/raid1/www/Hosts/bankrupt/TCR_Public/211010.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
Sunday, October 10, 2021, Vol. 25, No. 282
Headlines
ACCELERATED LLC 2021-1H: Fitch Assigns BB Rating on Class D Notes
AGL CLO 13: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
ALLEGRO CLO XIV: Moody's Assigns Ba3 Rating to $25MM Class E Notes
ANCHORAGE CAPITAL 19: Moody's Gives Ba3 Rating to $26.25MM E Notes
ANCHORAGE CAPITAL 21: Moody's Assigns Ba3 Rating to $20MM E Notes
ANGEL OAK 2021-6: Fitch Assigns B(EXP) Rating on B-2 Debt
APIDOS CLO XXXIII: S&P Assigns BB- (sf) Rating on Class E-R Notes
ARES LXI: S&P Assigns BB- (sf) Rating on $18.75MM Class E Notes
BBCMS MORTGAGE 2021-C11: Fitch Gives Final B- Rating on H-RR Certs
BEAR STEARNS 2005-PWR7: Moody's Cuts Rating on D Certs to 'Csf'
BELLEMEADE RE 2021-3: Moody's Assigns B1 Rating to Cl. M-2 Notes
BENCHMARK 2021-B29: Fitch Assigns Final B- Rating on 2 Tranches
CANYON CLO 2021-4: Moody's Assigns Ba3 Rating to Class E Notes
CARLYLE US 2021-8: S&P Assigns BB- (sf) Rating on Class E Notes
CFCRE 2016-C6 MORTGAGE: Fitch Lowers Rating on 2 Tranches to 'CCC'
CIFC FUNDING 2020-II: S&P Assigns BB-(sf) Rating on Class E-R Notes
CIM TRUST 2021-R6: Fitch Assigns B(EXP) Rating on Class B2 Debt
CITIGROUP COMMERCIAL 2016-C3: Fitch Lowers 2 Tranches to 'CCC'
CITIGROUP MORTGAGE 2021-INV3: Moody's Gives (P)B2 to Class B-5 Debt
CITIGROUP MORTGAGE 2021-J3: Fitch Rates Class B-5 Debt 'B+'
CITIGROUP MORTGAGE 2021-J3: Moody's Assigns B2 Rating to B-5 Certs
COMM 2016-CCRE28: Fitch Affirms CCC Rating on Class G Certs
CONSECO FINANCE 2001-2: S&P Affirms CCC-(sf) Rating on Cl. A Certs
CSAIL COMMERCIAL 2018-C14: Fitch Lowers 2 Tranches to 'CCC'
CSMC 2021-RPL8 TRUST: Fitch Gives 'B(EXP)' Rating to B-2 Notes
CSMC TRUST 2021-RPL8: Fitch Assigns Final B Rating on Cl. B-2 Notes
DCAL AVIATION 2015: S&P Affirms 'CCC (sf)' Rating on Cl. C-1 Notes
DRYDEN 92 CLO: Moody's Assigns Ba3 Rating to $24MM Class E Notes
DRYDEN 93 CLO: Moody's Assigns (P)Ba3 Rating to $16MM Cl. E Notes
ELLINGTON FINANCIAL 2021-3: Fitch Gives B(EXP) Rating to B-2 Debt
ELMWOOD CLO VI: S&P Assigns Prelim B- (sf) Rating on F-R Notes
FLAGSTAR MORTGAGE 2021-10INV: Moody's Gives B2 Rating to B-5 Certs
FLAGSTAR MORTGAGE 2021-9INV: Moody's Gives B2 Rating to B-5 Certs
GCAT 2021-NQM5: S&P Assigns B (sf) Rating on Class B-2 Certs
GS MORTGAGE 2021-PJ9: Moody's Assigns B2 Rating to Cl. B-5 Certs
GULF STREAM 6: S&P Assigns BB- Prelim Rating on $15MM Class D Notes
HUNDRED ACRE 2021-INV2: Moody's Assigns B3 Rating to Cl. B5 Certs
JP MORGAN 2021-12: Moody's Assigns (P)B3 Rating to Cl. B-5 Certs
JP MORGAN 2021-12: Moody's Assigns B3 Rating to Cl. B-5 Certs
JP MORGAN 2021-INV5: Moody's Assigns (P)B3 Rating to Cl. B-5 Certs
JP MORGAN 2021-INV5: Moody's Assigns B3 Rating to Cl. B-5 Certs
JP MORGAN 2021-LTV1: S&P Assigns B- (sf) Rating on B-5 Certs
KKR CLO 16: S&P Assigns BB- (sf) Rating on Class D-R2 Notes
LCM 34 LTD: Moody's Assigns Ba3 Rating to $20MM Class E Notes
MADISON PARK XXXIX: S&P Assigns Prelim BB- (sf) Rating on E Notes
MARBLE POINT XVIII: Moody's Assigns Ba3 Rating to $20MM E-R Notes
MCF CLO IV: S&P Assigns Prelim BB+ (sf) Rating on Class E-RR Notes
MELLO MORTGAGE 2021-INV3: Moody's Assigns B3 Rating to B-5 Certs
NATIXIS COMMERCIAL 2021-APPL: Moody's Gives (P)B3 Rating to F Debt
NEW RESIDENTIAL 2021-NQM3: Fitch Gives B Rating to B-2 Notes
OAKTREE CLO 2019-3: S&P Assigns BB- (sf) Rating on Class ER Notes
OBX TRUST 2021-INV1: Moody's Assigns (P)B3 Rating to Cl. B-5 Certs
OBX TRUST 2021-INV1: Moody's Assigns B3 Rating to Cl. B-5 Certs
OBX TRUST 2021-J3: Moody's Assigns (P)B2 Rating to Cl. B-5 Certs
OHA CREDIT XVI: S&P Assigns BB- (sf) Rating on $24MM Class E Notes
PALMER SQUARE 2021-4: Moody's Assigns B3 Rating to $15MM F Notes
PSMC TRUST 2021-3: Fitch Assigns B+ Rating on B-5 Debt
RCKT MORTGAGE 2021-4: Moody's Assigns B3 Rating to Cl. B-5 Certs
SEQUOIA MORTGAGE 2019-H6: Fitch to Rate Class B-4 Debt 'BB-(sf)'
SEQUOIA MORTGAGE 2021-6: Fitch Rates Class B4 Certs 'BB-'
SHACKLETON LTD 2021-XVI: Moody's Gives (P)Ba3 Rating to Cl. E Notes
SREIT TRUST 2021-PALM: S&P Assigns Prelim B- (sf) Rating F Certs
STACR REMIC 2021-HQA3: Moody's Assigns B1 Rating to 10 Tranches
STARWOOD MORTGAGE 2021-4: Fitch Gives Final 'B-' to B-2 Debt
STRATA CLO II: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
TRINITAS CLO XVII: Moody's Assigns Ba3 Rating to $26MM Cl. E Notes
UBS COMMERCIAL 2017-C6: Fitch Affirms B- Rating on 2 Tranches
UBS-BARCLAYS COMMERCIAL 2013-C5: Fitch Affirms CC Rating on F Certs
UWM MORTGAGE 2021-INV2: Moody's Assigns B3 Rating to Cl. B-5 Certs
WAMU COMMERCIAL 2006-SL1: Fitch Affirms D Rating on 6 Tranches
WELLS FARGO 2021-2: Fitch Rates Class B-5 Certs 'B+'
WELLS FARGO 2021-2: Moody's Assigns Ba2 Rating to Cl. B-5 Certs
WOODMONT 2017-1: S&P Assigns Prelim BB- (sf) Rating on E-RR Notes
[*] Fitch Takes Actions on 4 CMBS Transactions
[*] Fitch Takes Actions on Distressed Bonds on 4 US CMBS Deals
[*] Moody's Takes Actions on $437.4MM of US RMBS Issued 2004-2007
[*] S&P Takes Various Actions on 342 Bonds from 22 Tobacco Deals
[*] S&P Takes Various Actions on 69 Classes from 14 U.S. RMBS Deals
*********
ACCELERATED LLC 2021-1H: Fitch Assigns BB Rating on Class D Notes
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Fitch Ratings has assigned ratings to $194.2 million of notes
issued by Accelerated 2021-1H LLC (AALLC 2021-1H). The notes are
backed by a pool of fixed-rate timeshare loans originated by
Holiday Inn Club Vacations Incorporated (HICV) and Wilson Resort
Finance, LLC (WRF), an indirect, wholly owned subsidiary of HICV.
The loans were then sold to OLLAF 2020-1, LLC, an affiliate of
Accelerated Assets, LLC (AA), as part of a forward flow loan
purchase program with HICV. The receivables were originated in
accordance with HICV's standard financing guidelines and share
collateral characteristics similar to prior HIN Timeshare Trust
transactions issued by HICV. HICV will be the servicer for AALLC
2021-1H. This will be the second securitization issued by AA, with
the prior transaction Accelerated Assets 2018-1, LLC, issued with a
similar third-party relationship with Bluegreen Vacations. HICV has
issued eight prior transactions with the HINTT 2020-A (2020-A)
closing in September 2020.
DEBT RATING PRIOR
---- ------ -----
Accelerated 2021-1H LLC
A LT AAAsf New Rating AAA(EXP)sf
B LT Asf New Rating A(EXP)sf
C LT BBBsf New Rating BBB(EXP)sf
D LT BBsf New Rating BB(EXP)sf
KEY RATING DRIVERS
Borrower Risk -- Lower Borrower Credit Quality: The WA FICO score
of AALLC 2021-1H is 719, which is lower than a score of 735 in
HINTT 2020-A. Consistent with 2020-A, the pool has a minimum FICO
score of 600. Unlike the 2020-A transaction, the AALLC 2021-1H
transaction includes a prefunding account, which covers
approximately 11% of the total collateral balance and will be
funded predominantly by loans that have already been originated but
do not yet qualify for addition to the pool at closing.
These loans are statistically similar to the pool at closing and
any additional loans included to replace these loans due to
delinquency or amortization must conform to criteria similar to the
pool overall. Fitch did not incorporate a prefund stress given the
visibility into the prefund collateral pool. 2021-1H also includes
loans originated through rebranded Silverleaf resort sales centers,
similar to prior HINTT and ONGLT transactions. All loans actively
in modification or extension have been removed from the pool as of
the cutoff date.
Forward-Looking Approach on CGD Proxy -- Weakening Performance:
HICV's delinquency and default performance exhibited material
increases during the most recent recession. Notable improvement was
observed in the 2010-2014 vintages. However, the 2016 through 2019
vintages are experiencing higher default rates than during the
prior recession due principally to integration challenges following
the Silverleaf acquisition and defaults related to
paid-product-exits. In deriving its cumulative gross default (CGD)
proxy of 24.00%, Fitch focused on extrapolations of the 2007-2010
and 2016-2018 vintages, which include the improved performance of
the recovery year of 2010 not included in the 2020-A transaction.
Fitch takes into consideration the strength of the economy, as well
as future expectations, by assessing key macroeconomic indicators
correlated with timeshare loan performance, such as GDP and the
unemployment rate, and demand for travel/tourism. These were
accounted for in the derivation of Fitch's CGD proxy for 2021-1H.
Coronavirus Stress Easing: Fitch has made assumptions about the
spread of coronavirus and the economic impact of the related
containment measures. While the pandemic is ongoing, the
introduction of vaccines and increased travel have led to an easing
of expected negative impacts of the virus on the timeshare sector.
The CGD proxy accounts for this, as Fitch's initial base case CGD
proxy was derived using weaker performing 2007-2010 and 2016-2018
vintages.
Structural Analysis -- Decreased CE Structure: Initial hard credit
enhancement (CE) is expected to be 66.45%, 39.40%, 21.00% and
11.00% for class A, B, C and D notes, respectively. Hard CE is
composed of overcollateralization, a reserve account and
subordination. Soft CE is also provided by excess spread and is
11.0% per annum. The structure is sufficient to cover multiples of
3.00x, 2.00x, 1.50x and 1.25x for 'AAAsf', 'Asf', 'BBBsf' and
'BBsf', respectively. Notably, this transaction does not include a
subordinate class E note and has enhancement decreased from the
prior HINTT 2020-A transaction due to shifts in trigger events to
allow for more loss coverage.
Originator/Servicer Operational Review -- Quality of
Origination/Servicing: HICV has demonstrated sufficient abilities
as an originator and servicer of timeshare loans, as evidenced by
the historical delinquency and default performance of the
securitized trusts and of the managed portfolio. While the resort
footprint has grown in recent years, HICV's managed portfolio, and
the pool for 2021-1H, have shifted and now have their largest
concentration of loans in Texas, versus Orlando, FL prior to the
acquisition of Silverleaf.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Unanticipated increases in the frequency of defaults could
produce CGD levels higher than the base case and would likely
result in declines of CE and remaining default coverage levels
available to the notes. Additionally, unanticipated increases
in prepayment activity could also result in a decline in
coverage. Decreased default coverage may make certain note
ratings susceptible to potential negative rating actions,
depending on the extent of the decline in coverage.
-- Hence, Fitch conducts sensitivity analyses by stressing both a
transaction's initial base case CGD and prepayment assumptions
and examining the rating implications on all classes of issued
notes. The CGD sensitivity stresses the CGD proxy to the level
necessary to reduce each rating by one full category, to non
investment grade (BBsf) and to 'CCCsf' based on the break-even
loss coverage provided by the CE structure. The prepayment
sensitivity includes 1.5x and 2.0x increases to the prepayment
assumptions, representing moderate and severe stresses,
respectively. These analyses are intended to provide an
indication of the rating sensitivity of notes to unexpected
deterioration of a trust's performance.
-- The greatest risk of defaults to a timeshare loan ABS
transaction is early in the transaction's life, before it has
benefited from de-levering. Therefore, Fitch has stressed each
class of notes prior to any amortization to its first dollar
of default to examine the structure's ability to withstand the
aforementioned stressed default scenarios.
-- Fitch utilizes the break-even loss coverage to solve for the
CGD level required to reduce each rating by one full category,
to non-investment grade 'BBsf' and to 'CCCsf'. The implied CGD
proxy necessary to reduce the ratings as stated above will
vary by class based on the break-even loss coverage provided
by the CE structure.
-- Under this analysis, all assumptions are unchanged, with total
loss coverage available to class A notes at 71.86%. Therefore,
as shown in the table below, the implied CGD proxy would have
to increase to 27.32% for class A notes to be downgraded one
rating category or 2.63x multiple ([72.29%/27.49%] = 2.63x).
Applying the same approach but increasing defaults to levels
commensurate with rating downgrades to 'BBsf' and 'CCCsf'
suggests defaults would have to increase to 57.83% and 120.48%
for rating multiples to decline to 1.25x and 0.6x,
respectively.
-- During the prepayment sensitivity analysis, Fitch examines the
magnitude of the multiple compression under prepayment
scenarios higher than the base assumption while holding
constant all other modeling assumptions. This analysis yields
loss coverage levels and multiples under the base, 1.5x and
2.0x prepayment scenarios.
Rating Sensitivity for Class A Notes
Under the 1.5x prepayment stress, multiple compression for class A
notes is relatively minimal, as the multiple declines to 2.84x. The
2.0x prepayment stress has a greater impact, as the multiple drops
to 2.70x. Such a decline in coverage would likely result in class A
notes being considered for a potential downgrade to the 'AAsf'
rating category.
Rating Sensitivity for Class B Notes
Under the 1.5x prepayment stress, the class B note ratings multiple
declines to 2.06x. Such decline in coverage would likely lead to a
one category downgrade for the class B notes. The 2.0x prepayment
stress has a greater impact, as the multiple drops to 1.88x. Such a
decline in coverage would also result in class B notes being
considered for a potential downgrade to the 'BBBsf' rating
category.
Rating Sensitivity for Class C Notes
Under the 1.5x prepayment stress, multiple compression for class C
is relatively minimal, as the multiple declines to 1.53x. Such
decline in coverage would have no rating impact for the class C
notes. The 2.0x prepayment stress has a greater impact, as the
multiple drops to 1.35x. Such a decline in coverage would likely
result in class C notes being considered for a potential downgrade
to the 'BBsf' rating category.
Rating Sensitivity for Class D Notes
Under the 1.5x prepayment stress, multiple compression for class D
notes is relatively minimal, as the multiple declines to 1.24x.
Such decline would potentially lead to a one category downgrade of
the class D notes. The 2.0x prepayment stress has a greater impact,
as the multiple drops to 1.06x. Such a decline in coverage would
more likely result in class D notes being considered for a
downgrade to the 'Bsf' rating category.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Conversely, stable to improved asset performance driven by
stable delinquencies and defaults would lead to increasing CE
levels and consideration for potential upgrades. If CGD is 20%
less than the projected proxy, the expected ratings would be
maintained for the class A note at a stronger rating multiple.
For the class B, C and D notes, the multiples would increase
resulting in potential upgrade of one rating category for each
class.
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 Grant Thornton LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to 100 sample 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.
AGL CLO 13: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to AGL CLO 13
Ltd./AGL CLO 13 LLC's fixed- and 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 AGL CLO Credit Management LLC.
The preliminary ratings are based on information as of Sept. 30,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The diversification of the collateral pool;
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
AGL CLO 13 Ltd./AGL CLO 13 LLC
Class A-1, $362.00 million: AAA (sf)
Class A-2, $10.00 million: AAA (sf)
Class B, $84.00 million: AA (sf)
Class C (deferrable), $36.00 million: A (sf)
Class D (deferrable), $36.00 million: BBB- (sf)
Class E (deferrable), $24.00 million: BB- (sf)
Subordinated notes, $49.68 million: Not rated
ALLEGRO CLO XIV: Moody's Assigns Ba3 Rating to $25MM Class E Notes
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Moody's Investors Service has assigned ratings to eight classes of
debt issued by Allegro CLO XIV, Ltd. (the "Issuer" or "Allegro
XIV").
Moody's rating action is as follows:
US$3,500,000 Class X Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aaa (sf)
US$151,000,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$159,000,000 Class A-1 Loans due 2034, Definitive Rating Assigned
Aaa (sf)
US$12,500,000 Class A-2 Senior Secured Floating Rate Notes due
2034, Definitive Rating Assigned Aaa (sf)
US$57,500,000 Class B Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aa2 (sf)
US$25,000,000 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$25,000,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned Ba3 (sf)
The notes and loans listed are referred to herein, collectively, as
the "Rated Debt."
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.
Allegro XIV is a managed cash flow CLO. The issued debt will be
collateralized primarily by broadly syndicated senior secured
corporate loans. At least 92.5% of the portfolio must consist of
first lien senior secured loans and eligible investments, and up to
7.5% of the portfolio may consist of second lien loans and
unsecured loans. The portfolio is approximately 95% ramped as of
the closing date.
AXA Investment Managers, Inc. (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five-year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Debt, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 75
Weighted Average Rating Factor (WARF): 2909
Weighted Average Spread (WAS): 3.45%
Weighted Average Coupon (WAC): 7.0%
Weighted Average Recovery Rate (WARR): 47.00%
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 Debt is subject to uncertainty. The
performance of the Rated Debt is sensitive to the performance of
the underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the Rated Debt.
ANCHORAGE CAPITAL 19: Moody's Gives Ba3 Rating to $26.25MM E Notes
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Moody's Investors Service has assigned ratings to two classes of
notes issued by Anchorage Capital CLO 19, Ltd. (the "Issuer" or
"Anchorage 19").
Moody's rating action is as follows:
US$305,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$26,250,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, 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.
Anchorage 19 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 second lien loans, unsecured loans and
permitted non-loan assets. The portfolio is approximately 75%
ramped as of the closing date.
Anchorage Capital Group, L.L.C. (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 five classes of
secured notes and one class of subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 60
Weighted Average Rating Factor (WARF): 3265
Weighted Average Spread (WAS): 3.75%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 46.5%
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.
ANCHORAGE CAPITAL 21: Moody's Assigns Ba3 Rating to $20MM E Notes
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Moody's Investors Service has assigned ratings to three classes of
notes issued by Anchorage Capital CLO 21, Ltd. (the "Issuer" or
"Anchorage Capital CLO 21").
Moody's rating action is as follows:
US$244,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$47,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned Aa2 (sf)
US$20,000,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, 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.
Anchorage Capital CLO 21 is a managed cash flow CLO. The issued
notes will be collateralized primarily by broadly syndicated senior
secured corporate loans. At least 92.5% of the portfolio must
consist of senior secured loans and eligible investments, and up to
7.5% of the portfolio may consist of second lien loans, unsecured
loans and permitted non-loan assets. The portfolio is approximately
86% ramped as of the closing date.
Anchorage Capital Group, L.L.C. (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Notes, the Issuer issued two classes of
secured notes and one class of subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $400,000,000
Diversity Score: 60
Weighted Average Rating Factor (WARF): 3220
Weighted Average Spread (WAS): 3.75%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 46.5%
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.
ANGEL OAK 2021-6: Fitch Assigns B(EXP) Rating on B-2 Debt
---------------------------------------------------------
Fitch Ratings has assigned expected ratings to Angel Oak Mortgage
Trust 2021-6 (AOMT 2021-6).
DEBT RATING
---- ------
AOMT 2021-6
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
XS LT NR(EXP)sf Expected Rating
A-IO-S LT NR(EXP)sf Expected Rating
R 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 2021-6,
Mortgage-Backed Certificates, Series 2021-6 (AOMT 2021-6), as
indicated above. The certificates are supported by 1176 loans with
a balance of $590.85 million as of the cutoff date. This will be
the 18th Fitch-rated AOMT transaction and the sixth Fitch-rated
AOMT transaction in 2021.
The certificates are secured by mortgage loans that were originated
by Angel Oak Home Loans LLC, Angel Oak Mortgage Solutions LLC
(referred to as Angel Oak originators) and various other
third-party originators each contributing less than 10% each. Of
the loans, 73.9% are designated as non-qualified mortgage (Non-QM)
and 26.1% are investment properties not subject to the Ability to
Repay (ATR) Rule. No loans are designated as QM in the pool.
There is Libor exposure in this transaction. Of the pool, three
loans comprise adjustable-rate mortgage (ARM) loans that reference
one-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 1176
loans, totaling $591 million, and seasoned approximately six months
in aggregate. The borrowers have a strong credit profile (743 FICO
and 37% debt to income ratio [DTI], as determined by Fitch) and
relatively moderate leverage with an original combined loan to
value ratio (CLTV) of 70.0% that translates to a Fitch-calculated
sustainable LTV (sLTV) of 76.7%. Of the pool, 68.2% comprises loans
where the borrower maintains a primary residence, while 31.8%
comprise an investor property or second home based on Fitch's
analysis; 10.1% of the loans were originated through a retail
channel. Additionally, 73.9% are designated as Non-QM, while the
remaining 26.1% are exempt from QM since they are investor loans.
The pool contains 137 loans over $1 million, with the largest
amounting to $3.8 million.
Loans on investor properties (7.5% underwritten to the borrowers'
credit profile and 18.6% comprising investor cash flow loans)
comprise 26.1% of the pool. There are no second lien loans, and
0.1% of borrowers were viewed by Fitch as having a prior credit
event in the past seven years. Of the borrowers, 0.9% have
subordinate financing in Fitch's analysis since Fitch included the
deferred amounts in the junior lien amount (per the transaction
documents there are only two loans with subordinate financing).
Eight loans in the pool had a deferred balance, totaling $46,479.
These deferred balances were treated as a junior lien amount in
Fitch's analysis which resulted in an increased CLTV.
Two loans in the pool are to foreign nationals/non-permanent
residents. Fitch treated these borrowers as investor occupied,
coded as ASF1 (no documentation) for employment and income
documentation, if a credit score was not available Fitch used a
credit score of 650 for these borrowers and removed the liquid
reserves.
Although the credit quality of the borrowers is higher than that of
the prior AOMT transactions securitized in 2020 and 2019, the pool
characteristics resemble non-prime collateral, and therefore, the
pool was analyzed using Fitch's non-prime model.
Loan Documentation (Negative): Fitch determined that 87% of the
loans in the pool were underwritten to borrowers with less than
full documentation. Of this amount, 63.9% were underwritten to a
12- or 24-month bank statement program for verifying income, which
is not consistent with Appendix Q standards and Fitch's view of a
full documentation program. To reflect the additional risk, Fitch
increases the probability of default (PD) by 1.5x on the bank
statement loans. Besides loans underwritten to a bank statement
program, 3.5% are an asset depletion product and 18.6% comprise a
debt service coverage ratio product. The pool does not have any
loans underwritten to a CPA or PnL product, which Fitch viewed as a
positive.
