LT Dsf Downgrade Csf
C-3 01448YAG8 LT Dsf Downgrade Csf
C-4 01448YAH6 LT Dsf Downgrade Csf
C-5 01448YAJ2 LT Dsf Downgrade Csf
KEY RATING DRIVERS
A Notice of Liquidation and Suspension of Payments dated May 10,
2021 stated that the credit enhancer and the holders of at least 66
2/3% in aggregate outstanding principal amount of each class of
rated notes directed the Trustee to sell and liquidate the
collateral. All of the collateral was sold and liquidated in June
2021.
The proceeds of the liquidation were distributed on July 21, 2021
in accordance to the indenture priority of payments, with the
exception of $500,000 which was reserved for payment of expenses or
to settle any other residual matters. The class A-1-A, A-1-B, A-2
and B notes were paid in full, whereas the class C notes were only
partially paid due to insufficient proceeds. A combined note
balance of approximately $126.8 million remains outstanding.
RATING SENSITIVITIES
Rating sensitivities do not apply given the liquidation of the
transaction.
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.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, Fitch's assessment of the information relied upon for the
agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
AUTOMATIC WITHDRAWAL OF THE LAST DEFAULT RATING
Default ratings ('Dsf') assigned to the last rated class of a
transaction will be automatically withdrawn within 11 months from
the date of this rating action. A separate RAC will not be issued
at that time.
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured
finance, one or more of the transaction parties participated in the
rating process except that the following issuer(s), if any, did not
participate in the rating process, or provide additional
information, beyond the issuer’s available public disclosure.
AMMC CLO 20: S&P Affirms 'BB- (sf)' Rating on Class E Notes
-----------------------------------------------------------
S&P Global Ratings assigned its ratings to the class A-R, B-R, C-R,
and D-R replacement notes from AMMC CLO 20 Ltd./AMMC CLO 20 LLC, a
CLO originally issued in 2017 that is managed by American Money
Management Corp. At the same time, S&P withdrew its ratings on the
original class A, B, C, and D notes following payment in full on
the Aug. 5, 2021, refinancing date. S&P also affirmed its ratings
on the class E notes, which were not refinanced.
The replacement notes were issued via a supplemental indenture,
which outlines the terms of the replacement notes. According to the
supplemental indenture:
-- The non-call period will be extended to May 5, 2022.
-- The transaction has adopted benchmark replacement language and
made updates to conform to the current rating agency methodology.
Replacement And Original Note Issuances
Replacement notes
Class A-R, $257.52 million: Three-month LIBOR + 0.87%
Class B-R, $44.00 million: Three-month LIBOR + 1.40%
Class C-R, $26.00 million: Three-month LIBOR + 2.05%
Class D-R, $20.00 million: Three-month LIBOR + 3.15%
Original notes
Class A, $257.52 million: Three-month LIBOR + 1.33%
Class B, $44.00 million: Three-month LIBOR + 1.60%
Class C, $26.00 million: Three-month LIBOR + 2.35%
Class D, $20.00 million: Three-month LIBOR + 3.40%
Class E, $18.00 million: Three-month LIBOR + 5.81%
Subordinated notes, $39.90 million: Not applicable
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 the
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. The results of the cash
flow analysis (and other qualitative factors, as applicable)
demonstrated, in our view, that the outstanding rated classes all
have adequate credit enhancement available at the rating levels
associated with the rating actions.
"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
AMMC CLO 20 Ltd./AMMC CLO 20 LLC
Class A-R, $257.52 million: AAA (sf)
Class B-R, $44.00 million: AA (sf)
Class C-R (deferrable), $26.00 million: A (sf)
Class D-R (deferrable), $20.00 million: BBB- (sf)
Ratings Affirmed
AMMC CLO 20 Ltd./AMMC CLO 20 LLC
Class E: 'BB- (sf)'
Ratings Withdrawn
AMMC CLO 20 Ltd./AMMC CLO 20 LLC
Class A: to NR from 'AAA (sf)'
Class B: to NR from 'AA (sf)'
Class C: to NR from 'A (sf)'
Class D: to NR from 'BBB (sf)'
Other Outstanding Ratings
AMMC CLO 20 Ltd./AMMC CLO 20 LLC
Subordinated notes, $39.90 million: NR
NR--Not rated.
ANGEL OAK 2021-4: Fitch Assigns B(EXP) Rating on Class B-2 Debt
---------------------------------------------------------------
Fitch Ratings has assigned expected ratings to Angel Oak Mortgage
Trust 2021-4 (AOMT 2021-4).
DEBT RATING
---- ------
AOMT 2021-4
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
XS LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch Ratings expects to rate the residential mortgage-backed
certificates to be issued by Angel Oak Mortgage Trust 2021-4,
Mortgage-Backed Certificates, Series 2021-4 (AOMT 2021-4) as
indicated above. The certificates are supported by 632 loans with a
balance of $316.65 million as of the cutoff date. This will be the
16th Fitch-rated AOMT transaction.
The certificates are secure by mortgage loans that were originated
by Angel Oak Home Loans LLC and Angel Oak Mortgage Solutions LLC
(referred to as Angel Oak originators) and two other originators
that originated less than 10% of the loans. Of the loans in the
pool, 79.9% are designated as nonqualified mortgage (Non-QM), and
20.1% are investment properties not subject to Ability to Repay
(ATR) Rule. No loans are designated as QM in the pool.
There is LIBOR exposure in this transaction. 0.20% of the pool
comprises adjustable-rate mortgage (ARMs) loans that reference
1-year Libor. The offered certificates are fixed rate and capped at
the net weighted average coupon (WAC).
KEY RATING DRIVERS
Non-QM Credit Quality (Mixed): The collateral consists of 632
loans, totaling $317 million and seasoned approximately six months
in aggregate (eight months based on Fitch's analysis). The
borrowers have a strong credit profile (739 FICO and 37% DTI as
determined by Fitch) and relatively high leverage with an original
CLTV of 74% that translates to a Fitch calculated sLTV of 81.6%. Of
the pool, 75.5% consists of loans where the borrower maintains a
primary residence, while 24.6% comprises an investor property or
second home based on Fitch's analysis; 18.8% of the loans were
originated through a retail channel. Additionally, 79.9% are
designated as Non-QM, while the remaining 20.1% are exempt from QM
since they are investor loans.
The pool contains 55 loans over $1 million, with the largest $2.9
million.
20.1% comprises loans on investor properties (10.2% underwritten to
the borrowers' credit profile and 9.9% comprising investor cash
flow loans). Of the borrowers, 0.3% have subordinate financing;
there is one second lien loan, and Fitch views 4.1% of borrowers as
having a prior credit event in the past seven years.
None of the loans in the pool had a deferred balance.
There are two foreign nationals in the pool. Fitch treated these
borrowers as investor occupied, coded as ASF1 (no documentation)
for employment and income documentation, and removed the liquid
reserves.
The largest concentration of loans is in California (33.3%),
followed by Florida and Georgia. The largest MSA is Los Angeles MSA
(15.1%) followed by Miami MSA (12%) and Atlanta MSA (6.4%). The top
three MSAs account for 33.5% of the pool. As a result, there was no
adjustment for geographic concentration.
Although the credit quality of the borrowers is higher than prior
AOMT transactions, the pool characteristics resemble non-prime
collateral, and therefore, the pool was analyzed using Fitch's
non-prime model.
Loan Documentation (Negative): Approximately 80.4% of the pool was
underwritten to borrowers with less than full documentation. Of
this amount, 67.1% was underwritten to a 12-month 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, 2.7% is an asset depletion product, and
9.9% 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
Modified Sequential Payment Structure (Neutral): 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.
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 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 - June 2021" and
related base-line economic scenario forecasts have been revised to
6.8% U.S. GDP growth for 2021 and 3.9% for 2022 following a 3.5%
GDP decline in 2020. Additionally, Fitch's U.S. unemployment
forecasts for 2021 and 2022 are 5.6% and 4.5%, 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 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 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 42.8% 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.
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, Clayton, Infinity and Consolidated Analytics. The
third-party due diligence described in Form 15E focused on three
areas: compliance review, credit review, and valuation review.
Fitch considered this information in its analysis and, as a result,
Fitch did not make any adjustment(s) to its analysis due to the due
diligence findings. Based on the results of the 100% due diligence
performed on the pool, the overall expected loss was reduced by
0.48%.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the loans. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." The sponsor,
Angel Oak Mortgage Operating Partnership, LP engaged American
Mortgage Consultants, Inc., Clayton Services, Consolidated
Analytics, Inc. and Infinity IPS to perform the review. Loans
reviewed under these engagements were given compliance, credit and
valuation grades and assigned initial grades for each subcategory.
An exception and waiver report was provided to Fitch, indicating
the pool of reviewed loans has a number of exceptions and waivers.
Fitch determined that the exceptions and waivers do not materially
affect the overall credit risk of the loans due to the presence of
compensating factors such as having liquid reserves or FICO above
guideline requirements or LTV or DTI lower than guideline
requirement. Therefore, no adjustments were needed to compensate
for these occurrences.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. The loan-level
information Fitch received was provided in the American
Securitization Forum's (ASF) data layout format. The ASF data tape
layout was established with input from various industry
participants, including rating agencies, issuers, originators,
investors and others, to produce an industry standard for the
pool-level data in support of the U.S. RMBS securitization market.
The data contained in the data tape layout were populated by the
due diligence company and no material discrepancies were noted.
ESG CONSIDERATIONS
AOMT 2021-4 has an ESG Relevance Score of '4+' for Transaction
Parties & Operational Risk due to strong transaction due diligence
and a 'RPS1-' Fitch-rated servicer, which resulted in a reduction
in expected losses, and is relevant to the rating 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.
ARES LI CLO: Moody's Assigns Ba3 Rating to $20MM Class E-R Notes
----------------------------------------------------------------
Moody's Investors Service has assigned ratings to two classes of
CLO refinancing notes issued by Ares LI CLO Ltd. (the "Issuer").
Moody's rating action is as follows:
US$320,000,000 Class A-1-R Senior Floating Rate Notes due 2034 (the
"Class A-1-R Notes"), Assigned Aaa (sf)
US$20,000,000 Class E-R Mezzanine Deferrable Floating Rate Notes
due 2034 (the "Class E-R Notes"), Assigned Ba3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks particularly those associated with the
CLO's portfolio and structure.
The Issuer is a managed cash flow collateralized loan obligation
(CLO). The issued notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. 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 assets that are not senior secured loans; provided that
no more than 5% of the portfolio may consist of permitted non-loan
securities.
Ares CLO Management LLC (the "Manager") will continue to direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's extended 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 issuance of the Refinancing Notes, the other
classes of secured notes and additional subordinated notes, a
variety of other changes to transaction features will occur in
connection with the refinancing. These include: extension of the
reinvestment period; extensions of the stated maturity and non-call
period; changes to certain collateral quality tests; 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
"Moody's Default Probability Rating" 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:
Portfolio par: $500,000,000
Diversity Score: 80
Weighted Average Rating Factor (WARF): 3174
Weighted Average Spread (WAS): 3.60%
Weighted Average Recovery Rate (WARR): 46.35%
Weighted Average Life (WAL): 9 years
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.
BANK TRUST 2021-BNK35: Fitch Assigns Final B- Rating on 2 Tranches
------------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks on
BANK 2021-BNK35, commercial mortgage pass-through certificates
series 2021-BNK35 as follows:
-- $22,700,000 class A-1 'AAAsf'; Outlook Stable;
-- $90,700,000 class A-2 'AAAsf'; Outlook Stable;
-- $32,600,000 class A-3 'AAAsf'; Outlook Stable;
-- $35,500,000 class A-SB 'AAAsf'; Outlook Stable;
-- $260,000,000a class A-4 'AAAsf'; Outlook Stable;
-- $0a class A-4-1 'AAAsf'; Outlook Stable;
-- $0a class A-4-2 'AAAsf'; Outlook Stable;
-- $0ab class A-4-X1 'AAAsf'; Outlook Stable;
-- $0ab class A-4-X2 'AAAsf'; Outlook Stable;
-- $486,079,000a class A-5 'AAAsf'; Outlook Stable;
-- $0a class A-5-1 'AAAsf'; Outlook Stable;
-- $0a class A-5-2 'AAAsf'; Outlook Stable;
-- $0ab class A-5-X1 'AAAsf'; Outlook Stable;
-- $0ab class A-5-X2 'AAAsf'; Outlook Stable;
-- $927,579,000b class X-A 'AAAsf'; Outlook Stable;
-- $253,428,000b class X-B 'A-sf'; Outlook Stable;
-- $142,450,000a class A-S 'AAAsf'; Outlook Stable;
-- $0a class A-S-1 'AAAsf'; Outlook Stable;
-- $0a class A-S-2 'AAAsf'; Outlook Stable;
-- $0ab class A-S-X1 'AAAsf'; Outlook Stable;
-- $0ab class A-S-X2 'AAAsf'; Outlook Stable;
-- $57,973,000a class B 'AA-sf'; Outlook Stable;
-- $0a class B-1 'AA-sf'; Outlook Stable;
-- $0a class B-2 'AA-sf'; Outlook Stable;
-- $0ab class B-X1 'AA-sf'; Outlook Stable;
-- $0ab class B-X2 'AA-sf'; Outlook Stable;
-- $53,005,000a class C 'A-sf'; Outlook Stable;
-- $0a class C-1 'A-sf'; Outlook Stable;
-- $0a class C-2 'A-sf'; Outlook Stable;
-- $0ab class C-X1 'A-sf'; Outlook Stable;
-- $0ab class C-X2 'A-sf'; Outlook Stable;
-- $57,974,000bc class X-D 'BBB-sf'; Outlook Stable;
-- $28,158,000bc class X-FG 'BB-sf'; Outlook Stable;
-- $13,251,000bc class X-H 'B-sf'; Outlook Stable;
-- $33,128,000c class D 'BBBsf'; Outlook Stable;
-- $24,846,000c class E 'BBB-sf'; Outlook Stable;
-- $14,907,000c class F 'BB+sf'; Outlook Stable;
-- $13,251,000c class G 'BB-sf'; Outlook Stable;
-- $13,251,000d class H 'B-sf'; Outlook Stable.
The following classes were not rated by Fitch:
-- $13,251,000bc class X-J;
-- $31,472,378bc class X-K;
-- $13,251,000c class J;
-- $31,472,378c class K;
-- $69,742,809cd RR Interest.
(a) Exchangeable Certificates. The class A-4, class A-5, class A-S,
class B, and class C are exchangeable certificates. Each class of
exchangeable certificates may be exchanged for the corresponding
classes of exchangeable certificates, and vice versa. The dollar
denomination of each of the received classes of certificates must
be equal to the dollar denomination of each of the surrendered
classes of certificates. The class A-4 may be surrendered (or
received) for the received (or surrendered) classes A-4-1, A-4-2,
A-4-X1 and A-4-X2. The class A-5 may be surrendered (or received)
for the received (or surrendered) class A-5-1, A-5-2, A-5-X1 and
A-5-X2. The class A-S may be surrendered (or received) for the
received (or surrendered) class A-S-1, A-S-2, A-S-X1 and A-S-X2.
The class B may be surrendered (or received) for the received (or
surrendered) class B-1, B-2, B-X1 and B-X2. The class C may be
surrendered (or received) for the received (or surrendered) class
C-1, C-2, C-X1 and C-X2. The ratings of the exchangeable classes
would reference the ratings on the associated referenced or
original classes.
(b) Notional amount and interest only.
(c) Privately placed and pursuant to Rule 144A.
(d) Represents the "eligible vertical interest" comprising 5.0% of
the pool.
Since Fitch published its expected ratings on July 22, 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 $746,079,000 in the
aggregate, subject to a variance of plus or minus 5%. The final
class balances for classes A-4 and A-5 are $260,000,000 and
$486,079,000, respectively. The classes above reflect the final
ratings and deal structure.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 76 fixed-rate loans secured by
109 commercial properties having an aggregate principal balance of
$1,394,856,187 as of the cutoff date. The loans were contributed to
the trust by Morgan Stanley Mortgage Capital Holdings, LLC, Bank of
America, National Association, Wells Fargo Bank, National
Association and National Cooperative Bank, N.A.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 38.3% of the properties
by balance, cash flow analyses of 83.1% of the pool and asset
summary reviews on 100% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus pandemic may have an adverse impact on near-term
revenue (i.e. bad debt expense, rent relief) and operating expenses
(i.e. sanitation costs) for some properties in the pool. Per the
offering documents, all of the loans are current and are not
subject to any ongoing forbearance requests.
KEY RATING DRIVERS
Fitch Leverage: The pool has average leverage relative to other
multiborrower transactions recently rated by Fitch. The pool's
trust Fitch DSCR of 1.61x is greater than the YTD 2021 and 2020
averages of 1.39x and 1.32x, respectively. The pool's trust LTV of
99.9% falls between the YTD 2021 and 2020 averages of 101.9% and
99.6%, respectively. Excluding the co-operative (co-op) loans and
credit opinion loans, the pool's DSCR and LTV are 1.38 and 109.4%,
respectively.
Investment-Grade Credit Opinion Loans: Three loans representing
10.6% of the pool received an investment-grade credit opinion. This
falls below the YTD 2021 and 2020 average credit opinion
concentrations of 14.7% and 24.5%, respectively. Four Constitution
Square (3.9% of the pool) received a standalone credit opinion of
'BBBsf', River House Coop (3.9%) received a standalone credit
opinion of 'AAAsf' and Three Constitution Square (2.7%) received a
standalone credit opinion of 'BBB-sf'. Additionally, the pool
contains 26 loans, representing 5.6% of the pool, that are secured
by residential cooperatives that exhibit leverage characteristics
significantly lower than typical conduit loans. The weighted
average (WA) Fitch DSCR and LTV for the co-op loans are 5.18x and
29.3%, respectively.
Diverse Pool: The pool's 10 largest loans comprise 41.5% of the
pool's cutoff balance, which is a significantly lower concentration
than the 2021 YTD or 2020 averages of 53.5% and 56.8%,
respectively. The Loan Concentration Index (LCI) of 290 is lower
than the 2021 YTD and 2020 averages of 402 and 440, respectively.
The Sponsor Concentration Index (SCI) of 344 is also lower than the
2021 YTD and 2020 averages of 427 and 474, respectively, and
indicates there is little sponsor concentration.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Improvement in cash flow increases property value and capacity to
meet its debt service obligations. The table below indicates the
model implied rating sensitivity to changes in one variable, Fitch
NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB+sf' / 'BB-sf'/ 'B-sf'.
-- 20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AA+sf' / 'AA-sf' / 'A-
sf' / 'BBB+sf' / 'BBBsf' / '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 its debt service obligations. The table below
indicates the model implied rating sensitivity to changes to the
same one variable, Fitch NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB+sf' / 'BB-sf'/ 'B-sf'.
-- 10% NCF Decline: 'A+sf' / 'A-sf' / 'BBB-sf' / 'BB+sf' / 'BB-
sf' / 'B-sf' / 'CCCsf' / 'CCCsf'.
-- 20% NCF Decline: 'BBB+sf' / 'BBB-sf' / 'BBsf' / 'B-sf' /
'CCCsf' / 'CCCsf' / 'CCCsf' / 'CCCsf'.
-- 30% NCF Decline: 'BBB-sf' / 'BBsf' / 'CCCsf' / 'CCCsf' /
'CCCsf' / 'CCCsf' / 'CCCsf' / 'CCCsf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Deloitte & Touche LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis, and it did not
have an effect on Fitch's analysis or conclusions.
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.
BARINGS MIDDLE 2021-I: S&P Assigns BB- (sf) Rating on D Notes
-------------------------------------------------------------
S&P Global Ratings assigned its ratings to Barings Middle Market
CLO Ltd. 2021-I/Barings Middle Market CLO 2021-I LLC's fixed- and
floating-rate notes.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by middle market speculative-grade
(rated 'BB+' or lower) senior secured term loans. The transaction
is managed by Barings 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; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
Barings Middle Market CLO Ltd. 2021-I/Barings Middle Market CLO
2021-I LLC
Class X, $4.00 million: AAA (sf)
Class A-1, $188.00 million: AAA (sf)
Class A-1L, $30.00 million: AAA (sf)
Class A-1F, $6.00 million: AAA (sf)
Class A-2, $46.00 million: AA (sf)
Class B (deferrable), $36.00 million: A (sf)
Class C (deferrable), $18.00 million: BBB- (sf)
Class D (deferrable), $26.00 million: BB- (sf)
Subordinated notes, $46.16 million: Not rated
BBCMS MORTGAGE 2019-C4: Fitch Affirms B- Rating on 2 Tranches
-------------------------------------------------------------
Fitch Ratings has affirmed 18 classes of BBCMS Mortgage Trust
2019-C4 Commercial Mortgage Pass-Through Certificates, Series
2019-C4. The Rating Outlook remains Negative on four classes.
DEBT RATING PRIOR
---- ------ -----
BBCMS 2019-C4
A-1 07335CAA2 LT AAAsf Affirmed AAAsf
A-2 07335CAB0 LT AAAsf Affirmed AAAsf
A-3 07335CAC8 LT AAAsf Affirmed AAAsf
A-4 07335CAE4 LT AAAsf Affirmed AAAsf
A-5 07335CAF1 LT AAAsf Affirmed AAAsf
A-S 07335CAG9 LT AAAsf Affirmed AAAsf
A-SB 07335CAD6 LT AAAsf Affirmed AAAsf
B 07335CAH7 LT AA-sf Affirmed AA-sf
C 07335CAJ3 LT A-sf Affirmed A-sf
D 07335CAT1 LT BBBsf Affirmed BBBsf
E 07335CAV6 LT BBB-sf Affirmed BBB-sf
F 07335CAX2 LT BB-sf Affirmed BB-sf
G 07335CAZ7 LT B-sf Affirmed B-sf
X-A 07335CAK0 LT AAAsf Affirmed AAAsf
X-B 07335CAL8 LT A-sf Affirmed A-sf
X-D 07335CAM6 LT BBB-sf Affirmed BBB-sf
X-F 07335CAP9 LT BB-sf Affirmed BB-sf
X-G 07335CAR5 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Increased Stressed Loss Expectations: Since issuance, loss
expectations, which include additional stresses related to the
coronavirus pandemic, have increased due to expected losses
associated with the specially serviced loans in addition to an
increased number of Fitch Loans of Concern (FLOCs) with performance
declines related to either the coronavirus pandemic, occupancy
declines, upcoming tenant rollover and/or deferred maintenance
concerns. Twenty-seven loans are considered FLOCs (32.1% of pool),
including six specially serviced loans (6%).
Fitch's current ratings incorporate an issuance base case loss of
3.9%. The Negative Outlooks reflect losses that could reach 4.5%
when factoring in additional coronavirus-related stresses.
The largest contributor to loss is the Holiday Inn Express & Suites
El Reno (0.8% of the pool), which is secured by a 79 key limited
serviced hotel located in El Reno, OK. The loan was transferred to
special servicing in March 2020 for imminent monetary default. The
borrower requested COVID relief, but ultimately decided to transfer
the title to the special servicer via deed-in-lieu of foreclosure
and the property was foreclosed on Dec. 22,2020. Per the special
servicer, third party property management is in place and is
working to increase the average daily rate (ADR) and occupancy. The
property is currently REO and being marketed for sale.
Fitch's expected loss is based on a stress to the most recent
appraisal value provided by the special servicer which results in a
value per key of $60,380 and a loss severity of 43%.
The second largest loss contributor is the Hampton Inn El Reno
(0.8% of the pool), which is secured by an 80 key limited serviced
hotel located in El Reno, OK. The loan was transferred to special
servicing in March 2020 for imminent monetary default. Per the
special servicer, a receiver was appointed to the property in June
2020 and a foreclosure sale occurred on Nov. 2, 2020. Third party
management is in place and a Franchise Agreement with Hilton has
been executed. The property is currently REO and being marketed for
sale.
Fitch's expected loss is based on the most recent appraisal value
provided by the special servicer which results in a value per key
of $70,000 and a loss severity of 40%.
The third largest loss contributor is the TZA Multifamily Portfolio
#2 (1.4% of the pool), which is secured by a portfolio of three
multifamily properties totaling 322 units located less than five
miles of each other in Warner Robins, GA, approximately 19 miles
south of Macon and 100 miles south of Atlanta. The properties were
built between 1983 and 1986 and consist of 1BR, 2BR, and 3BR units.
The portfolio was 89% occupied as of YE 2020. The loan was
transferred to special servicing in June 2020 for monetary default
as a result of the COVID-19 pandemic.
Per the special servicer, the borrower is performing under a
forbearance agreement and the loan is expected to be reinstated
2Q21. Fitch's expected loss is based on a stress to the most recent
appraisal value provided by the special servicer which results in a
value per unit of $33,820 and a loss severity of 20%.
The fourth largest loss contributor is the Hilton Garden Inn - San
Diego Mission Valley Stadium, which is secured by a 178 key
full-service hotel located in San Diego, CA. Performance remains
in-line with Fitch's expectations at issuance. Per the most recent
servicer provided Smith Travel Research (STR) report as of February
2020, occupancy, ADR, revenue per available room (RevPAR) were 83%,
$147, $122 compared to 81%, $147, $119 for its competitive set.
Fitch's expected loss of approximately 10% is based on a total 10%
stress to the YE 2020 NOI. Additional stresses were not applied
given the YE 2020 NOI was in-line with the Fitch NOI at issuance.
The fifth largest loss contributor is Tower Plaza, a five-building
132,151-sf shopping center located in Temecula, CA. The property is
anchored by 88 Ranch Marketplace (28.4%), exp December 2023; AMC
Theatres (22.3%), exp April 2031; Armstrong Garden Center (11.8%),
exp September 2026. The property is 93.4% occupied as of March
2021. The most recent NOI debt service coverage ratio (DSCR) as of
YE 2020 is 1.96x. The most recent servicer reported YE 2020 NOI is
approximately 15% below Fitch's NOI at issuance.
Fitch's expected loss of approximately 8% is based on a total 5%
stress to YE 2020 NOI.
Minimal Change in Credit Enhancement (CE): As of the July 2021
distribution date, the pool's aggregate balance has been reduced by
0.8% to $930.2 million from $937.3 million at issuance. No loans
have paid off or defeased. At issuance, based on the scheduled
balance at maturity, the pool was expected to pay down by 7.8%
prior to maturity, which is higher than the average for
transactions of a similar vintage. Twenty-four loans (49.2% of the
pool) are interest-only loans and 21 loans (28.8% of the pool) are
partial interest-only.
Coronavirus Exposure: Seventeen loans (18.2%) are secured by hotel
properties, and 16 loans (15.4%) by retail properties none of which
are regional malls. Fitch applied coronavirus stresses on nine
hotel loans and two retail loans for expected declines in
performance.
Credit Opinion Loans: Four loans, representing 12.3% of the pool,
received investment-grade credit opinions. Three loans, 2 North 6th
Place (2.1% of the pool), ILPT Hawaii Portfolio (2.0% of the pool)
and 10000 Santa Monica Boulevard (1.1% of the pool), received
stand-alone credit opinions of BBBsf*. The pool's largest loan,
Moffett Towers II - Buildings 3 & 4 (7.0% of the pool), received a
stand-alone credit opinion of 'BBB-sf*'.
Property Type Concentrations: Eleven loans (32.3%) are secured by
office properties, 17 loans (18 .2%) by hotel properties, and 16
loans (15.4%) by retail properties.
RATING SENSITIVITIES
The Outlook remains Negative on classes F, G and X-F and X-G
reflecting the increased loss expectations associated with the
specially serviced loans and FLOCs. The Stable Outlooks on classes
A-1 thru E and classes X-A, X-B and X-D reflect the overall 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, coupled with additional
paydown and/or defeasance. Upgrades to the 'A-sf' and 'AA-sf'
rated classes are not expected but would likely occur with
significant improvement in CE and/or defeasance and/or the
stabilization to the properties impacted from the coronavirus
pandemic. Upgrade of the 'BBB-sf' and 'BBBsf' classes are
considered unlikely and would be limited based on the
sensitivity to concentrations or the potential for future
concentrations.
-- Classes would not be upgraded above 'Asf' if there is a
likelihood of interest shortfalls. An upgrade to the 'B-sf',
'BB-sf' and 'BB+sf' rated classes is not likely unless the
performance of the remaining pool stabilizes 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/assets. Downgrades to classes A-1
through A-S and the interest-only classes X-A are not likely
due to high CE, but may occur should interest shortfalls
occur. Downgrades to classes B through J-RR and are possible
should performance of the FLOCs continue to decline; should
loans susceptible to the coronavirus pandemic not stabilize;
and/or should loans transfer to special servicing.
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.
BDS 2021-FL8: DBRS Finalizes B(low) Rating on Class G Notes
-----------------------------------------------------------
DBRS, Inc. finalized provisional ratings on the following classes
of notes issued by BDS 2021-FL8 Ltd:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The initial collateral consists of 23 short-term, floating-rate
mortgage assets with an aggregate cutoff date balance of $576.4
million secured by 23 properties. The aggregate unfunded future
funding commitment of the future funding participations as of the
cutoff date is approximately $47.2 million. The holder of the
future funding companion participations, affiliates of Bridge III
REIT, Inc. (Bridge REIT), has full responsibility to fund the
future funding companion participations. The collateral pool for
the transaction is static with no ramp-up period or reinvestment
period; however, the Issuer has the right to use principal proceeds
to acquire fully funded future funding participations subject to
stated criteria during the replenishment period, which ends on or
about August 2023 (subject to a 60-day extension for binding
commitments entered during the replenishment period). Interest can
be deferred for Class C, Class D, Class E, Class F, and Class G
Notes, and interest deferral will not result in an event of
default. The transaction will have a sequential-pay structure.