Two loans to foreign nationals/non-permanent residents were
underwritten to a full documentation program; however, in Fitch's
analysis, these loans were treated as no documentation loans for
income and employment.
Geographic Concentration (Negative): The largest concentration of
loans is in California (40.3%), followed by Florida and Georgia.
The largest MSA is Los Angeles MSA (19.6%) followed by Miami MSA
(11.4%) and San Diego MSA (5.4%). The top three MSAs account for
36.4% of the pool. As a result, a 1.01x PD penalty applied which
increased the 'AAAsf' expected loss by 0.13% due to geographic
concentration.
Limited Advancing (Mixed): The deal is structured to six months of
servicer advances for delinquent principal and interest (P&I). The
limited advancing reduces loss severities as a lower amount is
repaid to the servicer when a loan liquidates and liquidation
proceeds are prioritized to cover principal repayment over accrued
but unpaid interest. The downside is the additional stress on the
structure as liquidity is limited 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.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- 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.
-- 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 43.2% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- 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.
-- 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, Digital Risk, Clayton,
Infinity, Covius, AMC, New Diligence Advisors, and EdgeMAC. 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
0.43%.
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 Real Estate Investment Trust II, engaged Consolidated
Analytics, Inc., Digital Risk, LLC, Clayton Services, Infinity IPS,
Covius Real Estate Services, LLC, American Mortgage Consultants,
Inc., New Diligence Advisors, and Edge Mortgage Advisory Company,
LLC 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 2021-6 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.
APIDOS CLO XXXIII: S&P Assigns BB- (sf) Rating on Class 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 Apidos CLO XXXIII/Apidos CLO
XXXIII LLC, a CLO originally issued in July 2020 that is managed by
CVC Credit Partners U.S. CLO Management LLC. At the same time, S&P
withdrew their ratings on the original class A, B, C, D, and E
notes following payment in full on the Sept. 30, 2021, refinancing
date.
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, B-R, C-R, and D-R] notes were issued
at a lower spread over three-month LIBOR than the original notes.
-- The replacement class E-R notes were issued at a higher spread
over three-month LIBOR than the original notes.
-- The stated maturity and reinvestment period was extended 3.25
years.
-- The non-call period/weighted average life test date was
extended to September 2023.
-- The weighted average life test date was extended to 9.0 years
from the refinance date.
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
Apidos CLO XXXIII/Apidos CLO XXXIII LLC
Class A-R, $284.80 million: AAA (sf)
Class B-R, $58.80 million: AA (sf)
Class C-R (deferrable), $27.10 million: A (sf)
Class D-R (deferrable), $27.10 million: BBB- (sf)
Class E-R (deferrable), $18.00 million: BB- (sf)
Subordinated notes, $36.80 million: Not rated
Ratings Withdrawn
Apidos CLO XXXIII/Apidos CLO XXXIII LLC
Class A: to NR from 'AAA (sf)'
Class B: to NR from 'AA (sf)'
Class C: (deferrable) to NR from 'A (sf)'
Class D: (deferrable) to NR from 'BBB- (sf)'
Class E: (deferrable) to NR from 'BB- (sf)'
NR--Not rated.
ARES LXI: S&P Assigns BB- (sf) Rating on $18.75MM Class E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its ratings to Ares LXI CLO Ltd./Ares
LXI CLO 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
that are governed by collateral quality tests. The transaction is
managed by Ares CLO Management LLC, a wholly owned subsidiary of
Ares Management Corp.
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
Ares LXI CLO Ltd./Ares LXI CLO LLC
Class A, $312.50 million: AAA (sf)
Class B, $67.50 million: AA (sf)
Class C (deferrable), $30.00 million: A (sf)
Class D (deferrable), $30.00 million: BBB- (sf)
Class E (deferrable), $18.75 million: BB- (sf)
Subordinated notes, $50.00 million: Not rated
BBCMS MORTGAGE 2021-C11: Fitch Gives Final B- Rating on H-RR Certs
-------------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
BBCMS Mortgage Trust 2021-C11, commercial mortgage pass-through
certificates, series 2021-C11.
Fitch ratings and Outlooks are as follows:
-- $23,677,000 class A-1 'AAAsf'; Outlook Stable;
-- $33,000,000 class A-2 'AAAsf'; Outlook Stable;
-- $98,671,000 class A-3 'AAAsf'; Outlook Stable;
-- $233,364,000 class A-4 'AAAsf'; Outlook Stable;
-- $261,198,000 class A-5 'AAAsf'; Outlook Stable;
-- $41,720,000 class A-SB 'AAAsf'; Outlook Stable;
-- $691,630,000a class X-A 'AAAsf'; Outlook Stable;
-- $174,143,000a class X-B 'A-sf'; Outlook Stable;
-- $86,454,000 class A-S 'AAAsf'; Outlook Stable;
-- $44,462,000 class B 'AA-sf'; Outlook Stable;
-- $43,227,000 class C 'A-sf'; Outlook Stable;
-- $50,637,000ab class X-D 'BBB-sf'; Outlook Stable;
-- $12,351,000ab class X-F 'BB+sf'; Outlook Stable;
-- $9,880,000ab class X-G 'BB-sf'; Outlook Stable;
-- $27,171,000b class D 'BBBsf'; Outlook Stable;
-- $23,466,000b class E 'BBB-sf'; Outlook Stable;
-- $12,351,000b class F 'BB+sf'; Outlook Stable;
-- $9,880,000b class G 'BB-sf'; Outlook Stable;
-- $9,881,000bc class H-RR 'B-sf'; Outlook Stable.
The following class is not expected to be rated by Fitch:
-- $39,521,799bc class J-RR.
(a) Notional amount and interest only.
(b) Privately-place and pursuant to Rule 144a.
(c) Represents the "eligible horizontal interest" estimated to be
1.45% of the aggregate fair market value of the certificates.
On the closing date, Sabal (affiliate of loan seller and special
servicer) will cause a majority-owned affiliate to purchase and an
"eligible vertical interest" in the issuing entity (VRR Interest),
which will consist of approximately 3.584% of the certificate
balance, notional amount or percentage interest of each class of
certificates. The above-stated certificate balances include the VRR
Interest.
TRANSACTION SUMMARY
The ratings are based on information provided by the issuer as of
Sept. 29, 2021.
Since Fitch issued its presale on Sept. 9, 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 $476,836,000 in the aggregate,
subject to a variance of plus or minus 5%. The final class balances
for classes A-4 and A-5 are $233,364,000 and $261,198,000,
respectively. The classes above reflect the final ratings and deal
structure.
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 94 loans secured by 173
commercial properties having an aggregate principal balance of
$988,043,799 as of the cut-off date. The loans were contributed to
the trust by Barclays Capital Real Estate Inc., Societe Generale
Financial Corporation, SSOF SCRE AIV, L.P, UBS AG, LMF Commercial,
LLC, BSPRT CMBS Finance, LLC, and Natixis Real Estate Capital LLC.
The Master Servicer is expected to be Wells Fargo Bank, National
Association and the Special Servicer is expected to be SCP
Servicing, LLC.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 40.1% of the properties
by balance, cash flow analyses of 82.5% of the pool, and asset
summary reviews on 100% of the pool.
Coronavirus Impact: The ongoing containment effort related to the
coronavirus (which causes COVID-19) pandemic may have an adverse
impact on near-term revenue (i.e. bad debt expense, rent relief)
and operating expenses (i.e. sanitation costs) for some properties
in the pool. Delinquencies may occur in the coming months as
forbearance programs are put in place, although the ultimate impact
on credit losses will depend heavily on the severity and duration
of the negative economic impact of the coronavirus pandemic, and to
what degree fiscal interventions by the U.S. federal government can
mitigate the impact on consumers. Per the offering documents, all
of the loans are current and are not subject to any forbearance
requests, however, the sponsor for the Homewood Suites Katy loan
(0.9% of pool), have negotiated loan amendments/modifications. See
the "Additional Coronavirus Forbearance Provisions" section on page
15 of the presale report for additional information.
KEY RATING DRIVERS
Leverage Exceeds that of Recent Transactions: The pool has a higher
leverage than those of other recent multi-borrower transactions
rated by Fitch. The pool's Fitch loan-to-value ratio of 106.5% is
higher than the YTD 2021 and 2020 averages of 102.5% and 99.6%,
respectively. Additionally, the pool's Fitch debt service coverage
ratio (DSCR) of 1.27x is lower than the YTD 2021 and 2020 averages
of 1.38x and 1.32x, respectively.
High Multifamily Exposure and Low Hotel Exposure: Loans secured by
traditional multifamily properties represent 28.9% of the pool by
balance, including five of the top 20 loans. The total multifamily
concentration is significantly higher than both the YTD 2021 and
2020 average of 16.3%. Loans secured by multifamily properties have
a lower probability of default in Fitch's multi-borrower model, all
else equal.
There are only four hotel loans, representing 3.4% of the pool,
which is lower than the YTD 2021 and 2020 averages of 3.9% and
9.2%, respectively. Fitch considers the hotel asset type to have
the greatest downside risk among all commercial asset types, and
loans secured by hotel properties are assigned an above-average
probability of default in Fitch's multi-borrower model.
Additionally, Fitch considers hotel property types to have the
greatest downside risk among all commercial asset types as a result
of the coronavirus pandemic.
Diverse Pool: The pool's 10 largest loans represent 37.4% of the
pool's cutoff balance, which is considerably lower than the YTD
2021 and 2020 averages of 51.5% and 56.8%, respectively. The loan
concentration index and sponsor concentration index of 225 and 226,
respectively, are considerably lower than the YTD 2021 respective
averages of 384 and 412, indicative of a diverse pool with little
sponsor concentration.
Investment-Grade Credit Opinion Loans: Only two loans representing
11.9% of the pool received an investment-grade credit opinion. One
SoHo Square and Kings Plaza, representing 7.1% and 4.9% of the
pool, respectively, each received a standalone credit opinion of
'BBB-sf'. This is slightly below the YTD 2021 average of 14.0% and
considerably below the 2020 average of 24.5%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
This section provides insight into the sensitivity of ratings when
one assumption is modified, while holding others equal. For U.S.
CMBS, the sensitivity reflects the impact of changes to property
net cash flow (NCF) in up- and down-environments. The results below
should only be considered as one potential outcome, as the
transaction is exposed to multiple dynamic risk factors. It should
not be used as an indicator of possible future performance.
Declining cash flow decreases property value and capacity to meet
its debt service obligations. The table below indicates the model
implied rating sensitivity to changes in one variable, Fitch NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB+sf' / 'BB-sf' / 'B-sf';
-- 10% NCF Decline: 'A+sf' / 'BBB+sf' / 'BBB-sf' / 'BB+sf' /
'B+sf' / 'CCCsf' / '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'.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Improvement in cash flow increases property value and capacity to
meet its debt service obligations. The table below indicates the
model implied rating sensitivity to changes to the same one
variable, Fitch NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB+sf' / 'BB-sf' / 'B-sf';
-- 20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AA+sf' / 'AA-sf' / 'A-
sf' / 'BBB+sf' / 'BBBsf' / 'BBB-sf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Ernst & Young LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis and it did not
have an effect on Fitch's analysis or conclusions.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BEAR STEARNS 2005-PWR7: Moody's Cuts Rating on D Certs to 'Csf'
---------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on three and
downgraded the ratings on three classes in Bear Stearns Commercial
Mortgage Securities Trust 2005-PWR7 as follows:
Cl. B, Downgraded to Ba3 (sf); previously on Mar 31, 2020
Downgraded to Ba1 (sf)
Cl. C, Downgraded to Caa1 (sf); previously on Mar 31, 2020
Downgraded to B3 (sf)
Cl. D, Downgraded to C (sf); previously on Mar 31, 2020 Downgraded
to Ca (sf)
Cl. E, Affirmed C (sf); previously on Mar 31, 2020 Affirmed C (sf)
Cl. F, Affirmed C (sf); previously on Mar 31, 2020 Affirmed C (sf)
Cl. X-1*, Affirmed C (sf); previously on Mar 31, 2020 Affirmed C
(sf)
* Reflects interest-only classes
RATINGS RATIONALE
The rating on three P&I classes, Cl. B, Cl. C and Cl. D, were
downgraded due to the expected losses and interest shortfall
concerns resulting from the significant exposure to specially
serviced and previously modified loans. The largest remaining loan,
Shops at Boca Park (86% of the pool), is currently REO and deemed
non-recoverable by the master servicer. The second largest loan,
Mission Paseo (12% of the pool), has been previously modified with
an interest reduction and its NOI performance is significantly
below securitization levels. As of the September 2021 remittance,
Cl. C and Cl. D did not receive any interest payments and loan
principal collections were necessary to pay the interest due on Cl.
B.
The ratings on two classes, Cl. E and Cl. F, were affirmed due to
the expected loss from the remaining loans in the pool.
The rating on the IO class, Cl. X-1, was affirmed based on the
credit quality of its referenced classes.
Moody's rating action reflects a base expected loss of 66.9% of the
current pooled balance, compared to 57.7% at Moody's last review.
Moody's base expected loss plus realized losses is now 8.6% of the
original pooled balance, compared to 8.1% 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, an increase in realized and
expected losses from specially serviced and troubled loans or
interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating Large Loan
and Single Asset/Single Borrower CMBS" published in September
2020.
Moody's analysis incorporated a loss and recovery approach in
rating the P&I classes in this deal since 86.2% of the pool is in
special servicing. In this approach, Moody's determines a
probability of default for each specially serviced and troubled
loan that it expects will generate a loss and estimates a loss
given default based on a review of broker's opinions of value (if
available), other information from the special servicer, available
market data and Moody's internal data. The loss given default for
each loan also takes into consideration repayment of servicer
advances to date, estimated future advances and closing costs.
Translating the probability of default and loss given default into
an expected loss estimate, Moody's then applies the aggregate loss
from specially serviced to the most junior classes and the recovery
as a pay down of principal to the most senior classes.
DEAL PERFORMANCE
As of the September 13, 2021 distribution date, the transaction's
aggregate certificate balance has decreased by 95% to $55.5 million
from $1.12 billion at securitization. The certificates are
collateralized by four remaining mortgage loans. Two loans,
constituting 2.1% of the pool, have defeased and are secured by US
government securities. The remaining two loans are either in
special servicing or have been previously modified.
Eight loans have been liquidated from the pool with a loss,
resulting in an aggregate realized loss of approximately $59.3
million (for an average loss severity of 65%).
One remaining loan, the Shops at Boca Park ($47.8 million -- 86.2%
of the pool), is currently in special servicing. The loan is
secured by a 137,000 square foot (SF) retail center located in Las
Vegas, Nevada approximately 12 miles northwest of the Vegas Strip.
The loan has been in and out of special servicing since October
2009 and the loan became real estate owned (REO) in 2018. The
property's NOI has significantly declined since securitization and
the was 77% leased as of April 2021, compared to 82% in January
2020 and 98% at securitization. Servicer commentary indicated
parking garages repair and upgrades are in progress while they work
to lease up the asset. As of the September 2021 remittance
statement the master servicer has deemed this loan non-recoverable
The remaining non-defeased performing loan is the Mission Paseo
Loan ($6.5 million -- 11.7% of the pool), which is secured by a
61,000 SF retail property in Las Vegas, Nevada. The loan
transferred to special servicing in January 2015 for maturity
default and returned to master servicing after a term and rate
modification in February 2016. The property was over 98% leased as
of June 2021, compared to 92% in December 2018 and 88% in December
2017. However, the NOI remains lower than expectations at
securitization. The loan matures in November 2023 and has amortized
25% since securitization. Moody's LTV and stressed DSCR are 126%
and 0.90X, respectively, compared to 130% and 0.87X at the last
review.
BELLEMEADE RE 2021-3: Moody's Assigns B1 Rating to Cl. M-2 Notes
----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to five
classes of mortgage insurance credit risk transfer notes issued by
Bellemeade Re 2021-3 Ltd.
Bellemeade Re 2021-3 Ltd. is the third transaction issued in 2021
under the Bellemeade Re program, which transfers to the capital
markets the credit risk of private mortgage insurance (MI) policies
issued by Arch Mortgage Insurance Company (Arch) and United
Guaranty Residential Insurance Company (UGRIC) (each, a subsidiary
of Arch Capital Group Ltd., and collectively, the ceding insurer)
on a portfolio of residential mortgage loans. The notes are exposed
to the risk of claims payments on the MI policies, and depending on
the notes' priority, may incur principal and interest losses when
the ceding insurer makes claims payments on the MI policies.
On the closing date, Bellemeade Re 2021-3 Ltd. (the issuer) and the
ceding insurer will enter into a reinsurance agreement providing
excess of loss reinsurance on mortgage insurance policies issued by
the ceding insurer on a portfolio of residential mortgage loans.
Proceeds from the sale of the notes will be deposited into the
reinsurance trust account for the benefit of the ceding insurer and
as security for the issuer's obligations to the ceding insurer
under the reinsurance agreement. The funds in the reinsurance trust
account will also be available to pay noteholders, following the
termination of the trust and payment of amounts due to the ceding
insurer. Funds in the reinsurance trust account will be used to
purchase eligible investments and will be subject to the terms of
the reinsurance trust agreement.
Following the instruction of the ceding insurer, the trustee will
liquidate assets in the reinsurance trust account to (1) make
principal payments to the notes as the insurance coverage in the
reference pool reduces due to loan amortization or policy
termination, and (2) reimburse the ceding insurer whenever it pays
MI claims after the coverage level B-2 (or coverage level B-3 if
class B-2 notes have been issued pursuant to a reopening) are
written off. While income earned on eligible investments is used to
pay interest on the notes, the ceding insurer is responsible for
covering any difference between the investment income and interest
accrued on the notes' coverage levels.
In this transaction, the notes' coupon is indexed to SOFR. Based on
the transaction's synthetic structure, the particular choice of
benchmark has no credit impact. Interest payments to the notes are
made from income earned on the eligible investments in the
reinsurance trust account and the coverage premium from the ceding
insurer, which prevents the notes from incurring interest
shortfalls as a result of increases in the benchmark index.
The complete rating actions are as follows:
Issuer: Bellemeade Re 2021-3 Ltd.
Cl. A-2, Definitive Rating Assigned A2 (sf)
Cl. M-1A, Definitive Rating Assigned A2 (sf)
Cl. M-1B, Definitive Rating Assigned Baa2 (sf)
Cl. M-1C, Definitive Rating Assigned Baa3 (sf)
Cl. M-2, Definitive Rating Assigned B1 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expect this insured pool's aggregate exposed principal
balance to incur 2.22% losses in a base case scenario, and 15.53%
losses under loss a Aaa stress scenario. The aggregate exposed
principal balance is the aggregate product of (i) loan unpaid
balance, (ii) the MI coverage percentage of each loan, and (iii)
one minus existing quota share reinsurance percentage. Nearly all
of loans (except 54 loans) have 7.5% or 8.75% existing quota share
reinsurance covered by unaffiliated third parties, hence 92.5% or
91.25%, respectively, pro rata share of MI losses of such loans
will be taken by this transaction. For the rest of loans having
zero existing quota share reinsurance, the transaction will bear
100% of their MI losses.
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 7.5%
(6.7% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
In addition, Moody's considered that for this transaction, similar
to other mortgage insurance credit risk transfer deals, payment
deferrals are not claimable events and thus are not treated as
losses; rather they would only result in a loss if the borrower
ultimately defaults after receiving the payment deferral and a
mortgage insurance claim is filed.
Moody's calculated losses on the pool using US Moody's Individual
Loan Analysis (MILAN) model based on the loan-level collateral
information as of the cut-off date. Loan-level adjustments to the
model results included, but were not limited to, adjustments for
origination quality.
Collateral Description
The reference pool consists of 93,138 prime, fixed- and
adjustable-rate, one- to four-unit, first-lien fully-amortizing
conforming mortgage loans with a total insured loan balance of
approximately $28.7 billion. Nearly all loans in the reference pool
had a loan-to-value (LTV) ratio at origination that were greater
than 80%, with a weighted average of 91.6%. The borrowers in the
pool have a weighted average FICO score of 753, a weighted average
debt-to-income ratio of 35.8% and a weighted average mortgage rate
of 3.1%. The weighted average risk in force (MI coverage
percentage) is approximately 22.9% of the reference pool total
unpaid principal balance. The aggregate exposed principal balance
is the portion of the pool's risk in force that is not covered by
existing third-party reinsurance. Approximately 99.6% (by unpaid
principal balance) of the mortgage loans have a MI coverage
effective date on 2021, and 0.4% of loans have a MI coverage
effective date on 2020.
The weighted average LTV of 91.6% is far higher than those of
recent private label prime jumbo deals, which typically have LTVs
in the high 60's range, however, it is in line with those of recent
MI CRT transactions. All but one insured loans in the reference
pool were originated with LTV ratios greater than 80%. 100% of
insured loans were covered by mortgage insurance at origination
with 98.9% covered by BPMI and 1.1% covered by LPMI based on unpaid
principal balance.
Underwriting Quality
Moody's took into account the quality of Arch's insurance
underwriting, risk management and claims payment process in Moody's
analysis.
Arch's underwriting requirements address credit, capacity (income),
capital (asset/equity) and collateral. It has a licensed in-house
appraiser to review appraisals.
Lenders submit mortgage loans to Arch for insurance either through
delegated underwriting or non-delegated underwriting program. Under
the delegated underwriting program, lenders can submit loans for
insurance without Arch re-underwriting the loan file. Arch issues
an MI commitment based on the lender's representation that the loan
meets the insurer's underwriting requirement. Arch does not allow
exceptions for loans approved through its delegated underwriting
program. Lenders eligible under this program must be pre-approved
by Arch. Under the non-delegated underwriting program, insurance
coverage is approved after full-file underwriting by the insurer's
underwriters. For Arch's overall portfolio, approximately 57% of
the loans are insured through delegated underwriting and 43%
through non-delegated. Arch follows the GSE underwriting guidelines
via DU/LP but applies additional overlays.
Servicers provide Arch monthly reports of insured loans that are
60-day delinquent prior to any submission of claims. Claims are
typically submitted when servicers have taken possession of the
title to the properties. Claims are submitted by uploading or
entering on Arch's website, electronic transfer or paper.
Arch performs an internal quality assurance review on a sample
basis of delegated and non-delegated underwritten loans to ensure
that (i) the risk exposure of insured mortgage loans is accurately
represented, (ii) lenders submitting loans via delegated
underwriting program are adhering to Arch's guidelines, and (iii)
internal underwriters are following guidelines and maintaining
consistent underwriting standards and processes.
Arch has a solid quality control process to ensure claims are paid
timely and accurately. Similar to the above procedure, Arch's
claims management reviews a sample of paid claims each month.
Findings are used for performance management as well as identified
trends. In addition, there is strong oversight and review from
internal and external parties such as GSE audits, Department of
Insurance audits, audits from an independent account firm, and
Arch's internal audits and compliance. Arch is also SOX compliant.
PwC, an independent account firm, performs a thorough audit of
Arch's claim payment process.
Third-Party Review
Arch engaged Wipro Opus Risk Solutions, LLC, to perform a data
analysis and diligence review of a sampling of mortgage loans files
submitted for mortgage insurance. This review included validation
of credit qualifications, verification of the presence of material
documentation as applicable to the mortgage insurance application,
updated valuation analysis and comparison, and a tape-to-file data
integrity validation to identify possible data discrepancies. The
scope does not include a compliance review.
The scope of the third-party review is weaker because the sample
size was small (only 0.34% of the total loans in the initial
reference pool as of the cut-off date, or 325 by loan count). The
representative sample of 325 files was determined using the
methodology below. Once the sample size was determined, the files
were selected randomly to meet the final sample count of 325 files
out of a total of 93,138 loan files.
In spite of the small sample size and a limited TPR scope for
Bellemeade Re 2021-3, Moody's did not make an additional adjustment
to the loss levels because, (1) approximately 35.7% of the loans in
the reference pool have gone through full re-underwriting by the
ceding insurer, (2) the underwriting quality of the insured loans
is monitored under the GSEs' stringent quality control system, and
(3) MI policies will not cover any costs related to compliance
violations.
Scope and results. The third-party due diligence scope focuses on
the following:
Appraisals: The third-party diligence provider reviewed property
valuation on 325 loans in the sample pool. A Freddie Mac Home Value
Explorer ("HVE") was ordered on the entire population of 325 files.
If the resulting value of the AVM was less than 90% of the value
reflected on the original appraisal, or if no results were
returned, a Broker Price Opinion ("BPO") was ordered on the
property. If the resulting value of the BPO was less than 90% of
the value reflected on the original appraisal, an Appraisal Review
appraisal was ordered on the property. Among the 325 loans, two
loans were not assigned any grade by the third-party review firm,
and all other loans were graded A. The third-party diligence
provider was not able to obtain property valuations these two
mortgage loans due to the inability to complete the appraisal
review assignment during the due diligence review period.
Credit: The third-party diligence provider reviewed credit on 325
loans in the sample pool, five of which obtained credit B and one
loan obtained credit C.
Data integrity: The third-party review firm was provided a data
file with loan level data, which was audited against origination
documents to determine the accuracy of data found within the data
tape. There are 5 discrepancies, shown below.
Reps & Warranties Framework
The ceding insurer does not make any representations and warranties
to the noteholders in this transaction. Since the insured mortgages
are predominantly GSE loans, the individual sellers would provide
exhaustive representations and warranties to the GSEs that are
negotiated and actively monitored. In addition, the ceding insurer
may rescind the MI policy for certain material misrepresentation
and fraud in the origination of a loan, which would benefit the MI
CRT noteholders.
Transaction Structure
The transaction structure is very similar to other MI CRT
transactions that Moody's have rated. The ceding insurer will
retain all or a portion of the senior coverage level A-1, first
loss coverage level B-3 and unfunded percentage of applicable
coverage levels between A-2, M-1A, M-1B, M-1C, M-2, B-1 or B-2.
During life of transaction the ceding insurer will maintain holding
of at least 50% of the coverage level B-3. The offered notes
benefit from a sequential pay structure. The transaction
incorporates structural features such as a 10-year bullet maturity
and a sequential pay structure for the non-senior notes, resulting
in a shorter expected weighted average life on the notes.
The coverage level A-2 will be offered in this transaction through
class A-2 notes. Class A-2 notes will not receive principal payment
if level A-2 trigger event is failed. In addition, principal
payments are allocated pro rata between senior notes and
subordinate notes based on the respective senior and subordinate
percentages. This can leave the class A-2 note with a higher
exposure to tail risk in the event the transaction does not have
sufficient subordination available to absorb losses. Moody's ran
sensitivity analysis using a combination of high prepayment
scenarios and performance test failure, thus extending the life of
the class A-2 notes, to stress the class A-2 notes against tail
risk.
Funds raised through the issuance of the notes are deposited into a
reinsurance trust account and are distributed either to the
noteholders, when insured loans amortize or MI policies terminate,
or to the ceding insurer for reimbursement of claims paid when
loans default. Interest on the notes is paid from income earned on
the eligible investments and the coverage premium from the ceding
insurer.
Credit enhancement in this transaction is comprised of
subordination provided by junior notes. The rated A-2, M-1A, M-1B,
M1-C and M-2 offered notes have credit enhancement levels of 9.00%,
7.00%, 5.85%, 4.40% and 2.55%, respectively. The credit risk
exposure of the notes depends on the actual MI losses incurred by
the insured pool. The loss is allocated in a reverse sequential
order. MI loss is allocated starting from coverage level B-3, while
investment losses are allocated starting from coverage level B-2.
On each payment date, the principal reduction amount for such
payment date will be allocated between coverage level A and the
subordinate coverage levels. The level A principal reduction amount
for such payment date will be allocated between coverage levels A-1
and A-2 in reduction of their respective coverage level amounts
under the reinsurance agreement as follows: if a level A-2 trigger
event is in effect, sequentially, to coverage level A-1 and
coverage level A-2, until the coverage level amount thereof is
reduced to zero. If a level A-2 trigger event is not in effect,
sequentially, to coverage level A-2 and coverage level A-1, until
the coverage level amount thereof is reduced to zero.
The sub-level principal reduction amount, if any, for such payment
date will be allocated among the subordinate coverage levels in
reduction of their respective coverage level amounts under the
reinsurance agreement sequentially, in order of seniority, to
coverage level M1-A, coverage level M-1B, coverage level M-1C,
coverage level M-2, coverage level B-1, coverage level B-2 and
coverage level B-3, until coverage level amount thereof is reduced
to zero.
So long as the senior coverage level is outstanding, and no
performance trigger event occurs, the transaction structure
allocates principal payments on a pro-rata basis between the senior
and non-senior reference tranches. Principal is then allocated
sequentially, to class A-2, class M-1A, class M-1B, class M-1C,
class M-2, class B-1 and class B-2. Principal payments are all
allocated to senior reference tranches when sub-level trigger event
occurs.
The coverage level A-2 will be offered in this transaction.
Coverage level A-2 is subordinated to coverage level A-1. Class A-2
will not receive principal payment if level A-2 trigger event is
failed.
Level A-2 trigger event will be in effect with respect to any
payment date if any of following conditions meet: i) such payment
date is prior to the payment date in April 2025 ii) the level A-1
CE percentage for that payment date is less than the level A-1
target CE percentage (10%) or
iii) the preceding three month average of the sixty-plus
delinquency amount for that payment date equals or exceeds 75.00%
of coverage level A subordination amount or the subordinate
percentage (or with respect to the first payment date, the original
subordinate percentage) for that payment date is less than the
target CE percentage (minimum C/E test: 10.0%).
Sub-level trigger event with respect to any payment date will be in
effect if the coverage level amount of coverage level A for such
payment date has not been reduced to zero and either (i) the
preceding three month average of the sixty-plus delinquency amount
for that payment date equals or exceeds 60.00% of coverage level A
subordination amount or (ii) the subordinate percentage (or with
respect to the first payment date, the original subordinate
percentage) for that payment date is less than the sub-level target
CE percentage (minimum C/E test: 10%).
Premium Deposit Account (PDA)
The premium deposit account will benefit the transaction upon a
mandatory termination event (e.g. the ceding insurer fails to pay
the coverage premium and does not cure, triggering a default under
the reinsurance agreement), by providing interest liquidity to the
noteholders for 70 days while the assets of the reinsurance trust
account are being liquidated to repay the principal of the notes.
On the closing date, the ceding insurer will establish a cash and
securities account (the PDA) but no initial deposit amount will be
made to the account by the ceding insurer unless the premium
deposit event is triggered. The premium deposit event will be
triggered if the rating of the notes exceed the insurance financial
strength (IFS) rating (the lower of IFS rating rated by Moody's and
S&P) of the ceding insurer or the ceding insurer's IFS rating falls
below Baa2. If the note ratings exceed that of the ceding insurer,
the insurer will be obligated to deposit into the premium deposit
account the coverage premium only for the notes that exceeded the
ceding insurer's rating. If the ceding insurer's rating falls below
Baa2, it is obligated to deposit coverage premium for all
reinsurance coverage levels.
The required PDA amount for each class of notes and each month is
equal to the excess, if any, of (i) the coupon rate of the note
multiplied by (a) the applicable funded percentage, (b) the
coverage level amount for the coverage level corresponding to such
class of notes and (c) a fraction equal to 70/360, over (ii) two
times the investment income collected on the eligible investments.
Moody's believe the PDA arrangement does not establish a linkage
between the ratings of the notes and the IFS rating of the ceding
insurer because, 1) the required PDA amount is small relative to
the entire deal, 2) the risk of PDA not being funded could
theoretically occur if the ceding insurer suddenly defaults,
causing a rating downgrade from investment grade to default in a
very short period; which is a highly unlikely scenario, and 3) even
if the insurer becomes insolvent, there would be a strong incentive
for the insurer's insolvency regulator to continue to make the
interest payments to avoid losing reinsurance protection provided
by the deal.
Claims Consultant
To mitigate risks associated with the ceding insurer's control of
the trust account and discretion to unilaterally determine the MI
claims amounts (i.e. ultimate net losses), the ceding insurer will
engage Opus Capital Markets, as claims consultant, to verify MI
claims and reimbursement amounts withdrawn from the reinsurance
trust account once the coverage level B-2, or coverage level B-3 if
class B-2 notes have been issued pursuant to a reopening. The
claims consultant will review on a quarterly basis a sample of
claims paid by the ceding insurer covered by the reinsurance
agreement. In verifying the amount, the claims consultant will
apply a permitted variance to the total paid loss for each MI
Policy of +/- 2%. The claims consultant will provide a preliminary
report to the ceding insurer containing results of the
verification. If there are findings that cannot be resolved between
the ceding insurer and the claims consultant, the claims consultant
will increase the sample size. A final report will be delivered by
the claims consultant to the trustee, the issuer and the ceding
insurer. The issuer will be required to provide a copy of the final
report to the noteholders and the rating agencies.
Unlike RMBS transactions where there is typically some level of
independent third party oversight by the trustee, the master
servicer and/or the securities administrator, MI CRT transactions
typically do not have such oversight. For example, the ceding
insurer not only has full control of the trust account but can also
determine, at its discretion, the MI claims amount. The ceding
insurer will then direct the trustee to withdraw the funds to
reimburse for the claims paid. Since the trustee is not required to
verify the MI claims amount, there could be a scenario where funds
are withdrawn from the reinsurance trust account in excess of the
amounts necessary to reimburse the ceding insurer. As such, Moody's
believe the claims consultant in this transaction will provide the
oversight to mitigate such risks.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Methodology
The principal methodology used in these ratings was "Moody's
Approach to Rating US RMBS Using the MILAN Framework" published in
August 2021.
BENCHMARK 2021-B29: Fitch Assigns Final B- Rating on 2 Tranches
---------------------------------------------------------------
Fitch Ratings has assigned final ratings and Outlooks to Benchmark
2021-B29 Mortgage Trust commercial mortgage pass-through
certificates, series B29 as follows:
-- $20,710,000 class A-1 'AAAsf'; Outlook Stable;
-- $78,526,000 class A-2 'AAAsf'; Outlook Stable;
-- $177,306,000 class A-3 'AAAsf'; Outlook Stable;
-- $149,000,000 class A-4 'AAAsf'; Outlook Stable;
-- $295,684,000 class A-5 'AAAsf'; Outlook Stable;
-- $24,171,000 class A-SB 'AAAsf'; Outlook Stable;
-- $819,937,000 (a) class X-A 'AAAsf'; Outlook Stable;
-- $105,154,000 (a) class X-B 'A-sf'; Outlook Stable;
-- $74,540,000 class A-S 'AAAsf'; Outlook Stable;
-- $51,912,000 class B 'AA-sf'; Outlook Stable;
-- $53,242,000 class C 'A-sf'; Outlook Stable;
-- $61,230,000 (a, b) class X-D 'BBB-sf'; Outlook Stable;
-- $26,621,000 (a, b) class X-F 'BB-sf'; Outlook Stable;
-- $10,648,000 (a, b) class X-G 'B-sf'; Outlook Stable;
-- $33,277,000 (b) class D 'BBBsf'; Outlook Stable;
-- $27,953,000 (b) class E 'BBB-sf'; Outlook Stable;
-- $26,621,000 (b) class F 'BB-sf'; Outlook Stable;
-- $10,648,000 (b) class G 'B-sf'; Outlook Stable.
The following classes are not expected to be rated by Fitch:
-- $41,263,977 (b) class H;
-- $41,263,977 (a, b) class X-H;
-- $26,145,545 (b, c) class RR Interest;
-- $29,899,402 (b, d) class RR Certificates.
(a) Notional amount and interest only (IO).
(b) Privately placed and pursuant to Rule 144A.
(c) Vertical risk retention interest.
(d) Non-offered vertical credit risk retention interest.
Since Fitch's presale was published on Sept. 14, 2021, the class
balances for A-4 and A-5 were finalized. The class balance range
for class A-4 was from $0 to $149,000,000 and the class balance
range for class A-5 was $295,684,000 to $444,684,000. A-4's final
class balance is $149,000,000 and A-5's final class balance is
$295,684,000.
The ratings are based on information provided by the issuer as of
Sept. 30, 2021.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 47 loans secured by 90
commercial properties having an aggregate principal balance of
$1,120,898,925 as of the cut-off date. The loans were contributed
to the trust by Citi Real Estate Funding Inc., German American
Capital Corporation, JPMorgan Chase Bank, National Association and
Goldman Sachs Mortgage Company. The Master Servicer is expected to
be Midland Loan Services, a Division of PNC Bank, National
Association and the Special Servicer is expected to be LNR
Partners, LLC.
KEY RATING DRIVERS
Higher Fitch Leverage: The transaction's Fitch leverage is higher
than other recent U.S. multiborrower transactions rated by Fitch.
The pool's Fitch loan-to-value ratio (LTV) of 104.5% is higher than
the 2020 average of 99.6% and the YTD 2021 average of 102.5%.
Additionally, the pool's Fitch trust debt service coverage ratio
(DSCR) of 1.26x is lower than the 2020 and YTD 2021 averages of
1.32x and 1.38x, respectively. Excluding credit opinion loans, the
pool's weighted average (WA) Fitch DSCR was 1.27x. Excluding credit
opinion loans, the pool's WA Fitch LTV is 113.3%.
Investment-Grade Credit Opinion Loans: The pool includes three
loans, representing 21.0% of the pool, that received
investment-grade credit opinions. This is lower than the 2020
average of 24.5% but higher than the YTD 2021 average of 14.0%,
respectively. One SoHo Square (9.99% of the pool) received a credit
opinion of 'BBB-sf' on a standalone basis, HQ @ First (8.8% of the
pool) received a credit opinion of 'BBB-sf' on a standalone basis
and 175 East 62nd Street (2.2% of the pool) received a credit
opinion of 'BBBsf' on a standalone basis.
High Property Type Exposure to Retail and Office: Loans secured by
retail properties represent 30.1% of the pool by balance including
seven of the top 20. The total retail concentration is larger than
the 2020 average of 16.3% and the YTD 2021 average of 16.5%. Loans
secured by office properties represent 32.9% of the pool by
balance, which is below the 2020 and YTD 2021 averages of 41.2% and
40.2%, respectively. Loans secured by multifamily properties
represent 21.1% of the pool, which is higher than the 2020 and YTD
2021 averages of 16.3% and 14.7%, respectively. The pool has two
loans secured by hotel properties, making up 1.7% of the pool by
balance. This is significantly below the 2020 and YTD 2021 averages
of 9.2% and 4.7%, respectively.
Below-Average Amortization: Based on the scheduled balances at
maturity, the pool will pay down by 4.4%, which is below the 2020
and YTD 2021 averages of 5.3% and 4.8%, respectively. Thirty-one
loans (75.1% of the pool) are full IO loans, which is higher than
the 2020 and YTD 2021 averages of 67.7% and 72.2%, respectively.
Six loans (11.0% of the pool) are partial IO loans, which is lower
than the 2020 and YTD 2021 averages of 20.0% and 17.6%,
respectively.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Declining cash flow decreases property value and capacity to meet
its debt service obligations. The table below indicates the
model-implied rating sensitivity to changes to the same one
variable, Fitch NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB-sf' / 'B-sf'.
-- 10% NCF Decline: 'A+sf' / 'A-sf' / 'BBB-sf' / 'BB+sf' / 'B+sf'
/ 'CCCsf' / 'CCCsf'.
-- 20% NCF Decline: 'A-sf' / 'BBB-sf' / 'BB+sf' / 'Bsf' / 'CCCsf'
/ 'CCCsf' / 'CCCsf'.
-- 30% NCF Decline: 'BBBsf' / 'BB+sf' / 'B-sf' / 'CCCsf' /
'CCCsf' / 'CCCsf'/ 'CCCsf'.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Improvement in cash flow increases property value and capacity to
meet its debt service obligations. The table below indicates the
model-implied rating sensitivity to changes in one variable, Fitch
NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB-sf' / 'B-sf'.
-- 20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AAAsf' / 'AA+sf' / 'AA-
sf' / 'A-sf' / 'BBB+sf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Ernst & Young LLP. The third-party due diligence
described in Form 15E focused on A comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis, and 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.
CANYON CLO 2021-4: Moody's Assigns Ba3 Rating to Class E Notes
--------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes and one class of loans incurred by Canyon CLO 2021-4, Ltd.
(the "Issuer").
Moody's rating action is as follows:
US$160,000,000 Class A-L Loans maturing 2034, Definitive Rating
Assigned Aaa (sf)
Up to US$160,000,000 Class A-L Senior Secured Floating Rate Notes
due 2034, Definitive Rating Assigned Aaa (sf)
US$155,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aaa (sf)
US$65,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Definitive Rating Assigned Aa2 (sf)
US$29,500,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned A2 (sf)
US$30,000,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned Baa3 (sf)
US$20,500,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2034, Definitive Rating Assigned Ba3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Debt." The Class A-L Loans may be exchanged or converted
into notes, subject to certain conditions.
On the closing date, the Class A-L Loans and the Class A-L Notes
have a principal balance of $160,000,000 and $0, respectively. At
any time, the Class A-L Loans may be converted in whole or in part
to Class A-L Notes, thereby decreasing the principal balance of the
Class A-L Loans and increasing, by the corresponding amount, the
principal balance of the Class A-L Notes. The aggregate principal
balance of the Class A-L Loans and Class A-L Notes will not exceed
$160,000,000, less the amount of any principal repayments.
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.
Canyon CLO 2021-4, Ltd. is a managed cash flow CLO. The issued
notes will be collateralized primarily by broadly syndicated senior
secured corporate loans. At least 92.5% of the portfolio must
consist of first lien senior secured loans, cash, and eligible
investments, and up to 7.5% of the portfolio may consist of not
senior secured loans. The portfolio is approximately 85% ramped as
of the closing date.
Canyon CLO Advisors LLC (the "Manager") will direct the selection,
acquisition and disposition of the assets on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's five year reinvestment period.
Thereafter, subject to certain restrictions, the Manager may
reinvest unscheduled principal payments and proceeds from sales of
credit risk assets.
In addition to the Rated Debt, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 70
Weighted Average Rating Factor (WARF): 2810
Weighted Average Spread (WAS): 3.40%
Weighted Average Coupon (WAC): 6.50%
Weighted Average Recovery Rate (WARR): 46.5%
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 Debt is subject to uncertainty. The
performance of the Rated Debt is sensitive to the performance of
the underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the Rated Debt.
CARLYLE US 2021-8: S&P Assigns BB- (sf) Rating on Class E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its ratings to Carlyle US CLO 2021-8
Ltd./Carlyle US CLO 2021-8 LLC's floating-rate notes.
The note issuance is a CLO transaction backed primarily by broadly
syndicated speculative-grade (rated 'BB+' and lower) senior secured
term loans that are governed by collateral quality tests.
The ratings reflect:
-- The diversification of the collateral pool;
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
Carlyle US CLO 2021-8 Ltd./Carlyle US CLO 2021-8 LLC
Class X, $1.50 million: AAA (sf)
Class A, $369.00 million: AAA (sf)
Class B, $87.00 million: AA (sf)
Class C, $36.00 million: A (sf)
Class D, $36.00 million: BBB- (sf)
Class E, $24.00 million: BB- (sf)
Subordinated notes, $62.06 million: Not rated
CFCRE 2016-C6 MORTGAGE: Fitch Lowers Rating on 2 Tranches to 'CCC'
------------------------------------------------------------------
Fitch Ratings has downgraded four and affirmed nine classes of
CFCRE 2016-C6 Mortgage Trust. Fitch has also revised the Rating
Outlooks to Stable from Negative on classes A-M, B, C and X-B. The
Outlooks on classes D, E and X-E remain Negative.
DEBT RATING PRIOR
---- ------ -----
CFCRE 2016-C6
A-2 12532AAY5 LT AAAsf Affirmed AAAsf
A-3 12532AAZ2 LT AAAsf Affirmed AAAsf
A-M 12532ABA6 LT AAAsf Affirmed AAAsf
A-SB 12532AAX7 LT AAAsf Affirmed AAAsf
B 12532ABB4 LT AA-sf Affirmed AA-sf
C 12532ABC2 LT A-sf Affirmed A-sf
D 12532AAA7 LT BBB-sf Affirmed BBB-sf
E 12532AAC3 LT B-sf Downgrade BB-sf
F 12532AAE9 LT CCCsf Downgrade B-sf
X-A 12532ABD0 LT AAAsf Affirmed AAAsf
X-B 12532ABE8 LT AA-sf Affirmed AA-sf
X-E 12532AAL3 LT B-sf Downgrade BB-sf
X-F 12532AAN9 LT CCCsf Downgrade B-sf
KEY RATING DRIVERS
Higher Certainty of Losses: The downgrades of classes E and F
reflect higher certainty of losses for the pool's Fitch Loans of
Concern (FLOCs); in particular, the pool's specially serviced loans
(10.6%). Fitch's ratings incorporate a base case loss of 4.9% and a
sensitivity that reflects losses that could reach 5.3% when
factoring additional stresses to two hotel loans and one retail
loan. There are 15 Fitch Loans of Concern (FLOCs) (37.2%),
including five loans (10.6%) in special servicing; nine loans
(26.8%) have been flagged for upcoming lease expirations and/or
pandemic-related underperformance.
The Stable Outlooks for classes A-2 through A-SB reflect the stable
performance of the majority of the pool. The Outlook revisions on
classes A-M, B and C to Stable from Negative reflect the lower
expected losses on loans that have exhibited improving performance
since the onset of the coronavirus pandemic; in particular, Fresno
Fashion Fair loan (5.4%). The Negative Outlooks on classes on E and
F reflect the concerns over the loans still recovering from the
coronavirus pandemic and the loans in special servicing.
The largest FLOC and largest contributor to expected losses is 7th
& Pine Seattle Retail & Parking (FLOC, 8.1%), retail/parking garage
located within the downtown Seattle CBD. Subject YE 2020 NOI DSCR
has fallen to 0.48x from underwritten NOI DSCR of 1.71x. According
to the subject's June 2021 rent roll, six tenants, including the
subject's largest tenant Standard Parking (NRA 93%), were granted
relief during 2020. As of September 2021, the loan was under cash
management. Fitch's base case loss is 13% which reflects a 9% cap
rate on YE 2019 NOI.
The second largest contributor to expected losses is the Fresno
Fashion Fair Mall (FLOC, 5.4%), which is secured by the 561,989 sf
portion of an 835,416 sf regional mall located in Fresno, CA. The
largest collateral tenants include JCPenney (27.4% of NRA, lease
expiry in November 2022), H&M (3.4%, January 2027), Victoria's
Secret (2.6%, January 2027), Cheesecake Factory (1.8%, January
2026) and ULTA Beauty (1.8%, August 2027). The mall reopened at the
end of May 2020 following two months of closure due to
pandemic-related restrictions.
The mall is demonstrating a strong recovery from the effects of the
pandemic with occupancy climbing to 98% as of the 2Q 2021 from 91%
at YE 2020. Sales are approaching pre-pandemic levels with inline
sales of $721 psf ($633 psf excluding Apple) as of the TTM June
2021.This compares to inline sales of $590 psf ($472 psf excluding
Apple) as of TTM 9/2020, $765 psf ($617 psf excluding Apple) as of
TTM 3/2019, and $737 psf ($613 psf excluding Apple) as of TTM
6/2018. Fitch's analysis includes a 9.5% cap rate and 5% total
haircut to YE 2020 NOI resulting in a base case loss of 14%. The
lower expected loss on this loan compared to the prior review
contributed to the Outlook revisions on classes A-M, B and C to
Stable from Negative.
The third largest contributor to expected losses is Shoppes at
Dadeland (FLOC, 5.4%) which is securitized by an open air, power
center located in Miami, FL. Subject YE 2020 NOI DSCR has fallen to
1.35x from 1.78x at YE 2019 and underwritten NOI DSCR of 1.66x. The
servicer stated that the drop in performance is due to rent relief
granted to tenants during the coronavirus pandemic. Additionally,
Office Depot (NRA 15.5%) vacated at lease expiration in June 2020
and subject occupancy has fallen to 84% as of YE 2020. Fitch's base
case loss of 12% reflects a 9% cap rate and a 5% haircut on
annualized June 2021 NOI.
Coronavirus Exposure: Eight loans (14.8%) are secured by lodging
properties, seven of which are flagged as FLOCs. Fifteen (38.2%)
are secured by retail properties, five of which is flagged as a
FLOC. The hotels, retail properties and the mixed-use property, 7th
& Pine Seattle Retail & Parking (FLOC), experienced significant
performance challenges in 2020 due to reduced revenues and/or
temporary property closures related to the pandemic. Fitch ran an
additional sensitivity scenario with a 26% stress to the YE 2019
NOI for two hotels and a 20% stress to one retail loan to test the
durability of the cash flows. The Negative Outlooks on classes D
and E are partially attributable to this sensitivity.