Of the 23 properties, 21 are multifamily assets (86.7% of the
mortgage asset cutoff date balance). The remaining two loans,
Eleven One Eleven and 606-654 Venice Boulevard, are secured by
office properties (13.3% of the mortgage asset cutoff date
balance). The loans are mostly secured by cash flowing assets, most
of which are in a period of transition with plans to stabilize and
improve the asset value. Five loans are whole loans and the other
18 are participations with companion participations that have
remaining future funding commitments totaling $47.2 million. The
future funding for each loan is generally to be used for capital
expenditure to renovate the property or build out space for new
tenants. All of the loans in the pool have floating interest rates
initial indexed to Libor and are interest-only (IO) through their
initial terms. As such, to determine a stressed interest rate over
the loan term, DBRS Morningstar used the one-month Libor index,
which was the lower of DBRS Morningstar's stressed rates that
corresponded to the remaining fully extended term of the loans and
the strike price of the interest rate cap with the respective
contractual loan spread added. The properties are often
transitioning with potential upside in cash flow; however, DBRS
Morningstar does not give full credit to the stabilization if there
are no holdbacks or if the other loan structural features are
insufficient to support such treatment. Furthermore, even if the
structure is acceptable, DBRS Morningstar generally does not assume
the assets will stabilize above market levels.
The transaction is sponsored by Bridge REIT, a wholly-owned
subsidiary of Bridge Debt Strategies Fund III GP LLC and an
affiliate of Bridge Investment Group LLC (Bridge Investment Group).
The Sponsor has strong origination practices and substantial
experience in originating loans and managing commercial real estate
(CRE) properties. Bridge Investment Group is a leading privately
held real estate investment and property management firm that
manages in excess of $26 billion in assets as of March 2021. Bridge
is an active CRE collateralized loan obligation (CLO) issuer,
having completed three static CRE CLO transactions and four managed
CRE CLO transactions as of the date of this report.
An affiliate of Bridge Investment Group, an indirect wholly-owned
subsidiary of the Sponsor (as retention holder), will acquire the
Class F Notes, the Class G Notes, and the Preferred Shares,
representing the most subordinate 18.25% of the transaction by
principal balance.
The pool is composed mostly of multifamily assets (86.7% of the
mortgage asset cutoff date balance). Historically, multifamily
properties have defaulted at much lower rates than other property
types in the overall commercial mortgage-backed securities
universe.
As no loans in the pool were originated prior to the onset of the
Coronavirus Disease (COVID-19) pandemic, the weighted-average (WA)
remaining fully extended term is 45 months, which gives the Sponsor
enough time to execute its business plans without risk of imminent
maturity. In addition, the appraisal and financial data provided
are reflective of conditions after the onset of the pandemic.
Based on the initial pool balances, the overall WA DBRS Morningstar
As-Is debt service coverage ratio (DSCR) is 1.14 times (x) and the
WA DBRS Morningstar Stabilized DSCR is estimated to improve to
1.27x. DBRS Morningstar's estimated lift from As-Is to Stabilized
is not significant, suggesting that the properties are
well-positioned to attain their improved net cash flows (NCFs) once
the Sponsor's business plans have been implemented.
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 Sponsor will not successfully execute its
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. The
Sponsor's failure to execute the business plans 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 83.4% of the pool cutoff date balance. DBRS
Morningstar made relatively conservative stabilization assumptions
and, in each instance, considered the business plans to be rational
and the loan structure to be sufficient to execute such plans. In
addition, DBRS Morningstar analyzes loss given default 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 Bridge REIT and have the obligation to make
future advances. Bridge REIT agrees to indemnify the Issuer against
losses arising out of the failure to make future advances when
required under the related participated loan. Furthermore, Bridge
REIT will be required to meet certain liquidity requirements on a
quarterly basis. Two loans, representing 6.2% of the pool balance,
are structured with a debt service reserve to cover any interest
shortfalls.
A majority of the collateral is concentrated in Texas and Arizona,
with seven properties comprising 37.0% of the initial pool in the
Dallas metropolitan statistical area (MSA) and six properties
comprising 21.7% of the initial pool in the Phoenix MSA.
Furthermore, the top 10 loans represent 60.5% of the pool. Only two
loans, 606-654 Venice Boulevard and 1024 Clinton (comprising 8.5%
of the pool), are in a DBRS Morningstar Market Rank 6 or 7 and no
loans are in a DBRS Morningstar Market Rank 8. These markets are
considered more urban in nature and benefit from increased
liquidity with consistently strong investor demand even during
times of economic stress. Texas and Arizona are growing states,
with positive migration and an increasing population. Both states
are also projected to have job growth in excess of the national
average for the foreseeable future. By CRE CLO standards, the pool
has a high Herfindahl score of 19.1. Additionally, the properties
are primarily in core markets with the overall pool's WA DBRS
Morningstar Market Rank at 4.1.
Twelve loans, comprising 55.9% of the initial pool balance, are in
DBRS Morningstar MSA Group 1. Historically, loans in this MSA Group
have demonstrated a higher probability of defaults resulting in the
individual loan level expected losses to be greater than the WA
pool expected loss. These loans are located across three states
within primarily core markets and a WA DBRS Morningstar Market Rank
of 4.3. More specifically, four of the 12 loans (23.9% of pool) are
in a DBRS Morningstar Market Rank 5.
All 23 loans have floating interest rates, are IO during the
original term and through all extension options, and have original
terms of 36 months to 48 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 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 borrowers of all 23
floating-rate loans have purchased Libor rate caps with strike
prices that range from 0.50% to 3.50% to protect against rising
interest rates through the duration of the loan term. In addition
to the fulfillment of certain minimum performance requirements,
exercise of any extension options would also require the repurchase
of interest rate cap protection through the duration of the
respectively exercised option.
DBRS Morningstar conducted only one management tour, which was for
1024 Clinton, representing 2.6% of the initial pool, because of
health and safety constraints associated with the ongoing
coronavirus pandemic. As a result, DBRS Morningstar relied more
heavily on third-party reports, online data sources, and
information provided by the Issuer to determine the overall DBRS
Morningstar property quality assigned to each loan. Recent
third-party reports were provided for all loans and contained
property quality commentary and photos.
Notes: All figures are in U.S. dollars unless otherwise noted.
BENEFIT STREET CLO XVII: S&P Assigns BB- (sf) Rating on E-R Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its ratings to the class A-R, B-R, C-R,
D-R, and E-R replacement notes from Benefit Street Partners CLO
XVII Ltd./Benefit Street Partners CLO XVII LLC, a CLO originally
issued in 2019 that is managed by BSP CLO Management LLC. At the
same time, we withdrew our ratings on the original class A-1, B, C,
D, and E notes following payment in full on the Aug. 10, 2021,
refinancing date.
The replacement notes will be issued via a supplemental indenture,
which outlines the terms of the replacement notes. According to the
supplemental indenture:
-- The non-call period is extended by approximately one year to
Aug. 10, 2022.
-- The reinvestment period and legal final maturity dates (for the
replacement notes and the existing subordinated notes) are
unchanged.
-- The original class A-1 and A-2 notes are combined into one
class A-R in the post-refinancing structure
-- No additional assets were purchased on the refinancing date,
and the target initial par amount remained at $500 million. There
is no additional effective date or ramp-up period, and the first
payment date following the refinancing will be Oct. 15, 2021.
-- The class E notes' required overcollateralization ratio and
interest diversion test were updated.
-- No additional subordinated notes were issued on the refinancing
date.
-- The transaction prohibits the purchase of assets in a
restricted industry: tobacco or an obligor with a principal
business related to the production or marketing or controversial
weapons, including nuclear weapons.
-- The transaction is adding the ability to purchase
workout-related assets. If principal proceeds are used, the
collateral principal amount of the collateral obligations
(considering defaulted at the S&P Global Ratings collateral value)
must be equal to the reinvestment target par amount and the
coverage tests must be satisfied, among other requirements found in
the indenture.
-- The transaction adopted benchmark replacement language and made
updates to conform to current rating agency methodology.
Replacement And Original Note Issuances
Replacement notes
Class A-R, $320.00 million: Three-month LIBOR + 1.08%
Class B-R, $51.00 million: Three-month LIBOR + 1.65%
Class C-R, $39.00 million: Three-month LIBOR + 2.15%
Class D-R, $30.00 million: Three-month LIBOR + 3.35%
Class E-R, $18.25 million: Three-month LIBOR + 6.35%
Original notes
Class A-1, $310.00 million: Three-month LIBOR + 1.38%
Class A-2, $10.00 million: Three-month LIBOR + 1.60%
Class B, $51.00 million: Three-month LIBOR + 1.85%
Class C, $39.00 million: Three-month LIBOR + 2.45%
Class D, $30.00 million: Three-month LIBOR + 3.60%
Class E, $16.25 million: Three-month LIBOR + 6.60%
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 the
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. The results of the cash
flow analysis (and other qualitative factors, as applicable)
demonstrated, in our view, that the outstanding rated classes all
have adequate credit enhancement available at the rating levels
associated with the rating actions.
"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
Benefit Street Partners CLO XVII Ltd./Benefit Street Partners CLO
XVII LLC
Class A-R, $320.00 million: AAA (sf)
Class B-R, $51.00 million: AA (sf)
Class C-R, $39.00 million: A (sf)
Class D-R, $30.00 million: BBB- (sf)
Class E-R, $18.25 million: BB- (sf)
Ratings Withdrawn
Benefit Street Partners CLO XVII Ltd./Benefit Street Partners CLO
XVII LLC
Class A-1: to NR from 'AAA (sf)'
Class B: to NR from 'AA (sf)'
Class C: to NR from 'A (sf)'
Class D: to NR from 'BBB- (sf)'
Class E: to NR from 'BB- (sf)'
Other Outstanding Notes
Benefit Street Partners CLO XVII Ltd./Benefit Street Partners CLO
XVII LLC
Subordinated notes, $51.95 million: NR
NR--Not rated.
BLACKROCK DLF IX 2020-1: DBRS Confirms B Rating on Class W Notes
----------------------------------------------------------------
DBRS, Inc. confirmed and upgraded its provisional ratings on the
following Notes issued by BlackRock DLF IX 2020-1 CLO, LLC pursuant
to the Note Purchase and Security Agreement (the NPSA) dated as of
July 21, 2020, among BlackRock DLF IX 2020-1 CLO, LLC as Issuer,
U.S. Bank National Association as Collateral Agent, Custodian,
Document Custodian, Collateral Administrator, Information Agent,
and Note Agent, and the Purchasers referred to therein.
-- Class A-1 Notes confirmed at AAA (sf)
-- Class A-2 Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (low) (sf) from A (high) (sf)
-- Class C Notes upgraded to A (high) (sf) from A (sf)
-- Class D Notes upgraded to BBB (high) (sf) from BBB (sf)
-- Class E Notes confirmed at BB (high) (sf)
-- Class W Notes confirmed at B (sf)
The provisional ratings on the Class A-1 and 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
July 21, 2030.
The provisional ratings on the Class B, C, D, E, and W Notes
address the ultimate 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 July 21, 2030. 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).
A provisional rating is not a final rating with respect to the
above-mentioned Secured Notes and may change or be different than
the final rating assigned or may be discontinued. The assignment of
final ratings on the Secured Notes is subject to receipt by DBRS
Morningstar of all data and/or information and final documentation
that DBRS Morningstar 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:
-- The NPSA, dated as of July 21, 2020.
-- The integrity of the transaction structure.
-- DBRS Morningstar's assessment of the portfolio quality.
-- Adequate credit enhancement to withstand DBRS Morningstar's
projected collateral loss rates under various cash flow-stress
scenarios.
-- 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 updated in its "Global
Macroeconomic Scenarios - June 2021 Update" commentary on June 18,
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.
DBRS Morningstar considers whether 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.
BRAVO 2021-NQM2: S&P Assigns Prelim B (sf) Rating on B-2 Notes
--------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to BRAVO
Residential Funding Trust 2021-NQM2's mortgage-backed notes series
2021-NQM2.
The note issuance is an RMBS securitization backed by seasoned and
unseasoned first-lien, fixed-, and adjustable-rate, fully
amortizing, and interest-only residential mortgage loans primarily
secured by single-family residences, planned unit developments,
condominiums, two- to four-family homes, mixed-use, and five-10
multi-family properties to prime and nonprime borrowers. The pool
has 657 loans, which are primarily nonqualified or exempt mortgage
loans.
The preliminary ratings are based on information as of Aug. 11,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The pool's collateral composition;
-- The transaction's credit enhancement;
-- The transaction's associated structural mechanics;
-- The transaction's representation and warranty framework;
-- The mortgage originator/aggregator; and
-- The impact that the economic stress brought on by the COVID-19
pandemic will likely have on the performance of the mortgage
borrowers in the pool and liquidity available in the transaction.
Preliminary Ratings Assigned(i)
BRAVO Residential Funding Trust 2021-NQM2
Class A-1, $183,882,000: AAA (sf)
Class A-2, $16,570,000: AA (sf)
Class A-3, $27,714,000: A (sf)
Class M-1, $17,450,000: BBB (sf)
Class B-1, $16,276,000: BB (sf)
Class B-2, $12,758,000: B (sf)
Class B-3, $18,623,102: NR
Class SA, $588,996: NR
Class FB,$414,877: NR
Class AIOS, Notional(ii): NR
Class XS, Notional(ii): NR
Class R, N/A: NR
(i)The collateral and structural information in this report
reflects the term sheet received on Aug. 5, 2021. The preliminary
ratings address the ultimate payment of interest and principal.
They do not address payment of the cap carryover amounts.
(ii)The notional amount equals the loans' aggregate unpaid
principal balance.
NR--Not rated.
N/A--Not applicable.
BUCKHORN PARK: S&P Assigns BB- (sf) Rating on Class E-R Notes
-------------------------------------------------------------
S&P Global Ratings assigned its ratings to the class A-R, B-1R,
B-2R, C-R, D-R, and E-R replacement notes and new class X-R notes
from Buckhorn Park CLO Ltd./Buckhorn Park CLO LLC, a CLO originally
issued in March 2019 that is managed by Blackstone Liquid Credit
Strategies LLC.
On the August 5, 2021 refinancing date, the proceeds from the
replacement notes were used to redeem the original notes. At that
time, S&P withdrew its 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 A-R note were issued at a lower spread
over three-month LIBOR, replacing the original floating-spread
class A-1 and class A-2 notes.
-- The replacement class B-1R, C-R, D-R, and E-R notes were issued
at a lower spread over three-month LIBOR than the original
floating-spread class B-1, C, D, and E notes.
-- The replacement class B-2R note were issued at a lower fixed
coupon, replacing the current fixed-coupon class B-2 note.
-- The stated maturity was extended by 3.5 years, and the
reinvestment period was extended by 2.5 years.
-- The class X-R note was issued in connection with this
refinancing. The note is expected to be paid down using interest
proceeds during the first 12 payment dates beginning with the
payment date in October 2021.
-- Of the identified underlying collateral obligations, 100.00%
have credit ratings assigned by S&P Global Ratings.
-- Of the identified underlying collateral obligations, 97.48%
have recovery ratings assigned by S&P Global Ratings.
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
Buckhorn Park CLO Ltd./Buckhorn Park CLO LLC
Class X-R, $5.00 million: AAA (sf)
Class A-R, $297.50 million: AAA (sf)
Class B-1R, $70.00 million: AA (sf)
Class B-2R, $10.00 million: AA (sf)
Class C-R (deferrable), $31.75 million: A (sf)
Class D-R (deferrable), $30.00 million: BBB- (sf)
Class E-R (deferrable), $16.75 million: BB- (sf)
Subordinated notes, $48.30 million: Not rated
Ratings Withdrawn
Buckhorn Park CLO Ltd./Buckhorn Park CLO LLC
Class A-1 to not rated from 'AAA (sf)'
Class B-1 to not rated from 'AA (sf)'
Class B-1 to not rated from 'AA (sf)'
Class C to not rated from 'A (sf)'
Class D to not rated from 'BBB- (sf)'
Class E to not rated from 'BB- (sf)'
BX TRUST 2017-CQHP: DBRS Cuts Class F Certs Rating to CCC
---------------------------------------------------------
DBRS Limited downgraded the ratings on the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2017-CQHP
issued by BX Trust 2017-CQHP:
-- Class B to AA (sf) from AA (high) (sf)
-- Class C to A (low) (sf) from A (high) (sf)
-- Class X-EXT to BBB (high) (sf) from A (sf)
-- Class D to BBB (sf) from A (low) (sf)
-- Class E to BB (low) (sf) from BB (high) (sf)
-- Class F to CCC (sf) from B (low) (sf)
In addition, DBRS Morningstar confirmed the rating on the following
class:
-- Class A at AAA (sf)
All trends are Negative with the exception of Class F, which does
not carry a trend.
With this review, all ratings have been removed from Under Review
with Negative Implications. The ratings were originally placed
Under Review with Negative Implications because of concerns about
the hotel market amid the Coronavirus Disease (COVID-19) pandemic
and in particular the collateral hotels for the underlying loan,
which are in four major U.S. cities. The rating downgrades and
Negative trends reflect the continued stress for the collateral
hotels and the unknowns surrounding the workout for the loan, which
is in special servicing and has been delinquent for more than a
year with nearly $15.0 million of total outstanding advances as of
the July 2021 remittance.
At issuance, the collateral was valued at $422.5 million. The
hotels, which rely heavily on commercial segmentation because of
the brand's focus on business travel and member-driven corporate
demand, have been severely affected by the coronavirus pandemic. A
September 2020 appraisal reported an as-is value of $312.5 million.
Given the lack of progress on a resolution and the loan's ongoing
delinquency, DBRS Morningstar analyzed this loan assuming an
additional decrease in value.
The loan transferred to special servicing in June 2020 as a result
of imminent monetary default after the borrower ceased making debt
service payments in April 2020 and requested coronavirus-related
relief. The borrower's request for a modification was declined at
that time by the special servicer. Blackstone Real Estate Partners
VII, L.P. (Blackstone) had reportedly attempted to transition the
properties to the mezzanine lender, which was then marketing the
mezzanine note for sale; however, nothing has materialized to date.
The special servicer is continuing to evaluate options for a
workout strategy, including pursuing foreclosure or accepting deeds
in lieu of foreclosure.
The transaction is collateralized by a single loan secured by a
portfolio of hospitality properties in four cities. The portfolio
comprises four Club Quarters Hotels-managed boutique hotels
totalling 1,228 keys across four major U.S. cities: San Francisco
(346 keys; 39.4% of allocated loan amount), Chicago (429 keys;
26.4% of allocated loan amount), Boston (178 keys; 18.2% of
allocated loan amount), and Philadelphia (275 keys; 16.0% of
allocated loan amount). The underlying trust loan is interest only
(IO) throughout the term and was structured with a two-year initial
term with three 12-month extension options. The borrower exercised
the first of its three extension options, extending the maturity
date to November 2020. The loan is now flagged as a nonperforming
matured balloon loan.
The sponsor for this loan is Blackstone, which purchased the
portfolio in February 2016 from Masterworks Development
Corporation, an affiliate of Club Quarters Hotels. Blackstone, one
of the largest real estate private equity firms in the world with
roughly $167 billion in real estate assets under management, has a
current real estate owned portfolio that consists of office,
retail, hotel, industrial, and residential properties, according to
the company's website.
Notes: All figures are in U.S. dollars unless otherwise noted.
CASTLELAKE AIRCRAFT 2017-1R: S&P Assigns B- (sf) Rating on C Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to Castlelake Aircraft
Structured Trust 2017-1R's class A, B, and C notes.
The collateral consists of the two aircraft-operating entity
issuers' series A, B, and C notes, which are in turn backed by 34
aircraft and the related leases and shares and beneficial interests
in entities that directly and indirectly receive aircraft portfolio
lease rental and residual cash flows, among others.
The ratings reflect:
-- The likelihood of timely interest on the series A notes
(excluding step up interest) on each payment date, the timely
interest on the series B notes (excluding step up interest) on each
payment date when the series A notes are no longer outstanding, the
ultimate interest on the series C notes (excluding step up
interest), and the ultimate principal payment on the series A, B,
and C notes on or prior to the legal final maturity date at their
respective rating stress.
-- The portfolio comprising a pool of 34 aircraft, including 30
narrowbody (A319/A320/A321: 58%, 737-700/737-800: 14%) and four
widebody aircraft (A330-300: 28%).
-- The weighted average age (by LMM of the half-life values) of
the aircraft in the portfolio being 16.7 years. Currently, 33
aircraft are on lease, with weighted average remaining maturity of
approximately 3.8 years (excluding MSN 2692). Weighted average age
and remaining term are calculated as of the economic closing date.
-- Approximately 61% (by LMM of half-life values) of the lessees
operate in developed markets, where domestic air traffic levels
have picked up recently, after a global air travel shutdown was
imposed in 2020 at the height of the COVID-19 pandemic.
-- The existing and future lessees' estimated credit quality and
diversification. The 33 aircraft are currently leased to 13
airlines in 11 countries; one aircraft is considered off lease.
-- Each series' scheduled amortization profile, which is a
straight line over 10.5 years on average based on aircraft-specific
principal amortization for series A and B, and straight line seven
years for the first year and straight line five years thereafter,
based on aircraft-specific principal amortization for series C.
-- The transaction's debt service coverage ratios and utilization
trigger--a failure of which will result in the series A and B
notes' turbo amortization; turbo amortization for the series A and
B notes will also occur if they are outstanding after year seven or
if the number of aircraft in the portfolio is less than eight.
A collections test, which diverts class B scheduled amortization to
pay class A if the aggregate amount of basic rent is less than 75%
of the aggregate amount of contracted basic rent.
-- The cash sweep for the series A, B, and C notes, which provides
for a percentage of remaining available collections after all
payments entitled to priority, to pay principal on the notes. The
series A cash sweep of 10% of remaining available collections
begins on the closing date and increases to 25% in years three and
four of the transaction and 50% in years six and seven of the
transaction. The cash sweep for the series B notes begins in year
three of the transaction at 5% of remaining collections and steps
up in years four and five to 7.5% and 10% in years six and seven.
-- The series C supplemental amortization, which, from the closing
date up to month 30 of the transaction, pays 10% of available
collection to principal on the series C notes; and the series C
cash sweep, which, from month 30 to month 83, pays 20% of available
collections to principal on the notes and from month 84, pays 100%
of available collections to principal on the notes provided the
issuers own a minimum of eight aircraft.
-- The end-of-lease payment will be paid to the series A, B, and C
notes according to a percentage equaling each series' then-current
loan-to-value ratio.
-- The subordination of series C principal and interest to series
A and B principal and interest.
-- A revolving credit facility from Sun Life, which is available
to cover senior expenses, including hedge payments and interest on
the series A and B notes. The amount available under the facility
will equal nine months of interest on the series A and B notes.
Morten Beyer & Agnew Inc.'s maintenance analysis before closing.
After closing, the servicer will perform a forward-looking 24-month
maintenance analysis at least semi-annually, which will be reviewed
by MBA Aviation for reasonableness.
-- The maintenance reserve account (approximately $11 million
balance at closing), which is used to cover maintenance costs. The
account gets topped up to a senior and a junior required amount,
which are sized based on a forward-looking schedule of maintenance
outflows. The excess amounts in the account over the required
maintenance amount will be transferred to the waterfall on or after
December 2022.
-- The security deposit ($2 million at closing), which can be used
to repay security deposit due amounts along with other senior
expenses, to the extent the amount on deposit exceeds the target
amount.
-- The expense reserve account, which will be funded at closing
from note proceeds with approximately $500,000 that is expected to
cover the next three months' expenses.
-- The series C reserve account, which will be funded at closing
from note proceeds of approximately $2 million, and which may be
used to pay interest and principal on the series C notes.
The transition reserve account established in respect of MSN 918,
which is expected to be on-lease with Qatar Airways based on a
power-by-the hour (PBH) agreement with a minimum amount due of
$165,000/month starting around August 2021.
-- The senior indemnification (excluding indemnification amounts
to lessees under leases entered into before the transaction closing
date) is capped at $10 million and is modeled to occur in the first
12 months.
-- The junior indemnification (uncapped) is subordinated to the
rated series' principal payment.
Castlelake Aviation Holdings (Ireland) Ltd., which is a
wholly-owned subsidiary of Castlelake as the servicer of the
transaction.
The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
Castlelake Aircraft Structured Trust 2017-1R
Class A, $315.000 million: A (sf)
Class B, $75.000 million: BBB (sf)
Class C, $60.000 million: B- (sf)
CIM TRUST 2021-INV1: Moody's Assigns (P)B2 Rating to Cl. B-5 Certs
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 65
classes of residential mortgage-backed securities (RMBS) issued by
CIM Trust 2021-INV1. The ratings range from (P)Aaa (sf) to (P)B2
(sf).
Chimera Investment Corporation (Chimera), is the sponsor of CIM
Trust 2021-INV1 (CIM 2021-INV1). The pool comprises of 1,203 newly
originated fixed rate agency-eligible mortgage loans secured by
non-owner occupied investor properties with up to 30 years of
original term to maturity. All of the mortgage loans are (i)
originated in accordance with Freddie Mac and Fannie Mae guidelines
(ii) current as of July 1, 2021 (cut-off date) and (iii) not
actively enrolled in a COVID-19 related forbearance plan. A few
borrowers in the mortgage pool, however, (8 loans or 0.7% by stated
principal balance) were previously enrolled into a coronavirus
related forbearance plan with the servicer and such borrowers have
since been reinstated.
The aggregate principal balance of the pool is approximately
$434,667,948. The average stated principal balance is approximately
$361,320 and the weighted average (WA) current mortgage rate is
3.4%. The borrowers have a WA credit score of 770, WA combined
loan-to-value ratio (CLTV) of 64.6% and WA debt-to-income ratio
(DTI) of 32.6%.
There are 6 originators in the transaction, the largest of which
are Home Point Financial Corporation (48.97%) and Fairway
Independent Mortgage Corporation (45.50%). Moody's took into
consideration the origination quality of these originators and
factored it in Moody's analysis.
NewRez LLC d/b/a Shellpoint Mortgage Servicing (Shellpoint) will
act as the servicer of the mortgage loans. Wells Fargo Bank, N.A.
(Wells Fargo) will be the master servicer. The servicer is
generally obligated to advance delinquent payments of principal and
interest (P&I) (to the extent such advances are deemed
recoverable). The master servicer, or a successor servicer, will be
obligated to make any required advance of delinquent payments of
principal and interest if the servicer fails in its obligation to
fund such required advance.
Moody's loss estimates based on a loan-by-loan assessment of the
securitized collateral pool as of the cut-off date using Moody's
Individual Loan Level Analysis (MILAN) model. The expected loss for
this pool in a baseline scenario is 0.80% at the mean (0.54% at the
median) and reaches 6.13% at a stress level consistent with Moody's
Aaa ratings.
CIM 2021-INV1 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordinate floor.
The complete rating actions are as follows:
Issuer: CIM Trust 2021-INV1
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)Aa1 (sf)
Cl. A-29, Assigned (P)Aa1 (sf)
Cl. A-30, Assigned (P)Aa1 (sf)
Cl. A-31, Assigned (P)Aaa (sf)
Cl. A-32, Assigned (P)Aaa (sf)
Cl. A-33, 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-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-11*, Assigned (P)Aaa (sf)
Cl. A-X-12*, Assigned (P)Aaa (sf)
Cl. A-X-14*, Assigned (P)Aaa (sf)
Cl. A-X-15*, Assigned (P)Aaa (sf)
Cl. A-X-18*, Assigned (P)Aaa (sf)
Cl. A-X-19*, Assigned (P)Aaa (sf)
Cl. A-X-21*, Assigned (P)Aaa (sf)
Cl. A-X-22*, 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-30*, Assigned (P)Aa1 (sf)
Cl. A-X-31*, Assigned (P)Aa1 (sf)
Cl. A-X-32*, Assigned (P)Aaa (sf)
Cl. A-X-33*, 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 is 0.80%
at the mean (0.54% at the median) and reaches 6.13% at a stress
level consistent with Moody's Aaa ratings.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of consumer assets as the US economy
continues on the path toward normalization. Economic activity will
continue to strengthen in 2021 because of several factors,
including the rollout of vaccines, growing household consumption
and an accommodative central bank policy. However, specific sectors
and individual businesses will remain weakened by extended pandemic
related restrictions. 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%
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
Moody's assessed the collateral pool as of the cut-off date of July
1, 2021. As of the cut-off date, the pool consisted of 1,203 fixed
rate agency-eligible mortgage loans secured by first liens on
non-owner occupied residential investor properties with original
terms to maturity up to 30 years.
Pool strengths include the high credit quality of the underlying
borrowers. The borrowers in this transaction have high FICO scores
and sizeable equity in their properties. The WA original primary
borrower credit score is 770 and the CLTV is 64.6%. Additionally,
the borrowers have a high WA total monthly income of $19,261 and
significant WA liquid cash reserves of $175,287. Self-employed
borrowers constitute 25.1% (by loan balance) of the pool. There are
9 loans (0.8% by balance) which had at least 1 month delinquency in
the past 12 months. One loan was delinquent due to a servicing
transfer and the remaining loans were delinquent because the
borrowers were on a COVID-19 related forbearance plan.
Approximately 71.0% (by balance) and 84.7% (by balance) of the
properties backing the mortgage loans are located in five and ten
states, respectively.
Origination
The seller (Fifth Avenue Trust) acquired the mortgage loans from
Bank of America, National Association (BANA). BANA acquired the
loans in the pool from 6 different originators. The largest
originators in the pool with more than 10% by balance are Home
Point Financial Corporation (Home Point, 48.97%) and Fairway
Independent Mortgage Corporation (Fairway, 45.50%). All of the
mortgage loans are originated in accordance with Freddie Mac and
Fannie Mae guidelines.
Moody's have increased its base case and Aaa loss assumption for
loans originated by Home Point due to (i) worse performance than
average GSE investor loan despite average loans having better
characteristics than GSE loans and (ii) lack of strong controls and
uneven production quality (as evidenced by recent internal QC/audit
findings) to support recent rapid growth. Moody's consider the GSE
eligible loan origination quality of Fairway to be adequate and
therefore, Moody's did not apply a separate adjustment to Moody's
losses.