Minimal Change in Credit Enhancement: As of the September 2021
distribution date, the pool's aggregate balance has been reduced by
5.9% to $740.8 million from $787.5 million at issuance. There are
two loans comprising 4.3% of the pool have been fully defeased.
Eight loans (51%) are classified as interest only. No loans are
scheduled to mature until 2025. The specially serviced loan,
Mandeville Marketplace, disposed in December 2019 resulting in a
$3.7 million loss to Class G.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades could be triggered by an increase in pool-level
losses from underperforming or specially serviced loans.
Downgrades to the classes rated 'AAAsf' are not considered
likely due to position in the capital structure but may occur
at 'AAAsf' or 'AA-sf' should interest shortfalls occur.
-- Downgrades to classes C and D may occur if overall pool
performance declines or loss expectations increase. Downgrades
to classes E and F would occur as losses are realized and/or
become more certain.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades could be triggered by significantly improved
performance coupled with paydown and/or defeasance. An upgrade
to classes B and C could occur with stabilization of the
FLOCs, but would be limited as concentrations increase.
Classes would not be upgraded above 'Asf' if there is
likelihood of interest shortfalls.
-- Upgrades of class D would only occur with significant
improvement in credit enhancement and stabilization of the
FLOCs. An upgrade to classes E and F is not likely unless
performance of the FLOCs improves, and if performance of the
remaining pool is stable.
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.
CIFC FUNDING 2020-II: S&P Assigns BB-(sf) Rating on Class E-R Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its ratings to the replacement class
A-R, B-R, C-R, D-R, and E-R notes from CIFC Funding 2020-II Ltd., a
CLO originally issued in August 2020 that is managed by CIFC Asset
Management LLC. At the same time, S&P withdrew its ratings on the
original class A-1, B, C, D, and E notes following payment in full
on the Sept. 30, 2021, refinancing date.
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, B-R, C-R, D-R, and E-R notes were
issued at a lower spread over three-month LIBOR than the original
notes.
-- The replacement class A-R, B-R, C-R, D-R, and E-R notes were
issued at a new floating spread.
-- The stated maturity and non-call periods were extended by
approximately two years, and the reinvestment period was extended
by approximately three years.
-- No additional collateral were purchased in connection with this
refinancing. The target initial par amount remains at $450.00
million, and the first payment date following the first refinancing
date is Jan. 20, 2022.
-- No additional subordinated notes were issued in connection with
this refinancing. However, the stated maturity date was amended to
match that of the replacement notes.
-- The transaction amended its ability to purchase workout-related
assets and also conformed to updated rating agency methodology. The
required minimums on the overcollateralization tests were also
amended.
-- The transaction amended its ability to purchase bonds up with a
cap of 5% of the collateral principal amount.
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
CIFC Funding 2020-II Ltd./CIFC Funding 2020-II LLC
Class A-R, $279.00 million: AAA (sf)
Class B-R, $63.00 million: AA (sf)
Class C-R, $27.00 million: A (sf)
Class D-R, $27.00 million: BBB- (sf)
Class E-R, $17.70 million: BB- (sf)
Subordinated notes, $37.20 million: Not rated
Ratings Withdrawn
CIFC Funding 2020-II Ltd./CIFC Funding 2020-II 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)
CIM TRUST 2021-R6: Fitch Assigns B(EXP) Rating on Class B2 Debt
---------------------------------------------------------------
Fitch Ratings has assigned expected ratings to CIM Trust 2021-R6
(CIM 2021-R6).
DEBT RATING
---- ------
CIM 2021-R6
A1 LT AAA(EXP)sf Expected Rating
A1-A LT AAA(EXP)sf Expected Rating
A1-B LT AAA(EXP)sf Expected Rating
M1 LT AA(EXP)sf Expected Rating
M2 LT A(EXP)sf Expected Rating
M3 LT BBB(EXP)sf Expected Rating
B1 LT BB(EXP)sf Expected Rating
B2 LT B(EXP)sf Expected Rating
B3 LT NR(EXP)sf Expected Rating
A-IO-S LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch expects to rate the residential mortgage-backed notes to be
issued by CIM Trust 2021-R6 (CIM 2021-R6) as indicated above. The
transaction is expected to close on Oct. 8, 2021. The notes are
supported by one collateral group that consists of 1,226 seasoned
performing loans (SPLs) and re-performing loans (RPLs) with a total
balance of approximately $353.8 million, which includes $2.84
million, or 0.8%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts, as of the cut-off
date.
Distributions of principal and interest (P&I) and loss allocations
are based on a traditional senior-subordinate, sequential
structure. The sequential-pay structure locks out principal to the
subordinated notes until the most senior notes outstanding are paid
in full. The servicers will not be advancing delinquent monthly
payments of P&I.
Fitch ran additional analysis on this transaction and as a result,
Fitch's loss expectations are based off of an additional scenario
in Fitch's U.S. RMBS Loan Loss model, which incorporates updated
home prices and macro-economic fundamentals.
KEY RATING DRIVERS
Distressed Performance History (Negative): The collateral pool
consists primarily of peak-vintage, seasoned performing and RPLs.
Of the pool, 1.8% was 30 days delinquent as of the cut-off date and
26.6% of loans are current but have had recent delinquencies or
incomplete pay strings. Approximately 72% of the loans have been
paying on time for at least the most recent 24 months. Roughly 29%
have been modified.
Low Leverage (Positive): The pool consists of loans with a weighted
average (WA) original combined loan to value (CLTV) of 72.9%. All
loans received an updated BPO valuation, which translate to a WA
sustainable LTV (sLTV) of 55.3% at the base case. This is
representative of low leverage borrowers, and is stronger than
recently rated RPL transactions.
No Servicer P&I Advances (Mixed): The servicer will not be
advancing delinquent monthly payments of P&I, which reduce
liquidity to the trust. P&I advances made on behalf of loans that
become delinquent and eventually liquidate reduce liquidation
proceeds to the trust. Due to the lack of P&I advancing, the
loan-level loss severity (LS) is less for this transaction than for
those where the servicer is obligated to advance P&I. Structural
provisions and cash flow priorities, together with increased
subordination, provide for timely payments of interest to the
'AAAsf' and 'AAsf' rated classes.
Sequential-Pay Structure (Positive): The transaction's cash flow is
based on a sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to re-allocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data,
and the unexpected development in the health crisis arising from
the advancement and availability of coronavirus vaccines, Fitch
reconsidered the application of the coronavirus-related ERF floors
of 2.0 and used ERF floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf'
rating stresses, respectively.
Fitch's March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model projected 42.6% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by SitusAMC. The third-party due diligence review was
completed on 100% of the loans in this transaction. The scope of
the due diligence review was consistent with Fitch criteria for RPL
collateral, and also included a property valuation review in
addition to the regulatory compliance and pay history review. All
loans also received an updated tax and title search and review of
servicing comments.
Fitch considered this information in its analysis and, as a result,
Fitch made the following adjustments to its analysis: increased the
loss severity due to HUD-1 issues, increased liquidation timelines
for loans missing modification agreements, and increased the loss
severity due to outstanding delinquent property taxes or liens.
These adjustments resulted in an increase in the 'AAAsf' expected
loss of approximately 0.24%.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CITIGROUP COMMERCIAL 2016-C3: Fitch Lowers 2 Tranches to 'CCC'
--------------------------------------------------------------
Fitch Ratings has downgraded four and affirmed 11 classes of
Citigroup Commercial Mortgage Trust, commercial mortgage
pass-through certificates, series 2016-C3 (CGCMT 2016-C3). The
Rating Outlooks remain Negative on seven classes. Fitch has removed
four classes from Rating Watch Negative (RWN) and subsequently
assigned Negative Outlooks to two of those classes.
DEBT RATING PRIOR
---- ------ -----
CGCMT 2016-C3
A-2 17325GAB2 LT AAAsf Affirmed AAAsf
A-3 17325GAC0 LT AAAsf Affirmed AAAsf
A-4 17325GAD8 LT AAAsf Affirmed AAAsf
A-AB 17325GAE6 LT AAAsf Affirmed AAAsf
A-S 17325GAF3 LT AAAsf Affirmed AAAsf
B 17325GAG1 LT AA-sf Affirmed AA-sf
C 17325GAH9 LT A-sf Affirmed A-sf
D 17325GAL0 LT BBB-sf Affirmed BBB-sf
E 17325GAN6 LT B-sf Downgrade BB-sf
F 17325GAQ9 LT CCCsf Downgrade B-sf
X-A 17325GAJ5 LT AAAsf Affirmed AAAsf
X-B 17325GAK2 LT AA-sf Affirmed AA-sf
X-D 17325GAU0 LT BBB-sf Affirmed BBB-sf
X-E 17325GAW6 LT B-sf Downgrade BB-sf
X-F 17325GAY2 LT CCCsf Downgrade B-sf
KEY RATING DRIVERS
Increased Loss Expectations: The downgrades and Negative Outlooks
reflect increased loss expectations on Briarwood Mall (9.1% of
pool) due to occupancy declines and performance deterioration. Ten
loans (24.3%), including two (1.8%) in special servicing, were
designated Fitch Loans of Concern (FLOCs).
Fitch's current ratings, which incorporate additional pandemic
related stresses, reflect a base case loss of 5.80%. The Negative
Outlooks reflect losses that could reach 8.30% when factoring in a
potential outsized loss of 50% on Briarwood Mall. The Stable
Outlooks on the senior 'AAAsf' classes reflect sufficient credit
enhancement (CE) and the expectation of paydown from continued
amortization.
Regional Mall FLOC: The largest contributor to loss, Briarwood Mall
(9.1%), is secured by 369,916 sf of a 978,034-sf super regional
mall in Ann Arbor, MI. The loan, which is sponsored in a 50/50
joint venture (JV) between Simon Property Group and General Motors
Pension Trust, was designated a FLOC due to occupancy declines and
performance concerns. Fitch's base case loss of approximately 23%
is based on a 15% cap rate and 5% total haircut to YE 2020 NOI.
The remaining non-collateral anchors are Macy's, JCPenney and Von
Maur after Sears closed in the fourth quarter of 2018. Collateral
occupancy declined to 76% at YE 2020, from 87% at YE 2019 and 95%
at issuance. Recent tenant vacancies include Gap and Banana
Republic in 2020, plus H&M and Romano's Macaroni Grill in 2021. As
a result, the YE 2020 NOI has declined 16% since YE 2019 and is 27%
below the issuer's underwritten NOI. DSCR for this IO loan was
2.54x at YE 2020, down from 3.03x at YE 2019 and 3.51x at issuance.
In-sales were $421 psf ($344 psf excluding Apple) as of the TTM
ended July 2021, compared with $543 psf ($357 psf excluding Apple)
for the prior 12 month period.
Alternative Loss Consideration: Fitch applied a potential outsized
loss of 50% on the current balance of Briarwood Mall to reflect
concerns with continued occupancy and performance declines. This
additional sensitivity scenario contributed to the Negative
Outlooks.
Loans Impacted by the Pandemic: The retail and hotel industries
have faced significant challenges in the last year due to social
and market disruption stemming from the pandemic. Retail is the
second largest property type concentration, representing 23.6% of
the pool. This includes two regional malls, Briarwood Mall (9.1%)
and Potomac Mills (4.9%). Fitch's loss expectations are based on
the YE 2020 performance for all but one of the retail loans.
Loans backed by hotels represent 18.7% of the pool. Two hotel loans
(1.8%) are in special servicing. For five of the non-specially
serviced hotel loans (13.2%), Fitch used pre-pandemic cash flows
with additional haircuts to reflect performance stresses over the
past year, and for the other two (3.7%), Fitch used YE 2020 cash
flows.
Increasing Credit Enhancement: As of the September 2021
distribution date, the pool's aggregate balance has been reduced by
5.7% to $713.4 million from $756.5 million at issuance. One loan
with a balance of $11.4 million at Fitch's prior rating action paid
in full during the open period. Eleven loans (43.6%) are full-term,
IO and seven loans (16.7%) have a partial-term, IO component of
which six have begun to amortize. One loan (1.6%) is fully
defeased. Cumulative interest shortfalls of $101,706 are currently
affecting the non-rated class G.
Pool Concentration: The top 10 loans comprise 58.4% of the pool.
Loan maturities are concentrated in 2026 (90.3%). Based on property
type, the largest concentrations are office at 35.9%, retail at
23.6% and hotel at 18.7%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades of classes A-2, A-3, A-4 and A-AB are not likely
due to sufficient CE and expected receipt of continued
amortization but could occur if interest shortfalls impact the
class;
-- Downgrades of classes A-S, X-A, B, X-B, C, D and X-D could
occur if interest shortfalls impact the class, additional
loans become FLOCs or performance of the FLOCs deteriorates
further;
-- Classes E, X-E, F and X-F would be downgraded further if loss
expectations increase, additional loans transfer to special
servicing or losses are realized.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- While upgrades are unlikely due to performance concerns with
the FLOCs, primarily the regional mall FLOC, classes could be
upgraded if performance of the FLOCs improves, 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. Classes
would not be upgraded above 'Asf' if there is a likelihood for
interest shortfalls.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CITIGROUP MORTGAGE 2021-INV3: Moody's Gives (P)B2 to Class B-5 Debt
-------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 96
classes of residential mortgage-backed securities (RMBS) issued by
Citigroup Mortgage Loan Trust (CMLTI) 2021-INV3. The ratings range
from (P)Aaa (sf) to (P)B2 (sf).
CMLTI 2021-INV3 securitization is backed by a pool of prime
conforming, investment property mortgage loans acquired by
Citigroup Global Markets Realty Corp. (CGMRC), the sponsor of this
transaction. CGMRC acquired the loans in the pool from one seller.
100.0% of the mortgage loans (by UPB) were acquired by the mortgage
loan seller from PennyMac (PennyMac). This deal represents the
sixth CMLTI securitization of prime jumbo or conforming residential
mortgage loans in 2021 and the ninth rated issue from the shelf
since its inception in 2019. All the loans are underwritten in
accordance with Freddie Mac or Fannie Mae guidelines, which take
into consideration, among other factors, the income, assets,
employment and credit score of the borrower as well as
loan-to-value (LTV). These loans were run through one of the
government sponsored enterprises' (GSE) automated underwriting
systems (AUS) and received an "Approve" or "Accept" recommendation.
Each mortgage loan is either 1) 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, or 2) for
purposes of the ATR Rules, relies on the exception for eligible
loan contained in 12 C.F.R. 1026.43(e)(4) (ie, the "QM patch"). 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
issued by the trust to satisfy U.S. risk retention rules.
PennyMac Corp. (PennyMac) will be primary servicer on the deal,
servicing 100% of the loans. There is no master servicer in this
transaction. PennyMac is the servicer and will be responsible for
making P&I advances. U.S. Bank National Association (U.S. Bank,
long term senior unsecured 'A1') will be the trust administrator
and U.S. Bank Trust National Association will be the trustee, and
will act as the backup advancing party.
One third-party review (TPR) firm verified the accuracy of the loan
level information that Moody's received from the sponsor. The firm
conducted detailed credit, property valuation, data accuracy and
compliance reviews on 100% of the mortgage loans in the collateral
pool. The TPR results indicate that there are no material
compliance, credit, or data issues and no appraisal defects.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model.
In this transaction, the Class A-11 coupons are indexed to SOFR.
However, based on the transaction's structure, the particular
choice of benchmark has no credit impact. First, interest payments
to the notes, including the floating rate notes, are subject to the
net WAC cap, which prevents the floating rate notes from incurring
interest shortfalls as a result of increases in the benchmark index
above the fixed rates at which the assets bear interest. Second,
the shifting-interest structure pays all interest generated on the
assets to the bonds and does not provide for any excess spread.
The complete rating action are as follows.
Issuer: Citigroup Mortgage Loan Trust 2021-INV3
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-1-IO1*, Assigned (P)Aaa (sf)
Cl. A-1-IO2*, Assigned (P)Aaa (sf)
Cl. A-1-IOX*, Assigned (P)Aaa (sf)
Cl. A-1A, Assigned (P)Aaa (sf)
Cl. A-1-IO3*, Assigned (P)Aaa (sf)
Cl. A-1-IO1W*, Assigned (P)Aaa (sf)
Cl. A-1-IO2W*, Assigned (P)Aaa (sf)
Cl. A-1W, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-2-IO1*, Assigned (P)Aaa (sf)
Cl. A-2-IO2*, Assigned (P)Aaa (sf)
Cl. A-2-IOX*, Assigned (P)Aaa (sf)
Cl. A-2A, Assigned (P)Aaa (sf)
Cl. A-2B, Assigned (P)Aaa (sf)
Cl. A-2-IO3*, Assigned (P)Aaa (sf)
Cl. A-2-IO1W*, Assigned (P)Aaa (sf)
Cl. A-2-IO2W*, Assigned (P)Aaa (sf)
Cl. A-2W, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-3-IO1*, Assigned (P)Aaa (sf)
Cl. A-3-IO2*, Assigned (P)Aaa (sf)
Cl. A-3-IOX*, Assigned (P)Aaa (sf)
Cl. A-3A, Assigned (P)Aaa (sf)
Cl. A-3B, Assigned (P)Aaa (sf)
Cl. A-3-IO3*, Assigned (P)Aaa (sf)
Cl. A-3-IO1W*, Assigned (P)Aaa (sf)
Cl. A-3-IO2W*, Assigned (P)Aaa (sf)
Cl. A-3W, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aa1 (sf)
Cl. A-4-IO1*, Assigned (P)Aa1 (sf)
Cl. A-4-IO2*, Assigned (P)Aa1 (sf)
Cl. A-4-IOX*, Assigned (P)Aa1 (sf)
Cl. A-4A, Assigned (P)Aa1 (sf)
Cl. A-4B, Assigned (P)Aa1 (sf)
Cl. A-4-IO3*, Assigned (P)Aa1 (sf)
Cl. A-4-IO1W*, Assigned (P)Aa1 (sf)
Cl. A-4-IO2W*, Assigned (P)Aa1 (sf)
Cl. A-4W, Assigned (P)Aa1 (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-5-IO1*, Assigned (P)Aa1 (sf)
Cl. A-5-IO2*, Assigned (P)Aa1 (sf)
Cl. A-5-IOX*, Assigned (P)Aa1 (sf)
Cl. A-5A, Assigned (P)Aaa (sf)
Cl. A-5-IO3*, Assigned (P)Aa1 (sf)
Cl. A-5-IO1W*, Assigned (P)Aa1 (sf)
Cl. A-5-IO2W*, Assigned (P)Aa1 (sf)
Cl. A-5W, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-6-IO1*, Assigned (P)Aaa (sf)
Cl. A-6-IO2*, Assigned (P)Aaa (sf)
Cl. A-6-IOX*, Assigned (P)Aaa (sf)
Cl. A-6A, Assigned (P)Aaa (sf)
Cl. A-6-IO3*, Assigned (P)Aaa (sf)
Cl. A-6-IO1W*, Assigned (P)Aaa (sf)
Cl. A-6-IO2W*, Assigned (P)Aaa (sf)
Cl. A-6W, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-7-IO1*, Assigned (P)Aaa (sf)
Cl. A-7-IO2*, Assigned (P)Aaa (sf)
Cl. A-7-IOX*, Assigned (P)Aaa (sf)
Cl. A-7A, Assigned (P)Aaa (sf)
Cl. A-7B, Assigned (P)Aaa (sf)
Cl. A-7-IO3*, Assigned (P)Aaa (sf)
Cl. A-7-IO1W*, Assigned (P)Aaa (sf)
Cl. A-7-IO2W*, Assigned (P)Aaa (sf)
Cl. A-7W, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-8-IO1*, Assigned (P)Aaa (sf)
Cl. A-8-IO2*, Assigned (P)Aaa (sf)
Cl. A-8-IOX*, Assigned (P)Aaa (sf)
Cl. A-8A, Assigned (P)Aaa (sf)
Cl. A-8-IO3*, Assigned (P)Aaa (sf)
Cl. A-8-IO1W*, Assigned (P)Aaa (sf)
Cl. A-8-IO2W*, Assigned (P)Aaa (sf)
Cl. A-8W, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-11-IO*, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-1-IO*, Assigned (P)Aa3 (sf)
Cl. B-1-IOX*, Assigned (P)Aa3 (sf)
Cl. B-1-IOW*, Assigned (P)Aa3 (sf)
Cl. B-1W, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-2-IO*, Assigned (P)A2 (sf)
Cl. B-2-IOX*, Assigned (P)A2 (sf)
Cl. B-2-IOW*, Assigned (P)A2 (sf)
Cl. B-2W, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa2 (sf)
Cl. B-3-IO*, Assigned (P)Baa2 (sf)
Cl. B-3-IOX*, Assigned (P)Baa2 (sf)
Cl. B-3-IOW*, Assigned (P)Baa2 (sf)
Cl. B-3W, Assigned (P)Baa2 (sf)
Cl. B-4, Assigned (P)Ba2 (sf)
Cl. B-5, Assigned (P)B2 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
1.15%, in a baseline scenario-median is .86%, and reaches 7.00% at
a stress level consistent with Moody's Aaa ratings.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of residential mortgage loans 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 increased its model-derived median expected losses by
10.00% (7.8% 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 regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
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 R&W framework of the
transaction.
Collateral Description
As of the cut-off date, the mortgage loans will consist of 764
conforming mortgage loans with an aggregate stated principal
balance of approximately $236,660,840. The mortgage loans will
consist of conventional, fixed-rate, fully amortizing mortgage
loans, which will have original terms to maturity of up to 30
years. All of the mortgage loans will be secured by first liens on
single-or two-to-four family residential properties, planned unit
developments, Multi-Family, condominiums, or townhouse. All loans
are current as of the cut-off date. Overall, the credit quality of
the mortgage loans backing this transaction is in-line with
recently issued prime jumbo transactions Moody's have rated, with
average length of employment of 8.6 years, average monthly primary
and all borrower wage income of $9,575 and $12,285, respectively.
Furthermore, the average liquid/cash reserves is $218,191 with
approximately 24 months of liquid/cash reserves. The average
monthly residual income is approximately $11,677.
The pool has clean pay history and weighted average (WA) seasoning
of approximately 6 months. 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.
The weighted average (WA) FICO for the aggregate pool is 770 with a
WA original LTV of 66.0% and WA original CLTV of 66.0%.
Approximately 16.1% of the mortgage loans by count are "Appraisal
Waiver" (AW) loans, whereby the sponsor obtained an AW for each
such mortgage loan from Fannie Mae or Freddie Mac through their
respective programs. In each case, neither Fannie Mae nor Freddie
Mac required an appraisal of the related mortgaged property as a
condition of approving the related mortgage loan for purchase by
Fannie Mae or Freddie Mac, as applicable.
Aggregation and Origination Quality
Citigroup Global Markets Realty Corp. (CGMRC) aggregated 100% of
the pool. Based on the available information related to CGMRC's
valuation and risk management practices, the 100% TPR, and the
transparent R&W framework in this transaction, Moody's did not make
any adjustments to Moody's losses based on Moody's review of
CGMRC's aggregation quality.
PennyMac Financial Services Inc. (PennyMac) originated 100% of the
pool. Moody's consider PennyMac to have an adequate origination
quality of conforming mortgages. As a result, Moody's did not make
any adjustments to Moody's base case and Aaa stress loss
assumptions based on Moody's review of PennyMac's loan performance
and origination practices.
Servicing Arrangement
Moody's consider the overall servicing arrangement for this pool as
adequate, and as a result Moody's did not make any adjustments to
Moody's base case and Aaa stress loss assumptions. Moody's did not
apply any adjustment to Moody's expected losses for the lack of
master servicer due to the following: (i) PennyMac was established
in 2008 and is an experienced servicer of residential mortgage
loans.
PennyMac is an approved servicer for both Fannie Mae and Freddie
Mac; (ii) PennyMac had no instances of non-compliance for its 2020
Regulation AB or Uniformed Single Audit Program (USAP) independent
servicer reviews; (iii) Although not directly related to this
transaction, there is still third party oversight of PennyMac from
the GSEs, the CFPB, the accounting firms and state regulators; (iv)
The complexity of the loan product is relatively low, reducing the
complexity of servicing and reporting; and (v) U.S. Bank, as the
trust administrator, will not only be responsible for aggregating
the reports from the servicers and reporting to investors, but also
for acting as the backup advancing party, and appointing a
replacement servicer at the direction of the controlling holder.
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 applicable
underwriting guidelines for the vast majority of loans, no material
regulatory compliance issues. The loans that had exceptions to the
applicable underwriting guidelines had significant compensating
factors that were documented.
Representations & Warranties
An effective R&W framework protects a transaction against the risk
of loss from fraudulent or defective loans. Moody's assessed CMLTI
2021-INV3's R&W framework for this transaction as adequate,
consistent with that of other private label transactions for which
the breach review process is thorough, transparent and objective,
and the costs and manner of review are clearly outlined at
issuance.
The transaction requires mandatory independent reviews of loans
that become 120 days delinquent (other than certain loans in FEMA
disaster areas and those in forbearance as a result of a pandemic
or national disaster) and those that liquidate at a loss to
determine if any of the R&Ws are breached. The R&Ws are
comprehensive and the R&W provider is CGMRC, an affiliate of
Citigroup, Inc. (rated A3). The R&W provider will be obligated to
cure or repurchase loans found to have material breaches of R&Ws,
or pay for any loss if that loan was liquidated.
Transaction Structure
CMLTI 2021-INV3 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.
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 1.00% of the cut-off date pool
balance, and as subordination lock-out amount of 1.00% 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.
CITIGROUP MORTGAGE 2021-J3: Fitch Rates Class B-5 Debt 'B+'
-----------------------------------------------------------
Fitch Ratings has assigned ratings to Citigroup Mortgage Loan Trust
2021-J3 (CMLTI 2021-J3).
DEBT RATING PRIOR
---- ------ -----
CMLTI 2021-J3
A-1 LT AAAsf New Rating AAA(EXP)sf
A-1-IO1 LT AAAsf New Rating AAA(EXP)sf
A-1-IO2 LT AAAsf New Rating AAA(EXP)sf
A-1-IOX LT AAAsf New Rating AAA(EXP)sf
A-1A LT AAAsf New Rating AAA(EXP)sf
A-1-IO3 LT AAAsf New Rating AAA(EXP)sf
A-1-IO1W LT AAAsf New Rating AAA(EXP)sf
A-1-IO2W LT AAAsf New Rating AAA(EXP)sf
A-1W LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-2-IO1 LT AAAsf New Rating AAA(EXP)sf
A-2-IO2 LT AAAsf New Rating AAA(EXP)sf
A-2-IOX LT AAAsf New Rating AAA(EXP)sf
A-2A LT AAAsf New Rating AAA(EXP)sf
A-2-IO3 LT AAAsf New Rating AAA(EXP)sf
A-2-IO1W LT AAAsf New Rating AAA(EXP)sf
A-2-IO2W LT AAAsf New Rating AAA(EXP)sf
A-2W LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
A-3-IO1 LT AAAsf New Rating AAA(EXP)sf
A-3-IO2 LT AAAsf New Rating AAA(EXP)sf
A-3-IOX LT AAAsf New Rating AAA(EXP)sf
A-3A LT AAAsf New Rating AAA(EXP)sf
A-3-IO3 LT AAAsf New Rating AAA(EXP)sf
A-3-IO1W LT AAAsf New Rating AAA(EXP)sf
A-3-IO2W LT AAAsf New Rating AAA(EXP)sf
A-3W LT AAAsf New Rating AAA(EXP)sf
A-4 LT AAAsf New Rating AAA(EXP)sf
A-4-IO1 LT AAAsf New Rating AAA(EXP)sf
A-4-IO2 LT AAAsf New Rating AAA(EXP)sf
A-4-IOX LT AAAsf New Rating AAA(EXP)sf
A-4A LT AAAsf New Rating AAA(EXP)sf
A-4-IO3 LT AAAsf New Rating AAA(EXP)sf
A-4-IO1W LT AAAsf New Rating AAA(EXP)sf
A-4-IO2W LT AAAsf New Rating AAA(EXP)sf
A-4W LT AAAsf New Rating AAA(EXP)sf
A-5 LT AAAsf New Rating AAA(EXP)sf
A-5-IO1 LT AAAsf New Rating AAA(EXP)sf
A-5-IO2 LT AAAsf New Rating AAA(EXP)sf
A-5-IOX LT AAAsf New Rating AAA(EXP)sf
A-5A LT AAAsf New Rating AAA(EXP)sf
A-5-IO3 LT AAAsf New Rating AAA(EXP)sf
A-5-IO1W LT AAAsf New Rating AAA(EXP)sf
A-5-IO2W LT AAAsf New Rating AAA(EXP)sf
A-5W LT AAAsf New Rating AAA(EXP)sf
A-6 LT AAAsf New Rating AAA(EXP)sf
A-6-IO1 LT AAAsf New Rating AAA(EXP)sf
A-6-IO2 LT AAAsf New Rating AAA(EXP)sf
A-6-IOX LT AAAsf New Rating AAA(EXP)sf
A-6A LT AAAsf New Rating AAA(EXP)sf
A-6-IO3 LT AAAsf New Rating AAA(EXP)sf
A-6-IO1W LT AAAsf New Rating AAA(EXP)sf
A-6-IO2W LT AAAsf New Rating AAA(EXP)sf
A-6W LT AAAsf New Rating AAA(EXP)sf
A-7 LT AAAsf New Rating AAA(EXP)sf
A-7-IO1 LT AAAsf New Rating AAA(EXP)sf
A-7-IO2 LT AAAsf New Rating AAA(EXP)sf
A-7-IOX LT AAAsf New Rating AAA(EXP)sf
A-7A LT AAAsf New Rating AAA(EXP)sf
A-7-IO3 LT AAAsf New Rating AAA(EXP)sf
A-7-IO1W LT AAAsf New Rating AAA(EXP)sf
A-7-IO2W LT AAAsf New Rating AAA(EXP)sf
A-7W LT AAAsf New Rating AAA(EXP)sf
A-8 LT AAAsf New Rating AAA(EXP)sf
A-8-IO1 LT AAAsf New Rating AAA(EXP)sf
A-8-IO2 LT AAAsf New Rating AAA(EXP)sf
A-8-IOX LT AAAsf New Rating AAA(EXP)sf
A-8A LT AAAsf New Rating AAA(EXP)sf
A-8-IO3 LT AAAsf New Rating AAA(EXP)sf
A-8-IO1W LT AAAsf New Rating AAA(EXP)sf
A-8-IO2W LT AAAsf New Rating AAA(EXP)sf
A-8W LT AAAsf New Rating AAA(EXP)sf
A-11 LT AAAsf New Rating AAA(EXP)sf
A-11-IO LT AAAsf New Rating AAA(EXP)sf
A-12 LT AAAsf New Rating AAA(EXP)sf
B-1 LT AAsf New Rating AA(EXP)sf
B-1-IO LT AAsf New Rating AA(EXP)sf
B-1-IOX LT AAsf New Rating AA(EXP)sf
B-1-IOW LT AAsf New Rating AA(EXP)sf
B-1W LT AAsf New Rating AA(EXP)sf
B-2 LT Asf New Rating A(EXP)sf
B-2-IO LT Asf New Rating A(EXP)sf
B-2-IOX LT Asf New Rating A(EXP)sf
B-2-IOW LT Asf New Rating A(EXP)sf
B-2W LT Asf New Rating A(EXP)sf
B-3 LT BBBsf New Rating BBB(EXP)sf
B-3-IO LT BBBsf New Rating BBB(EXP)sf
B-3-IOX LT BBBsf New Rating BBB(EXP)sf
B-3-IOW LT BBBsf New Rating BBB(EXP)sf
B-3W LT BBBsf New Rating BBB(EXP)sf
B-4 LT BBsf New Rating BB(EXP)sf
B-5 LT B+sf New Rating B+(EXP)sf
B-6 LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Fitch has rated the residential mortgage-backed certificates issued
by Citigroup Mortgage Loan Trust 2021-J3 (CMLTI 2021-J3) as
indicated above. The certificates are supported by 372 fixed-rate
mortgages with a total balance of approximately $345.0 million as
of the cutoff date. The loans were originated by various mortgage
originators, and Fay Servicing, LLC will be the servicer.
Distributions of principal and interest and loss allocations are
based on a traditional senior-subordinate, shifting-interest
structure.
The B-5 certificates passed Fitch's 'BBsf' stresses. However, Fitch
assigned a 'B+sf' rating to the class due to its position in the
capital structure and tranche size.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The pool consists of very
high-quality, 30-year fixed-rate, fully amortizing safe-harbor
qualified mortgage loans to borrowers with strong credit profiles,
relatively low leverage and large liquid reserves. Per Fitch's
calculation methodology, the loans are seasoned an average of 5.8
months. The pool has a weighted average (WA) original FICO score of
780, which is indicative of very high credit-quality borrowers.
Approximately 90.3% of the loans have an original FICO score of 750
or above. In addition, the original WA combined loan to value ratio
of 67.3% represents substantial borrower equity in the property and
reduced default risk.
Shifting-Interest Structure (Mixed): The mortgage cash flow and
loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps to maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained.
Full Advancing (Mixed): Citigroup Global Markets Realty Corp.
(CGMRC) will provide full advancing for the life of the
transaction. To the extent CGMRC fails to make an advance, U.S.
Bank, as Trust Administrator, will be obligated to advance such
amounts to the trust. While this helps the liquidity of the
structure, it also increases the expected loss due to unpaid
servicer advances.
Subordination Floor (Positive): A CE or senior subordination floor
of 1.20% 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, the stepdown tests do
not allow principal prepayments to subordinate bondholders in the
first five years following deal closing.
Updated Economic Risk Factor (Positive): Consistent with the
Additional Scenario Analysis section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data
and the unexpected development in the health crisis arising from
the advancement and availability of coronavirus vaccines, Fitch
reconsidered the application of the coronavirus-related 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 March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
ESG Impact (Positive): CMLTI 2021-J3 has an ESG Relevance Score of
'4'[+] for Transaction Parties & Operational Risk. Operational risk
is well controlled for in CMLTI 2021-J3 and includes strong R&W and
transaction due diligence as well as a strong aggregator, which
resulted in a reduction in expected losses. See ESG Navigator in
Appendix 6 of the Presale Report.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0%, in
addition to the model-projected 42.4% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by SitusAMC. The third-party due diligence described in
Form 15E focused on credit, compliance, data integrity, and
property valuation. Fitch considered this information in its
analysis and it did not have an effect on Fitch's analysis or
conclusions.
The entirety (100%) of the pool received a final grade of 'A' or
'B', which confirms no incidence of material exceptions.
ESG CONSIDERATIONS
CMLTI 2021-J3 has an ESG Relevance Score of '4'[+] for Transaction
Parties & Operational Risk. Operational risk is well controlled for
in CMLTI 2021-J2 and include strong R&W and transaction due
diligence as well as a strong aggregator which resulted in a
reduction in expected losses.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CITIGROUP MORTGAGE 2021-J3: Moody's Assigns B2 Rating to B-5 Certs
------------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 92
classes of residential mortgage-backed securities (RMBS) issued by
Citigroup Mortgage Loan Trust (CMLTI) 2021-J3. The ratings range
from Aaa (sf) to B2 (sf).
CMLTI 2021-J3 securitization is backed by a pool of prime,
non-conforming, residential mortgage loans acquired by Citigroup
Global Markets Realty Corp. (CGMRC), the sponsor of this
transaction. This deal represents the fifth CMLTI transaction in
2021 and the eighth rated issue from the shelf since its inception
in 2019. CGMRC issued three prime jumbo securitizations from
2013-2014. CGRMC began acquiring newly originated loans again in
2019, and has since issued seven securitizations to date with newly
originated collateral (CMLTI 2019-IMC1, CMLTI 2020-EXP1, CMLTI
2020-EXP2, CMLTI 2021-J1, CMLTI 2021-J2, CMLTI 2021-INV1 and CMLTI
2021-INV2). The pool has strong credit quality and consists of
borrowers with high FICO scores, low loan-to-value (LTV) ratios,
high income, and liquid cash reserves.
CGMRC acquired the loans in the pool from six sellers. Rocket
Mortgage, LLC (Rocket) and Better Mortgage Corporation (Better
Mortgage) are sellers for approximately 39.7% and 27.9% of the
mortgage loans (by unpaid principal balance (UPB) as of the cut-off
date) respectively. No other originator or group of affiliated
originators originated more than 10% of the mortgage loans in the
aggregate.
The CFPB recently issued a final rule amending Regulation Z ability
to repay rule/qualified mortgage (QM) requirements to replace the
strict 43% debt-to-income (DTI) ratio basis for the general QM with
an annual percentage rate (APR) limit, while still requiring the
consideration of the DTI ratio or residual income (the new general
QM rule). All of the Rocket loans were originated pursuant to the
new general QM rule.
Fay Servicing LLC (Fay) will be the primary servicer on the deal,
servicing 100% of the loans. There is no master servicer in this
transaction. While Fay is the servicer, CGMRC will be responsible
for making principal and interest (P&I) advances. U.S. Bank
National Association (U.S. Bank, long term senior unsecured A1)
will be the trust administrator and the trustee, and will act as
the backup advancing party.
A third-party review (TPR) firm, AMC Diligence, LLC, verified the
accuracy of the loan level information. The firm conducted detailed
credit, property valuation, data accuracy and compliance reviews on
100% of the mortgage loans in the collateral pool.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model.
In this transaction, the Class A-11 coupon is indexed to SOFR.
However, based on the transaction's structure, the particular
choice of benchmark has no credit impact. First, interest payments
to the notes, including the floating rate notes, are subject to the
net WAC cap, which prevents the floating rate notes from incurring
interest shortfalls as a result of increases in the benchmark index
above the fixed rates at which the assets bear interest. Second,
the shifting-interest structure pays all interest generated on the
assets to the bonds and does not provide for any excess spread.
The complete rating action are as follows.
Issuer: Citigroup Mortgage Loan Trust 2021-J3
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-1A, Definitive Rating Assigned Aaa (sf)
Cl. A-1-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-1-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-1-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-1-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-1-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-1-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-1W, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-2A, Definitive Rating Assigned Aaa (sf)
Cl. A-2-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-2-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-2-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-2-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-2-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-2-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-2W, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-3A, Definitive Rating Assigned Aaa (sf)
Cl. A-3-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-3-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-3-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-3-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-3-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-3-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-3W, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-4A, Definitive Rating Assigned Aaa (sf)
Cl. A-4-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-4-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-4-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-4-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-4-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-4-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-4W, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-5A, Definitive Rating Assigned Aaa (sf)
Cl. A-5-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-5-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-5-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-5-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-5-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-5-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-5W, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-6A, Definitive Rating Assigned Aaa (sf)
Cl. A-6-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-6-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-6-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-6-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-6-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-6-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-6W, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-7A, Definitive Rating Assigned Aaa (sf)
Cl. A-7-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-7-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-7-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-7-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-7-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-7-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-7W, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-8A, Definitive Rating Assigned Aaa (sf)
Cl. A-8-IO1*, Definitive Rating Assigned Aaa (sf)
Cl. A-8-IO1W*, Definitive Rating Assigned Aaa (sf)
Cl. A-8-IO2*, Definitive Rating Assigned Aaa (sf)
Cl. A-8-IO2W*, Definitive Rating Assigned Aaa (sf)
Cl. A-8-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-8-IOX*, Definitive Rating Assigned Aaa (sf)
Cl. A-8W, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-11-IO*, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. B-1, Definitive Rating Assigned Aa2 (sf)
Cl. B-1-IO*, Definitive Rating Assigned Aa2 (sf)
Cl. B-1-IOW*, Definitive Rating Assigned Aa2 (sf)
Cl. B-1-IOX*, Definitive Rating Assigned Aa2 (sf)
Cl. B-1W, Definitive Rating Assigned Aa2 (sf)
Cl. B-2, Definitive Rating Assigned A2 (sf)
Cl. B-2-IO*, Definitive Rating Assigned A2 (sf)
Cl. B-2-IOW*, Definitive Rating Assigned A2 (sf)
Cl. B-2-IOX*, Definitive Rating Assigned A2 (sf)
Cl. B-2W, Definitive Rating Assigned A2 (sf)
Cl. B-3, Definitive Rating Assigned Baa2 (sf)
Cl. B-3-IO*, Definitive Rating Assigned Baa2 (sf)
Cl. B-3-IOW*, Definitive Rating Assigned Baa2 (sf)
Cl. B-3-IOX*, Definitive Rating Assigned Baa2 (sf)
Cl. B-3W, Definitive Rating Assigned Baa2 (sf)
Cl. B-4, Definitive Rating Assigned Ba2 (sf)
Cl. B-5, Definitive Rating Assigned B2 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
0.27%, in a baseline scenario-median is 0.15%, and reaches 2.43% at
a stress level consistent with Moody's Aaa ratings.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of residential mortgage loans 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%
(6.49% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated 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 R&W framework of the
transaction.
Collateral Description
As of the cut-off date of September 1, 2021, the pool consists of
372 non-conforming fixed-rate, fully amortizing mortgage loans with
an aggregate stated principal balance of approximately $344,982,214
and original terms to maturity of 30 years. All of the mortgage
loans are secured by first liens on single-family residential
properties, planned unit developments or condominiums. All mortgage
loans are current as of the cut-off date. Overall, the credit
quality of the mortgage loans backing this transaction is in-line
with recently issued prime jumbo transactions Moody's have rated,
with average length of employment of 8.0 years, average monthly
primary and all borrower wage income of $16,658 and $21,468,
respectively. The average monthly residual income is approximately
$22,506.
The pool has a weighted average (WA) seasoning of approximately
four months. No borrower under any mortgage loan is currently in an
active COVID-19 related forbearance plan with the servicer. The
weighted average (WA) FICO for the aggregate pool is 784 with a WA
LTV and WA CLTV of 67.1% and 67.3%, respectively.
With the exception of the Rocket loans which were underwritten
pursuant to the new general QM rule, all of the mortgage loans in
the aggregate pool are QM, with the prime jumbo mortgage loans
meeting the requirements of the QM-Safe Harbor rule.
The third party review verified that the loans' APRs met the QM
rule's thresholds. Furthermore, these loans were underwritten and
documented pursuant to the QM rule's verification safe harbor via a
mix of the Fannie Mae Single Family Selling Guide, the Freddie Mac
Single-Family Seller/Servicer Guide, and Rocket's Jumbo Smart
program overlays. As part of the origination quality review and in
consideration of the detailed loan-level third-party diligence
reports, which included supplemental information with the specific
documentation received for each loan, Moody's concluded that these
loans were fully documented loans, and that the underwriting of the
loans is acceptable. Therefore, Moody's ran these loans as "full
documentation" loans in Moody's MILAN model, and did not make any
additional qualitative origination adjustments for these loans.
Aggregation and Origination Quality
Based on the available information related to CGMRC's valuation and
risk management practices, the 100% TPR, and the transparent R&W
framework in this transaction, Moody's did not make any adjustments
to its losses based on Moody's review of CGMRC, the aggregator.
The mortgage loans in the pool were purchased by CGMRC from six
sellers. Rocket Mortgage, LLC (Rocket) and Better Mortgage
Corporation (Better Mortgage) are sellers for approximately 39.7%
and 27.9% of the mortgage loans (by unpaid principal balance (UPB)
as of the cut-off date) respectively. No other originator or group
of affiliated originators originated more than 10% of the mortgage
loans in the aggregate. Approximately 25.0% (by UPB) of the
mortgage loans were acquired by CGMRC from MaxEx Clearing, LLC
(MaxEx), which purchased such mortgage loans from various
originators. With an exception of Better Mortgage, HomeBridge
Financial Services, Inc, Synergy One Lending, Inc., and Reliant
Bank, whose mortgage loans were underwritten to CGMRC's jumbo
guidelines, all of the other mortgage loans were underwritten to
Rocket, MaxEx, and Newrez LLCs' (2.2% UPB) guidelines.
Moody's generally look at originators or aggregators, as
applicable, whose loans constitute more than 10% of an RMBS
portfolio, identifying any business strategies, policies,
procedures, and underwriting guidelines that could affect future
loan performance, in addition to a review of the originator's past
loan performance (if available).
While Moody's did not increase its base case and Aaa loss
expectations for loans underwritten to CGMRC's underwriting
guidelines because Moody's consider such mortgage loans to have
been acquired to prime jumbo underwriting standards which are
in-line with other prime jumbo aggregators, Moody's did make an
adjustment to Moody's losses for loans originated by Better
Mortgage primarily due to limited insight into the company's prime
jumbo performance and risk management practices.
Servicing Arrangement
Moody's consider the overall servicing arrangement for this pool as
adequate, and as a result Moody's did not make any adjustments to
Moody's base case and Aaa stress loss assumptions. Moody's did not
apply any adjustment to Moody's expected losses for the lack of
master servicer due to the following: (a) Fay was established in
2008 and is an experienced servicer of residential mortgage loans,
(b) Fay is an approved servicer for both Fannie Mae and Freddie
Mac, (c) Fay had no instances of material non-compliance for its
recent Regulation AB or Uniformed Single Audit Program (USAP)
independent servicer reviews, (d) although not directly related to
this transaction, there is still third party oversight of Fay from
the GSEs, the CFPB, the accounting firms and state regulators, (e)
the complexity of the loan product is relatively low, reducing the
complexity of servicing and reporting; and (f) U.S. Bank, as the
trust administrator, will not only be responsible for aggregating
the reports from the servicers and reporting to investors, but also
for appointing a replacement servicer at the direction of the
controlling holder.
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.
Representations & Warranties
An effective R&W framework protects a transaction against the risk
of loss from fraudulent or defective loans. Moody's assessed CMLTI
2021-J3's R&W framework for this transaction as adequate,
consistent with that of other prime jumbo transactions for which
the breach review process is thorough, transparent and objective,
and the costs and manner of review are clearly outlined at
issuance.
The transaction requires mandatory independent reviews of loans
that become 120 days delinquent (other than certain loans in FEMA
disaster areas and those in forbearance as a result of a pandemic
or national disaster) and those that liquidate at a loss to
determine if any of the R&Ws are breached. The R&Ws are
comprehensive and the R&W provider is CGMRC, an affiliate of
Citigroup Inc. (rated A3 stable). The R&W provider will be
obligated to cure or repurchase loans found to have material
breaches of R&Ws, or pay for any loss if that loan was liquidated.
Transaction Structure
CMLTI 2021-J3 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.
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 1.20% of the cut-off date pool
balance, and as subordination lock-out amount of 1.20% 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.
COMM 2016-CCRE28: Fitch Affirms CCC Rating on Class G Certs
-----------------------------------------------------------
Fitch Ratings has affirmed 17 classes of COMM 2016-CCRE28 Mortgage
Trust, commercial mortgage pass-through certificates. The Rating
Outlooks for two classes have been revised to Stable from
Negative.
DEBT RATING PRIOR
---- ------ -----
COMM 2016-CCRE28
A-2 12593YBB8 LT AAAsf Affirmed AAAsf
A-3 12593YBD4 LT AAAsf Affirmed AAAsf
A-4 12593YBE2 LT AAAsf Affirmed AAAsf
A-HR 12593YBF9 LT AAAsf Affirmed AAAsf
A-M 12593YBK8 LT AAAsf Affirmed AAAsf
A-SB 12593YBC6 LT AAAsf Affirmed AAAsf
B 12593YBL6 LT AA-sf Affirmed AA-sf
C 12593YBM4 LT A-sf Affirmed A-sf
D 12593YBN2 LT BBBsf Affirmed BBBsf
E 12593YAL7 LT BBB-sf Affirmed BBB-sf
F 12593YAN3 LT Bsf Affirmed Bsf
G 12593YAQ6 LT CCCsf Affirmed CCCsf
X-A 12593YBH5 LT AAAsf Affirmed AAAsf
X-C 12593YAC7 LT BBB-sf Affirmed BBB-sf
X-D 12593YAE3 LT Bsf Affirmed Bsf
X-HR 12593YBJ1 LT AAAsf Affirmed AAAsf
XP-A 12593YBG7 LT AAAsf Affirmed AAAsf
KEY RATING DRIVERS
Improved Loss Expectations: Pool loss expectations have improved
since the prior rating action due to better than expected 2020
performance on some Fitch Loans of Concern (FLOCs) and larger
loans. Three previously specially serviced loans (11.6% of pool),
Equitable City Center (5.8%), Equity Inns Portfolio (4.2%) and
Promenade at West End (1.7%), have returned to the master servicer
after the borrowers received coronavirus relief. There are 12 FLOCs
(32.6%), down from 18 (42.1%) at the prior rating action, including
three specially serviced loans/assets (2.7%), two of which are
REO.
Fitch's current ratings incorporate a base case loss of 5.50%. The
Negative Outlooks reflect losses that could reach 7.30% when
factoring in additional coronavirus-related stresses and a
potential outsized loss on the Hyatt Regency St. Louis at The Arch
loan.