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 service all the mortgage loans in the transaction
and Wells Fargo will be the master servicer. The servicer is
generally obligated to advance delinquent payments of principal and
interest (P&I) (to the extent such advances are deemed
recoverable). The master servicer, or a successor servicer, will be
obligated to make any required advance of delinquent payments of
principal and interest if the servicer fails in its obligation to
fund such required advance.
In the event that after the cut-off date 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.
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 such action and the
controlling holder has not objected to such action.
Third Party Review
Three diligence providers reviewed approximately 75.4% of the pool
(by count). Other than Home Point originated loans, the remaining
loans were subject to 100% review. Approximately 46.5% of Home
Point loans were reviewed by the diligence provider. The review
scope included a credit component, a compliance component, a
component consisting of an analysis of the independent third-party
appraisals of the mortgaged properties and a data integrity
review.
The due diligence results confirm compliance with the originator's
underwriting guidelines for the vast majority of loans and no
material regulatory compliance issues. The scope for appraisal
quality is adequate for non- appraisal waiver (AW) loans and there
were no material findings. However, the scope was slightly weaker
for the AW loans. Unlike other deals, where an AVM review is
conducted for all AW loans, in this pool, an AVM review was only
conducted on 11 out of the 45 AW loans. As a result, Moody's made
adjustments in Moody's analysis to account for the increased risk
associated with such loans.
Representation & Warranties
Overall, Moody's assessed R&W framework for this transaction as
adequate, consistent with that of other prime transactions for
which the breach review process is thorough, transparent and
objective, and the costs and manner of review are clearly outlined
at issuance. Moody's assessed the R&W framework based on three
factors: (a) the financial strength of the remedy provider; (b) the
strength of the R&Ws (including qualifiers and sunsets) and (c) the
effectiveness of the enforcement mechanisms.
The R&W framework is adequate in part because the results of the
independent TPRs revealed a high level of compliance with
underwriting guidelines and regulations, as well as overall
adequate appraisal quality. These results give confidence that the
loans do not systemically breach the R&Ws the originators have made
and that the originators are unlikely to face material repurchase
requests in the future. Furthermore, the transaction has reasonably
well-defined processes in place to identify loans with defects on
an ongoing basis. In this transaction, an independent reviewer,
when appointed, must review loans for breaches of representations
and warranties when certain clearly defined triggers have been
breached (review event). A review event will be in effect for a
mortgage loan if (i) such mortgage loan has become 120 days or more
delinquent, (ii) such mortgage loan is liquidated and such
liquidation results in a realized loss, or (iii) the related
servicer determines that a monthly advance for a mortgage loan is
nonrecoverable. Of note, in a continued effort to focus breach
reviews on loans that are more likely to contain origination
defects that led to or contributed to the delinquency of the loan,
an additional carve out has been in recent transactions Moody's
have rated from other issuers relating to the delinquency review
trigger. Similarly, in this transaction, exceptions exist for
certain excluded disaster mortgage loans that trip the review
event. These excluded disaster loans include COVID-19 forbearance
loans.
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. The senior
subordination floor and subordination lock-out amount are both 1%
of the closing pool balance.
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 rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
COMM 2012-LTRT: DBRS Cuts Class D Certs Rating to B(low)
--------------------------------------------------------
DBRS Limited downgraded its ratings on six classes of the
Commercial Mortgage Pass-Through Certificates, Series 2012-LTRT
issued by COMM 2012-LTRT Mortgage Trust as follows:
-- Class X-A to AA (sf) from AAA (sf)
-- Class A-2 to AA (low) (sf) from AAA (sf)
-- Class B to A (low) (sf) from AA (low) (sf)
-- Class C to BB (low) (sf) from BBB (high) (sf)
-- Class D to B (low) (sf) from BBB (sf)
-- Class E to CCC (low) (sf) from BB (high) (sf)
In addition, DBRS Morningstar confirmed its rating on Class A-1 at
AAA (sf) and discontinued its rating on Class X-B as it references
a class that now has a CCC (sf) rating.
All classes carry Negative trends with the exception of Class A-1,
which has a Stable trend, and Class E, which has a rating that does
not carry a trend.
With this review, DBRS Morningstar removed all classes from Under
Review with Negative Implications where they were placed on October
7, 2020.
The subject transaction is evidenced by two promissory notes, each
individually secured by the fee interest in a portion of one of two
super-regional malls known as the Westroads Mall and the Oaks Mall.
The two loans are co-terminus with a 10-year loan term, a 30-year
amortization schedule with no interest-only (IO) periods, and a
maturity date of October 1, 2022. As of the July 2021 remittance,
the loans have an aggregate senior note balance of $217.2 million
and an aggregate mezzanine debt balance of $32.0 million. The loans
are not cross-collateralized or cross-defaulted.
The ratings downgrades and Negative trends are primarily driven by
DBRS Morningstar's negative outlook on the Oaks Mall loan, which
represents 45.7% of the allocated senior loan balance. For this
review, DBRS Morningstar concluded a combined value of $226.1
million for the two malls, based on the in-place cash flows at
year-end (YE) 2020 for the Oaks Mall and at YE2019 for Westroads
Mall and a weighted-average (WA) cap rate of approximately 10.0%.
The concluded value represents a variance of -51.8% from the
combined value of $469.0 million at issuance and implies a
loan-to-value ratio (LTV) of 96.0% on the trust debt. The Oaks Mall
loan is secured by a regional mall in Gainesville, Florida, and has
consistently reported cash flows well below the issuance figure
since 2017, with the most recent figure showing a YE2020 debt
service coverage ratio (DSCR) of 0.86x. These trends will be
particularly problematic given the 2022 maturity date for the loan,
as further discussed, below.
The sponsor for both loans is an affiliate of Brookfield Property
Partners L.P. (Brookfield; rated BBB with a Negative trend by DBRS
Morningstar) following Brookfield's 2018 acquisition of the parent
company for the sponsor at issuance, General Growth Properties,
Inc. In May 2020, the servicer advised that the sponsor had
notified the servicer of cash flow concerns caused by the
Coronavirus Disease (COVID-19) pandemic. A loan modification
allowing for a forbearance was approved for both loans by the
master servicer by June 2020 and as of the July 2021 remittance,
the loan continues to show current and there are only nominal
outstanding servicer advances, suggesting the forborne amounts have
been repaid as agreed.
Of the two loans backing the transaction, the Westroads Mall loan,
which is secured by the fee interests in 540,304 square feet (sf)
of a 1.1 million-sf regional mall in Omaha, Nebraska, has been the
stronger performer. The noncollateral anchor spaces are occupied by
JCPenney, Von Maur, and First Westroads Bank, while the largest
collateral anchor and junior anchor tenants at the property include
Dick's Sporting Goods, AMC Theatres, and Forever 21. The Forever 21
store remains in operation at the mall and is the only Forever 21
operating in Nebraska after the retailer left Gateway Mall and
Nebraska Crossings in 2019. The mall is a dominant shopping
destination within Omaha, but there is a competing open-air
shopping center in Village Pointe that is within seven miles and
has a concentration of overlapping tenants with Westroads,
including Designer Shoe Warehouse (DSW) and Old Navy. The overall
tenant mix at Village Pointe is considered superior to the
subject's tenant roster, as it includes Apple, Lululemon, and
Kendra Scott, with that center targeting an upper scale clientele.
At issuance, Westroads Mall had an occupancy rate of 94.5% and
in-line sales of $458 per square foot (psf). As of the March 2021
rent roll, the occupancy rate was directly in line with the
issuance level and according to the YE2019 tenant sales report
(most recent sales on file with DBRS Morningstar), the mall
reported in-line sales of $410 psf. According to most recent
financials, the senior note reported a YE2020 DSCR of 1.51x,
compared with the YE2019 figure of 1.89x and YE2018 of 1.91x. The
revenue declines in 2020 appear to be directly related to the
coronavirus pandemic. The Westroads Mall loan is scheduled to
mature in October 2022 and, although the struggles for regional
malls in secondary markets that have been exacerbated amid the
pandemic could affect the sponsor's ability to secure a replacement
loan, DBRS Morningstar notes the generally stable performance to
date and the amortization that has reduced the trust exposure by
over $23.0 million since issuance.
The Oaks Mall is approximately four miles from the University of
Florida's main campus and is anchored by Belk, two Dillard's
stores, and JCPenney. Of the anchors, only one of the Dillard's
stores and the Belk store serve as collateral for the subject loan.
At issuance, there were two additional noncollateral anchors in
Sears and Macy's, both of which closed in 2018. The former Macy's
anchor was purchased by Dillard's and the Sears anchor is now
occupied by the University of Florida Health (UF Health) - The
Oaks. UF Health's ear, nose, and throat doctor offices previously
occupied space in the adjacent Hampton Oaks Medical Plaza. The
property could potentially add additional office and/or residential
space after the City of Gainesville voted to rezone the property
from retail to mixed-use in May 2019. The mall historically drew
traffic from the nearby college campus, but a competing property in
Butler Plaza, an open-air shopping center that is the largest power
center in the Southeast United States with nearly 2 million sf of
retail space, is also nearby and has become the primary retail
destination for the area.
At issuance, Oaks Mall had an occupancy rate of 96.8% and in-line
sales of $368 psf. According to the December 2020 rent roll, the
property was 94.0% occupied. Updated sales have not been provided
to DBRS Morningstar to date. Although occupancy has remained
relatively stable, DBRS Morningstar notes cash flows have been
trending downward over the past four years. The senior loan's DSCR
dropped to 1.19x in the YE2019, from 1.46x and 1.97x at YE2018 and
YE2017, respectively. The precipitous cash flow declines began
before the loss of two anchor stores and accelerated following the
closures. Although Dillard's taking one of the vacant boxes and a
replacement medical tenant taking the other are noteworthy, the
cash flow trends suggest that the as-is value has declined sharply
since issuance, significantly increasing the risks for the loan,
which is scheduled to mature in October 2022. Given Brookfield's
demonstrated willingness to turn underperforming properties in its
portfolio back to the lenders for other assets backing CMBS loans,
DBRS Morningstar believes the firm's commitment to the subject mall
could be tenuous, as well.
Notes: All figures are in U.S. dollars unless otherwise noted.
COMM 2014-CCRE20: Fitch Lowers Class F Certs Rating to 'CC'
-----------------------------------------------------------
Fitch Ratings has downgraded two and affirmed 11 classes of
Deutsche Bank Securities, Inc's COMM 2014-CCRE20 Mortgage Trust
commercial mortgage trust pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
COMM 2014-CCRE20
A-3 12592LBH4 LT AAAsf Affirmed AAAsf
A-4 12592LBJ0 LT AAAsf Affirmed AAAsf
A-SB 12592LBG6 LT AAAsf Affirmed AAAsf
AM 12592LBL5 LT AAAsf Affirmed AAAsf
B 12592LBM3 LT AA+sf Affirmed AA+sf
C 12592LBP6 LT A-sf Affirmed A-sf
D 12592LAN2 LT BBB-sf Affirmed BBB-sf
E 12592LAQ5 LT B-sf Downgrade BB-sf
F 12592LAS1 LT CCsf Downgrade B-sf
PEZ 12592LBN1 LT A-sf Affirmed A-sf
X-A 12592LBK7 LT AAAsf Affirmed AAAsf
X-B 12592LAA0 LT AA+sf Affirmed AA+sf
X-C 12592LAC6 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Concerns Despite Lower Loss Expectations: While Fitch's overall
loss expectations have decreased slightly since the last rating
action, the downgrades reflect further certainty of losses for
several of the loans in special servicing. The decreased loss
expectations are primarily due to the disposition of three assets
with better than expected recoveries and two loans that repaid in
full prior to maturity. Fitch's ratings incorporate a base case
loss of 6.2%.
The Negative Outlooks reflect that losses that could reach 7.1%,
which includes a sensitivity on the Dollar General loan reflecting
binary risk associated with upcoming scheduled lease rollover and
additional pandemic related stresses. The projected losses are
driven by nine Fitch Loans of Concern (FLOC) representing 28.3% of
the pool, including five loans in special servicing representing
17.0% of the pool.
The largest contributors to modeled losses are three assets in
special servicing. Doubletree Beachwood (2.50% of the pool) is a
full service hotel located in Beachwood, Ohio that was originally
converted from a Hilton to a DoubleTree by Hilton in 2013. The loan
transferred to special servicing in April 2019 due to imminent
default after several years of underperformance. The lender took
over the title in December 2020 via deed-in-lieu of foreclosure and
the asset is currently being marketed for sale. Fitch modeled full
loss on the asset which is supported by a recent appraised value,
and reflects the property's declining performance trends and
accruing fees.
Crowne Plaza Houston Katy Freeway (2.93% of the pool), the second
largest contributor to modeled losses, is a full service hotel
located in Houston, Texas that was built in 1981 and renovated in
2012. The asset transferred to special servicing in May 2020 after
the borrower requested relief due to the pandemic. The NOI DSCR
declined to 0.70x as of YE 2019 from 1.65x at YE 2017, indicating
the property faced performance challenges prior to the coronavirus
outbreak. The lender took possession of the title via deed-in-lieu
of foreclosure and the asset became REO in June 2021.
Fitch modeled a 30% loss on the loan based on a stress to the most
recent appraised value to reflect the property's declining
performance trends and accruing fees.
Harwood Center (5.83% of the pool), the largest asset in special
servicing, is secured by an urban office property located in
Dallas, Texas. The asset transferred to special servicing in May
2020 due to imminent monetary default. Occupancy declined
significantly due to lease rollover and downsizing. As of March
2020, the property was 69% occupied, down from 91% at year-end (YE)
2019, and the NOI DSCR fell to 0.69x from 1.51x at YE 2019 in the
same period. The lender is currently evaluating workout strategies
available per the loan documents.
Fitch's modeled loss of 13% is based on a stress to the most recent
appraised value to reflect the property's declined performance
metrics and lack of leasing activity, but giving credit to the
approximately $5 million in reserves held as additional
collateral.
Coronavirus Exposure: Eight loans representing 29.3% of the pool
are secured by lodging properties. This includes three hotel loans
(6.2% of the pool) which are flagged as FLOCs, two of which (5.5%
of the pool) are in special servicing. These loans were modeled
with an additional stress to the most recent appraised value or an
additional haircut to the YE 2019 NOI, given the significant
declines to 2020 NOI related to reduced reservations and/or
temporary closures related to the pandemic.
Increased Credit Enhancement to Senior Classes: Since the last
rating action, two loans have been repaid from the trust. Repayment
of these loans contributed approximately $20 million in principal
paydown to the senior bonds, resulting in increased credit support
to the top of the capital structure. The pool also realized $15
million in losses. As of the July 2021 distribution date, the
pool's aggregate pool balance has decreased by 18.4% to $964.7
million from $1.18 billion at issuance. Twelve loans (18% of the
pool) are fully defeased. All of the remaining loans in the pool
are scheduled to mature in either 2024 or 2034.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to a positive
rating action/upgrade:
-- Stable to improved asset performance coupled with paydown
and/or additional defeasance. Upgrades to classes B and C may
occur with increased paydown and/or defeasance combined with
improved collateral performance. An upgrade to classes D and E
is not likely without increased credit enhancement and
performance stabilization of the FLOCs.
Factor that could, individually or collectively, lead to a negative
rating action/downgrade:
-- An increase in pool level losses from underperforming loans.
Downgrades to the classes rated 'AAAsf' are not considered
likely due to the position in the capital structure, but may
occur at 'AAAsf' or 'AA-sf' should interest shortfalls occur.
Downgrades to classes C and D are possible should additional
loans default. Downgrades to classes E and F are possible
should performance of the FLOCs' fail to stabilize or should
the specially serviced loans dispose with greater than
anticipated losses.
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 TRUST 2021-980M: Fitch Assigns Final B- Rating on F Certs
--------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to CSMC
2021-980M, commercial mortgage pass-through certificates, series
2021-980M.
-- $60,400,000 class A 'AAAsf'; Outlook Stable;
-- $11,100,000 class B 'AA-sf'; Outlook Stable;
-- $10,000,000 class C 'A-sf'; Outlook Stable;
-- $16,000,000 class D 'BBB-sf'; Outlook Stable;
-- $24,600,000 class E 'BB-sf'; Outlook Stable;
-- $24,700,000 class F 'B-sf'; Outlook Stable;
-- $81,500,000a class X 'A-sf'; Outlook Stable.
The following classes are not rated by Fitch:
-- $14,950,000 class G;
-- $10,850,000b class HRR.
(a) Interest Only with notional amount equal to the aggregate
balance of classes A, B, and C.
(b) Horizontal credit risk retention interest.
TRANSACTION SUMMARY
The trust certificates represent the beneficial interest in a
$197.6 million mortgage loan that is secured by the borrower's fee
interest in 980 Madison Avenue, a six-story mixed-use development
with 134,843 sf of luxury retail, upscale gallery, and office
spaces located along Madison Avenue's luxury retail corridor
between 76th and 77th Streets. The trust certificates will follow a
sequential-pay structure.
The total $197.6 million mortgage loan consists of two trust notes
totaling $172.6 million and one non-trust senior note totaling
$25.0 million. The trust loan is part of a split loan structure
comprising one senior note in the amount of $71.5 million (A-1
note) and one subordinate note in the amount of $101.1 million
(B-note), each of which will be an asset of the trust. The senior
pari passu companion note totaling $25.0 million (A-2 note) will
not be part of the assets of this trust, and is expected to be
contributed to one or more future securitizations.
Mortgage loan proceeds were used to refinance $229.8 million of
existing mortgage debt, fund upfront reserves totaling $1.9 million
for outstanding tenant obligations (Unfunded Obligations Reserve),
and pay for closing costs.
KEY RATING DRIVERS
High Fitch Leverage: The $197.6 million total mortgage loan has
high Fitch leverage metrics, with total debt of $1,465 psf and a
Fitch stressed loan to value (LTV), debt service coverage ratio
(DSCR) and debt yield (DY) of 117.8%, 0.75x, and 6.2%,
respectively. Inclusive of the $40.0 million mezzanine loan, the
transaction has total debt of $1,762 psf, and a Fitch stressed LTV,
DSCR, and DY of 141.6%, 0.62x and 5.1%, respectively. The
transaction is a cash-neutral refinance, with no equity being
returned to the sponsor. Through 'B-sf', Fitch's LTV, DSCR, and DY
would be 102.4%, 0.86x and 7.1%, with cumulative proceeds of
approximately $1,274 psf.
Strong Manhattan Location and Property Quality: The property is a
six-story mixed-use development with 134,843 sf of luxury retail,
upscale gallery, and office spaces, extending along Madison
Avenue's prime retail corridor for an entire city block between
76th and 77th streets, just one block from Central Park. It is also
within nearby walking distance to East Side subway lines that
provide access to Times Square, Grand Central Terminal and Bryant
Park. Fitch assigned 980 Madison a property quality grade of "A-".
Stable Occupancy and Committed Long-Term Tenancy: The property has
demonstrated stable historical occupancy, averaging 97.5% since
2016, and it is currently 93.0% occupied by 17 tenants that have
been in occupancy at the property for a weighted-average term of 17
years. The property's major tenant, Gagosian Gallery (41.8% of
NRA), has been in occupancy for over 30 years and the property
serves as the tenant's global headquarters location. The tenant has
extended its leases and expanded or renovated its spaces several
times since taking occupancy in 1989. Most recently, in 2019, the
tenant invested $5.0 million into its fifth-floor space at the
property.
Long-Term Institutional Sponsorship: RFR Holding LLC (RFR) is a
fully-integrated real estate investment firm with about 20 million
in assets across the U.S. and Europe. Within the U.S., the company
has an interest in over 75 properties comprising about 10 million
sf of office, retail, residential and hotel properties. The sponsor
has been a long-term owner of the subject property for over 15
years, since acquiring it in 2004. In 2014, the sponsor invested
$8.0 million ($59 psf) in capital improvements to maintain the
property's strong positioning within the market.
Concentrated Tenancy and Lease Rollover. The property is exposed to
significant lease rollover, as all of the leases currently in place
at the property are scheduled to expire over the five-year loan
term. The largest rollover concentration is scheduled to occur in
2025, when leases accounting for 67.3% of the NRA are set to
expire. This includes leases to the property's three largest
tenants, Gagosian Gallery (41.8% of NRA), Ramsfield Hospitality
Finance (7.9% of NRA), and JN Contemporary (6.5% of NRA). Aside
from Ramsfield Hospitality Finance, which is a new tenant to the
property, these tenants have been in occupancy at the property for
a weighted-average term of over 26 years. The loan is also
structured with a cash flow sweep that goes into effect 12 months
prior to Gagosian Gallery's lease expiration in April 2025, and the
tenant does not have any termination options. Additionally, aside
from Gargosian Gallery, no single tenant represents more than 7.9%
of the NRA.
Non-Traditional Gallery Tenancy. The property currently designates
a majority of its spaces on floors two through six (53.7% of the
NRA) as non-traditional gallery spaces, and the majority of these
are utilized as art galleries. All of the gallery tenants have been
in place at the property for at least eight years, with the
exception of three tenants that recently took occupancy since early
2019. Two of these new tenants executed their leases subsequent to
the onset of the coronavirus pandemic, at an average base rent of
$145.19 psf, and there were also two recent expansions by the
property's major gallery tenants, Gagosian Gallery and JN
Contemporary, since July 2020, at an average base rent of $145.82
psf.
All four new and expansion leases have a base rent that is
considerably higher than the average base rent of $129.24 psf for
the in-place gallery tenants. As an alternative to the
gallery-specific usage, all of these spaces are also
interchangeable as office spaces, and they command base rents that
are closely in line. These average $129.24 psf for the gallery
tenants and $125.67 psf for the office tenants.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Improvement in cash flow increases property value and capacity
to meet its debt service obligations. Class A is rated at the
highest rating level and cannot be upgraded further.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Declining cash flow decreases property value and capacity to
meet its debt service obligations. A 20% decline in Fitch's
NCF indicate the following model implied rating sensitivities:
class A from 'AAAsf' to 'Asf'; class B from 'AA-sf' to 'BBB-
sf'; class C from 'A-sf' to 'BBsf'; class D from 'BBB-sf' to
'B+sf'; class E from 'BB-sf' to 'CCCsf'; class F from 'B-sf'
to 'CCCsf'. The presale report includes a detailed explanation
of additional stresses and sensitivities.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Deloitte & Touche. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to the mortgage loan and
related mortgaged property in the data file. Fitch considered this
information in its analysis and it did not have an effect on
Fitch's analysis or conclusions.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DT AUTO 2021-3: S&P Assigns BB- (sf) Rating on Class E Notes
------------------------------------------------------------
S&P Global Ratings assigned its ratings to DT Auto Owner Trust
2021-3's asset-backed notes series 2021-3.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The ratings reflect S&P's view of:
-- Credit support of 63.0%, 58.1%, 48.6%, 37.5%, and 34.6% for the
class A, B, C, D, and E notes, respectively, based on stressed
break-even cash flow scenarios (including excess spread). These
credit support levels provide approximately 2.35x, 2.10x, 1.70x,
1.33x, and 1.20x coverage of our expected net loss range of
26.00%-27.00% for the class A, B, C, D, and E notes, respectively.
Credit enhancement also covers cumulative gross losses of
approximately 90.0%, 83.0%, 74.8%, 57.7%, and 53.2%, respectively,
assuming a 30% recovery rate for the class A and B notes, and a 35%
recovery rate for the class C, D, and E notes.
-- The timely interest and principal payments by the legal final
maturity dates made under stressed cash flow modeling scenarios
that S&P deems appropriate for the assigned ratings.
-- The expectation that under a moderate ('BBB') stress scenario
(1.37x S&P's expected loss level), all else being equal, its
ratings will be within the credit stability limits specified by
section A.4 of the Appendix contained in S&P Global Rating
Definitions.
-- The collateral characteristics of the subprime pool being
securitized, including a high percentage (approximately 76%) of
obligors with higher payment frequencies (more than once a month),
which S&P expects will result in a somewhat faster paydown on the
pool.
-- The transaction's sequential-pay structure, which builds credit
enhancement (on a percentage-of-receivables basis) as the pool
amortizes.
Ratings Assigned
DT Auto Owner Trust 2021-3
Class A, $251.90 million: AAA (sf)
Class B, $57.20 million: AA (sf)
Class C, $73.70 million: A (sf)
Class D, $98.45 million: BBB- (sf)
Class E, $15.95 million: BB- (sf)
EXETER 2021-3: S&P Assigns Prelim BB (sf) Rating on Class E Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Exeter
Automobile Receivables Trust 2021-3's automobile receivables-backed
notes.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The preliminary ratings are based on information as of August 11,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The availability of approximately 59.2%, 51.6%, 43.1%, 34.4%,
and 27.5% (for the base and upsized pools) credit support for the
class A (made up of classes A-1, A-2, and A-3), B, C, D, and E
notes, respectively, based on stressed cash flow scenarios
(including excess spread). This credit support provides coverage of
approximately 2.90x, 2.50x, 2.05x, 1.55x, and 1.27x S&P's
19.75%-20.75% expected cumulative net loss range. These break-even
scenarios withstand cumulative gross losses of approximately 91.1%,
79.4%, 68.9%, 55.1%, and 43.9% (for the base and upsized pools),
respectively.
-- S&P's expectation for timely interest and principal payments on
the notes, based on stressed cash flow modeling scenarios, which,
in its view, are appropriate for the assigned preliminary ratings.
-- S&P's expectation that under a moderate ('BBB') stress scenario
(1.55x our expected loss level), all else being equal, its
preliminary ratings will be within the credit stability limits
specified by section A.4 of the Appendix in "S&P Global Ratings
Definitions," published Jan. 5, 2021.
-- The collateral characteristics of the subprime automobile loans
securitized in this transaction.
-- The transaction's payment, credit enhancement, and legal
structures.
Preliminary Ratings Assigned
Exeter Automobile Receivables Trust 2021-3
Class A-1, $95.00 million ($124.00 million if upsized): A-1+
(sf)
Class A-2, $238.79 million ($309.89 million if upsized): AAA
(sf)
Class A-3, $154.87 million ($199.80 million if upsized): AAA
(sf)
Class B, $159.28 million ($206.55 million if upsized): AA (sf)
Class C, 145.88 million ($189.17 million if upsized): A (sf)
Class D, $144.33 million ($187.16 million if upsized): BBB (sf)
Class E, $61.85 million ($80.22 million if upsized): BB (sf)
FIRST INVESTORS 2021-2: S&P Assigns Prelim 'BB-' Rating on E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to First
Investors Auto Owner Trust 2021-2's asset-backed notes.
The note issuance is an ABS securitization backed by subprime auto
loan receivables.
The preliminary ratings are based on information as of Aug. 11,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The availability of approximately 36.5%, 31.4%, 24.6%, 19.3%,
and 15.6% credit support for the class A, B, C, D, and E notes,
respectively, based on stressed cash flow scenarios (including
excess spread). These credit support levels provide approximately
3.50x, 3.00x, 2.30x, 1.75x, and 1.40x coverage of its 9.75%-10.25%
expected cumulative net loss (CNL) range for the class A, B, C, D,
and E notes, respectively.
-- The timely interest and principal payments by the legal final
maturity date made under stressed cash flow modeling scenarios that
S&P deems appropriate for the assigned preliminary ratings.
-- The expectation that under a moderate ('BBB') stress scenario
(1.75x S&P's expected loss level), all else being equal, its
ratings will be within the limits specified within the credit
stability section of "S&P Global Ratings Definitions," published
Aug. 7, 2020.
-- The collateral characteristics of the pool, which includes
44.91% of direct-originated loans. Direct loans, historically, have
lower losses than indirect-originated loans.
-- Prefunding will be used in this transaction in the amount of
approximately $64.55 million, about 20% of the pool. The subsequent
receivables, with eligibility criteria similar to those established
for the initial receivables pool, are expected to be transferred
into the trust within three months from the closing date.
-- First Investors Financial Services Inc.'s (First Investors')
31-year history of originating and underwriting auto loans, 18-year
history of self-servicing auto loans, and track record of
securitizing auto loans since 2000 and its 14 years of origination
static pool data, segmented by direct and indirect loans.
-- Wells Fargo Bank N.A.'s experience as the committed back-up
servicer.
-- The transaction's sequential payment and credit structure,
which builds credit enhancement based on a percentage of
receivables as the pool amortizes.
Preliminary Ratings Assigned
First Investors Auto Owner Trust 2021-2
Class A, $249.44 million: AAA (sf)
Class B, $21.94 million: AA (sf)
Class C, $26.81 million: A (sf)
Class D, $17.05 million: BBB (sf)
Class E, $9.75 million: BB- (sf)
FLAGSHIP CREDIT 2021-3: DBRS Gives Prov. BB Rating on Class E Notes
-------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Flagship Credit Auto Trust 2021-3:
-- $268,200,000 Class A Notes at AAA (sf)
-- $29,240,000 Class B Notes at AA (sf)
-- $39,130,000 Class C Notes at A (sf)
-- $25,830,000 Class D Notes at BBB (sf)
-- $15,580,000 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
(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) The DBRS Morningstar CNL assumption is 10.25% 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: June 2021 Update," published on June 18, 2021. DBRS
Morningstar initially published macroeconomic scenarios on April
16, 2020, that have been regularly updated. The scenarios were last
updated on June 18, 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 continued success in
containment during the second 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 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 will
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 30.40% of initial hard
credit enhancement provided by subordinated notes in the pool
(28.90%), the reserve account (1.00%), and OC (0.50%). The ratings
on the Class B, C, D, and E Notes reflect 22.70%, 12.40%, 5.60%,
and 1.50% of initial hard credit enhancement, respectively.
Additional credit support may be provided from excess spread
available in the structure.
Notes: All figures are in U.S. dollars unless otherwise noted.
FLAGSHIP VII: S&P Lowers Class F Notes Rating to 'D (sf)'
---------------------------------------------------------
S&P Global Ratings lowered its ratings on the junior CLO class F
and E notes from Flagship VII Ltd. and Mountain Hawk II CLO Ltd.,
respectively, to 'D (sf)' from 'CCC- (sf)'.
Flagship VII Ltd. is a cash flow CLO that was originally issued in
February 2014 and refinanced in April 2017, and is managed by
Deutsche Asset Management Inc. The class F notes were not part of
the 2017 refinancing. Mountain Hawk II CLO Ltd. is a cash flow CLO
that was originally issued in July 2013 and refinanced in July
2018, and is managed by Western Asset Management Co. The class E
notes were not part of the 2018 refinancing.
The rating actions follow its review of the transactions'
performance using data from their respective July 2021 trustee
reports.
As reported in their respective trustee reports, both transactions
have liquidated all collateral obligations from their portfolios
and used the principal proceeds to pay down the rated notes.
However, the amount of principal proceeds received from the
liquidations were inadequate to pay off the outstanding interest
and principal balances (including deferred interest) in full for
the junior classes of both transactions. Since there is a $5.2
million outstanding tranche balance for Flagship VII Ltd.'s class F
notes and a $4.9 million outstanding tranche balance for Mountain
Hawk II CLO Ltd.'s class E notes after the liquidation proceeds
were distributed (no collateral obligations post liquidations), S&P
lowered its ratings to 'D (sf)' from 'CCC- (sf)' for both of these
classes of junior notes.
Ratings Lowered
Flagship VII Ltd.
Class F: to 'D (sf)' from 'CCC- (sf)'
Mountain Hawk II CLO Ltd.
Class E: to 'D (sf)' from 'CCC- (sf)'
FLAGSTAR MORTGAGE 2021-7: Fitch to Rate Class B-5 Certs 'B(EXP)'
----------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates (RMBS) issued by Flagstar Mortgage Trust 2021-7 (FSMT
2021-7).
DEBT RATING
---- ------
FSMT 2021-7
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-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-X-1 LT AAA(EXP)sf Expected Rating
A-X-10 LT AAA(EXP)sf Expected Rating
A-X-12 LT AAA(EXP)sf Expected Rating
A-X-14 LT AAA(EXP)sf Expected Rating
A-X-16 LT AAA(EXP)sf Expected Rating
A-X-18 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-22 LT AAA(EXP)sf Expected Rating
A-X-4 LT AAA(EXP)sf Expected Rating
A-X-6 LT AAA(EXP)sf Expected Rating
A-X-8 LT AAA(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-1-A LT AA(EXP)sf Expected Rating
B-1-X LT AA(EXP)sf Expected Rating
B-2 LT A(EXP)sf Expected Rating
B-2-A LT A(EXP)sf Expected Rating
B-2-X LT A(EXP)sf Expected Rating
B-3 LT BBB(EXP)sf Expected Rating
B-3-A LT BBB(EXP)sf Expected Rating
B-3-X LT BBB(EXP)sf Expected Rating
B-4 LT BB(EXP)sf Expected Rating
B-5 LT B(EXP)sf Expected Rating
B-6-C LT NR(EXP)sf Expected Rating
B LT BBB(EXP)sf Expected Rating
B-X LT BBB(EXP)sf Expected Rating
R LT NR(EXP)sf Expected Rating
LT-R LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch expects to rate the residential mortgage-backed certificates
issued by Flagstar Mortgage Trust 2021-7 (FSMT 2021-7) as indicated
above. The transaction is expected to close on Aug. 24, 2021. The
certificates are supported by 740 newly originated, fixed-rate,
prime-quality first liens on one- to four-family residential homes
and condominiums. The pool consists of both non-agency jumbo and
agency eligible mortgage loans. The total balance of these loans is
approximately $661 million, as of the cutoff date. This is the 17th
post-financial crisis issuance from Flagstar Bank, FSB (Flagstar)
that was rated by Fitch.
The pool comprises loans that Flagstar originated through its
retail, broker and correspondent channels. The transaction is
similar to previous Fitch-rated prime transactions, with a standard
senior-subordinate, shifting-interest deal structure. 100% of the
loans in the pool were underwritten to the Ability to Repay rule
and qualify as safe-harbor or temporary qualified mortgages (SHQMs
and TQMs, respectively). Flagstar (rated RPS2-/Negative) will be
the servicer, and Wells Fargo Bank, N.A. (rated RMS1-/Negative)
will be the master servicer.
KEY RATING DRIVERS
High-Quality Prime Mortgage Pool (Positive): The pool consists of
very high-quality, 30-year fixed-rate, fully amortizing loans to
prime quality borrowers. 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 two months,
according to Fitch (two months per the transaction documents). The
pool has a weighted average (WA) original FICO score of 771 and
32.3% DTI (as determined by Fitch), which is indicative of a very
high credit-quality borrower. Approximately 77.8% of the loans have
a borrower with an original FICO score at or above 750. In
addition, Fitch determined the original WA combined loan to value
ratio to be 66.6%, translating to a sustainable loan to value ratio
of 75.1%, represents substantial borrower equity in the property
and reduced default risk.
The pool consists of 93.6% of loans where the borrower maintains a
primary residence, while 6.4% is a second home. Single-family homes
comprise 94.8% of the pool, and condominiums make up 3.9%. Cashout
refinances comprise 13.1% of the pool, purchases, 45.5%, and
rate-term refinances, 41.4%. All the loans were originated through
a retail channel.
A total of 186 loans in the pool are over $1 million, and the
largest loan is $2.5 million.
No loans in the pool were made to foreign nationals/non-permanent
residents. Fitch viewed this as a positive attribute for the
transaction. In addition, there are no loans in the pool that have
their QM status determined by APOR QM standard.
Shifting-Interest Structure and Full Servicer Advancing (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.
The servicer, Flagstar (RPS2-/Negative), will provide full
advancing for the life of the transaction. Although full P&I
advancing will provide liquidity to the certificates, it will also
increase the loan-level loss severity since the servicer looks to
recoup P&I advances from liquidation proceeds, which results in
less recoveries. Wells Fargo Bank (servicer rating of
RMS1-/Negative; IDR of AA-/ Negative) is the master servicer in
this transaction and will advance delinquent P&I on the loans if
Flagstar is not able to.
Subordination Floor (Positive): A CE or senior subordination floor
of 0.80% 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 0.60% 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 its 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 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 June 2021 Global Economic Outlook and related
base-line economic scenario forecasts have been revised to a 6.8%
U.S. GDP growth for 2021 and 3.9% for 2022 following a -3.5% GDP
growth in 2020.
Additionally, Fitch's U.S. unemployment forecasts for 2021 and 2022
are 5.6% and 4.5%, 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 its "U.S. RMBS Loan Loss Model Criteria."
The B-5 certificates passed Fitch's 'BBsf' stresses, however the
committee decided to assign a 'Bsf' rating to the class due to its
position in the capital structure and tranche size.
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 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 42.0% 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.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
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 Canopy Financial Technology Partners, LLC. The
third-party due diligence described in Form 15E focused on credit,
compliance, property valuation and data integrity. Fitch considered
this information in its analysis. Fitch applied an adjustment to
losses based on the unreviewed population of the pool as described
below. A credit was given to loans that received a due diligence
review, which decreased Fitch's loss expectations by 7bps at the
'AAAsf' rating stress.
The sample was determined by a statistically significant selection
methodology based on a 95% confidence level with a 5% error rate.
Flagstar adopted this methodology in 2019 when it had previously
selected loans for review at a fixed rate. For loans that were
reviewed, the diligence scope consisted of a review of credit,
regulatory compliance, property valuation and data integrity. Both
the sample size and review scope are consistent with Fitch criteria
for diligence sampling.
100% of the loans in the review sample received a final diligence
grade of 'A' or 'B' and the results did not indicate material
defects. The sample exhibited strong adherence to underwriting
guidelines as approximately 98% of loans received a final credit
grade of 'A'.
The sample had a low concentration of compliance 'B' exceptions
(2.8%) compared to the average prime jumbo non-agency transactions
(46%). Approximately 0.4% of loans in the sample had initial TRID
exceptions graded 'C' that were ultimately cured to a 'B' by
Flagstar through the re-issuance of post-closing documentation.
While Fitch does not typically adjust its loss expectations for
compliance 'B' exceptions, due diligence was only performed on 34%
of the initial pool, which led Fitch to extrapolate the findings to
the remainder of the pool.
Since more than half of the pool did not receive due diligence,
Fitch assumed that 0.4% of the non-reviewed loans have potential
TRID exceptions that would be identified as material and not cured
with post-closing documentation. Fitch applies a standard loss
adjustment of $15,500 to the loss amount for material TRID
exceptions as these loans can carry an increased risk of statutory
damages. However, the aggregate loss severity adjustment was
negligible at the 'AAAsf' level, and Fitch did not make any further
adjustments to the model output.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on approximately 34% of the pool. The third-party due
diligence was generally consistent with Fitch's "U.S. RMBS Rating
Criteria," and Canopy Financial Technology Partners, LLC was
engaged to perform the review. Loans reviewed under this engagement
were given compliance, credit and valuation grades, and assigned
initial grades for each subcategory. Minimal exceptions and waivers
were noted in the due diligence reports. Refer to the "Third-Party
Due Diligence" section for more detail.
Fitch also 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.
GOODLEAP 2021-4: S&P Assigns Prelim BB (sf) Rating on Class C Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to GoodLeap
Sustainable Home Solutions Trust 2021-4's fixed-rate asset-backed
notes series 2021-4.
The note issuance is an ABS securitization backed by 95% of the
cashflows produced by a trust estate of $369.319 million consisting
primarily of all rights, title, and interest of the issuer in a
portfolio of solar loans and other related sustainable assets,
obligor note and security agreements, including the right to
receive all payments, security interests, liens, and assignments
securing the payment agreement. The remaining 5% of the deal is
held as retained interest by a third party, an affiliate of the
sponsor of the transaction.
The preliminary ratings are based on information as of Aug. 5,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The likelihood that timely interest and ultimate principal
payments will be made on or before the legal final maturity date;
-- The customer base's initial credit quality underlying the
portfolio;
-- The transaction's structure; and
-- The servicer's operational, management and servicing
abilities.
Preliminary Ratings Assigned
GoodLeap Sustainable Home Solutions Trust 2021-4
Class A, $253.722 million: A (sf)
Class B, $26.037 million: BBB (sf)
Class C, $24.744 million: BB (sf)
GS MORTGAGE 2010-C1: DBRS Cuts Class D Certs Rating to C
--------------------------------------------------------
DBRS Limited downgraded the rating of one class of the Commercial
Mortgage Pass-Through Certificates Series 2010-C1 issued by GS
Mortgage Securities Trust, 2010-C1 as follows:
-- Class D to C (sf) from CCC (sf)
In addition, DBRS Morningstar confirmed the ratings on the
remaining classes as follows:
-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at A (high) (sf)
Class C carries a Negative trend. All other classes carry a Stable
trend, other than Class D, which has been assigned a rating that
does not carry trends. Classes A-2, B, and C were removed from
Under Review with Negative Implications, where they were placed on
December 29, 2020. In addition, DBRS Morningstar removed the
Interest in Arrears Designation for Class D.
The downgrade of Class D and Negative trend on Class C reflect the
difficult market conditions, limited credit enhancement to the
lowest rated class, and negative credit events for some of the
remaining loans in the pool, all of which have passed their
respective maturity dates and have received extensions. As of the
July 2021 remittance, only three loans remain in the pool, with a
cumulative balance of $152.6 million, representing a collateral
reduction of 80.7% since issuance. While there were no loans in
special servicing, two loans were on the servicer's watchlist,
being monitored for a combination of various trigger codes
including a low debt service coverage ratio (DSCR), occupancy
declines, activation of cash management, and upcoming maturities.
The three remaining loans are all secured by retail properties,
including one anchored retail property and two regional malls.
Sponsorship for the two regional mall loans is provided by
Washington Prime Group Inc. (WPG), a REIT that invests primarily in
retail properties. In June 2021, WPG filed for Chapter 11
bankruptcy protection; however, the borrowing entities for each of
the trust loans have not been included in any of the WPG bankruptcy
filings to date. According to WPG's Q1 2021 financial disclosures,
the REIT considers each of the subject properties "Tier 1" (core)
assets, suggesting a longer-term commitment as compared with those
categorized in lower tiers.
As of the July 2021 remittance, the largest remaining loan in the
pool is 660 Madison Avenue Retail, which represents 48.1% of the
current trust balance. The loan is secured by an anchored retail
condominium unit on the Upper East Side of Manhattan. The property
formerly housed the flagship store for Barney's, which occupied
almost the entirety of the collateral at issuance. Barney's
declared bankruptcy in 2019 and vacated the subject in February
2020. The loan later transferred to the special servicer in June
2020 for imminent monetary default on the July 2020 maturity date.
The special servicer approved a loan extension and modification
agreement in August 2020 that extended the loan's maturity date to
January 2022, with an option to extend an additional six months
subject to terms. The borrower contributed $5.9 million of equity
to support operating shortfalls and cover special-servicer fees and
expenses.
As of the December 2020 rent roll, the property was 48.6% leased to
two tenants, both on short-term leases, and the servicer reported a
year-end (YE) 2020 net cash flow (NCF) and DSCR of -$7.4 million
and -0.99x respectively, compared with $22.2 million and 2.97x at
YE2019. In discussions with the special servicer at the time of the
loan modification, the borrower expressed tentative plans to
commence a $16.9 million redevelopment of the property to convert
the third through ninth floors to office space from its current
retail use. While in special servicing, the special servicer
reported that the property was reappraised as prospective office
space at a value of $320.0 million, a significant increase to the
issuance appraised value of $222.0 million; however, the appraiser
projected the office redevelopment would cost $55.1 million, which
was considerably higher than the borrower's estimate. The loan was
returned to the master servicer in December 2020 and as of the July
2021 remittance, was being monitored on the servicer's watchlist
for low DSCR, occurrence of a servicing trigger event, and low
occupancy. The sponsor for the loan is the Ashkenazy Acquisition
Corporation, a private real estate investment firm, which has a
portfolio containing more than 100 buildings throughout the U.S.
and Canada valued at $12 billion.
The Mall at Johnson City loan (Prospectus ID#6 – 27.4% of the
current trust balance) is secured by a regional mall in Johnson
City, Tennessee, approximately 120 miles from Knoxville, owned and
operated by WPG. The loan was transferred to special servicing in
November 2019 for an imminent maturity default on the May 2020
maturity. The loan was also being monitored following the loss of
anchor tenant Sears, which vacated its space in January 2020. A
loan modification was approved in December 2019, which extended the
maturity to May 2023, and included two one-year extension options.
Among the terms of the modification, the borrower was required to
make a $5.0 million principal curtailment due in May 2020, deposit
an additional $10.0 million into various reserves, and comply with
the implementation of a cash trap which requires that all excess
cash flow be deposited into reserve. The collateral mall was closed
between March and May 2020 as a result of the Coronavirus Disease
(COVID-19) pandemic and the borrower submitted a coronavirus relief
request to the master servicer during that time. A forbearance was
granted allowing for the deferral of three monthly debt service
payments and escrow deposits between May 2020 and August 2020 that
was to be repaid over the subsequent 12 months. As of the March
2021 rent roll, the occupancy rate at the property was 83.7%, a
decline from the June 2019 rent roll, when the property was 97.5%
occupied, attributable almost entirely to the departure of Sears.
Remaining anchors and large tenants include JCPenney, Belk Home
Store, Belk for Her, and Dick's Sporting Goods, with some notably
positive leasing activity including new leases signed with
HomeGoods to back-fill part of the vacant Sears box, with opening
targeted for the fall of 2021. The servicer reported a YE2020 NCF
and DSCR of $5.7 million and 1.34x, respectively, down from $6.5
million and 1.52x at YE2019. As of the July 2021 remittance, the
servicer was reporting that the loan was current and performing,
and it was not on the servicer's watchlist.
The Grand Central Mall loan (Prospectus ID #7 – 24.2% of the
current pool balance), is secured by a regional mall in Vienna,
West Virginia, which is located along the Ohio-West Virginia
border. Occupancy declines began in 2018 when Toys "R" Us vacated,
followed by Sears in January 2019. The loan was transferred to
special servicing in April 2020 for an imminent monetary default on
the July 2020 maturity. The special servicer approved a loan
modification to allow for an initial maturity date extension to
July 2021, a three-month forbearance for the June, July, and August
2020 debt service payments and escrows, to be repaid over the
subsequent 12 months, and permission to apply leasing and capital
improvement reserves toward operating shortfalls. A second maturity
extension was recently negotiated in June 2021, pushing the
extended maturity date out to July 2023, with two additional
one-year extension options. The second extension is expected to be
reflected with the August 2021 remittance.
According to the March 2021 rent roll, the property was 94.8%
occupied, an increase from the September 2019 occupancy rate of
83.9%. This is largely a result of the sponsor's efforts to
back-fill the former Sears anchor box, which was demolished in
March 2019 and redeveloped for new tenants TJMaxx, HomeGoods, and
PetSmart, which were each open and operating as of July 2021. As of
July 29, 2021, the property's website also lists Ross Dress for
Less as another new tenant expected to "open soon." The servicer
reported a YE2020 NCF and DSCR of $4.3 million and 1.32x,
respectively, as compared with $5.3 million and 1.63x for YE2019.
The loan was returned to the master servicer in January 2021 and
the loan shows delinquent as of the July 2021 remittance, but as
previously mentioned, the extended maturity date should be
reflected next month, when the loan is expected to return to
performing.
Notes: All figures are in U.S. dollars unless otherwise noted.
GS MORTGAGE 2021-GR2: Moody's Gives (P)B3 Rating to Cl. B-5 Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 38
classes of residential mortgage-backed securities (RMBS) issued by
GS Mortgage-Backed Securities Trust (GSMBS) 2021-GR2. The ratings
range from (P)Aaa (sf) to (P)B3 (sf).
GS Mortgage-Backed Securities Trust 2021-GR2 (GSMBS 2021-GR2) is
the second investment property transaction in 2021 issued by
Goldman Sachs Mortgage Company (GSMC), the sponsor and the mortgage
loan seller. GSMC is a wholly owned subsidiary of Goldman Sachs
Bank USA and Goldman Sachs. The certificates are backed by 1,716
first lien, primarily 30-year, fully-amortizing fixed-rate mortgage
loans on residential investment properties with an aggregate unpaid
principal balance (UPB) $462,793,030.83 as of the August 1, 2021
cut-off date. All the loans in the pool are originated by
Guaranteed Rate parties. Overall, pool strengths include the high
credit quality of the underlying borrowers, indicated by high FICO
scores, strong reserves, 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.
Approximately 2.0% of the mortgage loans by stated principal
balance as of the cut-off date were subject to debt consolidation
in which the related funds were used by the related mortgagor for
consumer, family or household purposes (personal-use loans). Vast
majority 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). With the exception of personal-use loans,
all other mortgage loans in the pool are not subject to the federal
Truthin-Lending Act (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. As of the closing date, the sponsor or a majority-
owned affiliate of the sponsor will retain at least 5% of the
initial certificate principal balance or notional amount of each
class of certificates (other than Class A-R certificates) issued by
the trust to satisfy U.S. risk retention rules.
NewRez LLC d/b/a Shellpoint Mortgage Servicing (Shellpoint) will
service all the mortgage loans on behalf of the issuing entity,
starting July 1, 2021. Wells Fargo Bank, N.A. (long term deposit
Aa1; long term debt Aa2), a national banking association (Wells
Fargo), will act as master servicer. Pentalpha Surveillance LLC
will be the representations and warranties (R&W) breach reviewer.
One third-party review (TPR) firms verified the accuracy of the
loan level information. These firms conducted detailed credit,
property valuation, data accuracy and compliance reviews on 24.9%
(by loan count) of the mortgage loans in the collateral pool. The
TPR results indicate 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. In addition, Moody's
adjusted its 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.
The complete rating actions are as follows:
Issuer: GS Mortgage-Backed Securities Trust 2021-GR2
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aa1 (sf)
Cl. A-4, Assigned (P)Aa1 (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-9-X*, Assigned (P)Aaa (sf)
Cl. A-10, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-11-X*, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-12-X*, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aaa (sf)
Cl. A-15, Assigned (P)Aa1 (sf)
Cl. A-X-1*, Assigned (P)Aa1 (sf)
Cl. A-X-2*, Assigned (P)Aaa (sf)
Cl. A-X-3*, Assigned (P)Aa1 (sf)
Cl. A-X-4*, Assigned (P)Aa1 (sf)
Cl. A-X-5*, Assigned (P)Aaa (sf)
Cl. A-X-6*, Assigned (P)Aa1 (sf)
Cl. A-X-7*, Assigned (P)Aaa (sf)
Cl. B, Assigned (P)Baa1 (sf)
Cl. B-X*, Assigned (P)Baa2 (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-1-A, Assigned (P)Aa3 (sf)
Cl. B-1-X*, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-2-A, Assigned (P)A2 (sf)
Cl. B-2-X*, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa3 (sf)
Cl. B-3-A, Assigned (P)Baa3 (sf)
Cl. B-3-X*, Assigned (P)Baa3 (sf)
Cl. B-4, Assigned (P)Ba2 (sf)
Cl. B-5, Assigned (P)B3 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
0.97%, in a baseline scenario-median is 0.70%, and reaches 6.40% at
stress level consistent with Moody's Aaa rating.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of US RMBS as the US economy continues on
the path toward normalization. Economic activity will continue to
strengthen in 2021 because of several factors, including the
rollout of vaccines, growing household consumption and an
accommodative central bank policy. However, specific sectors and
individual businesses will remain weakened by extended pandemic
related restrictions.
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%
(7.70% 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 August 1, 2021, the
cut-off date. The aggregate collateral pool as of the cut-off date
consists of 1,716 first lien, primarily 30-year, fully-amortizing
fixed-rate mortgage loans on residential investment properties with
an aggregate unpaid principal balance (UPB) of $462,793,030.83 and
a weighted average mortgage rate of 3.7%.
All the mortgage loans are secured by first liens on one- to
four-family residential properties, planned unit developments and
condominiums. 1619 mortgage loans have original terms to maturity
of 30 years, 11 loans which have original term to maturity of 25
years, 85 loans have original term to maturity of 20 years, and one
loan which has a term to maturity of 15 years.
The WA current FICO score of the borrowers in the pool is 769.90.
The WA Original LTV ratio of the mortgage pool is 66.1%, which is
in line with that of comparable transactions.
Two loans in the pool are appraisal waiver (AW) loans underwritten
to Freddie Mac's automated collateral evaluation (ACE) (through
Loan Product Advisor) and Fannie Mae's Collateral Underwriter (CU)
programs (through DU). Under these programs, the GSEs assess
whether the estimate of value or sales price of a mortgaged
property, as submitted by the seller, is acceptable as the basis
for the underwriting of the mortgage loan. If a mortgage loan is
assessed as eligible for AW, the seller will not be required to
obtain an appraisal of the subject property. A mortgage loan
originated without a full appraisal will lack details about the
property's condition. Moody's consider AW loans weaker than loans
with full appraisals. Specifically, for refinance loans, seller
estimated value, which is the basis for calculating LTV, may be
biased where there is no arms-length transaction information (in
contrast to purchase transactions). Although such value is
validated against the GSEs' respective models, there's still
possibility for over valuation subject to the GSEs' tolerance
levels. One appraisal waiver loan in the pool is rate/term
refinance and the other is cash-out refinance. Moody's made
haircuts to property values for refinance loans to account for
overvaluation risk. Moody's analysis also took into account that
these AW loans were not part of the sample reviewed by Evolve and
there was no secondary valuation provided.
The mortgage loans in the pool were originated mostly in California
(27.9% by loan balance) and in high cost metropolitan statistical
areas (MSAs) of Los Angeles (9.9%), Boston (9.6%), Chicago (7.6%),
San Francisco (6.2%) and others (15.1%). The average loan balance
of the pool is $269,692.91. Moody's made adjustments in Moody's
analysis to account for this geographic concentration risk. Top 10
MSAs comprise 48.5% of the pool, by loan balance. Borrowers with
two or more mortgages represent 95.4% (by loan balance) of the
pool. Borrowers with more than one mortgaged property could be more
likely to default than borrowers with one property especially in a
distressed housing market. However, high income borrowers with
stable employment may support debt payments on vacation properties.
Borrowers with three or more mortgages represented 74.2% of the
pool. Moody's made adjustments in its analysis to account for this
risk.
Aggregator/Origination Quality
GSMC is the loan aggregator and the 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 the mortgage loan seller from Guaranteed Rate, Inc and
Guaranteed Rate Affinity, LLC. The mortgage loan seller does not
originate any mortgage loans, including the mortgage loans included
in the mortgage pool. Instead, the mortgage loan seller acquired
the mortgage loans pursuant to contracts with the originators.
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.
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. 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 24.9% of the mortgage loans
for regulatory compliance, credit, property valuation and data
accuracy. 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. All non-appraisal waiver loans had an
origination appraisal and a CU score
HUDSON'S BAY: DBRS Cuts Rating of 3 Classes to B(low)
-----------------------------------------------------
DBRS Limited downgraded the ratings on 18 classes of Commercial
Mortgage Pass-Through Certificates, Series 2015-HBS issued by
Hudson's Bay Simon JV Trust 2015-HBS as follows:
-- Class A-FL to AA (high) from AAA (sf)
-- Class B-FL to A (low) from AA (low) (sf)
-- Class C-FL to BB (sf) from BBB (sf)
-- Class D-FL to B (low) from BB (low) (sf)
-- Class E-FL to CCC (sf) from B (low) (sf)
-- Class X-2-FL to B (sf) from BB (sf)
-- Class A-7 to AA (high) from AAA (sf)
-- Class B-7 to A (low) from AA (low) (sf)
-- Class C-7 to BB (sf) from BBB (sf)
-- Class D-7 to B (low) from BB (low) (sf)
-- Class E-7 to CCC (sf) from B (low) (sf)
-- Class X-B-7 to A (sf) from AA (sf)
-- Class A-10 to AA (high) from AAA (sf)
-- Class B-10 to A (low) from AA (low) (sf)
-- Class C-10 to BB (sf) from BBB (sf)
-- Class D-10 to B (low) from BB (low) (sf)
-- Class E-10 CCC (sf) from B (low) (sf)
-- Class X-B-10 to A (sf) from AA (sf)
In addition, DBRS Morningstar confirmed the ratings on two classes
as follows:
-- Class X-A-7 at AAA (sf)
-- Class X-A-10 at AAA (sf)
DBRS Morningstar has maintained the Under Review with Negative
Implications designation on all classes. The downgrades are a
reflection of DBRS Morningstar's view that the values for the
underlying collateral have been significantly reduced since
issuance, and the Under Review with Negative Implications
designations reflect the uncertainty surrounding the ongoing
litigation against the borrower and the potential for additional
value declines over the near to moderate term for the underlying
collateral. The loan remains outstanding for the April 2020 and all
subsequent debt service payments with outstanding advances totaling
$71.5 million across the three loan components. The current ratings
assigned by DBRS Morningstar do not carry trends.
The transaction consists of an $846.2 million first-mortgage loan
secured by 34 cross-collateralized properties previously leased to
24 Lord & Taylor stores and 10 Saks Fifth Avenue stores in 15
states. The collateral properties represent 19 fee-simple ownership
interests (64.1% of the pool balance) and 15 leasehold interests
(35.9% of the pool balance), totaling 4.5 million square feet (sf).
Individual tenant storefronts are located in various malls and
freestanding locations with a concentration in New Jersey and New
York, totaling 15 stores across the two states. The loan includes a
$149.9 million floating-rate Component A that had a two-year
initial term and three one-year extension options and has now
passed its final maturity; a $371.2 million fixed-rate Component B
with a seven-year term; and a $324.9 million fixed-rate Component C
with a 10-year term.
The loan is sponsored by a joint venture between Hudson Bay Company
(HBC) and Simon Property Group (SPG). Whole loan proceeds of $846.2
million, SPG equity of $63.0 million, and implied equity of $609.5
million from the contribution of HBC's then-owned properties
financed the acquisition of the properties for $1.4 billion and
funded tenant improvements totaling $63.0 million. The portfolio
was formerly 100% leased to Lord & Taylor and Saks Fifth Avenue on
two master leases with 20-year initial terms and six five-year
extension options for each store. The operating leases are fully
guaranteed by HBC. Following Lord & Taylor's bankruptcy filing in
2020, all Lord & Taylor stores were closed, resulting in 24 of the
34 collateral properties becoming fully vacant.
In April 2020, the loan transferred to special servicing and
SitusAMC (Situs), the special servicer at the time, discovered that
the loan's Operating Lease Guarantor was subject to a
post-privatization corporate restructuring that appeared to have
taken place in March 2020 without lender consent. In May 2020, the
lender filed litigation against the borrower in federal court in an
effort to obtain documentation and knowledge regarding the
activities affecting the Operating Lease Guarantor. The lender has
not been able to obtain sufficient documentation and transparency
to accurately assess the Operating Lease Guarantor's current
creditworthiness. Situs alleged that HBC violated loan covenants
and related guarantees and that the entity that guaranteed the
rental payments no longer exists. Additionally, Situs asserted that
the financial strength of the Operating Lease Guarantor was a key
consideration in the funding and structure of the loan and that the
corporate restructuring has likely materially reduced the financial
strength and capabilities of the Operating Lease Guarantor. As a
result of the ongoing litigation, correspondence with the special
servicer has been limited and a workout strategy is still being
negotiated. A potential restructuring of the loan is being
discussed, which could include a combination of property sales,
site redevelopment, and the continuation of the existing retail
business at certain other properties, although this is still in the
preliminary stages. Updated appraisals have been ordered; however,
they will not be made publicly available because of the ongoing
litigation.
At issuance, the portfolio was valued at $1.4 billion; however,
updated appraisals commissioned by HBC in connection with
privatization plan produced an aggregate portfolio value of $1.235
billion, representing a decline of -11.8% since issuance.