The largest increase in loss since the prior rating action is the
REO Holiday Inn Corpus Christi Airport asset (0.9%), a 237-room
full-service hotel in Corpus Christi, TX. The loan transferred to
special servicing in May 2020 due to imminent monetary default; the
borrower had initially requested pandemic relief, but later asked
for the lender to take possession of the collateral. The asset
became REO in March 2021 and the special servicer continues to
stabilize the asset. TTM June 2021 hotel occupancy, ADR and RevPAR
were 25.8%, $92.51 and $23.83, respectively, compared with 48.5%,
$92.05 and $44.63 at YE 2019. Fitch's loss expectation reflects a
stressed value of $25,992 per key.
The next largest increase in loss is the REO Holiday Inn Fort Worth
North Fossil Creek asset (1.2%), a 126-room full-service hotel in
Fort Worth, TX. The loan transferred to special servicing in
February 2018 due to imminent monetary default; the borrower
indicated its inability to cover debt service shortfalls and
satisfy a 2018 PIP requirement. The special servicer continues to
stabilize the asset, which became REO in March 2021. The hotel
reported negative YE 2020 NOI. TTM June 2021 hotel occupancy, ADR
and RevPAR were 41.7%, $86.71 and $36.12, respectively, compared
with 40.5%, $93.69 and $37.94 for TTM July 2020 and 55.9%, $95.72
and $53.48 at YE 2019. Fitch's loss expectation reflects a stressed
value of $40,000 per key.
Increased Credit Enhancement (CE): As of the September 2021
distribution date, the pool's principal balance has paid down by
7.5% to $950 million from $1.03 billion at issuance. Since the
prior rating action, the specially serviced Hilton Garden Inn
Albany loan ($10.6 million) was disposed with a small loss, which
was better than expected. Defeasance increased to five loans (7.8%)
from three loans (4.1%) at the prior rating action. Ten loans
(39.6%) are full-term interest-only and one loan (4.2%) still has a
partial interest-only component.
One loan (Equity Inns Portfolio; 4.2%) is scheduled to mature in
October 2022, one loan (Hyatt Regency St. Louis at The Arch; 5.3%)
in 2024, 43 loans (83.8%) in 2025 and two loans (6.7%) in 2026.
Alternative Loss Considerations: Fitch applied an additional
sensitivity that assumed a potential outsized loss of 25% to the
maturity balance of the Hyatt Regency St. Louis at The Arch loan
(5.3%) to reflect declining performance and an expected longer
recovery timeframe due to economic demand drivers that include two
professional sports stadiums, a convention complex and multiple
dining establishments that are all highly vulnerable to the
pandemic; the Negative Outlooks reflect this analysis.
The loan is secured by a 910-key, full-service hotel in St. Louis,
MO. The property benefits from its proximity to the St. Louis Arch
and is located one block north of Busch Stadium. Property-level NOI
was negative for YE 2020 and TTM June 2021. TTM June 2021 hotel
occupancy, ADR and RevPAR fell to 21.1%, $122.76 and $25.84,
respectively, from 66%, $153.40 and $101.31 for TTM December 2019.
The borrower was granted relief in the form of a Side Letter
Agreement which allowed use of existing reserve funds to cover
operating shortfalls for April, May and June 2020. The loan
remained current throughout the pandemic. Fitch's base case
analysis incorporates a 10% haircut to the YE 2019 NOI to reflect
hotel performance volatility.
Coronavirus Exposure: Retail and hotel loans represent 24% (16
loans) and 15.6% (seven loans/assets) of the pool, respectively.
Fitch applied an additional stress to pre-pandemic cash flows for
two hotel loans (5.3%) given significant pandemic-related 2020 NOI
declines and for one retail loan (AG Life Time Fitness Portfolio;
6.3%) given pandemic-related performance concerns with the single
tenancy/binary risk and special use nature of the properties. These
additional stresses contributed to the Negative Outlooks.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades would occur with an increase in pool-level losses
from underperforming or specially serviced loans. Downgrades
to classes A-2, A-3, A-4, A-HR, A-SB, A-M, X-A, X-HR and XP-A
are not likely due to the position in the capital structure,
but may occur should interest shortfalls affect these classes.
Downgrades to classes B and C may occur should expected pool
losses increase significantly and/or the FLOCs and/or loans
susceptible to the pandemic all suffer losses.
-- Downgrades to classes D, E, X-C, F and X-D are possible should
loss expectations increase from continued performance decline
of the FLOCs, loans susceptible to the pandemic not stabilize
and deteriorate further, additional loans default or transfer
to special servicing, higher realized losses than expected on
the specially serviced loans/assets and/or with an outsized
loss on the Hyatt Regency St. Louis at The Arch loan.
Downgrades to class G would occur as losses are realized
and/or become more certain.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades would occur with stable to improved asset
performance, particularly on the FLOCs, coupled with
additional paydown and/or defeasance. Upgrades to classes B
and C would only occur with significant improvement in CE,
defeasance, and/or performance stabilization of FLOCs and
other properties affected by the pandemic. Classes would not
be upgraded above 'Asf' if there were likelihood of interest
shortfalls.
-- Upgrades to classes D, E, X-C, F and X-D may occur as the
number of FLOCs are reduced, properties vulnerable to the
pandemic return to pre-pandemic levels and there is sufficient
CE to the classes. Upgrades to class G are not likely until
the later years of the transaction and only if the performance
of the remaining pool is stable and/or properties vulnerable
to the pandemic return to pre-pandemic levels, and there is
sufficient CE to the classes.
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.
CONSECO FINANCE 2001-2: S&P Affirms CCC-(sf) Rating on Cl. A Certs
------------------------------------------------------------------
S&P Global Ratings completed its review of 27 classes from 17
Conseco Finance Corp.-related manufactured housing ABS transactions
issued between 1999 and 2002. S&P raised six ratings and affirmed
21.
S&P said, "The rating actions reflect the transactions' collateral
performance to date, our views regarding future collateral
performance, the transactions' structures, and the credit
enhancement available. Furthermore, our analysis incorporated
secondary credit factors such as credit stability, payment
priorities under certain scenarios, and sector- and issuer-specific
analysis.
"The upgrades reflect our assessment of the growth in credit
enhancement for the affected classes in the form of subordination,
which we expect will mitigate the impact of losses being higher
than originally expected for these pools.
"The affirmed 'CCC (sf)' and 'CC (sf)' ratings reflect our view
that our projected credit support will remain insufficient to cover
our projected losses for these classes. As defined in our criteria,
the 'CCC (sf)' level ratings reflect our view that the related
classes are still vulnerable to nonpayment and are dependent upon
favorable business, financial, and economic conditions in order to
be paid interest and/or principal according to the terms of each
transaction. Additionally, the 'CC (sf)' ratings reflect our view
that the related classes remain virtually certain to default."
Each transaction was initially structured with
overcollateralization (O/C) and subordination. However, due to
higher-than-expected losses, the O/C on each of these transactions
has been depleted to zero, and many of the subordinated classes
have experienced principal write-downs.
S&P will continue to monitor the performance of the transactions
relative to their cumulative net loss expectations and the
available credit enhancement. S&P will take rating actions as it
considerd appropriate.
Ratings List
RATINGS RAISED
RATING
TRANSACTION CLASS TO FROM
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-1 A-7 B (sf) B- (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Cert Series 2002-1 M-1-A B (sf) B- (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Cert Series 2002-1 M-1-F B (sf) B- (sf)
Manufactured Housing Contract
Sr/Sub Pass-Through Certificates
Series 2002-2 M-1 B (sf) B- (sf)
Manufactured Housing Contract
Sr/Sub Pass-Thru Cert Series 2001-4 M-1 CCC (sf) CCC- (sf)
Manufactured Housing Contract
Sr/Sub Pass-Thru Certs Series 2001-3 A-4 CCC+ (sf) CCC (sf)
RATINGS AFFIRMED
TRANSACTION CLASS RATING
Manufactured Housing Contract
Sr/Sub Pass-thru Cert Series 2002-1 M-2 CCC- (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-2 A-6 CCC- (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-2 A-7 CCC- (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-3 A-8 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-3 A-9 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-4 A-7 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-4 A-8 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-4 A-9 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-5 A-5 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 1999-5 A-6 C (sf)
Manufactured Housing Contract
Sr/Sub Pass-Thru Trust 1999-6 A-1 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 2000-2 A-5 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Trust 2000-2 A-6 CC (sf)
Manufactured Housing Contract
Senior/Subordinate Pass-Through
Certificates Series 2000-3 A CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Cert Series 2000-4 A-5 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-thru Cert Series 2000-4 A-6 CC (sf)
Manufactured Housing Contract Sr/Sub
Pass-Thru Cert Series 2000-5 A-6 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-Thru Cert Series 2000-5 A-7 CC (sf)
Manufactured Housing Contract
Sr/Sub Pass-Thru Cert Series 2000-6 A-5 CCC- (sf)
Manufactured Housing Contract
Sr/Sub Pass-Thru Cert Series 2001-1 A-5 CCC- (sf)
Manufactured Housing Contract
Sr/Sub Pass-Thru Cert Series 2001-2 A CCC- (sf)
CSAIL COMMERCIAL 2018-C14: Fitch Lowers 2 Tranches to 'CCC'
-----------------------------------------------------------
Fitch Ratings has downgraded four and affirmed 11 classes of CSAIL
2018-C14 Commercial Mortgage Trust commercial mortgage pass-through
certificates.
DEBT RATING PRIOR
---- ------ -----
CSAIL 2018-C14
A-1 12596GAW9 LT AAAsf Affirmed AAAsf
A-2 12596GAX7 LT AAAsf Affirmed AAAsf
A-3 12596GAY5 LT AAAsf Affirmed AAAsf
A-4 12596GAZ2 LT AAAsf Affirmed AAAsf
A-S 12596GBD0 LT AAAsf Affirmed AAAsf
A-SB 12596GBA6 LT AAAsf Affirmed AAAsf
B 12596GBE8 LT AA-sf Affirmed AA-sf
C 12596GBF5 LT A-sf Affirmed A-sf
D 12596GAG4 LT BBBsf Affirmed BBBsf
E 12596GAJ8 LT BBB-sf Affirmed BBB-sf
F 12596GAL3 LT B-sf Downgrade BB-sf
G 12596GAN9 LT CCCsf Downgrade B-sf
X-A 12596GBB4 LT AAAsf Affirmed AAAsf
X-F 12596GAA7 LT B-sf Downgrade BB-sf
X-G 12596GAC3 LT CCCsf Downgrade B-sf
KEY RATING DRIVERS
Increased Loss Expectations Since Issuance: While a majority of the
pool has exhibited stable performance since issuance, loss
expectations have increased primarily due to pandemic-related
performance declines for the Fitch Loans of Concern (FLOCs). Fitch
designated 13 loans (30.1% of pool) as FLOCs, including three
specially serviced loans (5.9% of pool).
Fitch's current ratings incorporate a base case loss of 5.30%. The
Negative Rating Outlooks reflect losses that could reach 5.70% when
factoring in additional stresses to six hotel loans to address
concerns that performance may not stabilize from the pandemic.
Fitch Loans of Concern: The largest FLOC and contributor to loss
expectations is the Continental Towers loan (7.8% of the pool),
which is secured by a 910,717-sf suburban office property located
in Rolling Meadows, IL. Occupancy has continued to decline since
issuance, falling to 62% as of July 2021 from 74% at YE 2020, 86%
at YE 2019, and 93% at issuance. A recent tenant departure included
Komatsu (11% of the net rentable area [NRA] and 17% of base rents),
whose lease expired in July 2021.
The loan had $6.9 million in total reserves as of September 2021,
including $5.8 million in tenant reserves and $546,552 in
replacement reserves. The servicer-reported net operating income
(NOI) debt service coverage ratio (DSCR) was 2.62x as of YTD March
2021. The loan has remained current since issuance. Fitch's base
case loss is 14% which reflects a 9.5% cap rate and a 40% haircut
to the YE 2020 NOI to account for 2020 tenant vacancies, near term
rollover risks, and the high submarket vacancy.
The second largest FLOC, Sheraton Grand Nashville Downtown (3.9%),
is secured by a 482-key full-service hotel located in downtown
Nashville, TN. The loan recently transferred back to the master
servicer in September 2021 after it was brought current in July
2021 following a June 2021 sale and loan assumption.
The loan remains a FLOC due to underperformance and low DSCR. The
loan had originally transferred to the special servicer in June
2020 due to payment default. Performance was significantly impacted
as a result of the pandemic, with occupancy falling to 20.5% and
NOI DSCR to 0.07x at YE 2020, compared to pre-pandemic levels of
79.8% and 2.81x at YE 2019. The property remains open for business,
with the year-to-date (YTD) July 2021 reporting at 30.5% occupancy,
$182 ADR and $56 RevPAR.
The three specially serviced loans (5.9%) are all secured by hotel
properties that have had performance declines due to the pandemic.
The largest specially serviced loan is the Holiday Inn FiDi (3.3%),
which is secured by a 492-key full-service hotel located in the
Financial District of Manhattan. The loan transferred to special
servicing in May 2020 at the borrower's request due to imminent
monetary default. The lender is currently restricted on filing for
foreclosure due to the current foreclosure moratorium in New York
State. The borrower is in discussions for a loan modification. A
forbearance request was previously rejected by the lender.
The hotel had re-opened in April 2021. Per STR and as of the
trailing twelve month (TTM) ended June 2021, occupancy, ADR, and
RevPAR were 32.1%, $84, and $27, respectively. The property
reported negative cash flow for TTM June 2021 and YE December 2020.
Fitch's base case loss expectation of 10% incorporates a stress to
the most recent appraisal and implies a stressed value of $169,000
per key. Given the lower leverage of the loan, ultimate recoveries
may be higher.
Minimal Change to Credit Enhancement: As of the September 2021
distribution date, the pool's aggregate principal balance has been
paid down by 1.0% to $763.7 million from $770.2 million. No loans
have been paid off or defeased since issuance. There have been no
realized losses since issuance. Cumulative interest shortfalls
totaling $259,253 are impacting the non-rated class NR.
Eighteen loans (50.6%) are full-term interest-only and 11 loans
(12.2%) remain in their partial-interest-only periods (compared
with 15 loans [37.1%] at issuance). The transaction is scheduled to
pay down by 6.4% of the original pool balance prior to maturity.
The highest concentration of loan maturities is 87.0% in 2028, with
12.3% in 2023 and 0.7% in 2027.
Coronavirus Exposure; Sensitivity to Hotels: There are ten loans
(19.7%) that are secured by hotel properties, all of which have
been identified as FLOCs. Hotels experienced significant
performance challenges in 2020 due to reduced reservations and/or
temporary property closures related to the pandemic. Fitch's base
case loss projections for most of the hotels in this pool are based
on pre-pandemic cash flows with additional haircuts to reflect
performance stresses over the past year. Fitch also ran additional
coronavirus specific sensitivities on six hotel loans (9.9%). This
sensitivity analysis contributed to the Negative Outlooks.
Credit Opinion Loans: Two loans (6.9%) were given investment-grade
credit opinions at issuance. The Greystone (5.5%) received an
investment-grade credit opinion of 'BBBsf' on a stand-alone basis.
20 Times Square (1.4%) received an investment-grade credit opinion
of 'Asf'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades would occur with an increase in pool-level losses
from underperforming or specially serviced loans/assets.
Downgrades to the classes rated 'AAAsf or 'AA-sf' are not
likely due to the high CE and relatively stable performance of
the pool, but may occur should interest shortfalls occur.
Downgrades to the classes rated 'A-sf' may occur if a high
proportion of the pool defaults and expected losses increase
significantly.
-- Downgrades to the classes rated 'BBBsf' and 'BBB-sf' could
occur if overall pool losses increase and/or one or more large
loans have an outsized loss, which would erode credit
enhancement.
-- Further downgrades to classes rated 'B-sf' and 'CCCsf' would
occur should loss expectations increase due to an increase in
specially serviced loans, increased certainty of a high loss
on a specially serviced loan, or a decline in the FLOCs'
performance. The Negative Outlooks may be revised back to
Stable if performance of the FLOCs improves and/or properties
vulnerable to the pandemic stabilize as the economy improves.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades would occur with stable to improved asset
performance, particularly on the FLOCs, coupled with paydown
and/or defeasance. Upgrades of the 'AA-sf' and 'A-sf' category
would likely occur with significant improvement in credit
enhancement and/or defeasance; however, adverse selection and
increased concentrations or the underperformance of particular
loan(s) could cause this trend to reverse.
-- Upgrades to the 'BBBsf' and 'BBB-sf' category are considered
unlikely and would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if there were
likelihood for interest shortfalls. The 'B-sf' and 'CCCsf'
rated classes are unlikely to be upgraded absent significant
performance improvement and substantially higher recoveries
than expected on the FLOCs.
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 2021-RPL8 TRUST: Fitch Gives 'B(EXP)' Rating to B-2 Notes
---------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed notes
to be issued by CSMC 2021-RPL8 Trust (CSMC 2021-RPL8). The
transaction is expected to close on September 29, 2021.
DEBT RATING
---- ------
CSMC 2021-RPL8
A-1 LT AAA(EXP)sf Expected Rating
A-1A LT AAA(EXP)sf Expected Rating
A-1X LT AAA(EXP)sf Expected Rating
A-2 LT AA(EXP)sf Expected Rating
M-1 LT A(EXP)sf Expected Rating
M-2 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
B-4 LT NR(EXP)sf Expected Rating
B-5 LT NR(EXP)sf Expected Rating
B LT NR(EXP)sf Expected Rating
PT LT NR(EXP)sf Expected Rating
SA LT NR(EXP)sf Expected Rating
XS LT NR(EXP)sf Expected Rating
AIOS LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The notes are supported by one collateral group that consists of
4,796 seasoned performing loans (SPLs) and re-performing loans
(RPLs) with a total balance of approximately $689 million,
including $64 million in deferred balances.
Distributions of principal and interest (P&I) and loss allocations
are based on a traditional senior-subordinate, sequential
structure. The sequential-pay structure locks out principal to the
subordinated notes until the most senior notes outstanding are paid
in full. The servicers will not be advancing delinquent monthly
payments of P&I.
KEY RATING DRIVERS
RPL Credit Quality & Distressed Performance History (Negative): The
collateral pool consists primarily of peak-vintage SPLs and RPLs.
Based on Fitch's treatment of coronavirus-related forbearance and
deferral loans, approximately 47% of the loans were treated as
having clean payment histories for the past two years. As of the
cutoff date, 2.9% of the loans in the pool are being treated as
currently delinquent, which includes current deferrals. Roughly 86%
of the loans have been modified. The borrowers have a weak credit
profile (655 FICO Model and 43% Model DTI) and moderate leverage
(70% sLTV).
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, Fitch views the home price values
of this pool as 10.2% above a long-term sustainable level (vs.
11.7% on a national level). Underlying fundamentals are not keeping
pace with the growth in prices, which is a result of a
supply/demand imbalance driven by low inventory, low mortgage rates
and new buyers entering the market. These trends have led to
significant home price increases over the past year, with home
prices rising 18.6% yoy nationally as of June 2021.
Sequential Pay Structure (Positive): The transaction's cash flow is
based on a sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to re-allocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
No Servicer P&I Advances (Mixed): The servicer will not be
advancing delinquent monthly payments of P&I, which reduce
liquidity to the trust. P&I advances made on behalf of loans that
become delinquent and eventually liquidate reduce liquidation
proceeds to the trust. Due to the lack of P&I advancing, the
loan-level loss severity is less for this transaction than for
those where the servicer is obligated to advance P&I. Structural
provisions and cash flow priorities, together with increased
subordination, provide for timely payments of interest to the
'AAAsf' and 'AAsf' rated classes.
Updated Economic Risk Factor (Positive): Consistent with the
Additional Scenario Analysis section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying 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 instead used ERF floors of 1.5
and 1.0 for the 'BBsf' and 'Bsf' rating stresses, respectively.
Fitch's "Global Economic Outlook — March 2021" and related
baseline economic scenario forecasts have been revised to 6.2% U.S.
GDP growth for 2021 and 3.3% for 2022 following a 3.5% GDP
contraction in 2020. Additionally, Fitch's U.S. unemployment
forecasts for 2021 and 2022 are 5.8% and 4.7%, respectively, down
from 8.1% in 2020. These revised forecasts support Fitch reverting
to the 1.5 and 1.0 ERF floors described in its "U.S. RMBS Loan Loss
Model Criteria."
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Fitch's incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper market value declines
(MVDs) than assumed at the MSA level. Sensitivity analysis was
conducted at the state and national level to assess the effect
of higher MVDs for the subject pool.
-- 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.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch's incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper MVDs than assumed at the
MSA level. Sensitivity analysis was conducted at the state and
national level to assess the effect of lower MVDs.
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E).
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." SitusAMC, Opus
Capital Markets Consultants LLC (Opus) Consolidated Analytics (CA)
and Clayton Services LLC (Clayton) were engaged to perform the
review. Loans reviewed under this engagement were given compliance
grades, and a data integrity review was conducted. RRR was engaged
to perform tax and title reviews on 100% of the loans and,
additionally, a custodian review was performed on 100% of the loans
by Wells Fargo Bank, N.A. and Deutsche Bank. Minimal exceptions and
waivers were noted in the due diligence reports. Refer to the
Third-Party Due Diligence section of presale for more details.
DATA ADEQUACY
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.
CSMC TRUST 2021-RPL8: Fitch Assigns Final B Rating on Cl. B-2 Notes
-------------------------------------------------------------------
Fitch Ratings assigns final ratings to the residential
mortgage-backed notes to be issued by CSMC 2021-RPL8 Trust (CSMC
2021-RPL8).
DEBT RATING PRIOR
---- ------ -----
CSMC 2021-RPL8
A-1 LT AAAsf New Rating AAA(EXP)sf
A-1A LT AAAsf New Rating AAA(EXP)sf
A-1X LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAsf New Rating AA(EXP)sf
M-1 LT Asf New Rating A(EXP)sf
M-2 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT Bsf New Rating B(EXP)sf
B-3 LT NRsf New Rating NR(EXP)sf
B-4 LT NRsf New Rating NR(EXP)sf
B-5 LT NRsf New Rating NR(EXP)sf
B LT NRsf New Rating NR(EXP)sf
AIOS LT NRsf New Rating NR(EXP)sf
PT LT NRsf New Rating NR(EXP)sf
SA LT NRsf New Rating NR(EXP)sf
XS LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The notes are supported by one collateral group that consists of
4,796 seasoned performing loans (SPLs) and re-performing loans
(RPLs) with a total balance of approximately $689 million,
including $64 million in deferred balances.
Distributions of principal and interest (P&I) and loss allocations
are based on a traditional senior-subordinate, sequential
structure. The sequential-pay structure locks out principal to the
subordinated notes until the most senior notes outstanding are paid
in full. The servicers will not be advancing delinquent monthly
payments of P&I.
KEY RATING DRIVERS
RPL Credit Quality & Distressed Performance History (Negative): The
collateral pool consists primarily of peak-vintage SPLs and RPLs.
Based on Fitch's treatment of coronavirus-related forbearance and
deferral loans, approximately 47% of the loans were treated as
having clean payment histories for the past two years. As of the
cutoff date, 2.9% of the loans in the pool are being treated as
currently delinquent, which includes current deferrals. Roughly 86%
of the loans have been modified. The borrowers have a weak credit
profile (655 FICO Model and 43% Model DTI) and moderate leverage
(70% sLTV).
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, Fitch views the home price values
of this pool as 10.2% above a long-term sustainable level (versus
11.7% on a national level). Underlying fundamentals are not keeping
pace with the growth in prices, which is a result of a
supply/demand imbalance driven by low inventory, low mortgage rates
and new buyers entering the market. These trends have led to
significant home price increases over the past year, with home
prices rising 18.6% yoy nationally as of June 2021.
Sequential Pay Structure (Positive): The transaction's cash flow is
based on a sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to re-allocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
that class in the absence of servicer advancing.
No Servicer P&I Advances (Mixed): The servicer will not be
advancing delinquent monthly payments of P&I, which reduce
liquidity to the trust. P&I advances made on behalf of loans that
become delinquent and eventually liquidate reduce liquidation
proceeds to the trust. Due to the lack of P&I advancing, the
loan-level loss severity is less for this transaction than for
those where the servicer is obligated to advance P&I. Structural
provisions and cash flow priorities, together with increased
subordination, provide for timely payments of interest to the
'AAAsf' and 'AAsf' rated classes.