Furthermore, the aggregate dark value for the portfolio was
determined to be $723.4 million; although, the special servicer
disputed these valuations when they were disclosed in December
2019. DBRS Morningstar analyzed the individual November 2019
appraisals, calculating an aggregate go-dark value of $298.7
million for the Lord & Taylor stores. Combined with the aggregate
as-is value of the Saks Fifth Avenue stores of $540.3 million, the
total implied portfolio value totaled $839.0 million (LTV of
100.9%); however, DBRS Morningstar opines that the true value of
the collateral is likely lower today. The DBRS Morningstar analysis
for this review was based on a stressed value derived using the
2019 appraisals.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2011-C3: S&P Lowers Class J Notes Rating to 'CCC (sf)'
----------------------------------------------------------------
S&P Global Ratings lowered its ratings on eight classes of
commercial mortgage pass-through certificates from J.P. Morgan
Chase Commercial Mortgage Securities Trust 2011-C3, a U.S. CMBS
transaction.
This is a U.S. CMBS transaction currently backed by two uncrossed
fixed-rate mortgage loans, each secured by a regional mall
property.
Rating Actions
The downgrades on the class B, C, D, E, F, G, H, and J certificates
primarily reflect our re-evaluation of the two regional mall
properties that secure the two remaining mortgage loans in the
transaction: Holyoke Mall ($179.0 million; 77.4% of trust balance)
and Sangertown Square ($52.4 million; 22.6%). S&P based its review
of the two malls using the most recent available performance data
as well as revised market valuations provided by the servicers.
S&P said, "Our expected-case value, in aggregate, has declined
21.2% since our last review in August 2020. The decline in our
overall valuation is primarily driven by the lower S&P Global
Ratings' sustainable net cash flow (NCF) (down 16.1%, in aggregate,
since our last review) to account for the further decline in
reported performance due primarily to the negative impact of the
COVID-19 pandemic and the application of a higher S&P Global
Ratings' capitalization rate.
"While our downgrades on classes E, F, and G were in line with the
model-indicated ratings, we downgraded classes B, C, and D even
though the model-indicated ratings were higher than the classes'
revised rating levels. We qualitatively considered the classes'
exposure to two underperforming retail mall properties and the
potential for their performance and valuation to decline further
due to the changing retail mall landscape. Furthermore, we
considered that the two remaining Pyramid Management
Group-sponsored loans, while recently modified and extended, were
transferred to special servicing in 2020 due to imminent default.
Specifically, the borrower of the Sangertown Square loan recently
requested another loan modification because it is unable to meet
the conditions previously agreed upon due to continued hardship
related to the COVID-19 pandemic.
"The downgrades on classes H and J to 'CCC (sf)' reflect our view
that, based on an S&P Global Ratings' loan-to-value (LTV) ratio of
over 100% on the two remaining loans, these classes are more
susceptible to reduced liquidity support, and the risk of default
and loss have increased due to the uncertain market conditions."
Transaction Summary
S&P said, "As of the July 16, 2021, trustee remittance report, the
collateral pool balance was $231.4 million, which is 15.5% of the
pool balance at issuance. The pool currently includes two
fixed-rate loans, down from 45 loans at issuance. To date, the pool
trust has experienced $17.3 million in principal losses or 1.2% of
the original pool trust balance.
"Our property-level analysis included a reevaluation of the two
regional malls backing the two remaining loans in the pool using
servicer-provided operating statements from 2017 through the
available year-to-date period ended March 31, 2021, or June 30,
2021, and the March 2021 rent rolls."
Details on the two remaining loans are as follows.
Holyoke Mall loan
-- The loan is the larger of the two remaining loans in the pool
and has a current balance of $179.0 million and a total reported
exposure including outstanding advances of $181.0 million, down
from $215.0 million at issuance. The borrower of the whole loan
secured $29.8 million in mezzanine debt, down from $35.0 million at
issuance. The loan pays a fixed interest rate of 5.56% per year,
amortizes on a 25-year schedule after an initial 24-month
interest-only period, and originally matured on Feb. 1, 2021.
-- The loan, which has a reported current payment status, was
transferred to special servicing on May 4, 2020, due to imminent
default. According to the special servicer, Midland Loan Services
(Midland), the loan was subsequently modified on Oct. 17, 2020, and
was returned to the master servicer, also Midland, on May 24, 2021.
As part of the loan modification, the loan's maturity date was
extended to Feb. 1, 2024, debt service payments on the loan were
converted to interest-only for six months starting on Sept. 1,
2020, with principal and interest payments resuming on March 1,
2021, and the borrower repaying deferred amounts over a 12-month
period commencing with the January 2021 payment.
-- The loan is currently on Midland's watchlist for monitoring as
well as triggering cash trap provisions. According to prior months'
watchlist comments, the borrower was in default on the mezzanine
loan due to insufficient funds in the cash management account to
pay the mezzanine lender. It is unclear at this time if the
borrower has since cured the default or worked out modification
terms with the mezzanine lender.
-- The loan is secured by 1.34 million sq. ft. of a 1.56
million-sq.-ft., two-story, regional mall in Holyoke, Mass., about
nine miles north of Springfield, Mass. S&P's property-level
analysis considered the declining servicer-reported net operating
income (NOI): -6.3% in 2018, -6.1% in 2019, and -33.7% in 2020, due
primarily to decreasing occupancy, base rent, expense reimbursement
income, and other income.
-- According to the March 31, 2021, rent roll, the occupancy rate
for the collateral was 72.7% and the five largest collateral
tenants comprising 35.3% of collateral's net rentable area (NRA)
included: Target (11.7% of NRA; January 2025 expiration), JCPenney
(11.2%; May 2023 expiration), Burlington Coat Factory (4.7%;
February 2022 expiration), Hobby Lobby (3.9%; February 2023
expiration), and Round One Entertainment (3.9%; March 2029
expiration). The collateral also includes the former Sears space
(166,527 sq. ft.) that has remained vacant since the anchor tenant
vacated in November 2018. The mall faces concentrated tenant
rollover in 2022 (11.7% of NRA), 2023 (20.1%), and 2025 (16.6%),
mainly attributable to the four largest collateral tenants. Midland
reported a 1.15x debt service coverage (DSC) and 70.0% occupancy
for the year ended Dec. 31, 2020.
-- S&P said, "Our current analysis excluded tenants that were no
longer on the mall's directory or had parent companies facing
financial uncertainty, including Forever 21 (1.2% of NRA with
reported year-over-year double-digit declines in store sales since
2017), bringing the collateral occupancy rate down to 71.4%. We
derived our sustainable NCF of $16.3 million (9.0% decline since
our last review). We then divided our NCF by a 9.25% S&P Global
Ratings' capitalization rate (same as the last review), resulting
in our expected-case value of $176.7 million, down from $194.2
million in the last review. This yielded an S&P Global Ratings' LTV
ratio of 101.3%"
Sangertown Square loan
-- The loan is the smaller of the two loans remaining in the pool
and has a current balance of $52.4 million and a total reported
exposure including outstanding advances of $53.2 million, down from
$67.8 million at issuance. The loan pays a fixed interest rate of
5.85% per year, amortizes on a 25-year schedule, and originally
matured on Jan. 1, 2021.
-- The loan, which has a late but less than one-month delinquent
payment status, was transferred to special servicing on May 4,
2020, for imminent default. According to Midland, the loan was
modified on Oct. 17, 2020. The modification terms included
extending the loan's maturity date to March 1, 2024, converting the
debt service payments on the loan to interest-only for six months
starting on Sept. 1, 2020, with amortizing payments resuming on
March 1, 2021, and the borrower repaying deferred amounts over a
12-month period commencing with the January 2021 payment.
-- Midland indicated that the borrower reached out in early 2021
for additional modification because it would not be able to perform
under the current modification terms due to recovery from the
COVID-19 pandemic taking longer than anticipated. The borrower has
made debt service payments on the loan through the May 2021 payment
date. According to Midland, it is currently negotiating with the
borrower on a second round of loan modification, which it
anticipates finalizing in the next few months. Midland reported a
0.46x DSC and 75.7% occupancy for the year ended Dec. 31, 2020.
-- The loan is secured by a single-story, enclosed 894,127-sq.-ft.
regional mall in New Hartford, N.Y., about 55 miles east of the
Syracuse metropolitan statistical area. Our property-level analysis
considered the declining servicer-reported NOI: -1.5% in 2019 and
-40.2% in 2020 due primarily to decreasing occupancy, base rent,
and expense reimbursement income.
-- Based on the March 31, 2021, rent roll, the collateral's
occupancy rate was 57.5%, and the five largest tenants, which made
up 43.8% of collateral NRA, included: Boscov's (replacing Sears in
2016) (19.3% of NRA; January 2037 expiration), Target (14.1%;
January 2023 expiration), Dick's Sporting Goods (5.7%; October 2023
expiration), HomeGoods (2.5%; October 2027 expiration), and PiNZ
(2.2%; June 2029 expiration). There are currently two vacant anchor
spaces that were previously occupied by JCPenney (151,964 sq. ft.;
vacated in July 2020) and Macy's (139,634 sq. ft.; vacated in
January 2021). The property faces concentrated tenant rollover in
2023 (22.1% of NRA), mainly attributable to two of the largest
aforementioned tenants above.
-- S&P said, "Our current analysis of the Sangertown Square loan
considered the recent sharp decline in cash flows and occupancy
(from 95.5% in 2019 to 57.5% as of March 2021), which was partly
compounded by the COVID-19 pandemic, and we derived our sustainable
NCF of $3.1 million (decreasing 40.4% since our last review). Using
an S&P Global Ratings' capitalization rate of 15.00% (based on our
view that this mall exhibits characteristics akin to a class D
mall), up from 9.25% in our last review, we arrived at our
expected-case value of $20.6 million, down from $56.1 million in
the last review. This yielded an S&P Global Ratings' LTV ratio
significantly above 100% on the trust balance. It is our
understanding from Midland that an updated appraisal value is
currently under review and that recent broker's opinion of values
are considerably lower than the issuance appraised value of $107.0
million."
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety.
Ratings Lowered
J.P. Morgan Chase Commercial Mortgage Securities Trust 2011-C3
Class B to 'A (sf)' from 'AA (sf)'
Class C to 'BBB (sf)' from 'A (sf)'
Class D to 'BB (sf)' from 'BBB (sf)'
Class E to 'B+ (sf)' from 'BB- (sf)'
Class F to 'B (sf)' from 'B+ (sf)'
Class G to 'B- (sf)' from 'B (sf)'
Class H to 'CCC (sf)' from 'B- (sf)'
Class J to 'CCC (sf)' from 'B- (sf)'
KREST COMMERCIAL 2021-CHIP: DBRS Gives Prov. B Rating on F Trust
----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the classes of KREST
Commercial Mortgage Securities Trust 2021-CHIP, Series 2021-CHIP,
as follows:
-- Class A at AAA (sf)
-- Class X-A at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)
All trends are Stable. Class HRR is not rated by DBRS Morningstar.
Class X-A is an interest-only (IO) class whose balance is
notional.
The KREST Commercial Mortgage Securities Trust 2021-CHIP
single-asset/single-borrower transaction is collateralized by the
fee-simple interest in HQ @ First, a 603,666-sf office campus in
San Jose, California. The campus consists of two seven-story office
buildings and one four-story building that has 543,000 sf of office
space (90.1% of NRA) and 60,000 sf of data center and research/lab
space (9.9% of NRA) and a parking garage. The property was designed
and constructed in 2010 as a build-to-suit for network equipment
producer Brocade Communications Systems, which occupied the campus
until its acquisition by Broadcom, Inc in 2017. In 2019, Micron
Technology, Inc (Micron) executed a 16-year lease for 100% of the
property to serve as its Silicon Valley headquarters. Micron is the
fourth-largest semiconductor company in the world and is rated
Baa3/BBB- by Moody's and Fitch, respectively.
The property benefits from long-term, institutional-quality tenancy
with a remaining lease term of approximately 13.4 years, which DBRS
Morningstar believes should largely shield the property from any
short- or medium-term dislocations in the local office and
technology market resulting from the ongoing Coronavirus Disease
(COVID-19) pandemic. Micron leased the entire property with the
intention of growing into the space over time. Prior to the
Coronavirus Disease (COVID-19) pandemic, it subleased 165,790 sf to
cloud security company Zscaler, which uses the space as its
headquarters on a lease that expires in September 2026. Zscaler
currently leases 103,443 sf with contractual expansion options in
October 2022 and October 2025. Zscaler's sublease rent is
approximately 4.6% above Micron's contractual rent as of August 1,
2021.
The transaction sponsor is KKR Real Estate Select Trust (KREST), a
private REIT for individual investors sponsored by KKR & Co. Inc.
(KKR). As of June 30, 2021, KKR had approximately $428.9 billion in
assets under management and raised approximately $94.0 million over
the trailing twelve month period and had approximately $31.8
billion in real estate assets under management. The properties will
be part of KREST, KKR's newest private REIT for individual
investors. KKR committed approximately $150.0 million to KREST,
providing investors in KREST with a fully deployed,
income-generating portfolio at launch.. The property will be
managed by Drawbridge Realty, a San Francisco-based real estate
investment company. In December 2014, Drawbridge and KKR partnered
to recapitalize and grow the Drawbridge Realty platform..
The HQ @ First campus is located in Silicon Valley at 110, 120, and
130 Holger Way in San Jose, California. The San Francisco Bay area
is home to the highest concentration of technology companies and
workers in the country and companies such as Microsoft, Google,
Salesforce, and Facebook are headquartered there. The property is
adjacent to I-237 with access to highways 880, 680, and 101 as well
at the VTA Light Rail, which provides a linkage to Caltrain and
offers convenient access to the entire Bay Area. The property is
also proximate to the San Jose International Airport and the
Milpitas BART station.
Built in 2010, the property is LEED Gold certified and offers high
ceiling heights, an onsite solar farm and panoramic windows that
offer views of the San Francisco Bay and Silicon Valley hills. The
property's amenities include 1,863 parking spots, a 110-seat
theater, a 300-plus seat cafeteria, conference rooms, a 2,000-rack
data center, and a fully equipped gym with locker rooms and a
basketball court. In addition to 100% investment-grade tenancy,
there is no lease rollover during the initial loan term. The WA
remaining lease term at the property is approximately 13.4 years,
which results in a stable, long-term cash flow stream with 3%
annual contractual rent increases. Micron's lease expires on
December 31, 2034, and has two five-year extension options at fair
market rate as long as the tenant is not in default under the
lease. Micron's lease has no termination or contraction options
during the initial term.
Prior to the coronavirus pandemic, Micron subleased 172,405 sf to
cloud security company Zscaler, which uses the space as its
headquarters on a lease that expires in September 2026. Zscaler
occupies 103,443 with contractual expansion options in October 2022
and October 2025. Per the sponsor, Micron confirmed in its tenant
interview that it still plans to expand into this space
post-sublease. Micron also confirmed that it is committed to an
office-centric work environment as a result of the nature of its
business and will not change its overall space needs because of the
pandemic.
The DBRS Morningstar LTV is high at 99.7% based on the $408 million
in total mortgage debt. In order to account for the high leverage,
DBRS Morningstar programmatically reduced its LTV benchmark targets
for the transaction by 1.5% across the capital structure.
The loan proceeds, together with an estimated equity contribution
of approximately $136.3 million (25.0% of cost) from the sponsor,
were used to facilitate the acquisition of the property. DBRS
Morningstar typically views cash-in acquisition financings more
favorably, given the stronger alignment of borrower incentives
compared with situations in which a sponsor is refinancing and
cashing out of its equity position.
The nonrecourse carveout guarantor is KKR Real Estate Select Trust
Inc., which is only required to maintain a net worth of at least
$225 million with no liquidity minimum, effectively limiting the
recourse back to the sponsor for bad act carveouts. "Bad boy"
guarantees and consequent access to the 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 sponsor.
The borrower has the right at any time without the consent of the
lender to replace the guarantor with one or more of (i) KKR and/or
(ii) an affiliate of KKR or KREST; provided that in the case of any
replacement affiliate guarantor(s), such replacement guarantor(s),
in the aggregate, satisfy the net worth threshold (exclusive of the
properties).
The $408 million whole loan comprises eight promissory notes: six
senior A notes totaling $230 million and two junior B notes
totaling $178 million. The KREST 2021-CHIP transaction will total
$267 million and consist of two senior A notes with an aggregate
principal balance of $89 million and the two junior B notes with an
aggregate principal balance of $178 million. The remaining senior A
notes will be held by the originators and may be included in future
securitizations. The senior notes are pari passu in right of
payment with respect to each other. The senior notes are generally
senior in right of payment to the junior notes.
The transaction is structured with an ARD beginning in August 2031
and a final maturity date in November 2034. In addition to penalty
interest due on the mortgage after this date, all property cash
flow after current debt service will be diverted away from the
sponsor and toward amortizing the mortgage loan. This feature
strongly incentivizes the sponsor to arrange takeout financing
before the ARD date, and therefore reduces maturity risk for the
certificateholders.
Notes: All figures are in U.S. dollars unless otherwise noted.
MAGNETITE XXXI: S&P Assigns BB- (sf) Rating on Class E Notes
------------------------------------------------------------
S&P Global Ratings assigned its ratings to Magnetite XXXI
Ltd./Magnetite XXXI LLC's fixed- and floating-rate notes. The
transaction is managed by BlackRock Financial Management Inc.
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
Magnetite XXXI Ltd./Magnetite XXXI LLC
Class A-1, $310.0 million: AAA (sf)
Class A-2, $10.0 million: AAA (sf)
Class B, $60.0 million: AA (sf)
Class C (deferrable), $30.0 million: A (sf)
Class D (deferrable), $30.0 million: BBB- (sf)
Class E (deferrable), $20.0 million: BB- (sf)
Subordinated notes, $46.8 million: Not rated
MBRT 2019-MBR: DBRS Confirms B Rating on Class G Certs
------------------------------------------------------
DBRS, Inc. confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2019-MBR issued by MBRT 2019-MBR
as follows:
-- Class A at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class X-A at B (high) (sf)
-- Class G at B (sf)
DBRS Morningstar changed the trends on Classes A, B, C, D, E, A-IO,
A-Y, and A-Z to Stable from Negative. Negative trends remain on
Classes F, G, and X-A.
The rating confirmations reflect DBRS Morningstar's generally
positive view for the stabilization prospects of the collateral
hotel. There remains uncertainty amid the Coronavirus Disease
(COVID-19) pandemic, as reflected in the Negative trends on the two
lowest principal bonds and the associated interest-only (IO) bond.
However, the quality of the collateral hotel and the sponsor's
recent injection of significant equity into the deal, as further
discussed below, as well as the recent rebrand to a prestigious
Hilton flag in Waldorf Astoria, supports the Stable trends on the
remainder of the rated classes.
The IO floating-rate loan is secured by the fee interest in the
400-key AAA Five Diamond-rated luxury, full-service resort hotel
and the leasehold interest in the Monarch Bay Beach Club, a private
beach club near the hotel facilities in Dana Point, California. The
property was rebranded as a Waldorf Astoria in September 2020,
which should provide a boost to property traffic as the hotel can
now make use of Hilton's global sales and booking networks. The
subject's average daily rate (ADR) increased considerably during
the distressed 2020 fiscal year period as the hotel's management
kept the offered room rates steady from pre-pandemic levels and the
borrower was unwilling to provide concessions despite the lower
occupancy rates. The collateral is situated to recover in a
stronger position than compared to its pre-pandemic operations once
the pandemic subsides; however, the pandemic still presents a risk
to recovery in the near term.
The loan structure includes a two-year term with three one-year
extension options. Loan proceeds of $370.0 million along with
sponsor equity of $127.6 million financed the acquisition of the
collateral for a purchase price of $492.5 million. The loan was
added to the servicer's watchlist in December 2020 because of a low
debt service coverage ratio and the occurrence of a servicing
trigger event. The loan failed to meet the minimum 6.0% debt yield
in Q2 2020 and cash management was implemented. The loan reported a
year-end (YE) 2020 net cash flow (NCF) of -$2.12 million, compared
to the trailing 12 months ended September 30, 2019, NCF of $23.7
million and the YE2018 NCF of $23.7 million.
As part of the property's rebrand to a Waldorf Astoria hotel in
September 2020, the property manager was replaced by
Waldorf-Astoria Management, LLC (Waldorf Astoria) and the hotel is
now known as the Waldorf Astoria, Monarch Beach. Per the Branding
and Management Agreement (BMA), Waldorf-Astoria paid $40 million to
operate the property for a minimum of 30 years. As a condition of
the BMA, the borrower agreed to a $15.1 million property
improvement plan (PIP) renovation that will be completed within a
three-year schedule. Approximately $2.5 million of pre-conversion
work needed to be complete before the rebrand launch.
Pre-conversion work included improving safety standards in
guestrooms and common areas, replacing exterior signage, installing
Hilton's property management technology system, and upgrading
bedding. Major PIP renovation items to be completed consist of the
replacement of all operating supplies and equipment, renovation of
back-of-house areas, elevator modernization, lobby upgrades,
renovation of the pool bar, and new fixtures in the guestrooms.
The full $40.0 million was paid once the borrower completed all
pre-opening work items outlined in the PIP; however, proceeds were
not held by the servicer. The borrower is required to repay any
unamortized BMA proceeds should the borrower terminate the property
manager within the full management term of 75 years.
The sponsor for the transaction is Ohana Real Estate Investors, an
integrated investment company founded in 2009 and headquartered in
Redwood City, California, that specializes in the development,
acquisition, and management of high-quality hotels and residential
communities. The sponsor has experience in investing and managing
luxury resort properties, including Ritz-Carlton Laguna Niguel,
Montage Beverly Hills, Montage Laguna Beach, and the Bacara Resort.
OB Sports Golf Management (MB), LLC manages the Monarch Beach Golf
Links golf course and related facilities.
DBRS Morningstar reviewed a December 2020 Smith Travel Research
report that noted a June 2020 occupancy rate of 42.4%, which
increased to 56.3% in August 2020. The occupancy rate held steady
at 41.7% in September and 44.5% in October before sharply declining
to 12.5% in December, a trend mirrored by the competitive set and
likely a result of the stay-at-home order issued by the State of
California in November 2020. ADRs at the subject property and the
competitive set significantly improved in 2020, with each reporting
increases of 16.6% and 12.5%, respectively, relative to 2019. The
subject and the competitive set are drive-to destinations that have
typically performed better than fly-to hospitality assets during
the pandemic. The property was able to achieve a revenue per
available room (RevPAR) penetration of 106.7% in 2020 primarily
because of greater occupancy rates relative to the competitive set.
Historically, RevPAR penetrations for the subject were in the
low-to-mid 80% range as the subject derived lower occupancy rates
and ADRs; however, the trend could change given the rebrand to
Waldorf Astoria.
Notes: All figures are in U.S. dollars unless otherwise noted.
MFA 2021-NQM2: S&P Assigns Prelim B (sf) Rating on Class B-2 Certs
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to MFA
2021-NQM2 Trust's mortgage pass-through certificates series
2021-NQM2.
The certificate issuance is an RMBS transaction backed by
first-lien fixed- and adjustable-rate fully amortizing and
interest-only residential mortgage loans primarily secured by
single-family residences, planned unit developments, condominiums,
condotels, two- to four-family homes, mixed-use, five- to 10-unit
multifamily, and manufactured housing to both prime and nonprime
borrowers. The pool has 678 loans, which are primarily nonqualified
mortgage loans.
The preliminary ratings reflect S&P's view of:
-- The pool's collateral composition,
-- The transaction's credit enhancement,
-- The transaction's associated structural mechanics,
-- The transaction's representation and warranty framework,
-- The mortgage aggregator and mortgage originator,
-- The geographic concentration, and
-- The impact that the economic stress brought on by the COVID-19
pandemic will likely have on the performance of the mortgage
borrowers in the pool and liquidity available in the transaction.
Preliminary Ratings Assigned(i)
MFA 2021-NQM2 Trust
Class A-1, $210,300,000: AAA (sf)
Class A-2, $16,490,000: AA (sf)
Class A-3, $27,770,000: A (sf)
Class M-1, $13,740,000: BBB (sf)
Class B-1, $8,970,000: BB (sf)
Class B-2, $5,350,000: B (sf)
Class B-3, $6,659,452: NR
Class XS, notional(ii): NR
Class A-IO-S, notional(ii): NR
Class R: NR
(i)The collateral and structural information in this report
reflects the private placement memorandum received on Aug. 5, 2021.
The preliminary ratings address the ultimate payment of interest
and principal. They do not address payment of the cap carryover
amounts.
(ii)The notional amount equals the loans' aggregate unpaid
principal balance.
NR--Not rated.
MORGAN STANLEY 2013-C11: Moody's Lowers Rating on B Certs to Caa2
-----------------------------------------------------------------
Moody's Investors Service has confirmed the ratings on two classes,
affirmed the ratings on four classes, and downgraded the ratings on
six classes in Morgan Stanley Bank of America Merrill Lynch Trust
2013-C11 ("MSBAM 2013-C11"), Commercial Mortgage Pass-Through
Certificates as follows:
Cl. A-AB, Confirmed at Aaa (sf); previously on April 23, 2021 Aaa
(sf) Placed Under Review for Possible Downgrade
Cl. A-3, Downgraded to Aa2 (sf); previously on April 23, 2021 Aaa
(sf) Placed Under Review for Possible Downgrade
Cl. A-4, Downgraded to Aa2 (sf); previously on April 23, 2021 Aaa
(sf) Placed Under Review for Possible Downgrade
Cl. A-S, Downgraded to Baa3 (sf); previously on April 23, 2021 Baa1
(sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Caa2 (sf); previously on April 23, 2021 B3
(sf) Placed Under Review for Possible Downgrade
Cl. C, Confirmed at Caa3 (sf); previously on April 23, 2021 Caa3
(sf) Placed Under Review for Possible Downgrade
Cl. D, Affirmed C (sf); previously on January 11, 2021 Downgraded
to C (sf)
Cl. E, Affirmed C (sf); previously on January 11, 2021 Affirmed C
(sf)
Cl. F, Affirmed C (sf); previously on January 11, 2021 Affirmed C
(sf)
Cl. G, Affirmed C (sf); previously on January 11, 2021 Affirmed C
(sf)
Cl. X-A*, Downgraded to Aa2 (sf); previously on April 23, 2021 Aaa
(sf) Placed Under Review for Possible Downgrade
Cl. PST**, Downgraded to Caa1 (sf); previously on April 23, 2021 B3
(sf) Placed Under Review for Possible Downgrade
* Reflects Interest-Only Class
**Reflects Exchangeable Class
RATINGS RATIONALE
The rating on Class A-AB was confirmed due its credit support,
payment distribution priority and the pool's share of defeasance.
Principal proceeds from the pool are first distributed to Class
A-AB until the principal balance of such class has been reduced to
the planned principal balance for the respective distribution date.
The planned principal balance for Class A-AB reduces to $0 in April
2023. Furthermore, defeased loans now represent 12% of the pool and
the balance of defeased loans is greater than the remaining
principal balance of Class A-AB.
The ratings on four P&I classes, Class A-3, Class A-4, Class A-S
and Class B were downgraded due to the risk of increased losses and
interest shortfalls from the continued significant exposure to
specially serviced loans (representing 40% of the pool) that have
remained more than 90 days delinquent. The largest three specially
serviced loans, Westfield Countryside (17% of pool), The Mall at
Tuttle Crossing (15%) and Marriott Chicago River North Hotel (8%),
were already experiencing declining performance prior to 2020 and
have each recognized 25% or higher appraisal reductions as of the
July 2021 remittance statement. Interest shortfalls have now
impacted up to Class C and Moody's anticipates interest shortfalls
may increase further due to the poor performance of these loans.
Furthermore, three loans (a combined 40% of the pool) are secured
by regional malls, including Southdale Center (9% of the pool),
which has also experienced declines in NOI prior to 2020. The
credit support of Class C has also declined since securitization
due to the significant losses from the previously liquidated Matrix
Corporate Center loan.
While Class A-3 and Class A-4 benefit from significant credit
support, the timing of the anticipated losses from the specially
serviced loans may cause the credit enhancement levels for these
classes to materially decline.
The rating on Class C was confirmed and the ratings on Class D,
Class E, Class F and Class G, were affirmed because the ratings are
consistent with Moody's expected loss plus realized losses. Class G
has already experienced a 50% loss from a previously liquidated
loan.
The rating on the IO class, Class X-A, was downgraded based on the
decline in the credit quality of its referenced classes.
The rating on Class PST was downgraded due to a decline in credit
quality of its referenced exchangeable classes.
The actions conclude the review for downgrade initiated on April
23, 2021.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of commercial real estate as the US economy
continues on the path toward normalization. Economic activity will
continue to strengthen in 2021 because of several factors,
including the rollout of vaccines, growing household consumption
and an accommodative central bank policy. However, specific sectors
and individual businesses will remain weakened by extended pandemic
related restrictions. Stress on commercial real estate properties
will be most directly stemming from declines in hotel occupancies
(particularly related to conference or other group attendance) and
declines in foot traffic and sales for non-essential items at
retail properties.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's rating action reflects a base expected loss of 26.2% of the
current pooled balance, compared to 25.6% at Moody's last review.
Moody's base expected loss plus realized losses is now 22.8% of the
original pooled balance, compared to 22.5% at the last review.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, loan concentration, an
increase in realized and expected losses from specially serviced
and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in rating all classes except exchangeable
classes and interest-only classes were "Moody's Approach to Rating
Large Loan and Single Asset/Single Borrower CMBS" published in
September 2020.
DEAL PERFORMANCE
As of the July 16, 2021 distribution date, the transaction's
aggregate certificate balance has decreased by 34% to $570 million
from $856 million at securitization. The certificates are
collateralized by 30 mortgage loans ranging in size from less than
1% to 17% of the pool, with the top ten loans (excluding
defeasance) constituting 72% of the pool. Five loans, constituting
12% of the pool, have defeased and are secured by US government
securities. The defeased loans all have loan maturity dates between
June and August 2023.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of 10, the same as at Moody's last review.
As of the July 2021 remittance report, loans representing 60% of
the pool were current or within their grace period on their debt
service payments and 40% were more than 90 days delinquent.
Nine loans, constituting 24% of the pool, are on the master
servicer's watchlist, of which two loans, representing 4% of the
pool, indicate the borrower has requested relief in relation to
coronavirus impact on the property. The watchlist includes loans
that meet certain portfolio review guidelines established as part
of the CRE Finance Council (CREFC) monthly reporting package. As
part of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues
that could affect performance.
One loan, the Matrix Corporate Center loan, has been liquidated
from the pool, resulting in a significant realized loss of $45.5
million (for a loss severity of 78%). The loss has caused a decline
in credit support for several of the P&I classes as compared to
securitization.
Four loans, constituting 40% of the pool, have transferred to
special servicing since June 2020.
The largest specially serviced loan is the Westfield Countryside
Loan ($94.4 million -- 16.6% of the pool), which represents a
pari-passu portion of a $146.4 million mortgage loan. The loan is
secured by a 465,000 square foot (SF) component of an approximately
1.26 million square foot (SF) super-regional mall located in
Clearwater, Florida approximately 20 miles west of Tampa. The mall
is anchored by Dillard's, Macy's and JC Penney, all of which are
non-collateral. Sears (non-collateral) initially downsized its
location in 2014 and closed the remainder of its space in 2018. The
former Sears space was partially backfilled by a Whole Food's and
Nordstrom Rack. The largest collateral tenant includes a 12-screen
Cobb Theaters (lease expiration in December 2026), which re-opened
in October 2020 after being closed due to the coronavirus pandemic.
The loan has been in special servicing since June 2020 and was last
paid through its October 2020 payment date as of the July 2021
remittance statement. As of the March 2021 rent roll, inline
occupancy was 89%, compared to 88% in September 2020. The
property's NOI has generally declined since 2015. The property's
2019 NOI was 12% below securitization levels due to lower rental
reviews and property performance further declined in 2020. The loan
was originally sponsored by Westfield and O'Connor Capital
Partners, however, Westfield previously indicated that they no
longer wanted to support the asset and the servicer is working
through the foreclosure process. A receiver was appointed in
January 2021 and is currently managing the property. As of the July
2021 remittance statement an appraisal reduction of $45.8 million
has been realized and an August 2020 appraisal valued the property
66% lower than the appraised value at securitization and 37% below
the outstanding total mortgage loan. Due to the declining
performance and the current retail environment, Moody's anticipates
a significant loss on this loan.
The second largest loan is the Mall at Tuttle Crossing Loan ($85.2
million -- 15.0% of the pool), which represents a pari passu
portion of a $112.1 million loan. The loan is secured by a 385,000
square foot (SF) component of an approximately 1.13 million square
foot (SF) super-regional mall located in Dublin, Ohio approximately
17 miles northwest of Columbus. The mall is currently anchored by
JC Penney, Scene 75 and Macy's (all three of which are
non-collateral). Scene 75, an indoor entertainment center,
backfilled a former Macy's Home Store that closed in 2017. The mall
currently has one non-collateral vacant anchor space, a former
Sears (149,000 SF), that vacated in early 2019. The mall has
suffered from declining in-line occupancy in recent years. Due to
declining occupancy and revenues, the property's annual NOI had
declined significantly in both 2019 and 2018. The 2019 NOI was
nearly 26% lower than underwritten levels and the 2020 NOI declined
another 14% year over year. The loan sponsor, Simon Property Group,
has classified this mall under their "Other Properties" and the
loan has been in special servicing since July 2020. Special
servicer commentary indicated enforcement options are being
evaluated and a court appointed receiver was appointed in January
2021. The loan is paid through its February 2021 payment date, has
amortized 10% since securitization and matures in May 2023. As of
the July 2021 remittance statement an appraisal reduction of $32.5
million has been realized and an August 2020 appraisal valued the
property 67% lower than the appraised value at securitization and
nearly 29% below the outstanding total mortgage loan. Due to the
declining performance and the current retail environment, Moody's
anticipates a significant loss on this loan.
The third largest specially serviced loan is the Marriott Chicago
River North Hotel Loan ($44.9 million -- 7.9% of the pool) which is
secured by a full-service hotel property in downtown Chicago, IL.
The Hotel is dual flagged under Marriott's Residence Inn and
Springhill Suites brands and operates subject to Franchise
agreements that are scheduled to expire in 2033. The property's
2019 NOI declined nearly 20% year over year due to lower room
revenue and increased operating expenses. The loan has been in
special servicing since July 2020 and as of the July 2021
remittance date is last paid through its April 2020 payment date.
The loan has amortized 18.4% since securitization, however, the
loan was experiencing declining performance for year-end 2019 and
the coronavirus pandemic has caused significant stress on its
operations. The special servicer indicated they are negotiating
possible modification options while dual tracking with foreclosure
proceedings. As of the July 2021 remittance statement an appraisal
reduction of $11.4 has been recognized. A recent appraisal valued
the property 44% lower than the appraised value at securitization
and 14% below the outstanding total mortgage loan balance. The
updated appraisal value may cause interest shortfalls to increase
further.
The remaining specially serviced loan is a lodging facility,
located in Katy, Texas and representing less than 0.4% of the pool.
Moody's estimates and aggregate $135.0 million loss for the
specially serviced loans (60% expected loss on average).
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.
Moody's received full year 2020 operating results for 77% of the
pool, and full or partial year 2021 operating results for 25% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 101%, compared to 102% at Moody's
last review. Moody's conduit component excludes loans with
structured credit assessments, defeased and CTL loans, and
specially serviced and troubled loans. Moody's net cash flow (NCF)
reflects a weighted average haircut of 17% to the most recently
available net operating income (NOI). Moody's value reflects a
weighted average capitalization rate of 10.2%.
Moody's actual and stressed conduit DSCRs are 1.44X and 1.14X,
respectively, compared to 1.42X and 1.12X at the last review.
Moody's actual DSCR is based on Moody's NCF and the loan's actual
debt service. Moody's stressed DSCR is based on Moody's NCF and a
9.25% stress rate the agency applied to the loan balance.
The top three conduit loans represent 20% of the pool balance. The
largest loan is the Southdale Center Loan ($48.3 million -- 8.5% of
the pool), which represents a pari passu portfolio of a $136.2
million mortgage loan. The loan is secured by a 635,000 SF
component of a 1.23 million SF super-regional mall located in
Edina, MN., approximately nine miles south of Minneapolis. While
the property is located only six miles away from the Mall of
America, the property serves local consumers, while the Mall of
America is considered to be a tourist shopping destination. The
mall is currently anchored by a Macy's (non-collateral) and a
12-screen American Multi-Cinema movie theater. The property has
experienced multiple big box closures including Herberger's
(143,608 SF) in August 2018, and JC Penney (non-collateral) and
Gordmans (44,087 SF) in 2017. The total mall was only 51% leased as
of March 2021, and the in-line occupancy was 62%. The property is
owned and managed by Simon Property Group. The former JC Penney
space was backfilled by a 200,000 SF Lifetime Fitness & Lifetime
Work, which opened in December 2019 along with two new restaurants.
The property's NOI has generally declined since 2017. The loan has
amortized 12% since securitization and has remained current on debt
service. The loan matures in April 2023 and based on recent
performance trends and the overall retail market may face increased
refinance risk. Moody's LTV and stressed DSCR are 132% and 0.86X,
respectively, compared to 134% and 0.85X at Moody's last review.
The second largest loan is the Bridgewater Campus Loan ($39.0
million -- 6.8% of the pool), which is secured by eight Class B
mixed-use buildings totaling 446,649 square feet (SF). The property
is located in Bridgewater, New Jersey, approximately 41 miles
southwest of New York City. The buildings are leased to three
tenants, all of which have been at the property since
securitization and have lease expirations in 2023 or later. As of
March 2021, the property was 87% leased, unchanged from September
2020 and compared to 100% in December 2019. As a result of the
lower occupancy, the December 2020 NOI DSCR declined to 1.85X from
2.06X in 2019. The loan has amortized 10.3% since securitization
and matures in July 2023. Moody's LTV and stressed DSCR are 98% and
1.02X, respectively, compared to 99% and 1.01X at the last review.
The third largest loan is the Beverly Garland Hotel Loan ($26.0
million -- 4.6% of the pool), which is secured by a 255-room, full
hospitality boutique hotel, located in North Hollywood, California.
The hotel includes two guestroom buildings, meeting and event space
and a single-story grand ballroom building. Through year-end 2019
the property's performance improved significantly since
securitization due to increases in both room and F&B revenue. The
property's performance has been impacted by the coronavirus
pandemic and the property's cash flow was not sufficient to cover
its operating expenses in 2020. However, the loan has amortized 13%
since securitization and remained current as of the July 2021
remittance statement. Moody's LTV and stressed DSCR are 100% and
1.19X, respectively.
MORGAN STANLEY 2015-C25: Fitch Affirms B- Rating on Class F Certs
-----------------------------------------------------------------
Fitch Ratings has affirmed 13 classes of Morgan Stanley Bank of
America Merrill Lynch Trust, commercial mortgage pass-through
certificates, series 2015-C25 (MSBAM 2015-C25). Fitch has also
revised the Rating Outlook on class E to Stable from Negative.
DEBT RATING PRIOR
---- ------ -----
MSBAM 2015-C25
A-3 61765TAD5 LT AAAsf Affirmed AAAsf
A-4 61765TAE3 LT AAAsf Affirmed AAAsf
A-5 61765TAF0 LT AAAsf Affirmed AAAsf
A-S 61765TAK9 LT AAAsf Affirmed AAAsf
A-SB 61765TAC7 LT AAAsf Affirmed AAAsf
B 61765TAL7 LT AA-sf Affirmed AA-sf
C 61765TAM5 LT A-sf Affirmed A-sf
D 61765TAN3 LT BBB-sf Affirmed BBB-sf
E 61765TAP8 LT BB-sf Affirmed BB-sf
F 61765TAR4 LT B-sf Affirmed B-sf
X-A 61765TAG8 LT AAAsf Affirmed AAAsf
X-B 61765TAH6 LT AAAsf Affirmed AAAsf
X-D 61765TAJ2 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Decreased Loss Expectations: Loss expectations have declined since
Fitch's prior rating action due to several large loans in the pool
having better than expected performance in 2020. The Outlook
revision on class E to Stable from Negative reflects the stable
performance for the majority of the pool and a lower negative
impact from the coronavirus pandemic. No additional loans have
transferred to special servicing since Fitch's prior rating
action.
Seventeen loans (28.2% of pool), including one (1.0%) in special
servicing, were designated Fitch Loans of Concern (FLOCs). Fitch's
current ratings incorporate a base case loss of 5.00%. The Negative
Outlook on class F reflects losses that could reach 5.70% when
factoring in additional pandemic-related stresses.
Fitch Loans of Concern: The largest contributor to loss
expectations, Villas at Dorsey Ridge (4.9%), is secured by a 238
unit multifamily property in Hanover, MD (approximately 10 miles
southwest of Baltimore and 20 miles northeast of Washington D.C.).
The loan was designated a FLOC due to low debt service coverage
ratio (DSCR) and performance concerns. Fitch's loss expectation in
the base case of 23% reflects an 8.75% cap rate and 5% total
haircut to the YE 2020 NOI.
While occupancy has remained relatively stable and above 95% since
2019, servicer-reported NOI DSCR has remained historically low due
to stagnant rental rates and a slight increase in operating
expenses. Based on amortizing payments, which commenced in August
2020, servicer-reported NOI DSCR was 1.10x as the YTD ended March
2021 and 1.05x at YE 2020. Servicer-reported NOI DSCR was 1.39x at
YE 2019 when the loan was still in its interest-only (IO) period.
At issuance, servicer-reported NOI DSCR was 1.21x. The loan has
remained current since issuance and the borrower has not requested
relief to date.
The largest retail FLOC, Lycoming Crossing Shopping Center (2.0%),
is secured by a 135,999 sf shadow anchored (Target) shopping center
in Muncy Township, PA. The loan was designated a FLOC due to
performance concerns/declines, low DSCR and the impact from the
coronavirus pandemic on rent collection. Fitch's loss expectation
in the base case of 32% reflects an 11% cap rate and 15% total
haircut to the YE 2019 NOI. Fitch's analysis gives credit to the
recent positive leasing activity.
Occupancy declined to 68% by March 2021 from 97% at YE 2019 after
several major tenant vacancies. Notable tenant vacancies include
Bed Bath & Beyond (previously 15% net rentable area [NRA]), which
did not renew its lease upon expiration in January 2020 and Dress
Barn (previously 5.5% NRA), which closed this location at the end
of 2019. As a result of the vacancies, in addition to
pandemic-related rent collection issues, servicer-reported NOI DSCR
declined to 0.64x at YE 2020 from 1.54x at YE 2019 based on IO
payments. The loan's initial five-year IO period ended in August
2020.
The property has recently experienced positive leasing activity.
Old Navy has backfilled space previously occupied by CATO and Dress
Barn, signing a 10-year lease for 12,500 sf (9.2% NRA) with rent
commencing in April 2021. The new lease brings total occupancy at
the subject to 77%. Per servicer updates, the borrower is also in
discussions with Marshalls to lease the former Bed Bath & Beyond
space., and local media has reported that Shoe Dept. is moving into
the former Gap Factory space (previously 5.7% NRA).
Exposure to Coronavirus Pandemic: Eight loans (12.4%) are secured
by hotels and 17 (22.4%) are secured by retail properties. Fitch
applied additional pandemic-related stresses to the pre-pandemic
cash flows for all eight hotel loans and two retail loans (5.5%).
Fifteen retail loans (16.9%) were modeled using YE 2020 NOI, which
was relatively stable. The additional pandemic-related stresses
contributed to the Negative Outlook on class F.
Increasing Credit Enhancement (CE): As of the July 2021
distribution date, the pool's aggregate balance has been reduced by
8.1% to $1.084 billion from $1.179 billion at issuance. Three loans
with a $34.1 million balance at Fitch's prior rating action paid in
full. Four loans (6.9%) are defeased. Four loans (22.9%) are
full-term, IO, and 31 loans (55.5%) that had a partial-term, IO
component at issuance have fully transitioned into their
amortization period. Interest shortfalls of $96,251 are currently
affecting the non-rated class NR.
Pool Concentration: The top 10 loans comprise 56.3% of the pool.
Loan maturities are concentrated in 2025 (87.5%). One loan (1.2%)
matures in 2022, one (10.6%) in 2024 and one (0.6%) in 2030. Based
on property type, the largest concentrations are office at 23.8%,
retail at 22.4% and multifamily at 17.9%.
RATING SENSITIVITIES
The Negative Outlook on class F reflects the potential for
downgrades given concerns with the FLOCs, primarily the loans
affected by the coronavirus pandemic. The Stable Outlooks,
including the revision on class E to Stable from Negative, reflect
decreased loss expectations and the expectation of paydown from
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, C, D and X-D may
occur with significant improvement in CE and/or defeasance but
would be limited based on sensitivity to concentrations or the
potential for future concentration. The Negative Outlook on
class F will be revised to Stable if overall pool performance
continues to improve and loans affected by the pandemic
stabilize and return to their pre-pandemic performance.
-- Classes would not be upgraded above 'Asf' if there is a
likelihood for interest shortfalls. Upgrades of classes E and
F could occur if performance of the FLOCs improves
significantly and/or if there is sufficient CE, which would
likely occur if the non-rated class is not eroded and the
senior classes pay-off.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level expected losses from underperforming
or specially serviced loans. Downgrades of classes rated
'AAAsf' are not likely due to sufficient CE and expected
continued amortization but would occur at the 'AAAsf' and
'AAsf' levels if interest shortfalls occur.
-- Downgrades of classes in the 'Asf' and 'BBBsf' categories
would occur if additional loans become FLOCs or if performance
of the FLOCs deteriorates further. Classes E and F would be
downgraded if additional loans become FLOCs and/or performance
of the FLOCs declines further.
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.
MORGAN STANLEY 2018-SUN: DBRS Confirms B Rating on Class G Certs
----------------------------------------------------------------
DBRS, Inc. confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2018-SUN issued by Morgan Stanley
Capital I Trust 2018-SUN as follows:
-- Class A at AAA (sf)
-- Class X-EXT at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)
-- Class H at B (low) (sf)
The trends for Classes A, B, C, D, and X-EXT are now Stable.
Negative trends remain on Classes E, F, G, and H given the general
uncertainty surrounding the timeline for stabilization for the
collateral hotels amid the effects of the Coronavirus Disease
(COVID-19) global pandemic.
The rating confirmations reflect the relatively stable performance
of the transaction since the DBRS Morningstar ratings were issued
in September 2020. The trend change to Stable for the five classes
as outlined above is generally reflective of positive developments
for the transaction in the loan's return to performing status and
the sponsor's recent injection of capital to cover operating cost
and debt service shortfalls throughout the pandemic.
The loan transferred to the special servicer in April 2020
following the sponsor's request for a forbearance. The loan was
current at the time of the loan's transfer but fell delinquent with
the June 2020 remittance date. A loan modification was executed in
December 2020, and the loan was returned to the master servicer in
April 2021. The borrower brought all delinquent debt service
payments and reserve deposits current as part of the modification,
which also required a $3.5 million cash payment from the sponsor to
satisfy all legal fees and other ancillary costs incurred by the
special servicer. In consideration for the borrower's commitment,
the special servicer agreed to accept a cure of the loan defaults,
exercise the first maturity extension option to July 2021, and
conditionally waive the pursuit of accrued default interest if
there is not another monetary event that occurs. The special
servicer also required written evidence from the mezzanine
noteholder confirming the extension of the mezzanine loan through
July 2021 and consent to the remaining workout terms. As of July
2021, the servicer reported that a second extension for the
maturity to July 2022 was pending execution.
The floating-rate interest-only (IO) loan is secured by the
fee-simple interest in two luxury beachfront hotels totaling 327
keys in Santa Monica, California. Loan proceeds of $356.6 million
and mezzanine debt of $73.4 million (held outside of trust)
refinanced existing debt of $422.5 million, returned $3.2 million
to the sponsors, and funded prepayment penalties. The loan features
a two-year initial term with five one-year extension options. The
Shutters on the Beach (Shutters) hotel opened in 1993 with 198
guest rooms, three food and beverage locations, a spa, and 8,632
square feet (sf) of meeting space. The Casa del Mar hotel opened in
1999 with 129 guest rooms, one restaurant and bar/lounge, a spa,
and roughly 11,000 sf of meeting space. The loan sponsors, Edward
and Thomas Slatkin, developed both hotels more than 20 years ago.
The sponsors operate a third-generation family investment company
founded in 1982 with long-time experience in the ownership and
operations of luxury hotels.
The properties are the only hotels located directly on the beach in
the Santa Monica market, giving the collateral a significant
advantage against competitors. Both hotels are recognized as two of
the premier luxury hotels in Southern California and their
respective restaurants derive considerable income from nonhotel
guests. Between 2008 and 2018, more than $53.5 million was invested
in capital expenditure projects, totaling $150,250 per key for the
Shutters property and $184,300 per key for the Casa del Mar
property. Ongoing significant capital investment is necessary to
maintain the hotels at the standard necessary to compete in the
luxury hotel market.
The properties have traditionally outperformed their competitors
with strong revenue per available room (RevPAR) penetrations. That
outperformance continued throughout the coronavirus pandemic, which
forced the properties to close between March 2020 and July 2020.
As has generally been the case for similarly positioned hotels
across the country, occupancy rates have remained depressed over
the past year. The special servicer reports that the sponsor
provides monthly occupancy figures for both properties, with the
June 2021 occupancy rates reported at 35.1% and 38.0% for Casa del
Mar and Shutters, respectively.
In addition, March 2021 STR, Inc. (STR) reports were provided for
each property, which showed a trailing 12-month (T-12) RevPAR
penetration rate of 130.6% for the Shutters property and 148.7% for
the Casa Del Mar property. The STR reports show nearly all hotel
guests are leisure travelers, not surprising given the impacts to
meeting and event scheduling caused by the coronavirus pandemic. At
issuance, approximately 19.6% of total occupancy across both
properties was generated by group demand, suggesting occupancy
rates will continue to be affected as pandemic continues.
Notes: All figures are in U.S. dollars unless otherwise noted.
NASSAU 2021-I: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Nassau
2021-I Ltd.'s fixed- and floating-rate notes.
The note issuance is a CLO securitization backed by primarily
broadly syndicated speculative-grade (rated 'BB+' and lower) senior
secured term loans that are governed by collateral quality tests.
The preliminary ratings are based on information as of Aug. 9,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The diversification of the collateral pool.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
Nassau 2021-I Ltd.
Class A-1, $181.295 million: AAA (sf)
Class A-2, $35.705 million: AAA (sf)
Class B-1, $22.450 million: AA (sf)
Class B-2, $26.550 million: AA (sf)
Class C, $21.000 million: A (sf)
Class D, $17.500 million: BBB- (sf)
Class E, $14.000 million: BB- (sf)
Class A subordinated notes, $18.125 million: Not rated
Class B subordinated notes, $18.125 million: Not rated
NEUBERGER BERMAN 43: S&P Assigns BB- (sf) Rating on Class E Notes
-----------------------------------------------------------------
S&P Global Ratings assigned ratings to Neuberger Berman Loan
Advisers CLO 43 Ltd./Neuberger Berman Loan Advisers CLO 43 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+' or lower) senior secured term loans.
The transaction is managed by Neuberger Berman Loan Advisers II
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
Neuberger Berman Loan Advisers CLO 43 Ltd./Neuberger Berman Loan
Advisers CLO 43 LLC
Class A, $366.00 million: AAA (sf)
Class B, $90.00 million: AA (sf)
Class C (deferrable), $36.00 million: A (sf)
Class D (deferrable), $34.50 million: BBB- (sf)
Class E (deferrable), $22.50 million: BB- (sf)
Subordinated notes, $63.50 million: Not rated
NLT 2021-INV2: S&P Assigns B (sf) Rating on Class B-2 Certs
-----------------------------------------------------------
S&P Global Ratings assigned its ratings to NLT 2021-INV2's mortgage
pass-through certificates series 2021-INV2.
The certificate issuance is an RMBS transaction backed by
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 5-20-unit
multifamily properties with 30-year original terms to maturity to
non-conforming (both prime and nonprime) borrowers. The pool has
1,093 loans backed by 1,242 properties, which are exempt from the
qualified mortgage/ability-to-repay rules.
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 transaction's 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-INV2(i)
Class A-1, $172,980,000: AAA (sf)
Class A-2, $15,293,000: AA (sf)
Class A-3, $28,016,000: A (sf)
Class M-1, $13,237,000: BBB (sf)
Class B-1, $11,695,000: BB (sf)
Class B-2, $8,482,000: B (sf)
Class B-3, $7,325,871: Not rated
Class XS, notional(ii): Not rated
Class PT, $257,028,871: Not rated
Class A-IO-S, notional(ii): Not rated
Class R, not applicable: Not rated
(i)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.
OBX 2021-NQM3: S&P Assigns Prelim B(sf) Rating on Class B-2 Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to OBX
2021-NQM3 Trust's mortgage-backed notes.
The note issuance is an RMBS transaction backed by first-lien,
fixed-rate, and adjustable-rate residential mortgage loans to prime
and nonprime borrowers, including mortgage loans with initial
interest-only periods. The loans are primarily secured by
single-family residential properties, planned-unit developments,
townhomes, condominiums, two- to four-family residential
properties, and mixed-use properties. The pool has 539 loans, which
are primarily non-qualified mortgage/ATR compliant and ATR-exempt
loans.
The preliminary ratings are based on information as of Aug. 11,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The pool's collateral composition;
-- The transaction's credit enhancement, associated structural
mechanics, representation and warranty framework, and geographic
concentration;
-- The mortgage aggregator, Onslow Bay Financial LLC, and the
originators, which include AmWest Funding Corp and Sprout Mortgage
LLC; and
-- The impact the COVID-19 pandemic will likely have on the
performance of the mortgage borrowers in the pool and liquidity
available in the transaction.
Preliminary Ratings Assigned(i)
OBX 2021-NQM3 Trust
Class A-1, $286,605,000: AAA (sf)
Class A-2, $18,715,000: AA (sf)
Class A-3, $27,805,000: A (sf)
Class M-1, $10,694,000: BBB (sf)
Class B-1, $6,951,000: BB (sf)
Class B-2, $4,456,000: B (sf)
Class B-3, $1,248,394: NR
Class A-IO-S, notional(ii): NR
Class XS, notional(iii): NR
Class R: NR
(i)The collateral and structural information reflect the term sheet
dated Aug. 6, 2021. The preliminary ratings address the ultimate
payment of interest and principal.
(ii)For the class A-IO-S notes, the notional amount equals the
loans' stated principal balance for loans serviced by SPS, SLS, and
Shellpoint.
(iii)The notional amount equals the loans' stated principal
balance.
NR--Not rated.
OCTAGON 55: Moody's Assigns (P)Ba3 Rating to $22.5MM Class E Notes
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to six
classes of notes to be issued by Octagon 55, Ltd. (the "Issuer" or
"Octagon 55").
Moody's rating action is as follows:
US$315,000,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Assigned (P)Aaa (sf)
US$10,000,000 Class A-2 Senior Secured Floating Rate Notes due
2034, Assigned (P)Aaa (sf)
US$55,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned (P)Aa2 (sf)
US$27,500,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)A2 (sf)
US$30,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Baa3 (sf)
US$22,500,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, Assigned (P)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.
Octagon 55 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 and eligible investments, and up to 10.0% of
the portfolio may consist of assets other than senior secured loans
and eligible investments. Moody's expect the portfolio to be
approximately 85% 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 will issue subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 70
Weighted Average Rating Factor (WARF): 2845
Weighted Average Spread (WAS): 3.33%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 9.0 years
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.
OCTAGON 55: Moody's Assigns Ba3 Rating to $22.5MM Class E Notes
---------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by Octagon 55, Ltd. (the "Issuer" or "Octagon 55").
Moody's rating action is as follows:
US$315,000,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$10,000,000 Class A-2 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$55,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aa2 (sf)
US$27,500,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned A2 (sf)
US$30,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Baa3 (sf)
US$22,500,000 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.
Octagon 55 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 and eligible investments, and up to 10.0% of
the portfolio may consist of assets other than senior secured loans
and eligible investments. The portfolio is approximately 85% 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 will issue subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 70
Weighted Average Rating Factor (WARF): 2845
Weighted Average Spread (WAS): 3.33%
Weighted Average Coupon (WAC): 4.50%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 9.0 years
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.
OCTAGON INVESTMENT 46: S&P Assigns Prelim 'BB' Rating on E–R Notes
--------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to the class
A-R, B-R, C-R, D-R, and E-R replacement notes and proposed new
class X notes from Octagon Investment Partners 46 Ltd./Octagon
Investment Partners 46 LLC, a CLO originally issued in August 2020
that is managed by Octagon Credit Investors LLC.
The preliminary ratings are based on information as of Aug. 6,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
On the August 10, 2021 refinancing date, the proceeds from the
replacement notes will be used to redeem the original notes. At
that time, we expect to withdraw our ratings on the original notes
and assign ratings to the replacement notes. However, if the
refinancing doesn't occur, we may affirm our ratings on the
original notes and withdraw our preliminary ratings on the
replacement notes.
The replacement notes will be issued via a proposed supplemental
indenture, which outlines the terms of the replacement notes.
According to the proposed supplemental indenture:
-- The replacement class A-R, B-R, C-R, D-R, and E-R notes are
expected to be issued at a lower spread over three-month LIBOR than
the corresponding original notes.
-- The non-call period will be extended by approximately two years
to July 15, 2023.
-- The reinvestment period will be extended by approximately three
years to July 15, 2026.
-- The legal final maturity date (for the replacement notes and
the existing subordinated notes) will be extended by three years to
July 15, 2036.
-- The weighted average life test will be extended to 9.50 years
from the refinancing date.
-- No additional assets will be purchased on the first refinancing
date, and the target initial par amount will remain at $500.00
million. There will be no additional effective date or ramp-up
period, and the first payment date following the refinancing will
be Oct. 15, 2021.
-- The class X notes will be issued on the first refinancing date
and are expected to be paid down using interest proceeds on the
January 2022 and April 2022 payment dates in equal installments of
$1.25 million.
-- The required minimum overcollateralization ratios with respect
to the class D and E notes, as well as the required minimum for the
interest diversion test, will be amended.
-- No additional subordinated notes will be issued on the
refinancing date.
The transaction is modifying its investment criteria, including
certain concentration limitations, and is adding the ability to
purchase certain non-loan and workout-related assets. In addition,
the transaction has modified the benchmark replacement language and
made updates to conform to current rating agency methodology.
New, Replacement, And Original Note Issuances
New notes
Class X, $2.5 million: Three-month LIBOR + 0.60%
Replacement notes
Class A-R, $320.00 million: Three-month LIBOR + 1.16%
Class B-R, $60.00 million: Three-month LIBOR + 1.65%
Class C-R (deferrable), $30.00 million: Three-month LIBOR +
2.20%
Class D-R (deferrable), $30.00 million: Three-month LIBOR +
3.30%
Class E-R (deferrable), $20.00 million: Three-month LIBOR +
6.60%
Subordinated notes, $48.50 million: Not applicable
Original notes
Class A, $315.00 million: Three-month LIBOR + 1.65%
Class B, $65.00 million: Three-month LIBOR + 2.20%
Class C (deferrable), $30.00 million: Three-month LIBOR + 3.00%
Class D (deferrable), $25.00 million: Three-month LIBOR + 4.60%
Class E (deferrable), $17.50 million: Three-month LIBOR + 7.86%
Subordinated notes, $48.50 million: Not applicable
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 the
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. The results of the cash
flow analysis (and other qualitative factors, as applicable)
demonstrated, in our view, that the outstanding rated classes all
have adequate credit enhancement available at the rating levels
associated with the rating actions.
"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."