Updated Economic Risk Factor (Positive): Consistent with the
Additional Scenario Analysis section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying 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 instead used ERF floors of 1.5
and 1.0 for the 'BBsf' and 'Bsf' rating stresses, respectively.
Fitch's "Global Economic Outlook — March 2021" and related
baseline economic scenario forecasts have been revised to 6.2% U.S.
GDP growth for 2021 and 3.3% for 2022 following a 3.5% GDP
contraction in 2020. Additionally, Fitch's U.S. unemployment
forecasts for 2021 and 2022 are 5.8% and 4.7%, respectively, down
from 8.1% in 2020. These revised forecasts support Fitch reverting
to the 1.5 and 1.0 ERF floors described in its "U.S. RMBS Loan Loss
Model Criteria."
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- 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 analysis was
conducted at the state and national level to assess the effect
of higher MVDs for the subject pool.
-- 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.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper MVDs than assumed at the
MSA level. Sensitivity analysis was conducted at the state and
national level to assess the effect of lower MVDs.
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E).
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." SitusAMC, Opus
Capital Markets Consultants LLC (Opus) Consolidated Analytics (CA)
and Clayton Services LLC (Clayton) were engaged to perform the
review. Loans reviewed under this engagement were given compliance
grades, and a data integrity review was conducted. RRR was engaged
to perform tax and title reviews on 100% of the loans and,
additionally, a custodian review was performed on 100% of the loans
by Wells Fargo Bank, N.A. and Deutsche Bank. Minimal exceptions and
waivers were noted in the due diligence reports. Refer to the
Third-Party Due Diligence section of presale for more details.
DATA ADEQUACY
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.
DCAL AVIATION 2015: S&P Affirms 'CCC (sf)' Rating on Cl. C-1 Notes
------------------------------------------------------------------
S&P Global Ratings lowered its ratings on seven classes and
affirmed its ratings on five classes from four aircraft ABS
transactions.
Rationale
The downgrades primarily reflect the respective notes' insufficient
credit enhancement at their previous rating levels based on our
assumptions and the continued pressure on lease collections in the
aftermath of the COVID-19 pandemic. The affirmations reflect the
respective notes' stable performance and sufficient credit
enhancement at their current rating levels.
S&P also observed some of the following general trends
(deal-specific details described later in the report):
-- The COVID-19 pandemic's prolonged negative impact on world
travel and the resulting stress on airlines' liquidity and their
ability to make timely lease payments;
-- The declining debt service coverage ratio due to lower
collections, which are driven by lease restructurings and
power-by-the-hour (PBH) arrangements, and the resulting delay in
repayment of scheduled principal payment amounts;
-- Limited demand on the part of aircraft operators, as indicated
by the high number of off-lease aircraft, and the pricing achieved
for both lease transactions (with lease rates for
renewals/extensions generally lower than existing leases) and
sales/part-outs (with proceeds generally lower than depreciated
base values);
-- Minimal principal repayments on the notes since S&P's last
review in September 2020;
-- Accumulation of unpaid scheduled principal payment amounts on
the notes and the accrued and unpaid interest on the class C notes;
and
-- For some of these deals, the diversion of a portion of their
collections towards topping-up the maintenance reserve account.
While these amounts can be used in the future to complete shop
visits on the aircraft, they currently delay the repayment of the
class A scheduled principal given their priority in the payment
waterfall.
Assumptions For The Review
Similar to S&P's last review in September 2020, its analysis
included additional stresses on time-to-re-lease and retirement age
due to the impact of the COVID-19 pandemic.
Collateral value
S&P said, "We typically use the lower of the mean and median value
(LMM value) of the half-life base and market values from three
appraisers as the starting point in our analysis. Using this LMM
value, we applied our aircraft-specific depreciation assumptions
from the date of the appraisal to the first payment date."
Aircraft-on-ground (AOG) times
S&P made a criteria exception, extending the AOG downtime during
the first modeled recession and differentiating the downtime for
wide-bodies and narrow-bodies because it believes that wide-bodies
will be more vulnerable to lower demand.
Default pattern
S&P said, "During our prior review in September 2020, we applied a
front-loaded default pattern (55%/45%) for our first modeled
recession. For this review, we applied defaults evenly over a
four-year period during the first recession in recognition of the
financial support many governments provided to airlines and efforts
to rollout the vaccine, which have helped stem airline defaults. In
the second recession, we assume defaults to occur over a
30%/40%/20%/10% pattern."
Useful life
S&P assumed a 22-year useful life for most aircraft in the
portfolios given the continued uncertainty around fleet plans. For
some of the older aircraft, S&P assumed they will be sold at the
end of their current contractual lease.
Transaction Summary
S&P reviewed the September 2021 payment report to run its cash flow
analysis for this review and for reporting the key portfolio and
liability statistics below.
Deal-Specific Details
DCAL Aviation Finance Ltd.
S&P Global Ratings lowered its ratings on DCAL Aviation Finance
Ltd.'s series 2015 class A-1 and B-1 notes and affirmed its rating
on the class C-1 notes.
The downgrades mainly reflect the minimal principal repayments on
the class A-1 notes, as well as insufficient credit enhancement at
the class A-1 and B-1 notes' respective previous rating levels.
The transaction has paid less than $2 million since our September
2020 review on the class A-1 notes. The class C-1 notes continue to
defer interest. As per the payment structure, the class A-1 notes'
scheduled principal has priority over the maintenance top-up for
the first seven years from the 2015 closing. Despite that, the
class A-1 notes has received very minimal repayments given the
reduced collections. Two planes that were previously grounded were
leased to ITA (Alitalia's successor). There are currently two
widebodies on lease to Alitalia, and at this point S&P does not
have any further insight into the transition plans or their payment
status.
S&P said, "None of these classes were passing regardless of rating
level under our cash flow runs. For the class A-1 notes, we
considered its priority in the payment structure and relatively
stable LTV. For the class B-1 notes, although interest is
deferrable while class A-1 is outstanding and the calculated LTV is
below 100%, the class A-1 scheduled principal is significantly
behind schedule. Therefore, we believe that the class B-1 notes are
currently vulnerable but a default is unlikely in the near term.
For the class B-1 and C-1 notes, we applied our "Criteria For
Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published Oct.
1, 2012, to arrive at the 'CCC+ (sf)' rating for the class B-1
notes."
Falcon Aerospace Ltd.
S&P Global Ratings affirmed its ratings on Falcon Aerospace Ltd.'s
series 2017 class A, B, and C loans.
The affirmations reflect the transaction's stable performance since
our last review in September 2020, with significant paydowns on the
class A and B loans. Four planes were sold in 2021, which
contributed to most of the loan repayments. The sale values
realized were generally below the reported adjusted base values.
However, end of lease payments on the sold planes helped increase
the net sale proceeds. Consequently, the portfolio is now very
concentrated with only 11 planes on lease to six airlines. Two of
the 11 aircraft are on a consignment for sale in a phased manner.
Four other planes are on lease with two airlines, which are delayed
on their payments.
The class C loans have a reserve account to make interest payments.
The current available amount can cover approximately 17 months'
interest payments on the C loans.
While S&P's cash flow results pointed to a higher rating for all
the classes, it considered the concentrated portfolio and the
lessees with payment delays; therefore, S&P affirmed its ratings at
the current rating level for all the classes.
KDAC Aviation Finance (Cayman) Ltd.
S&P Global Ratings lowered its rating on KDAC Aviation Finance
(Cayman) Ltd.'s class A, B, and C notes.
The downgrades mainly reflect the minimal principal repayments on
the class A notes, as well as insufficient credit enhancement at
the class A, B, and C notes' respective previous rating levels.
The transaction has repaid $9 million to the class A notes since
our September 2020 review. The class C notes continue to defer
interest. The lease collections have generally been low given that
six planes are off-lease and an additional two are under
re-delivery from their current lessees. Some of the lessees also
have PBH and deferral arrangements. One of the six off-lease planes
is a 15-year-old A330-200. The seven other widebodies have
remaining lease terms of less than 1.5 years, which could further
stress revenues because the long-haul segment continues to be
challenging.
The class A notes are significantly behind on their scheduled
principal payments, mainly because the lessor has been diverting
funds towards topping up the maintenance account for future
potential maintenance costs. S&P said, "Our cash flow runs
indicated a lower rating for the class A notes. However, we
considered the failure at the rating level assigned herein as
de-minimis."
The class B and C notes did not show passing results at any rating
level. S&P said, "We considered the relatively low LTV for the
class B notes compared to its peers. For the class C notes,
although interest is deferrable and the calculated LTV is below
100%, the class A and B notes are significantly behind on their
scheduled principal payments. Therefore, we believe that the class
C notes are currently vulnerable but a default is unlikely in the
near term. We applied our "Criteria For Assigning 'CCC+', 'CCC',
'CCC-', And 'CC' Ratings," published Oct. 1, 2012, to arrive at the
'CCC+ (sf)' rating for the class C notes."
START Ltd.
S&P Global Ratings lowered its ratings on START Ltd.'s series 2018
class B and C notes and affirmed its rating on the class A notes.
The downgrades to the class B and C notes reflect the current
changes in the portfolio and the subsequent decline in the
utilization rates due to early re-deliveries. The affirmation to
the class A notes reflects the sufficient credit enhancement at the
current rating level.
Three planes from two lessees were recently redelivered to the
lessor, which is much earlier than their scheduled lease expiration
dates; therefore, six of the 22 planes in the portfolio are
currently grounded. Additionally, three more planes are scheduled
to have lease expirations in the next 12 months. These are all
current generation, narrow-body aircraft. The lease collections
have been quite consistent throughout 2021 and the transaction has
paid some schedule principal amounts to the class A notes on all
payment dates so far in 2021. However, the class B notes has not
received any paydowns since our September 2020 review and the class
C notes continue to defer interest. After the September 2021
payment date, the class A notes are $6 million behind schedule and
each of the class B and C notes are $11 million behind schedule.
Environmental, Social, And Governance (ESG) Considerations
ESG factor relevant to the rating action:
-- Health and safety
In S&P's view, the transaction has material exposure to
environmental and social credit factors.
Under the environmental credit factors, S&P considers the
additional costs airlines who lease the aircraft may face, or
reduced aircraft values and lease rates, due to increasing
regulation of greenhouse gas emissions. Although aviation produces
a small portion (less than 3% currently) of global transport
emissions, they are increasing and are difficult to reduce.
S&P said, "Under the social credit factors, we believe that planes
are a high profile target for terrorism and international routes
can be disrupted by war. Health concerns, such as the COVID-19
pandemic, has dramatically reduced air traffic, revenue, and
earnings. Airlines carry insurance for potential liabilities,
though particularly catastrophic attacks may exhaust their coverage
and require a government backstop. Human capital management
represents another exposure because many airlines are heavily
unionized and strikes can be very costly and disruptive. Safety is
also a risk because airplane accidents are highly visible and
deadly (albeit rare statistically, and aircraft value is typically
covered by insurance).
"We have generally accounted for this risk by applying stresses to
the re-lease rates and residual values upon sale of the aircraft.
We assign aircraft-specific depreciation rates along with
aircraft-specific technological and liquidity scores that determine
the stress to re-lease rates and residual values. Our modelled
recessionary periods and the default rates applied during such
periods generally capture the impact on an airline's credit
quality.
The structural features such as the deleveraging of notes under
events of stress determined through trigger events, and the
availability of a liquidity facility that typically covers 9
months' interest on the senior notes, could generally protect the
notes from an unexpected reduction in lease income and liquidation
value due to the environmental and social credit factors.
S&P will continue to review whether the ratings assigned are
consistent with the credit enhancement available to support the
notes.
Ratings Lowered
DCAL Aviation Finance Ltd., series 2015
Class A-1: to 'B (sf)' from 'BB- (sf)'
Class B-1: to 'CCC+ (sf)' from 'B- (sf)'
KDAC Aviation Finance (Cayman) Ltd., series 2017-1
Class A: to 'BB- (sf)' from 'BBB (sf')
Class B: to 'B (sf)' from 'BB (sf)'
Class C: to 'CCC+ (sf)' from 'B+ (sf)'
START Ltd.
Class B: to 'BB (sf)' from 'BB+ (sf)'
Class C: to 'B (sf)' from 'B+ (sf)'
Ratings Affirmed
DCAL Aviation Finance Ltd., series 2015
Class C-1: 'CCC (sf)'
Falcon Aerospace Ltd.
Class A: 'A- (sf)'
Class B: 'BBB- (sf)'
Class C: 'BB (sf)'
START Ltd.
Class A: 'BBB+ (sf)'
DRYDEN 92 CLO: Moody's Assigns Ba3 Rating to $24MM Class E Notes
----------------------------------------------------------------
Moody's Investors Service has assigned ratings to five classes of
notes issued by Dryden 92 CLO, Ltd. (the "Issuer" or "Dryden 92
CLO").
Moody's rating action is as follows:
US$384,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$72,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned Aa2 (sf)
US$36,000,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned A2 (sf)
US$36,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned Baa3 (sf)
US$24,000,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, 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.
Dryden 92 CLO 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
bonds, second lien loans or unsecured loans, provided no more than
5% of the portfolio may consist of bonds. The portfolio is
approximately 80% ramped as of the closing date.
PGIM, Inc. (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: $600,000,000
Diversity Score: 90
Weighted Average Rating Factor (WARF): 2825
Weighted Average Spread (WAS): 3.20%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 47.5%
Weighted Average Life (WAL): 9.14 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.
DRYDEN 93 CLO: Moody's Assigns (P)Ba3 Rating to $16MM Cl. E Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to five
classes of notes to be issued by Dryden 93 CLO, Ltd. (the "Issuer"
or "Dryden 93 CLO").
Moody's rating action is as follows:
US$256,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Assigned (P)Aaa (sf)
US$48,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned (P)Aa2 (sf)
US$24,000,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)A2 (sf)
US$24,000,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Baa3 (sf)
US$16,000,000 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.
Dryden 93 CLO 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
bonds, second lien loans or unsecured loans, provided no more than
5% of the portfolio may consist of bonds. Moody's expect the
portfolio to be approximately 80% ramped as of the closing date.
PGIM, Inc. (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.
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: $400,000,000
Diversity Score: 75
Weighted Average Rating Factor (WARF): 2760
Weighted Average Spread (WAS): 3.20%
Weighted Average Coupon (WAC): 7.0%
Weighted Average Recovery Rate (WARR): 47.25%
Weighted Average Life (WAL): 8 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.
ELLINGTON FINANCIAL 2021-3: Fitch Gives B(EXP) Rating to B-2 Debt
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Fitch Ratings has assigned expected ratings to Ellington Financial
Mortgage Trust 2021-3.
DEBT RATING
---- ------
EFMT 2021-3
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
R LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The EFMT 2021-3 certificates are supported by 536 loans with a
balance of $257.65 million as of the cut-off date. This will be the
third Ellington Financial Mortgage Trust transaction rated by
Fitch.
The certificates are secured mainly by non-qualified mortgages
(Non-QM) as defined by the Ability to Repay (ATR) rule.
Approximately 95% of the loans were originated by LendSure Mortgage
Corporation, a joint venture between LendSure Financial Services,
Inc. (LFS) and Ellington Financial, Inc. (EFC). The remaining 5% of
loans were originated by third-party originators. Rushmore Loan
Management Services LLC will be the servicer, and Nationstar
Mortgage LLC will be the master servicer for the transaction.
Of the pool, 59% of the loans are designated as Non-QM, and the
remaining 41% are investment properties not subject to ATR.
Consistent with the majority of the NQM transactions issued to
date, this transaction has a modified sequential payment structure.
The structure distributes collected principal pro rata among the
class A notes while excluding the subordinate bonds from principal
until all three classes are reduced to zero. To the extent that
either a cumulative loss trigger event or delinquency trigger event
occurs in a given period, principal will be distributed
sequentially to the class A-1, A-2 and A-3 bonds until they are
reduced to zero.
There is Libor exposure in this transaction. While the majority of
the loans in the collateral pool comprise fixed-rate mortgages,
1.94% of the pool is comprised of loans with an adjustable rate
based on 1-year LIBOR. The offered certificates are fixed rate and
capped at the net weighted average coupon (WAC) or pay the net
WAC.
Fitch determined that four loans were in a FEMA declared disaster
area for individual assistance for Hurricane Ida. Rushmore
confirmed that none of these homes had damage from Hurricane IDA
and as a result no adjustment was made.
Fitch ran additional analysis on this transaction and as a result,
Fitch's loss expectations are based off of an additional scenario
in Fitch's US RMBS Loan Loss model which incorporates updated home
prices and macro-economic fundamentals.
KEY RATING DRIVERS
Nonprime Credit Quality (Mixed): The collateral consists mainly of
30-year or 40-year fully amortizing loans that are either
fixed-rate, or adjustable rate, and 24% of the loans have an
interest only period. The pool is seasoned approximately five
months in aggregate, as determined by Fitch. The borrowers in this
pool have relatively strong credit profiles with a 742 WA FICO
score and 41.3% DTI, as determined by Fitch, and moderate leverage
with an original CLTV of 68.3%, which translates to a Fitch
calculated sLTV of 77.1%.
Of the pool, 51.9% consists of loans where the borrower maintains a
primary residence, while 42.9% comprises an investor property and
5.2% occupy second home; 100% of the loans were originated through
a nonretail channel. Additionally, 59% are designated as Non-QM,
while the remaining 41% are exempt from QM since they are investor
loans.
The pool contains 49 loans over $1 million, with the largest $3.045
million. Fitch determined self-employed non-DSCR borrowers make up
48.4% of the pool, salaried non-DSCR borrowers, 22.1%; and 29.5%
are investor cash flow DSCR loans.
Approximately 42.9% of the pool comprises loans on investor
properties (13.4% underwritten to the borrowers' credit profile and
29.5% comprising investor cash flow loans) and Fitch considered 35
loans in the pool (4.9%) to be to non-permanent residents. There
are no second liens in the pool and none of the loans have
subordinate financing.
Fitch considered 100% of the pool to be current, since the eight
delinquent loans reported in the transaction documents were
delinquent due to a servicing transfer or ACH set up issue. All
loans are current as of the Sept. 15, 2021.
Overall, the pool characteristics resemble nonprime collateral, and
therefore, the pool was analyzed using Fitch's non-prime model.
Geographic Concentration (Neutral): Approximately 38% of the pool
is concentrated in California with relatively low MSA
concentration. The largest MSA concentration is in Los Angeles MSA
(17.8%) followed by the Miami MSA (6.3%) and the San Bernardino MSA
(5.5%). The top three MSAs account for 29.7% of the pool. As a
result, there was no adjustment for geographic concentration.
Loan Documentation (Negative): Approximately 83.6% of the pool was
underwritten to less than full documentation. 37.4% was
underwritten to a 12- or 24-month bank statement program for
verifying income, which is not consistent with Appendix Q standards
and Fitch's view of a full documentation program. A key distinction
between this pool and legacy Alt-A loans is that these loans adhere
to underwriting and documentation standards required under the
CFPB's Ability to Repay Rule (Rule), which reduces the risk of
borrower default arising from lack of affordability,
misrepresentation or other operational quality risks due to rigor
of the Rule's mandates with respect to the underwriting and
documentation of the borrower's ability to repay. Additionally,
6.4% is an Asset Depletion product, 0% is a CPA or PnL product, and
29.5% is DSCR product.
Limited Advancing (Mixed): The deal is structured to six months of
servicer advances for delinquent principal and interest. The
limited advancing reduces loss severities as there is a lower
amount repaid to the servicer when a loan liquidates and
liquidation proceeds are prioritized to cover principal repayment
over accrued but unpaid interest. The downside to this is the
additional stress on the structure side as there is limited
liquidity in the event of large and extended delinquencies.
Macro or Sector Risks (Positive): Consistent with the Additional
Scenario Analysis section of Fitch's "U.S. RMBS Coronavirus-Related
Analytical Assumptions" criteria, Fitch will consider applying
additional scenario analysis based on stressed assumptions as
described in the section to remain consistent with significant
revisions to Fitch's macroeconomic baseline scenario or if actual
performance data indicate the current assumptions require
reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of Covid-19 vaccines, Fitch reconsidered the
application of the coronavirus-related Economic Risk Factor (ERF)
floors of 2.0 and used ERF floors of 1.5 and 1.0 for the 'BBsf' and
'Bsf' rating stresses, respectively. Fitch's September 2021 Global
Economic Outlook and related base-line economic scenario forecasts
have been revised to a 6.2% U.S. GDP growth for 2021 and 3.9% for
2022 following a -3.4% GDP growth in 2020. Additionally, Fitch's
U.S. unemployment forecasts for 2021 and 2022 are 5.6% and 4.4%,
respectively, which is down from 8.1% in 2020. These revised
forecasts support Fitch reverting back to the 1.5 and 1.0 ERF
floors described in Fitch's "U.S. RMBS Loan Loss Model Criteria."
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- 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.
-- 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 43.3% 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.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper 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.
-- 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 Evolve and AMC. 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. Based on the results of the 100% due diligence
performed on the pool, Fitch reduced the overall 'AAAsf' expected
loss by 0.44%
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
generally consistent with Fitch's "U.S. RMBS Rating Criteria."
Evolve and AMC were engaged to perform the review. Loans reviewed
under this engagement were given compliance, credit and valuation
grades, and assigned initial grades for each subcategory. Minimal
exceptions and waivers were noted in the due diligence reports.
Refer to the Third-Party Due Diligence section for more detail.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. Fitch received
loan-level information based on the American Securitization Forum's
(ASF) data layout format, and the data are considered to be
comprehensive. The ASF data tape layout was established with input
from various industry participants, including rating agencies,
issuers, originators, investors and others to produce an industry
standard for the pool-level data in support of the U.S. RMBS
securitization market. The data contained in the ASF layout data
tape were reviewed by the due diligence companies, and no material
discrepancies were noted.
ESG CONSIDERATIONS
EFMT 2021-3 has an ESG Relevance Score of '4[+]' for Transaction
Parties & Operational Risk. Operational risk is well controlled for
in EFMT 2021-3, including strong transaction due diligence as well
as 'RPS1-' Fitch-rated servicer, which resulted in a reduction in
expected losses. This has a positive impact on the credit profile
and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
ELMWOOD CLO VI: S&P Assigns Prelim B- (sf) Rating on F-R Notes
--------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to the class
A-R, B-R, C-R, D-R, E-R, and F-R replacement notes from Elmwood CLO
VI Ltd./Elmwood CLO VI LLC, a CLO originally issued in 2020 that is
managed by Elmwood Asset Management LLC.
The preliminary ratings are based on information as of Oct. 6,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
On the Oct. 15, 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 target initial par amount will be upsized from $450 million
to $600 million.
-- The replacement class notes are expected to be issued at a
lower weighted average cost of debt than the original notes.
-- The stated maturity and reinvestment period will be extended by
approximately 3.00 years.
-- The non-call period will be extended by approximately 2.00
years.
-- The weighted average life test will be extended to 9.00 years
from the refinancing date.
-- The required minimum overcollateralization (O/C) and interest
coverage ratios will be amended.
-- Of the identified underlying collateral obligations, 99.60%
have credit ratings assigned by S&P Global Ratings.
-- Of the identified underlying collateral obligations, 95.30%
have recovery ratings assigned by S&P Global Ratings.
Replacement And Original Note Issuances
Replacement notes
Class A-R, $378.00 million: Three-month LIBOR + 1.16%
Class B-R, $78.00 million: Three-month LIBOR + 1.65%
Class C-R (deferrable), $36.00 million: Three-month LIBOR +
2.05%
Class D-R (deferrable), $36.00 million: Three-month LIBOR +
3.10%
Class E-R (deferrable), $24.00 million: Three-month LIBOR +
6.50%
Class F-R (deferrable), $9.00 million: Three-month LIBOR + 7.75%
Original notes
Class A, $283.50 million: Three-month LIBOR + 1.32%
Class B-1, $45.00 million: Three-month LIBOR + 1.70%
Class B-2, $13.50 million: 2.1108%
Class C (deferrable), $25.80 million: Three-month LIBOR + 2.35%
Class D (deferrable), $24.80 million: Three-month LIBOR + 3.65%
Class E (deferrable), $18.00 million: Three-month LIBOR + 7.60%
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."