Preliminary Ratings Assigned
Octagon Investment Partners 46 Ltd./Octagon Investment Partners
46 LLC
Class X, $2.50 million: AAA (sf)
Class A-R, $320.00 million: AAA (sf)
Class B-R, $60.00 million: AA (sf)
Class C-R (deferrable), $30.00 million: A (sf)
Class D-R (deferrable), $30.00 million: BBB- (sf)
Class E-R (deferrable), $20.00 million: BB- (sf)
Subordinated notes, $48.50 million: Not rated
PALM SQUARE 2018-3: Fitch Raises Class E Debt Rating to 'BB+'
-------------------------------------------------------------
Fitch Ratings has upgraded 30 and affirmed 25 tranches from 10
static U.S. collateralized loan obligations (CLOs) serviced by
Palmer Square Capital Management LLC. All tranches remain on Rating
Outlook Stable. These rating actions are based on updated cash flow
analyses due to the deleveraging of the transactions' capital
structures. A full list of rating actions is detailed below, and
key analytical inputs and results are detailed in the accompanying
rating action report.
DEBT RATING PRIOR
---- ------ -----
Palmer Square Loan Funding 2018-3 Ltd.
A-1 69700LAA9 LT AAAsf Affirmed AAAsf
A-2 69700LAC5 LT AAAsf Affirmed AAAsf
B 69700LAE1 LT AA+sf Upgrade A+sf
C 69700LAG6 LT A+sf Upgrade BBB+sf
D 69700MAA7 LT BBB+sf Upgrade BB+sf
E 69700MAC3 LT BB+sf Upgrade BBsf
Palmer Square Loan Funding 2018-4, Ltd
A-1 69700KAA1 LT AAAsf Affirmed AAAsf
A-2 69700KAC7 LT AAAsf Affirmed AAAsf
B 69700KAE3 LT AA+sf Upgrade A+sf
C 69700KAG8 LT A+sf Upgrade BBB+sf
D 69700NAA5 LT BBB-sf Upgrade BBsf
E 69700NAC1 LT BB+sf Upgrade BBsf
Palmer Square Loan Funding 2018-5, Ltd.
A-1 69700PAA0 LT AAAsf Affirmed AAAsf
A-2 69700PAC6 LT AAAsf Affirmed AAAsf
B 69700PAE2 LT AA+sf Upgrade A+sf
C 69700PAG7 LT A+sf Upgrade BBB+sf
D 69700QAA8 LT BBB+sf Upgrade BB+sf
Palmer Square Loan Funding 2019-1
A-1 69700VAA7 LT AAAsf Affirmed AAAsf
A-2 69700VAC3 LT AAAsf Affirmed AAAsf
B 69700VAE9 LT A+sf Affirmed A+sf
C 69700VAG4 LT A+sf Upgrade BBB+sf
D 69700RAA6 LT BBB-sf Upgrade BB+sf
Palmer Square Loan Funding 2019-2
A-1 69689PAA5 LT AAAsf Affirmed AAAsf
A-2 69689PAC1 LT AAAsf Affirmed AAAsf
B 69689PAE7 LT AAsf Upgrade A+sf
C 69689PAG2 LT A+sf Upgrade BBB+sf
D 69689MAA2 LT BBB-sf Upgrade BB+sf
E 69689MAE4 LT BB+sf Upgrade BBsf
Palmer Square Loan Funding 2019-3, Ltd.
A-1 69689LAA4 LT AAAsf Affirmed AAAsf
A-2 69689LAC0 LT AAAsf Upgrade AA+sf
B 69689LAE6 LT A+sf Affirmed A+sf
C 69689LAG1 LT Asf Upgrade BBB+sf
D 69689NAA0 LT BB+sf Affirmed BB+sf
E 69689NAC6 LT BB+sf Upgrade BBsf
Palmer Square Loan Funding 2019-4, Ltd.
A-1 69689HAA3 LT AAAsf Affirmed AAAsf
A-2 69689HAC9 LT AAAsf Upgrade AA+sf
B 69689HAE5 LT A+sf Affirmed A+sf
C 69689HAG0 LT A-sf Upgrade BBB+sf
D 69689JAA9 LT BB+sf Affirmed BB+sf
Palmer Square Loan Funding 2020-1, Ltd.
A-1 69701EAA4 LT AAAsf Affirmed AAAsf
A-2 69701EAC0 LT AAAsf Upgrade AA+sf
B 69701EAE6 LT A+sf Affirmed A+sf
C 69701EAG1 LT BBB+sf Affirmed BBB+sf
D 69701DAA6 LT BB+sf Affirmed BB+sf
Palmer Square Loan Funding 2020-2, Ltd.
A-1 69701FAA1 LT AAAsf Affirmed AAAsf
A-2 69701FAC7 LT AAAsf Upgrade AA+sf
B 69701FAE3 LT A+sf Affirmed A+sf
C 69701FAG8 LT Asf Upgrade BBB+sf
D 69701GAA9 LT BB+sf Affirmed BB+sf
Palmer Square Loan Funding 2020-4, Ltd.
A-1 69701PAA9 LT AAAsf Affirmed AAAsf
A-2 69701PAC5 LT AAAsf Upgrade AAsf
B 69701PAE1 LT A+sf Upgrade Asf
C 69701PAG6 LT Asf Upgrade BBBsf
D 69701QAA7 LT BB+sf Upgrade BBsf
E 69701QAC3 LT BB+sf Upgrade B+sf
TRANSACTION SUMMARY
Palmer Square Loan Funding (PSLF) 2018-3, Ltd., PSLF 2018-4, Ltd.,
PSLF 2018-5, Ltd., PSLF 2019-1, Ltd., PSLF 2019-2, Ltd., PSLF
2019-3, Ltd., PSLF 2019-4, Ltd., PSLF 2020-1, Ltd., PSLF 2020-2,
Ltd. and PSLF 2020-4, Ltd. are arbitrage CLOs that are serviced by
Palmer Square Capital Management LLC. The CLOs were issued in 2018,
2019, and 2020 and are securitized by static pools of primarily
first-lien, senior secured leveraged loans.
KEY RATING DRIVERS
Capital Structure Deleveraging
The upgrades are due to the deleveraging of the capital structures
in each static CLO, primarily driven by loan prepayments and
resulting in elevated credit enhancement (CE) levels for all rated
tranches. As of the July 2021 trustee report, between 21% and 79%
of the original class A-1 note balance for each transaction has
amortized since closing. Therefore, Fitch conducted updated cash
flow model analyses for all 10 CLOs to support its rating actions.
Cash Flow Analysis
All rating actions were in line with the model-implied ratings
(MIRs) produced under standard assumptions outlined in Fitch's CLOs
and Corporate CDOs Rating Criteria. The analyses were based on the
current portfolios and evaluated the combined impact of
deleveraging, rating migration and changes in the portfolios'
weighted average spreads and lives as compared with initial
metrics.
Fitch also performed an additional sensitivity scenario to
determine the notes' resilience to potential near-term rating
volatility. In the scenario, ratings for half of the current
issuers with a Fitch-derived rating with a Negative Outlook were
lowered one notch with a floor of 'CCC-'. The MIRs produced in the
sensitivity scenario are also generally in line with the notes'
current ratings, with some marginal failures limited to back-loaded
defaults in rising interest rate scenarios. Fitch gave less weight
to these scenarios and assigned Stable Outlooks for the notes. The
Stable Outlooks reflect Fitch's expectation that the classes have
sufficient levels of credit protection to withstand potential
deterioration in the credit quality of the portfolios in stress
scenarios commensurate with such a class's rating.
Credit Quality, Asset Security, Portfolio Composition and Portfolio
Management
The Fitch weighted average rating factor of all transactions in
this review ranged from 31.0 (B+/B) to 36.7 (B/B-), averaging 33.4.
The current portfolios, excluding principal cash amounts, consist
of 97% to 99% first lien senior secured loans, and there were no
defaulted assets. The Fitch weighted average recovery rate of the
portfolios averaged 76%. Portfolios remained diversified, with
obligor counts ranging from 124 to 225 and the weight of top 10
obligors ranging from 8% to 16% of their respective portfolios.
Given the static nature of the pools, portfolio management was
confined to a limited number of credit risk sales since the prior
review, contributing to minimal par losses and not considered a key
rating driver. All overcollateralization and interest coverage
tests are passing for each CLO.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A 25% reduction of the mean default rate across all ratings,
along with a 25% increase of the recovery rate at all rating
levels, would lead to upgrades (based on model-implied
ratings) of: two rating categories for the class D notes in
PSLF 2019-3, PSLF 2019-4, PSLF 2020-1, PSLF 2020-2, and PSLF
2020-4, the class E notes in PSLF 2018-3 and PSLF 2019-2, and
the class B notes in PSLF 2019-1; and one rating category for
all other notes except for the class C notes in PSLF 2019-1,
PSLF 2019-3, PSLF 2019-4, PSLF 2020-2, PSLF 2020-4, and all
class A-1 and A-2 notes, which would incur no rating impact.
The upgrade scenario is not applicable to the class A-1 and A
2 notes in the transactions, as their ratings are at the
highest level on Fitch's scale and cannot be upgraded.
-- Upgrades may occur in the event of better-than-expected
portfolio credit quality and deal performance from initial
portfolio analysis, leading to higher notes' CE and excess
spread available to cover for losses on the remaining
portfolio. For more information on the initial model-implied
rating sensitivities, see the new issue reports for each of
the CLO transactions included in this review.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A 25% increase of the mean default rate across all ratings,
along with a 25% decrease of the recovery rate at all rating
levels, would lead to downgrades (based on the model-implied
ratings) of: more than two rating categories for the class E
notes in PSLF 2019-3; two rating categories for the class D
notes in PSLF 2018-3, PSLF 2018-4, PSLF 2018-5, PSLF 2019-1,
and PSLF 2019-2, the class E notes in PSLF 2018-4, PSLF 2019-2
and PSLF 2020-4, and the class C notes in PSLF 2018-4, PSLF
2019-1, PSLF 2019-2, PSLF 2019-3, PSLF 2019-4, PSLF 2020-2,
and PSLF 2020-4; and one rating category for all other notes,
except for all class A-1 notes, the class A-2 notes in PSLF
2018-3, PSLF 2018-4, PSLF 2018-5, PSLF 2019-1, and PSLF 2019-
2, and the class B notes in PSLF 2019-1, which would incur no
rating impact.
-- Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' CE do not compensate for the higher loss expectation
than initially anticipated.
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.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured
finance, one or more of the transaction parties participated in the
rating process except that the following issuer(s), if any, did not
participate in the rating process, or provide additional
information, beyond the issuer’s available public disclosure.
PARALLEL 2019-1: S&P Affirms 'BB- (sf)' Rating on Class E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its ratings to the class A-1-R, B-R,
C-R, and D-R replacement notes from Parallel 2019-1 Ltd./Parallel
2019-1 LLC, a CLO originally issued in 2019 that is managed by
DoubleLine Capital L.P. At the same time, S&P withdrew its ratings
on the original class A-1, B-1, B-2, C, and D notes following
payment in full on the Aug. 5, 2021, refinancing date. S&P Global
Ratings did not rate the original class A-2 notes and will not rate
the replacement class A-2-R notes. S&P also affirmed its ratings on
the class E and X notes, which were not refinanced.
The replacement notes were issued via a supplemental indenture,
which outlines the terms of the replacement notes. According to the
supplemental indenture, the non-call period will be extended to
August 2022.
Replacement And Original Note Issuances
Replacement notes
Class A-1-R, $244.00 million: Three-month LIBOR + 1.12%
Class A-2-R, $16.00 million: Three-month LIBOR + 1.50%
Class B-R, $42.00 million: Three-month LIBOR + 1.80%
Class C-R, $26.00 million: Three-month LIBOR + 2.30%
Class D-R, $20.00 million: Three-month LIBOR + 3.45%
Original notes
Class A-1, $244.00 million: Three-month LIBOR + 1.36%
Class A-2, $16.00 million: Three-month LIBOR + 1.75%
Class B-1, $10.00 million: Three-month LIBOR + 2.00%
Class B-2, $32.00 million: 4.00%
Class C, $26.00 million: Three-month LIBOR + 3.05%
Class D, $20.00 million: Three-month LIBOR + 4.20%
Class E, $17.00 million: Three-month LIBOR + 6.72%
Class X, $0.375 million: Three-month LIBOR + 0.65%
Subordinated notes, $38.25 million: Not applicable
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 the
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. The results of the cash
flow analysis (and other qualitative factors, as applicable)
demonstrated, in our view, that the outstanding rated classes all
have adequate credit enhancement available at the rating levels
associated with the rating actions.
"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
Parallel 2019-1 Ltd./Parallel 2019-1 LLC
Class A-1-R, $244.00 million: AAA (sf)
Class B-R, $42.00 million: AA (sf)
Class C-R (deferrable), $26.00 million: A (sf)
Class D-R (deferrable), $20.00 million: BBB- (sf)
Ratings Affirmed
Parallel 2019-1 Ltd./Parallel 2019-1 LLC
Class X: 'AAA (sf)'
Class E: 'BB- (sf)'
Subordinated notes: NR
Ratings Withdrawn
Parallel 2019-1 Ltd./Parallel 2019-1 LLC
Class A-1 to NR from 'AAA (sf)'
Class B-1 to NR from 'AA (sf)'
Class B-2 to NR from 'AA (sf)'
Class C to NR from 'A (sf)'
Class D to NR from 'BBB- (sf)'
NR--Not rated.
PPM CLO 2018-1: Moody's Raises Rating on $20.4MM E Notes to Ba3
---------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by PPM CLO 2018-1 Ltd. (the "CLO" or "Issuer"):
US$19,000,000 Class B-1 Fixed Rate Notes due 2031 (the "Class B-1
Notes"), Upgraded to Aa1 (sf); previously on August 3, 2018
Assigned Aa2 (sf)
US$29,000,000 Class B-2 Floating Rate Notes due 2031 (the "Class
B-2 Notes"), Upgraded to Aa1 (sf); previously on August 3, 2018
Assigned Aa2 (sf)
US$20,400,000 Class E Deferrable Floating Rate Notes due 2031 (the
"Class E Notes"), Upgraded to Ba3 (sf); previously on September 2,
2020 Downgraded to B1 (sf)
The CLO, originally issued in August 2018, is a managed cashflow
CLO. The notes are collateralized primarily by a portfolio of
broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in July 2023.
RATINGS RATIONALE
The deal has benefited from an improvement in the credit quality of
the portfolio. Based on the trustee's July 2021 report [1], the
weighted average rating factor is currently 3010, compared to 3188
in trustee's July 2020 report [2].
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
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: $393,532,721
Defaulted par: $0
Diversity Score: 86
Weighted Average Rating Factor (WARF): 2895
Weighted Average Spread (WAS) (before accounting for LIBOR floors):
3.48%
Weighted Average Recovery Rate (WARR): 47.72%
Weighted Average Life (WAL): 6.02 years
In addition to the base case analysis, Moody's conducted a number
of additional sensitivity analyses representing a range of outcomes
that could diverge from Moody's base case. Some of the additional
scenarios that Moody's considered in its analysis of the
transaction include 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.
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. The Manager's investment
decisions and management of the transaction will also affect the
performance of the rated notes.
PROGRESS RESIDENTIAL 2021-SFR7: DBRS Finalizes B Rating on G Certs
------------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Single-Family Rental Pass-Through Certificates (the Certificates)
issued by Progress Residential 2021-SFR7 Trust (PROG 2021-SFR7):
-- $129.0 million Class A at AAA (sf)
-- $40.4 million Class B at AA (high) (sf)
-- $19.2 million Class C at A (high) (sf)
-- $22.1 million Class D at A (low) (sf)
-- $35.6 million Class E-1 at BBB (sf)
-- $16.4 million Class E-2 at BBB (low) (sf)
-- $56.8 million Class F at BB (low) (sf)
-- $17.3 million Class G at B (sf)
The AAA (sf) rating on the Class A Certificates reflects 64.7% of
credit enhancement provided by subordinated notes in the pool. The
AA (high) (sf), A (high) (sf), A (low) (sf), BBB (sf), BBB (low)
(sf), BB (low) (sf), and B (sf) ratings reflect 53.7%, 48.4%,
42.4%, 32.6%, 28.2%, 12.6%, and 7.9% credit enhancement,
respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
PROG 2021-SFR7's 1,414 properties are in nine states, with the
largest concentration by broker price opinion value in Florida
(25.6%). The largest metropolitan statistical area (MSA) by value
is Phoenix (21.3%), followed by Atlanta (16.8%). 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 57.6%. PROG 2021-SFR7
has properties from 15 MSAs, many of which experienced dramatic
home price index declines in the housing crisis of 2008.
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's analysis includes estimated
base-case net cash flows (NCFs) by evaluating the gross rent,
concession, vacancy, operating expenses, and capital expenditure
data. The DBRS Morningstar NCF analysis resulted in a minimum debt
service coverage ratio of higher than 1.0 times.
Notes: All figures are in U.S. dollars unless otherwise noted.
RATE MORTGAGE 2021-J2: Fitch to Rate Class B-6 Certs 'B(EXP)'
-------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by RATE Mortgage Trust 2021-J2 (RATE 2021-J2).
The pool is backed by prime collateral and the transaction is
scheduled to close on Aug. 18, 2021.
DEBT RATING
---- ------
RATE 2021-J2
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-X-1 LT AA(EXP)sf Expected Rating
B-2 LT A(EXP)sf Expected Rating
B-2A LT A(EXP)sf Expected Rating
B-X-2 LT A(EXP)sf Expected Rating
B-3 LT BBB(EXP)sf Expected Rating
B-4 LT BBB(EXP)sf Expected Rating
B-5 LT BB(EXP)sf Expected Rating
B-6 LT B(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 431 loans with a total balance of
approximately $401.07 million as of the cutoff date. The pool
consists of prime fixed-rate mortgages originated by Guaranteed
Rate, Inc. Distributions of principal and interest and loss
allocations are based on a senior-subordinate, shifting-interest
structure.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The collateral consists of
431 loans, totaling $401.07 million, and seasoned approximately
three months in the aggregate (calculated as the difference between
origination date and first pay date). The borrowers have a strong
credit profile (783 FICO and 32% DTI) and moderate leverage (78%
sLTV). The pool consists of 93.1% of loans where the borrower
maintains a primary residence, while 6.9% comprise a second home,
or loans made to non-permanent resident aliens treated as
investment properties. Additionally, 100% of the loans were
originated through a retail channel and 100% are designated as Safe
Harbor qualified mortgage (QM).
Interest Reduction Risk (Negative): The transaction incorporates a
structural feature for loans more than 120 days delinquent (a
stop-advance loan). Unpaid interest on stop-advance loans reduces
the amount of interest that is contractually due to bondholders in
reverse-sequential order. While this feature helps limit cash flow
leakage to subordinate bonds, it can result in interest reductions
to rated bonds in high-stress scenarios. A key difference with this
transaction, compared to other programs that treat stop-advance
loans similarly, is that liquidation proceeds are allocated to
interest before principal. As a result, Fitch included the full
interest carry in its loss projections and views the risk of
permanent interest reductions as lower than other programs with a
similar feature.
Low Operational Risk (Positive): Operational risk is well
controlled for in this transaction. Guaranteed Rate is assessed as
an 'Average' originator and is contributing all of the loans to the
pool. The originator has a robust origination strategy and
maintains experienced senior management and staff, strong risk
management and corporate governance controls and a robust due
diligence process. Primary servicing functions will be performed by
Service Mac. Fitch conducted an abbreviated review and determined
the servicer meets the industry standards necessary to effectively
subservice mortgage loans.
Credit Enhancement (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 subordinate classes. The floor is sufficient to
protect against the five largest loans defaulting at Fitch's
'AAAsf' average loss severity of 46%.
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 an additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to its macroeconomic baseline scenario or if
actual performance data indicate the current assumptions require
reconsideration. In response to revisions 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 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 - June 2021" and related baseline
economic scenario forecasts have been revised to 6.8% U.S. GDP
growth for 2021 and 3.9% for 2022 following the negative 3.5% GDP
rate in 2020. Additionally, Fitch's U.S. unemployment forecasts for
2021 and 2022 are 5.6% and 4.5%, respectively, down from 8.1% in
2020. These revised forecasts support Fitch reverting to the 1.5
and 1.0 ERF floors described in its "U.S. RMBS Loan Loss Model
Criteria."
RATING SENSITIVITIES
Fitch's analysis incorporates a sensitivity analysis to demonstrate
how the ratings would react to steeper market value declines (MVDs)
than assumed at the MSA level. The implied rating sensitivities are
only an indication of some of the potential outcomes and do not
consider other risk factors that the transaction may become exposed
to or may be considered in the surveillance of the transaction.
Three sets of sensitivity analyses were conducted at the state and
national levels to assess the effect of higher MVDs for the subject
pool.
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 39.3% 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.
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 Consolidated Analytics. The third-party due diligence
described in Form 15E focused on a credit, compliance and property
valuation review. Fitch considered this information in its analysis
and, as a result, Fitch made the following adjustment(s) to its
analysis: a 5% default reduction at the loan level. This adjustment
resulted in a 20bps reduction to the 'AAAsf' expected loss.
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."
Consolidated Analytics was engaged to perform the review. Loans
reviewed under this engagement were given compliance, credit and
valuation grades and assigned initial grades for each subcategory.
Minimal exceptions and waivers were noted in the due diligence
reports. Refer to the Third-Party Due Diligence section of this
report for further details.
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
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.
RATE MORTGAGE 2021-J2: Moody's Assigns (P)B3 Rating to B-5 Certs
----------------------------------------------------------------
Moody's Investors Service assigned provisional ratings to 82
classes of residential mortgage-backed securities (RMBS) issued by
RATE Mortgage Trust 2021-J2. The ratings range from (P)Aaa (sf) to
(P)B3 (sf).
RATE 2021-J2 is the second issue from Guaranteed Rate, Inc.
(Guaranteed Rate or GRI), the sponsor of the transaction. RATE
2021-J2 is a securitization of first-lien prime jumbo and agency
eligible mortgage loans.
The transaction is backed by 337 (83.4% by unpaid principal
balance) and 94 (16.6% by unpaid principal balance) 30-year fixed
rate prime jumbo and agency eligible mortgage loans, respectively,
with an aggregate stated principal balance of $401,074,809. All the
loans in the pool are originated by Guaranteed Rate and are
designated as Qualified Mortgages (QM) either under the QM safe
harbor (per the original (old) QM rule) or the GSE temporary
exemption under the Ability-to-Repay (ATR) rules. Borrowers of the
mortgage loans backing this transaction have strong credit profiles
demonstrated by strong credit scores and low loan-to-value (LTV)
ratios. No borrower under any mortgage loan is currently in an
active COVID-19 related forbearance plan with the servicer. All
mortgage loans are current as of the cut-off date.
Similar to RATE 2021-J1 transaction, RATE 2021-J2 contains a
structural deal mechanism according to which the servicing
administrator will not advance principal and interest (P&I) to
mortgage loans that are 120 days or more delinquent. Here, the
servicing administrator will be responsible for funding any advance
of delinquent monthly payments of principal and interest due but
not received by the servicer on the mortgage loans. The sponsor and
the servicing administrator are the same party, GRI.
One TPR firm verified the accuracy of the loan level information
that Moody's received from the sponsor. This firm conducted
detailed credit, property valuation, data accuracy and compliance
reviews on 431 (100%) mortgage loans in the collateral pool.
ServiceMac, LLC (ServiceMac) will service all of the Mortgage Loans
as of the cut-off Date. Wells Fargo Bank, N.A. (Wells Fargo) will
be the master servicer. Moody's consider the presence of a strong
master servicer to be a mitigant against the risk of any servicing
disruptions.
The transaction 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.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model.
The complete rating actions are as follows:
Issuer: RATE Mortgage Trust 2021-J2
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)Aa1 (sf)
Cl. A-32, Assigned (P)Aa1 (sf)
Cl. A-33, Assigned (P)Aa1 (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)Aa1 (sf)
Cl. A-X-33*, Assigned (P)Aa1 (sf)
Cl. A-X-34*, Assigned (P)Aa1 (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-1A, Assigned (P)Aa3 (sf)
Cl. B-X-1*, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A3 (sf)
Cl. B-2A, Assigned (P)A3 (sf)
Cl. B-X-2*, Assigned (P)A3 (sf)
Cl. B-3, Assigned (P)Baa3 (sf)
Cl. B-4, Assigned (P)Ba3 (sf)
Cl. B-5, Assigned (P)B3 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
0.26%, in a baseline scenario-median is 0.12%, and reaches 3.02% at
a stress level consistent with Moody's Aaa ratings.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of US RMBS as the US economy continues on
the path toward normalization. Economic activity will continue to
strengthen in 2021 because of several factors, including the
rollout of vaccines, growing household consumption and an
accommodative central bank policy. However, specific sectors and
individual businesses will remain weakened by extended pandemic
related restrictions.
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
10.00% (6.04% 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 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, the strength of the TPR and the representations and
warranties (R&W) framework, and the transaction's legal structure
and documentation.
Collateral Description
In general, the borrowers have high FICO scores, high income,
significant liquid assets and a stable employment history, all of
which have been verified as part of the underwriting process and
reviewed by the TPR firm. All the loans were originated through the
retail channel. The borrowers have a high weighted average total
monthly income of $27,912, significant weighted average liquid cash
reserves of $335,654 (approximately 75.5% of the pool has more than
24 months of mortgage payments in reserve), and sizeable equity in
their properties (weighted average LTV of 72.9%, CLTV of 73.4%).
The pool has approximately 1.5 months of seasoning as of August 1,
2021, and all loans have been current since origination. All of the
mortgages loans in RATE 2021-J2 are qualified mortgages (QM)
meeting the requirements of the safe harbor provision under the QM
safe harbor (per the original (old) QM rule) or the GSE temporary
exemption under the Ability-to-Repay (ATR) rules.
Origination Quality
Guaranteed Rate has originated 100% of the loan pool. Moody's
consider Guaranteed Rate to be an acceptable originator of agency
eligible and prime jumbo loans following a detailed review of its
underwriting guidelines, quality control processes, policies and
procedures, technology infrastructure, disaster recovery plan, and
historical performance information relative to its peers.
Therefore, Moody's did not apply a separate adjustment for
origination quality.
Founded in 2000 by Victor Ciardelli, Guaranteed Rate is the largest
non-bank jumbo mortgage originator in the U.S. and 3rd largest
retail originator overall (as of Q1 2021). Headquartered in
Chicago, the company has approximately 350+ branch offices across
the U.S. and is licensed in all 50 states and Washington, D.C. The
company employs over 6,500 employees nationwide. In 2020 Guaranteed
Rate funded nearly $74B in total loan volume ($9B from jumbo
loans), up 100% from 2019. The company invests heavily in
technology. Guaranteed Rate originates primarily through its retail
channels and focuses primarily on purchase, agency eligible loans.
The company is an approved Ginnie Mae, Fannie Mae, and Freddie Mac
lender.
Servicing Arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate. ServiceMac has the necessary processes, staff,
technology and overall infrastructure in place to effectively
service a transaction. Wells Fargo is responsible for servicer
oversight, the termination of servicers and the appointment of
successor servicers. Moody's consider the presence of an
experienced master servicer such as Wells Fargo to be a mitigant
for any servicing disruptions. Wells Fargo has been engaged in the
business of master servicing for over 20 years. 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.
Third-Party Review
The transaction benefits from a TPR on 100% of the loans for
regulatory compliance, credit and property valuation. 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. The loans that had exceptions to the originator's
underwriting guidelines had significant compensating factors that
were documented. The TPR identified 36 level B grades in its review
of the original 432 loans, 1 level C grade and no level D grades.
One loan that was assigned a level C grade was because the
third-party desk review variance to appraised value exceeded -10%
threshold.
Representations & Warranties
Moody's evaluate the R&W framework based on three factors: (a) the
financial strength of the remedy 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 independent due diligence, custodial receipt,
and property valuations, as well as any sponsor alignment of
interest, to evaluate the overall exposure to loan defects and
inaccurate information. Overall, Moody's consider the R&W framework
for this transaction to be adequate, generally consistent with that
of other prime jumbo transactions which Moody's rated. However,
Moody's applied an adjustment to Moody's losses to account for the
risk that the R&W provider (unrated) may be unable to repurchase
defective loans in a stressed economic environment.
Transaction Structure
RATE 2021-J2 has one pool with a shifting interest structure that
benefits from a subordination 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.
Similar to the recently rated RATE 2021-J1 transaction, RATE
2021-J2 contains a structural deal mechanism according to which the
servicing administrator will not advance principal and interest to
loans that are 120 days or more delinquent. Although this feature
lowers the risk of high advances that may negatively affect the
recoveries on liquidated loans, the reduction in interest
distribution amount is credit negative to the subordinate
certificates.
The balance and the interest accrued on these "Stop Advance
Mortgage Loans (SAML)" will be removed from the calculation of the
principal and interest distribution amounts with respect to the
seniors and subordinate bonds. The interest distribution amount
will be reduced by the interest accrued on the SAML loans. This
reduction will be allocated first to the subordinate certificates
and then to the senior certificates in the reverse order of payment
priority. In the case of the senior certificates, such reduction in
distribution amounts, are allocated (i) first to the senior support
(including the linked interest-only classes) and (ii) then to the
super senior classes (including the linked interest-only classes),
on a pro rata basis.
Once a SAML is liquidated, the net recovery from that loan's
liquidation is included in available funds and thus follows the
transaction's priority of payment. However, the reimbursement of
stop advance shortfalls happens only after liquidation or curing of
SAML. As a result, higher delinquencies could lead to higher
shortfalls especially for the subordinate bonds as compared to a
transaction without the stop advance feature.
While the transaction is backed by collateral with strong credit
characteristics, Moody's considered scenarios in which the
delinquency pipeline rises, especially due to the current
coronavirus environment, and results in higher shortfalls for the
certificates outstanding. In Moody's analysis, Moody's have
considered the additional interest shortfall that the certificates
may incur due to the transaction's stop-advance feature.
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 1.15% of the cut-off date pool
balance, and as subordination lockout amount of 1.15% 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.
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 August 2021.
READY CAPITAL 2021-FL6: DBRS Gives Prov. B(low) Rating on G Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Ready Capital Mortgage Financing 2021-FL6,
LLC (the Issuer).
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable
The initial collateral consists of 52 short-term, floating-rate
mortgage assets with an aggregate cutoff date balance of $652.5
million secured by 55 mortgaged properties. The aggregate unfunded
future funding commitment of the future funding participations as
of the cutoff date is approximately $87.8 million. The holder of
the future funding companion participations, Ready Capital
Subsidiary REIT I, LLC, has full responsibility to fund the future
funding companion participations. The collateral pool for the
transaction is static with no ramp-up period or reinvestment
period. However, the Issuer has the right to use principal proceeds
to acquire fully funded future funding participations subject to
stated criteria during the Permitted Funded Companion Participation
Acquisition Period, which ends on or about July 2023 (subject to a
120-day extension for binding commitments entered during the
Permitted Funded Companion Participation Acquisition Period).
Acquisitions of future funding participations of $1.0 million or
greater will require rating agency confirmation. Interest can be
deferred for the Class F and Class G notes, and interest deferral
will not result in an event of default. The transaction will have a
sequential-pay structure.
Of the 55 properties, 49 are multifamily assets (92.5% of the
mortgage asset cutoff date balance). Four of the remaining loans
(1791 Mt. Zion Road, Trolley Two, Trolley Industrial, and 184
Courtright Street) are secured by industrial properties (5.3% of
the mortgage asset cutoff date balance). One of the remaining
loans, Rolling Hills, is secured by an anchored retail property
(1.5%); the other remaining loan (Station West) is secured by a
mixed-use property (0.7%).
The loans are mostly secured by cash flowing assets, most of which
are in a period of transition with plans to stabilize and improve
the asset value. One loan, 1900 Euclid Lofts, is a whole loan and
the other 51 loans (99.2% of the mortgage asset cutoff date
balance) are participations with companion participations that have
remaining future funding commitments totaling $87.8 million. The
future funding for each loan is generally to be used for capital
expenditures to renovate the property or build-out space for new
tenants. Please see the chart below for loans with future funding
companion commitments and their uses. All of the loans in the pool
have floating interest rates initial indexed to Libor. Fifty-one
loans are IO through their initial terms; one loan, Trolley Two, is
IO for the first 35 months of its 48 initial loan term and then
amortizes on a 360-month schedule thereafter. As such, to determine
a stressed interest rate over the loan term, DBRS Morningstar used
the one-month Libor index, which was the lower of DBRS
Morningstar's stressed rates that corresponded to the remaining
fully extended term of the loans and the strike price of the
interest rate cap with the respective contractual loan spread
added. The properties are often transitioning with potential upside
in cash flow; however, DBRS Morningstar does not give full credit
to the stabilization if there are no holdbacks or if the other loan
structural features are insufficient to support such treatment.
Furthermore, even if the structure is acceptable, DBRS Morningstar
generally does not assume the assets will stabilize above market
levels.
The transaction is sponsored by Ready Capital Corporation, a
publicly traded mortgage REIT, externally managed by Waterfall
Asset Management, LLC., a New York-based SEC-registered investment
advisor. The sponsor has strong origination practices and
substantial experience in originating loans and managing commercial
real estate properties, with an emphasis on small business lending.
The sponsor has provided more than $8.3 billion in capital across
all of its commercial real estate lending programs through July 1,
2021 (approximately $2.0 billion in 2021), and generally lends from
$2.0 million to $45 million for commercial real estate loans.
The Depositor, Ready Capital Mortgage Depositor VI, LLC., which is
a majority-owned affiliate and subsidiary of the sponsor, expects
to retain the Class F, G, and H Notes, collectively representing
the most subordinate 18.5% of the transaction by principal
balance.
The pool is mostly composed of multifamily assets (92.5% of the
mortgage asset cutoff date balance). Historically, multifamily
properties have defaulted at much lower rates than other property
types in the overall CMBS universe.
The DBRS Morningstar Business Plan Scores (BPS) for loans analyzed
by DBRS Morningstar ranged between 1.53 and 3.08, with an average
of 2.08. Higher DBRS Morningstar BPS indicate 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 of the business plan. Compared with similar
transactions, the subject has a low average business plan score,
which is indicative of lower risk.
As no loans in the pool were originated prior to the onset of the
Coronavirus Disease (COVID-19) pandemic, the weighted-average (WA)
remaining fully extended term is 59 months, which gives the Sponsor
enough time to execute its business plans without risk of imminent
maturity. In addition, the appraisal and financial data provided
are reflective of conditions after the onset of the pandemic.
Acquisition Financing: Forty-nine loans, representing 95.7% of the
pool balance, represent acquisition financing. Acquisition
financing generally requires the respective sponsor(s) to
contribute material cash equity as a source of funding in
conjunction with the mortgage loan, resulting in a higher sponsor
cost basis in the underlying collateral and aligns the financial
interests between the sponsor and lender.
DBRS Morningstar has concluded to a stabilized cash flow that is,
in some instances, above the in-place cash flow. It is possible
that a related loan sponsor will not successfully execute its
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. The
loan sponsor's failure to execute the business plans 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 73.9% of the pool cutoff date balance.
DBRS Morningstar made relatively conservative stabilization
assumptions and, in each instance, considered the business plans to
be rational and the loan structure to be sufficient to
substantially implement such plans. In addition, DBRS Morningstar
analyzes loss given default based on the as-is credit metrics,
assuming the loan is fully funded with no net cash flow or value
upside. Future funding companion participations will be held by
affiliates of Ready Capital Subsidiary REIT I, LLC and have the
obligation to make future advances. Ready Capital Subsidiary REIT
I, LLC agrees to indemnify the Issuer against losses arising out of
the failure to make future advances when required under the related
participated loan. Furthermore, Ready Capital Subsidiary REIT I,
LLC will be required to meet certain liquidity requirements on a
quarterly basis.
Twenty-two loans, comprising 56.5% of the trust balance, are
located within DBRS Morningstar MSA Group 1. Historically, loans
located within this MSA Group have demonstrated higher
probabilities of default (POD), resulting in higher individual loan
level expected losses than the weighted-average (WA) pool expected
loss. Loans within MSA Group 1 are in markets with a WA DBRS
Morningstar Market Rank of 3.8. More specifically, three of the 12
loans (7.4% of pool) are located within a DBRS Morningstar Market
Rank 5 or higher. Overall, 13 loans, representing 19.3% of the
trust balance, are located within a DBRS Morningstar Market Rank 5
or higher.
Twenty-one loans, representing 45.8% of the trust balance, have
DBRS Morningstar As-Is Loan-to-Value Ratios (LTVs) greater than
85.0%, which represents significantly high leverage. Six of those
loans, 27.3% of the trust balance, are among the 10 largest loans
in the pool. All 21 loans were originated in 2021 and have
sufficient time to reach stabilization. Additionally, all the loans
have DBRS Morningstar Stabilized LTVs of less than 72.0%,
indicating improvements to value based on the related sponsors'
business plans. The WA DBRS Morningstar Stabilized LTV for the pool
is 65.5% and there are no loans with a DBRS Morningstar Stabilized
LTV of greater than 76.0%. In addition, 20 of the loans (45.2% of
the trust balance) are acquisition financing, with the sponsor
contributing a considerable amount of cash equity at closing.
All 52 loans have floating interest rates, and 51 loans are IO
during the original term with original terms of 15 months to 60
months, creating interest-rate risk. Forty-six loans (76.9% of
mortgage asset cutoff date balance) amortize during extension
options. All loans are short-term loans and, even with extension
options, they have a fully extended maximum loan term of five
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 borrowers of 42
(96.8% of mortgage asset cutoff date balance) floating-rate loans
have purchased Libor rate caps with strike prices that range from
0.25% to 2.50% to protect against rising interest rates through the
duration of the loan term. In addition to the fulfillment of
certain minimum performance requirements, exercising any extension
options would also require the repurchase of interest rate cap
protection through the duration of the respectively exercised
option.
Lack of Site Inspections: DBRS Morningstar conducted no management
tours because of health and safety constraints associated with the
ongoing coronavirus pandemic. As a result, DBRS Morningstar relied
more heavily on third-party reports, online data sources, and
information provided by the Issuer to determine the overall DBRS
Morningstar property quality assigned to each loan. Recent
third-party reports were provided for all loans and contained
property quality commentary and photos.
Environmental Concerns: Two loans in the pool, Trolley Two (1.5% of
the trust balance) and Trolley Industrial (0.95%) have outstanding
environmental issues. In the case of Trolley Two, the Phase I
Environmental Site Assessment (ESA ) identified an Recognized
Environmental Condition (REC ) resulting from the property's
historical use as an unregistered nonhazardous solid waste landfill
site with identified concentrations of hazardous substances
exceeding Generic Residential Cleanup Criteria (GRCC) for
unrestricted property use. For Trolley Industrial, Phase I ESA
identified several RECs, including two underground storage tanks
that were previously removed from the property; the presence of
phenanthrene, acetone, arsenic, cadmium, chromium, selenium,
silver, and zinc above GRCC; the presence of arsenic, chromium,
mercury, and selenium in soil and groundwater above the GRCC at an
adjacent property, as well as methane gas in the soil at
concentrations representing a potential flammability/explosivity
condition; and the presence of a rail spur. The Phase I ESA
recommended a limited subsurface investigation to determine whether
there was soil, soil vapor, and/or groundwater contamination as a
result of the property's historical use and the former underground
storage tanks. The Phase II subsurface investigation determined
that off-site soil gas had not migrated onto the property. For both
properties, the environmental reports recommended the preparation
of a Baseline Environmental Assessments (BEA) and Due Care Plans
(DCP). The BEA and the DCP for the Trolley Two property were
completed in February 2021 indicating that current on-site human
health exposure concerns were identified. For the Trolley
Industrial Property, the related sponsor has engaged an
environmental engineer to prepare the BEA and DCP and to undertake
further evaluation of Volatilization to Indoor Air Pathway
screening, both of which remain in process. DBRS Morningstar
modeled both these loans with a Property Quality Score of Poor, and
consequently a higher POD, and elevated DBRS Morningstar BPS of
3.08, resulting in higher loan level expected losses compared with
the WA pool expected loss.
Notes: All figures are in U.S. dollars unless otherwise noted.
SATURNS SPRINT 2003-2: S&P Raises Class B Units Rating to 'BB+'
---------------------------------------------------------------
S&P Global Ratings raised its rating on Structured Asset Trust Unit
Repackagings (SATURNS) Sprint Capital Corp. Debenture Backed Series
2003-2's $30 million class B callable units to 'BB+' from 'BB'.
The rating on the units is dependent solely on the rating on the
underlying security, Sprint Capital Corp.'s 8.75% notes due March
15, 2032 ('BB+').
The rating action reflects the Aug. 3, 2021, raising of our rating
on the underlying security to 'BB+' from 'BB'.
S&P may take subsequent rating actions on this transaction if its
rating on the underlying security changes.
TCW CLO 2019-1: S&P Assigns Prelim B-(sf) Rating on Class FR Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to the class
XR, ASNR, AJR, AJFR, BR, CR, CFR, DR, ER, and FR replacement notes
from TCW CLO 2019-1 AMR Ltd./TCW CLO 2019-1 AMR LLC, a CLO
originally issued in February 2019 that is managed by TCW Asset
Management Company LLC.
The preliminary ratings are based on information as of Aug. 11,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
On the August 16, 2021 refinancing date, the proceeds from the
replacement notes will be used to redeem the original notes. S&P
said, "At that time, we expect to withdraw our ratings on the
original notes and assign ratings to the replacement notes.
However, if the refinancing doesn't occur, we may affirm our
ratings on the original notes and withdraw our preliminary ratings
on the replacement notes."
The replacement notes will be issued via a proposed supplemental
indenture, which outlines the terms of the replacement notes.
According to the proposed supplemental indenture:
-- The replacement class XR, ASNR, BR, and DR notes are expected
to be issued at a higher spread over three-month LIBOR than the
original notes.
-- The replacement class ER and FR notes are expected to be issued
at a lower spread over three-month LIBOR than the original notes.
-- The replacement class AJR and AJFR notes are expected to be
issued at a floating spread over three-month LIBOR and fixed
coupon, respectively, replacing the current floating spread over
three-month LIBOR.
-- The replacement class CR and CFR notes are expected to be
issued at a floating spread over three-month LIBOR and fixed
coupon, respectively, replacing the current floating spread over
three-month LIBOR.
-- The non-call period is expected to be extended by approximately
3.5 years, while the stated maturity and the reinvestment period
are expected to be extended by approximately 5.5 years.
-- It is expected that there will be no additional Z1, Z2, or
subordinated notes issued in connection with this refinancing;
however, the stated maturities are expected to be amended to match
that of the replacement notes.
-- The transaction is expected to amend its ability to purchase
workout-related assets and is also conforming to updated rating
agency methodology. In addition, the transaction is expected to
amend the required minimums on the overcollateralization tests as
well as adding the ability to purchase bonds.
-- The class XR notes are expected to be issued in connection with
this refinancing. These notes are expected to be paid down using
interest proceeds during the first 15 payment dates beginning with
the payment date in November 2021.
-- Of the identified underlying collateral obligations, 100.00%
have credit ratings assigned by S&P Global Ratings.
-- Of the identified underlying collateral obligations, 95.68%
have recovery ratings assigned by S&P Global Ratings.
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."
Preliminary Ratings Assigned
TCW CLO 2019-1 AMR Ltd./TCW CLO 2019-1 AMR LLC
Class XR, $4.00 million: AAA (sf)
Class ASNR, $241.00 million: AAA (sf)
Class AJR, $11.00 million: AAA (sf)
Class AJFR, $5.00 million: AAA (sf)
Class BR, $48.00 million: AA (sf)
Class CR (deferrable), $20.25 million: A (sf)
Class CFR (deferrable), $4.00 million: A (sf)
Class DR (deferrable), $24.00 million: BBB- (sf)
Class ER (deferrable), $14.00 million: BB- (sf)
Class FR (deferrable), $4.00 million: B- (sf)
Class Z1 (deferrable), $0.40 million: Not rated
Class Z2 (deferrable), $0.40 million: Not rated
Subordinated notes, $30.60 million: Not rated
TICP CLO XII: S&P Assigns Prelim BB- (sf) Rating on Class E-R Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to TICP CLO XII
Ltd./TICP CLO XII 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+' or lower) senior secured term loans.
The transaction is managed by TICP CLO XII Management LLC.
The preliminary ratings are based on information as of Aug. 10,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The diversification of the collateral pool.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
TICP CLO XII Ltd./TICP CLO XII LLC
Class X, $3.30 million: AAA (sf)
Class A-R, $248.00 million: AAA (sf)
Class B-R, $56.00 million: AA (sf)
Class C-R, $24.00 million (deferrable): A (sf)
Class D-R, $24.00 million (deferrable): BBB- (sf)
Class E-R, $13.40 million (deferrable): BB- (sf)
Subordinated notes, $43.20 million: Not rated
TOWD POINT 2021-SL1: DBRS Gives Prov. B Rating on Class F Notes
---------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Towd Point Asset Trust 2021-SL1 (TPAT
2021-SL1):
-- $239,113,000 Class A1 Notes rated AAA (sf)*
-- $239,113,000 Class A2 Notes rated AAA (sf)*
-- $54,707,000 Class B Notes rated AA (low) (sf)
-- $25,202,000 Class C Notes rated A (low) (sf)
-- $19,670,000 Class D Notes rated BBB (low) (sf)
-- $14,753,000 Class E Notes rated BB (low) (sf)
-- $3,073,000 Class F Notes rated B (sf)
-- $532,933,000 Class AB Notes rated AA (low) (sf)**
-- $558,135,000 Class AC Notes rated A (low) (sf)**
*The initial principal balances of the Class A1 Notes and the
Class A2 Notes may change and will be determined on or before
pricing. The aggregate balance of the Class A1 Notes and the Class
A2 Notes will be $478,226,000.
**Exchangeable Notes.
The provisional ratings on the Rated 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 - June 2021 Update," published on June 18,
2021. DBRS Morningstar initially published macroeconomic scenarios
on April 16, 2020, which have been regularly updated. The scenarios
were last updated on June 18, 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 continued success in containment during the second half
of 2021, enabling the continued relaxation of restrictions.
-- The transaction's form and sufficiency of available credit
enhancement.
-- Note subordination, reserve accounts, and excess spread create
credit enhancement levels that are commensurate with the proposed
ratings.
-- Transaction cash flows are sufficient to repay investors under
all AAA (sf), AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low)
(sf), and B (sf) stress scenarios in accordance with the terms of
the TPAT 2021-SL1 transaction documents.
-- The quality and credit characteristics of the student loans
borrowers.
-- The sequential-pay structure.
-- The ability of Nelnet Servicing, LLC and Turnstile Capital
Management, LLC to service and perform collections on the
collateral pool and other required activities.
-- TPAT 2021-SL1 provides for Class F Notes with an assigned
rating of B (sf). While the DBRS Morningstar "Rating U.S. Private
Student Loan Securitizations" methodology does not set forth a
range of multiples for the B (sf) level, the analytical approach
for this rating level is consistent with that contemplated by the
methodology. The typical range of multiples applied in the DBRS
Morningstar stress analysis for a B (sf) rating is 1.00 times (x)
to 1.25x.
-- 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.
US AUTO 2021-1: Moody's Assigns B3 Rating to 2 Tranches
-------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to the
notes issued by U.S. Auto Funding Trust 2021-1 (USAF 2021-1). This
is the first auto loan transaction of the year and third in total
for U.S. Auto Finance, Inc. (unrated). The notes are backed by a
pool of retail automobile loan contracts originated by U.S. Auto
Sales, Inc. (unrated), an affiliate of U.S. Auto Finance, Inc..
USASF Servicing LLC (USASF), an affiliate of U.S. Auto Finance,
Inc., is the servicer for this transaction and U.S. Auto Finance,
Inc. is the administrator.
The complete rating actions are as follows:
Issuer: U.S. Auto Funding Trust 2021-1
$156,977,000, 0.79%, Class A Notes, Definitive Rating Assigned A3
(sf)
$46,809,000, 1.49%, Class B Notes, Definitive Rating Assigned Baa1
(sf)
$49,122,000, 2.20%, Class C Notes, Definitive Rating Assigned Ba1
(sf)
$38,978,000, 4.36%, Class D Notes, Definitive Rating Assigned B3
(sf)
$7,119,000, 6.32%, Class E Notes, Definitive Rating Assigned B3
(sf)
RATINGS RATIONALE
The ratings are based on the quality of the underlying collateral
and its expected performance, the strength of the capital
structure, the experience and expertise of USASF and U.S. Auto
Finance, Inc. as the servicer and administrator respectively and
the presence of Wells Fargo Bank, N.A. (Wells Fargo, Aa1(cr)) as
named backup servicer.
The definitive rating for the Class C notes, Ba1 (sf), is one notch
higher than the provisional rating, (P)Ba2 (sf). This difference is
a result of the transaction closing with a lower weighted average
cost of funds (WAC) than Moody's modeled when the provisional
ratings were assigned. The WAC assumptions as well as other
structural features, were provided by the issuer.
Moody's median cumulative net credit loss expectation for USAF
2021-1 is 34%. Moody's based its cumulative net credit loss
expectation on an analysis of the quality of the underlying
collateral; managed portfolio performance; the historical credit
loss of similar collateral; the ability of USASF to perform the
servicing functions; and current expectations for the macroeconomic
environment during the life of the transaction.
At closing, the Class A notes, the Class B notes, the Class C
notes, the Class D and the Class E notes benefit from 57.90%,
44.75%, 30.95%, 20.00% et 18.00% of hard credit enhancement,
respectively. Hard credit enhancement for the notes consists of a
combination of overcollateralization, a non-declining reserve
account and subordination, except for the Class E notes, which do
not benefit from subordination. The notes will also benefit from
excess spread.
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 notes if levels of credit enhancement are
higher than necessary to protect investors against current
expectations of portfolio losses. 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 vehicles securing an
obligor's promise of payment. Portfolio losses also depend greatly
on the US job market and the market for used vehicles. Other
reasons for better-than-expected performance include changes to
servicing practices that enhance collections or refinancing
opportunities that result in prepayments.
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 pool servicing. Other reasons for worse-than-expected
performance include error on the part of transaction parties,
inadequate transaction governance, and fraud.
WELLFLEET CLO 2021-2: Moody's Gives Ba3 Rating to $21.4MM E Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by Wellfleet CLO 2021-2, Ltd. (the "Issuer" or
"Wellfleet CLO 2021-2").
Moody's rating action is as follows:
US$270,000,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$18,000,000 Class A-2 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$51,750,000 Class B Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aa2 (sf)
US$25,900,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned A2 (sf)
US$27,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Definitive Rating Assigned Baa3 (sf)
US$21,400,000 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.
Wellfleet CLO 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% of the portfolio must consist
of senior secured loans and up to 10% of the portfolio may consist
of second lien loans, senior unsecured loans, first-lien last out
loans and bonds. The portfolio is approximately 75% ramped as of
the closing date.
Wellfleet Credit Partners, 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: $450,000,000
Diversity Score: 65
Weighted Average Rating Factor (WARF): 2828
Weighted Average Spread (WAS): 3.50%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 46.0%
Weighted Average Life (WAL): 9 years
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.
ZAIS CLO 15: Moody's Assigns Ba3 Rating to $13.25MM Cl. E-R Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned ratings to seven classes of
notes issued by ZAIS CLO 15, Limited (the "Issuer").
Moody's rating action is as follows:
US$177,250,000 Class A-1-R Senior Secured Floating Rate Notes due
2032, Assigned Aaa (sf)
US$12,000,000 Class A-2-R Senior Secured Fixed Rate Notes due 2032,
Assigned Aaa (sf)
US$32,500,000 Class B-R Senior Secured Floating Rate Notes due
2032, Assigned Aa2 (sf)
US$14,750,000 Class C-R Deferrable Mezzanine Floating Rate Notes
due 2032, Assigned A2 (sf)
US$10,000,000 Class D-1-R Deferrable Mezzanine Floating Rate Notes
due 2032, Assigned Baa3 (sf)
US$9,250,000 Class D-F-R Deferrable Mezzanine Fixed Rate Notes due
2032, Assigned Baa3 (sf)
US$13,250,000 Class E-R Deferrable Mezzanine Floating Rate Notes
due 2032, 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.
ZAIS CLO 15, Limited 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 first lien senior secured loans, cash, and eligible
investments, and up to 10.0% of the portfolio may consist of second
lien loans and unsecured loans. The portfolio is fully ramped as of
the closing date.
Zais Leveraged Loan Master Manager, 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 three year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets. Thereafter, the manager
may not reinvest and all proceeds received will be used to amortize
the notes in sequential order.
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: $295,605,552
Diversity Score: 70
Weighted Average Rating Factor (WARF): 2850
Weighted Average Spread (WAS): 3.70%
Weighted Average Coupon (WAC): 6.00%
Weighted Average Recovery Rate (WARR): 45.0%
Weighted Average Life (WAL): 7.0 years
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.
[*] Moody's Hikes $12.4MM Scratch & Dent RMBS Issued 1998-2005
--------------------------------------------------------------
Moody's Investors Service has upgraded six bonds from five US
residential mortgage backed transactions (RMBS), backed by scratch
and dent mortgages, issued by multiple issuers.
The complete rating action is as follows:
Issuer: Bayview Financial Mortgage Pass-Through Trust 2005-C
Cl. M-3, Upgraded to Aa3 (sf); previously on Dec 17, 2019 Upgraded
to A2 (sf)
Cl. M-4, Upgraded to Ba1 (sf); previously on Dec 17, 2019 Upgraded
to Ba3 (sf)
Issuer: Ocwen Residential MBS Corp. Mortgage Pass-Through, 1998-R3
A-1, Upgraded to Ba3 (sf); previously on May 20, 2019 Upgraded to
B2 (sf)
Issuer: Ocwen Residential MBS Corporation, Series 1999-R2
B1, Upgraded to B3 (sf); previously on Dec 20, 2017 Upgraded to
Caa2 (sf)
Issuer: EMC Mortgage Loan Trust 2003-A (Reperforming Mortgage
Loans)
Cl. A-1, Upgraded to Ba2 (sf); previously on Feb 24, 2017 Upgraded
to B1 (sf)
Issuer: RAAC Series 2004-SP3 Trust
Cl. M-I-1, Upgraded to A3 (sf); previously on Jun 20, 2019 Upgraded
to Baa2 (sf)
A List of Affected Credit Ratings is available at
https://bit.ly/3lYbAgV
RATINGS RATIONALE
The rating upgrade reflects the increase in credit enhancement (CE)
available to these bonds which has increased by 6% on average over
the last 12 months. This increase is primarily due to excess spread
available in the deals and the subsequent paydown on the bonds. The
rating action also reflects recent performance as well as Moody's
updated loss expectations on the underlying pool.
Principal Methodologies
The principal methodology used in these ratings 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 stress could
drive the ratings up. Transaction performance depends greatly on
the US macro economy and housing market. Property markets could
improve from Moody's original expectations resulting in
appreciation in the value of the mortgaged property and faster
property sales.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of stresses could drive the
ratings down. Transaction performance depends greatly on the US
macro economy and housing market. Property markets could
deteriorate from Moody's original expectations resulting in
depreciation in the value of the mortgaged property and slower
property sales.
[*] S&P Takes Various Actions on 69 Classes from 7 U.S. RMBS Deals
------------------------------------------------------------------
S&P Global Ratings completed its review of 69 ratings from seven
U.S. RMBS transactions issued between 2004 and 2005. The review
yielded 16 downgrades, 18 affirmations, and 35 withdrawals.
A list of Affected Ratings can be viewed at:
https://bit.ly/3jQL7yX
Analytical Considerations
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by our projected cash flows. These considerations
are based on transaction-specific performance and/or structural
characteristics, and their potential effects on certain classes.
Some of these considerations may include:
-- Factors related to the COVID-19 pandemic,
-- Collateral performance or delinquency trends,
-- Available subordination and/or overcollateralization,
-- Erosion of credit support,
-- Priority of principal payments,
-- Current and/or historical missed interest payments,
-- Small loan count, and
-- Principal-only criteria.
Rating Actions
S&P said, "The rating changes reflect our view regarding the
associated transaction-specific collateral performance, their
structural characteristics, and/or the application of specific
criteria applicable to these classes.
"The affirmations reflect our view that our projected credit
support and collateral performance on these classes have remained
relatively consistent with our prior projections.
"We withdrew our ratings on 35 classes from five transactions due
to the small number of loans remaining in the related group. Once a
pool has declined to a de minimis amount, their future performance
becomes more difficult to project. As such, we believe there is a
high degree of credit instability that is incompatible with any
rating level."
[*] S&P Takes Various Actions on 81 Classes from 15 U.S. RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 81 ratings from 15 U.S.
RMBS transactions issued between 2001 and 2005. The review yielded
six downgrades, 35 affirmations, and 40 withdrawals.
A list of Affected Ratings can be viewed at:
https://bit.ly/3yM3WK9
Analytical Considerations
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by its projected cash flows. These considerations
are based on transaction-specific performance and/or structural
characteristics, and their potential effects on certain classes.
Some of these considerations may include:
-- Factors related to the COVID-19 pandemic,
-- Collateral performance or delinquency trends,
-- Available subordination and/or overcollateralization,
-- Expected short duration,
-- Small loan count,
-- Historical interest shortfalls or missed interest payments,
and
-- Reduced interest payments due to loan modifications.
Rating Actions
S&P said, "The rating changes reflect our opinion regarding the
associated transaction-specific collateral performance and/or
structural characteristics, and/or reflect the application of
specific criteria applicable to these classes.
"The ratings affirmations reflect our opinion that our projected
credit support, collateral performance, and credit-related
reductions in interest on these classes has remained relatively
consistent with our prior projections.
"We withdrew our ratings on 40 classes from 10 transactions due to
the small number of loans remaining within the related group or
structure. Once a pool has declined to a de minimis amount, we
believe there is a high degree of credit instability that is
incompatible with any rating level. Additionally, as a result, we
applied our principal-only criteria, "Methodology For Surveilling
U.S. RMBS Principal-Only Strip Securities For Pre-2009
Originations," published Oct. 11, 2016, on one class from one
transaction, which resulted in a rating withdrawal. We applied our
interest-only criteria, "Global Methodology For Rating
Interest-Only Securities," published April 15, 2010, on two classes
from two transactions, which resulted in rating withdrawals."
[*] S&P Takes Various Actions on 82 Classes from 15 U.S. RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 82 classes from 16 U.S.
RMBS transactions issued between 2000 and 2006. All these
transactions are backed by prime jumbo collateral. The review
yielded 18 downgrades, 31 affirmations, and 33 withdrawals.
A list of Affected Ratings can be viewed at:
https://bit.ly/3lMocHI
Analytical Considerations
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by its projected cash flows. These considerations
are based on transaction-specific performance or structural
characteristics (or both) and their potential effects on certain
classes. Some of these considerations may include:
-- Factors related to the COVID-19 pandemic;
-- Collateral performance or delinquency trends;
-- The erosion of or increases in credit support; and
-- A small loan count.
Rating Actions
S&P said, "The rating changes reflect our opinion regarding the
associated transaction-specific collateral performance and/or
structural characteristics, as well as the application of specific
criteria applicable to these classes. See the ratings list below
for the specific rationales associated with each of the classes
with rating transitions.
"The rating affirmations reflect our opinion that our projected
credit support, collateral performance, and credit-related
reductions in interest on these classes has remained relatively
consistent with our prior projections.
"We withdrew our ratings on 31 classes from six transactions due to
the small number of loans remaining within the related group or
structure. Once a pool has declined to a de minimis amount, we
believe there is a high degree of credit instability that is
incompatible with any rating level. Additionally, as a result, we
applied our interest-only criteria, "Global Methodology For Rating
Interest-Only Securities" published April 15, 2010, and our
principal-only criteria, "Methodology For Surveilling U.S. RMBS
Principal-Only Strip Securities For Pre-2009 Originations"
published Oct. 11, 2016, which resulted in withdrawing two ratings
from two transactions."
*********
Monday's edition of the TCR delivers a list of indicative prices
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