Preliminary Ratings Assigned
Elmwood CLO VI Ltd./Elmwood CLO VI LLC
Class A-R, $378.00 million: AAA (sf)
Class B-R, $78.00 million: AA (sf)
Class C-R (deferrable), $36.00 million: A (sf)
Class D-R (deferrable), $36.00 million: BBB- (sf)
Class E-R (deferrable), $24.00 million: BB- (sf)
Class F-R (deferrable), $9.00 million: B- (sf)
Subordinated notes, $47.00 million: Not rated
FLAGSTAR MORTGAGE 2021-10INV: Moody's Gives B2 Rating to B-5 Certs
------------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to
thirty-two classes of residential mortgage-backed securities (RMBS)
issued by Flagstar Mortgage Trust 2021-10INV ("FSMT 2021-10INV").
The ratings range from Aaa (sf) to B2 (sf).
Flagstar Mortgage Trust 2021-10INV (FSMT 2021-10INV) is the tenth
issue from Flagstar Mortgage Trust in 2021 and the sixth issue with
investor-property loans in 2021. Flagstar Bank, FSB (Flagstar) is
the sponsor of the transaction. FSMT 2021-10INV is a securitization
of GSE eligible first-lien investment property mortgage loans.
100.0% of the pool by loan balance were originated by Flagstar
Bank, FSB.
All the loans are underwritten in accordance with Freddie Mac or
Fannie Mae guidelines, which take into consideration, among other
factors, the income, assets, employment and credit score of the
borrower as well as loan-to-value (LTV). These loans were run
through one of the government-sponsored enterprises' (GSE)
automated underwriting systems (AUS) and received an "Approve" or
"Accept" recommendation.
All of the personal-use loans are "qualified mortgages" under
Regulation Z as result of the temporary provision allowing
qualified mortgage status for loans eligible for purchase,
guaranty, or insurance by Fannie Mae and Freddie Mac (and certain
other federal agencies). If the Sponsor or the Reviewer determines
a Personal Use Loan is no longer a "qualified mortgage" under the
ATR Rules, the Sponsor may be required to repurchase such Personal
Use Loan. With the exception of personal-use loans, all other
mortgage loans in the pool are not subject to TILA because each
such mortgage loan is an extension of credit primarily for a
business purpose and is not a "covered transaction" as defined in
Section 1026.43(b)(1) of Regulation Z.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. Moody's also compared the
collateral pool to other prime jumbo securitizations backed by
investment property loans. Overall, this pool has average credit
risk profile as compared to that of similar recent prime jumbo
transactions. The securitization has a shifting interest structure
with a five-year lockout period that benefits from a senior floor
and a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool.
The complete rating action is as follows:
Issuer: Flagstar Mortgage Trust 2021-10INV
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aaa (sf)
Cl. A-15, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aa1 (sf)
Cl. A-18, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-1*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-4*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-6*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-8*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-10*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-13*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-15*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-18*, Definitive Rating Assigned Aa1 (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-1-A, Definitive Rating Assigned Aa3 (sf)
Cl. B-1-X*, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A2 (sf)
Cl. B-2-A, Definitive Rating Assigned A2 (sf)
Cl. B-2-X*, Definitive Rating Assigned A2 (sf)
Cl. B-3, Definitive Rating Assigned Baa2 (sf)
Cl. B-4, Definitive Rating Assigned Ba2 (sf)
Cl. B-5, Definitive Rating Assigned B2 (sf)
Cl. RR-A, Definitive Rating Assigned Aaa (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 1.29%
at the mean, 0.99% at the median, and reaches 7.18% 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%
(8.0% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss adjustment
and the 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
FSMT 2021-10INV is a securitization of GSE eligible first-lien
investment property mortgage loans. 100.0% of the pool by loan
balance were originated by Flagstar Bank, FSB. All the loans are
underwritten in accordance with Freddie Mac or Fannie Mae
guidelines, which take into consideration, among other factors, the
income, assets, employment and credit score of the borrower as well
as loan-to-value (LTV). As of the cut-off date of September 1,
2021, the approximately $667,432,587 pool consisted of 2,558
mortgage loans secured by first liens on residential investment
properties. The average stated principal balance is $260,920and the
weighted average (WA) current mortgage rate is 3.6%. The majority
of the loans have a 30-year term, with 8 loans with 25-year term.
All of the loans have a fixed rate. The WA original credit score is
768 for the primary borrower only and the WA combined original LTV
(CLTV) is 68.0%. The WA original debt-to-income (DTI) ratio is
36.6%. Approximately, 10.7% by loan balance of the borrowers have
more than one mortgage loan in the mortgage pool.
All of the mortgage loans originated by Flagstar were either
directly or indirectly originated through correspondents and
brokers.
A significant percentage of the mortgage loans by loan balance
(33.0%) are backed by properties located in California. The second
and third largest geographic concentration of properties are Texas
and Florida which represent 10.0% and 7.3% by loan balance,
respectively. All other states each represent less than 5% by loan
balance. Approximately 18.2% (by loan balance) of the pool is
backed by properties that are 2-4 unit residential properties
whereas loans backed by single family residential properties
represent 46.1% (by loan balance) of the pool.
Origination Quality
Flagstar Bank, FSB (Flagstar) originated 100% of the loans in the
pool. The loans in the pool are underwritten in conformity with GSE
guidelines. Moody's consider Flagstar conforming and non-conforming
mortgage origination quality to be adequate. As a result, Moody's
did not make any adjustments to Moody's base case and Aaa stress
loss assumptions based on Moody's review of the underwriting, QC,
audit and loan performance.
Servicing arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate. Flagstar will service the mortgage loans. Servicing
compensation is subject to a step-up incentive fee structure. Wells
Fargo Bank, N.A. (Wells Fargo) will be the master servicer.
Flagstar will be responsible for principal and interest advances as
well as servicing advances. The master servicer will be required to
make principal and interest advances if Flagstar is unable to do
so.
Servicing compensation for loans in this transaction is based on a
fee-for-service incentive structure. The fee-for-service incentive
structure includes an initial monthly base fee of $20.50 for all
performing loans and increases according to certain delinquent and
incentive fee schedules. By establishing a base servicing fee for
performing loans that increases with the delinquency of loans, the
fee-for-service structure aligns monetary incentives to the
servicer with the costs of the servicer. The fee-for-service
compensation is reasonable and adequate for this transaction. It
also better aligns the servicer's costs with the deal's performance
and structure. The Class B-6-C (NR) is first in line to absorb any
increase in servicing costs above the base servicing costs.
Delinquency and incentive fees will be deducted from the Class
B-6-C interest payment amount first and could result in interest
shortfall to the certificates depending on the magnitude of the
delinquency and incentive fees.
Trustee and master servicer
The transaction trustee is Wilmington Savings Fund Society, FSB.
The custodian functions will be performed by Wells Fargo Bank, N.A.
The paying agent and cash management functions will be performed by
Wells Fargo Bank, N.A., rather than the trustee. In addition, Wells
Fargo, as master servicer, is responsible for servicer oversight,
and termination of servicers and for the appointment of successor
servicers. The master servicer will be required to make principal
and interest advances if Flagstar is unable to do so.
Third-party review
Moody's applied an adjustment to its Aaa and expected losses due to
the sample size. The credit, compliance, property valuation, and
data integrity portion of the third party review (TPR) was
conducted on a total of approximately 9.5% of the pool (by loan
count). Canopy Financial Technology Partners (Canopy) conducted due
diligence for a total random sample of 314 loans. The TPR results
indicated compliance with the originators' underwriting guidelines
for most of the loans without any material compliance issues or
appraisal defects. 100% of the loans reviewed received a grade B or
higher with 85.4% of loans receiving an A grade.
While the TPR results indicated compliance with the originators'
underwriting guidelines for most of the loans, no material
compliance issues and no material appraisal defects, the total
sample size of 325 loans reviewed did not meet Moody's credit
neutral criteria. Moody's therefore made an adjustment to loss
levels to account for this risk.
Representations and Warranties Framework
Flagstar Bank, FSB the originator as well as an investment-grade
rated entity, makes the loan-level representation and warranties
(R&Ws) for the mortgage loans. The loan-level R&Ws are strong and,
in general, either meet or exceed the baseline set of credit
neutral R&Ws Moody's have identified for US RMBS. Further, R&W
breaches are evaluated by an independent third party using a set of
objective criteria to determine whether any R&Ws were breached when
(1) the loan becomes 120 days delinquent, (2) the servicer stops
advancing, (3) the loan is liquidated at a loss or (4) the loan
becomes between 30 days and 119 days delinquent and is modified by
the servicer. Similar to other private-label transactions, the
transaction contains a "prescriptive" R&W framework. These reviews
are prescriptive in that the transaction documents set forth
detailed tests for each R&W that the independent reviewer will
perform.
Moody's assessed the R&W framework for this transaction as
adequate. Moody's analyzed the strength of the R&W provider, the
R&Ws themselves and the enforcement mechanisms. The R&W provider is
rated investment grade, the breach reviewer is independent, and the
breach review process is thorough, transparent and objective.
Moody's did not make any additional adjustment to Moody's base case
and Aaa loss expectations for R&Ws.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior subordination floor and a subordinate floor. Funds
collected, including principal, are first used to make interest
payments and then principal payments on pro rata basis up to the
senior bonds principal distribution amount, and then interest and
principal payments on sequential basis up to each subordinate bond
principal distribution amount. As in all transactions with shifting
interest structures, the senior bonds benefit from a cash flow
waterfall that allocates all prepayments to the senior bond for a
specified period of time, and increasing amounts of prepayments to
the subordinate bonds thereafter, but only if loan performance
satisfies delinquency and loss tests.
All certificates (except Class B-6-C) in this transaction are
subject to a net WAC cap. Class B-6-C will accrue interest at the
net WAC minus the aggregate delinquent servicing and aggregate
incentive servicing fee. For any distribution date, the net WAC
will be the greater of (1) zero and (2) the weighted average net
mortgage rates minus the capped trust expense rate.
Realized losses are allocated reverse sequentially among the
subordinate, starting with most junior, and senior support
certificates and on a pro-rata basis among the super senior
certificates.
Tail Risk and subordination floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.65% of the cut-off date pool
balance, and as subordination lock-out amount of 0.65% of the
cut-off date pool balance. The floors are consistent with the
credit neutral floors for the assigned ratings according to Moody's
methodology.
COVID-19 Impacted Borrowers
As of the cut-off date, no borrower in the pool has entered into a
COVID-19 related forbearance plan with the servicer. Also, if any
borrower enters or requests a COVID-19 related forbearance plan
from the cut-off date to the closing date, then the associated
mortgage loan will be removed from the pool. In the event a
borrower enters or requests a COVID-19 related forbearance plan
after the closing date, such mortgage loan (and the risks
associated with it) will remain in the mortgage pool. Any principal
forbearance amount created in connection with any modification
(whether as a result of a COVID-19 forbearance or otherwise) will
result in the allocation of a realized loss and to the extent any
such amount is later recovered, will result in the allocation of a
subsequent recovery.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
FLAGSTAR MORTGAGE 2021-9INV: Moody's Gives B2 Rating to B-5 Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to
twenty-three classes of residential mortgage-backed securities
(RMBS) issued by Flagstar Mortgage Trust 2021-9INV ("FSMT
2021-9INV"). The ratings range from Aaa (sf) to B2 (sf).
Flagstar Mortgage Trust 2021-9INV (FSMT 2021-9INV) is the ninth
issue from Flagstar Mortgage Trust in 2021 and the fifth issue with
investor-property loans in 2021. Flagstar Bank, FSB (Flagstar) is
the sponsor of the transaction. FSMT 2021-9INV is a securitization
of GSE eligible first-lien investment property mortgage loans.
100.0% of the pool by loan balance were originated by Flagstar
Bank, FSB.
All the loans are underwritten in accordance with Freddie Mac or
Fannie Mae guidelines, which take into consideration, among other
factors, the income, assets, employment and credit score of the
borrower as well as loan-to-value (LTV). These loans were run
through one of the government-sponsored enterprises' (GSE)
automated underwriting systems (AUS) and received an "Approve" or
"Accept" recommendation.
All of the personal-use loans are "qualified mortgages" under
Regulation Z as result of the temporary provision allowing
qualified mortgage status for loans eligible for purchase,
guaranty, or insurance by Fannie Mae and Freddie Mac (and certain
other federal agencies). If the Sponsor or the Reviewer determines
a Personal Use Loan is no longer a "qualified mortgage" under the
ATR Rules, the Sponsor may be required to repurchase such Personal
Use Loan. With the exception of personal-use loans, all other
mortgage loans in the pool are not subject to TILA because each
such mortgage loan is an extension of credit primarily for a
business purpose and is not a "covered transaction" as defined in
Section 1026.43(b)(1) of Regulation Z.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. Moody's also compared the
collateral pool to other prime jumbo securitizations backed by
investment property loans. Overall, this pool has average credit
risk profile as compared to that of similar recent prime jumbo
transactions. The securitization has a shifting interest structure
with a five-year lockout period that benefits from a senior floor
and a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool.
The complete rating action is as follows:
Issuer: Flagstar Mortgage Trust 2021-9INV
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-X-1*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-2*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-4*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-6*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-8*, Definitive Rating Assigned Aaa (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-1-A, Definitive Rating Assigned Aa3 (sf)
Cl. B-1-X*, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A2 (sf)
Cl. B-2-A, Definitive Rating Assigned A2 (sf)
Cl. B-2-X*, Definitive Rating Assigned A2 (sf)
Cl. B-3, Definitive Rating Assigned Baa2 (sf)
Cl. B-4, Definitive Rating Assigned Ba2 (sf)
Cl. B-5, Definitive Rating Assigned B2 (sf)
Cl. RR-A, Definitive Rating Assigned Aaa (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario is 0.28%
at the mean, 0.20% at the median, and reaches 1.70% 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%
(7.5% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss adjustment
and the 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
FSMT 2021-9INV is a securitization of GSE eligible first-lien
investment property mortgage loans. 100.0% of the pool by loan
balance were originated by Flagstar Bank, FSB. All the loans are
underwritten in accordance with Freddie Mac or Fannie Mae
guidelines, which take into consideration, among other factors, the
income, assets, employment and credit score of the borrower as well
as loan-to-value (LTV). As of the cut-off date of September 1,
2021, the approximately $320,525,291 pool consisted of 1,527
mortgage loans secured by first liens on residential investment
properties. The average stated principal balance is $209,905 and
the weighted average (WA) current mortgage rate is 3.2%. Original
terms to maturity for loans in this pool range from 10 to 20 years,
with 77.4% of loans have an original term to maturity of 15
years.All of the loans have a fixed rate. The WA original credit
score is 777 for the primary borrower only and the WA combined
original LTV (CLTV) is 56.3%. The WA original debt-to-income (DTI)
ratio is 35.7%. Approximately, 16.5% by loan balance of the
borrowers have more than one mortgage loan in the mortgage pool.
All of the mortgage loans originated by Flagstar were either
directly or indirectly originated through correspondents and
brokers.
A significant percentage of the mortgage loans by loan balance
(34.8%) are backed by properties located in California. The second
and third largest geographic concentration of properties are Texas
and Florida which represent 10.4% and 4.3% by loan balance,
respectively. All other states each represent less than 5% by loan
balance. Approximately 13.5% (by loan balance) of the pool is
backed by properties that are 2-4 unit residential properties
whereas loans backed by single family residential properties
represent 48.7% (by loan balance) of the pool.
Origination Quality
Flagstar Bank, FSB (Flagstar) originated 100% of the loans in the
pool. The loans in the pool are underwritten in conformity with GSE
guidelines. Moody's consider Flagstar conforming and non-conforming
mortgage origination quality to be adequate. As a result, Moody's
did not make any adjustments to Moody's base case and Aaa stress
loss assumptions based on Moody's review of the underwriting, QC,
audit and loan performance.
Servicing arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate. Flagstar will service the mortgage loans. Servicing
compensation is subject to a step-up incentive fee structure. Wells
Fargo Bank, N.A. (Wells Fargo) will be the master servicer.
Flagstar will be responsible for principal and interest advances as
well as servicing advances. The master servicer will be required to
make principal and interest advances if Flagstar is unable to do
so.
Servicing compensation for loans in this transaction is based on a
fee-for-service incentive structure. The fee-for-service incentive
structure includes an initial monthly base fee of $20.50 for all
performing loans and increases according to certain delinquent and
incentive fee schedules. By establishing a base servicing fee for
performing loans that increases with the delinquency of loans, the
fee-for-service structure aligns monetary incentives to the
servicer with the costs of the servicer. The fee-for-service
compensation is reasonable and adequate for this transaction. It
also better aligns the servicer's costs with the deal's performance
and structure. The Class B-6-C (NR) is first in line to absorb any
increase in servicing costs above the base servicing costs.
Delinquency and incentive fees will be deducted from the Class
B-6-C interest payment amount first and could result in interest
shortfall to the certificates depending on the magnitude of the
delinquency and incentive fees.
Trustee and master servicer
The transaction trustee is Wilmington Savings Fund Society, FSB.
The custodian functions will be performed by Wells Fargo Bank, N.A.
The paying agent and cash management functions will be performed by
Wells Fargo Bank, N.A., rather than the trustee. In addition, Wells
Fargo, as master servicer, is responsible for servicer oversight,
and termination of servicers and for the appointment of successor
servicers. The master servicer will be required to make principal
and interest advances if Flagstar is unable to do so.
Third-party review
Moody's applied an adjustment to Moody's Aaa and expected losses
due to the sample size. The credit, compliance, property valuation,
and data integrity portion of the third party review (TPR) was
conducted on a total of approximately 20.8% of the pool (by loan
count). Canopy Financial Technology Partners (Canopy) conducted due
diligence for a total random sample of 318 loans. The TPR results
indicated compliance with the originators' underwriting guidelines
for most of the loans without any material compliance issues or
appraisal defects. 100% of the loans reviewed received a grade B or
higher with 73.6% of loans receiving an A grade.
While the TPR results indicated compliance with the originators'
underwriting guidelines for most of the loans, no material
compliance issues and no material appraisal defects, the total
sample size of 318 loans reviewed did not meet Moody's credit
neutral criteria. Moody's therefore made an adjustment to loss
levels to account for this risk.
Representations and Warranties Framework
Flagstar Bank, FSB the originator as well as an investment-grade
rated entity, makes the loan-level representation and warranties
(R&Ws) for the mortgage loans. The loan-level R&Ws are strong and,
in general, either meet or exceed the baseline set of credit
neutral R&Ws Moody's have identified for US RMBS. Further, R&W
breaches are evaluated by an independent third party using a set of
objective criteria to determine whether any R&Ws were breached when
(1) the loan becomes 120 days delinquent, (2) the servicer stops
advancing, (3) the loan is liquidated at a loss or (4) the loan
becomes between 30 days and 119 days delinquent and is modified by
the servicer. Similar to other private-label transactions, the
transaction contains a "prescriptive" R&W framework. These reviews
are prescriptive in that the transaction documents set forth
detailed tests for each R&W that the independent reviewer will
perform.
Moody's assessed the R&W framework for this transaction as
adequate. Moody's analyzed the strength of the R&W provider, the
R&Ws themselves and the enforcement mechanisms. The R&W provider is
rated investment grade, the breach reviewer is independent, and the
breach review process is thorough, transparent and objective.
Moody's did not make any additional adjustment to Moody's base case
and Aaa loss expectations for R&Ws.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior subordination floor and a subordinate floor. Funds
collected, including principal, are first used to make interest
payments and then principal payments on pro rata basis up to the
senior bonds principal distribution amount, and then interest and
principal payments on sequential basis up to each subordinate bond
principal distribution amount. As in all transactions with shifting
interest structures, the senior bonds benefit from a cash flow
waterfall that allocates all prepayments to the senior bond for a
specified period of time, and increasing amounts of prepayments to
the subordinate bonds thereafter, but only if loan performance
satisfies delinquency and loss tests.
All certificates (except Class B-6-C) in this transaction are
subject to a net WAC cap. Class B-6-C will accrue interest at the
net WAC minus the aggregate delinquent servicing and aggregate
incentive servicing fee. For any distribution date, the net WAC
will be the greater of (1) zero and (2) the weighted average net
mortgage rates minus the capped trust expense rate.
Realized losses are allocated reverse sequentially among the
subordinate, starting with most junior, and senior support
certificates and on a pro-rata basis among the super senior
certificates.
Tail Risk and subordination floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 1.00% of the cut-off date pool
balance, and as subordination lock-out amount of 1.00% of the
cut-off date pool balance. The floors are consistent with the
credit neutral floors for the assigned ratings according to Moody's
methodology.
COVID-19 Impacted Borrowers
As of the cut-off date, no borrower in the pool has entered into a
COVID-19 related forbearance plan with the servicer. Also, if any
borrower enters or requests a COVID-19 related forbearance plan
from the cut-off date to the closing date, then the associated
mortgage loan will be removed from the pool. In the event a
borrower enters or requests a COVID-19 related forbearance plan
after the closing date, such mortgage loan (and the risks
associated with it) will remain in the mortgage pool. Any principal
forbearance amount created in connection with any modification
(whether as a result of a COVID-19 forbearance or otherwise) will
result in the allocation of a realized loss and to the extent any
such amount is later recovered, will result in the allocation of a
subsequent recovery.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
GCAT 2021-NQM5: S&P Assigns B (sf) Rating on Class B-2 Certs
------------------------------------------------------------
S&P Global Ratings assigned its ratings to GCAT 2021-NQM5 Trust's
mortgage pass-through certificates.
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 residential properties, planned-unit developments,
condominiums, condotels, two- to four-family residential
properties, townhouses, cooperatives, and manufactured housing
properties to both prime and nonprime borrowers. The pool has 610
loans, which are either nonqualified or ability-to-repay
(ATR)-exempt mortgage loans.
Since S&P assigned preliminary ratings on Sept. 23, 2021, the
sponsor, Blue River Mortgage II LLC, updated the transaction
structure with re-sized bond amounts for the A-1, A-1X, A-2, M-1,
B-1, and B-3 classes and increased credit enhancement levels for
the A-1, A-2, A-3, M-1, B-1, and B-2 classes. S&P's loss coverage
levels for the pool remained the same. The assigned ratings remain
the same as our preliminary ratings.
The ratings reflect S&P's view of:
-- The asset pool's collateral composition;
-- The transaction's credit enhancement, associated structural
mechanics, geographic concentration, and representation and
warranty framework;
-- The mortgage aggregator, Blue River Mortgage II LLC; and
-- The impact the COVID-19 pandemic will likely have on the
performance of the mortgage borrowers in the pool and the liquidity
available in the transaction.
Ratings Assigned(i)
GCAT 2021-NQM5 Trust
Class A-1, $252,315,000: AAA (sf)
Class A-1X, $252,315,000(ii): AAA (sf)
Class A-2, $25,771,000: AA (sf)
Class A-3, $32,911,000: A (sf)
Class M-1, $16,020,000: BBB (sf)
Class B-1, $9,751,000; BB (sf)
Class B-2, $6,617,000: B (sf)
Class B-3, $4,876,064: Not rated
Class A-IO-S, Notional(iii): Not rated
Class X, Notional(iii): Not rated
Class R, N/A: Not rated
(i)The ratings address the ultimate payment of interest and
principal.
(ii)Class A-1X will have a notional amount equal to the lesser of
(a) the balance of class A-1 immediately prior to such distribution
date and (b) the notional amount set forth on a schedule for the
related accrual period as described in the offering documents.
After the 28th distribution date, the notional amount of the A-1X
certificates will be zero.
(iii)The notional amount equals the aggregate principal balance of
the loans.
N/A--Not applicable.
GS MORTGAGE 2021-PJ9: Moody's Assigns B2 Rating to Cl. B-5 Certs
----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 38
classes of residential mortgage-backed securities (RMBS) issued by
GS Mortgage-Backed Securities Trust 2021-PJ9. The ratings range
from Aaa (sf) to B2 (sf).
GS Mortgage-Backed Securities Trust 2021-PJ9 (GSMBS 2021-PJ9) is
the ninth prime jumbo transaction in 2021 issued by Goldman Sachs
Mortgage Company (GSMC), the sponsor and the primary mortgage loan
seller. The certificates are backed by 851 (98.8% by UPB) prime
jumbo (non-conforming) and 31 (1.2% by UPB) conforming,
predominantly 30-year, fully-amortizing fixed-rate mortgage loans
with an aggregate stated principal balance (UPB) $873,692,017 as of
the September 1, 2021 cut-off date. Overall, pool strengths include
the high credit quality of the underlying borrowers, indicated by
high FICO scores, strong reserves for prime jumbo borrowers,
mortgage loans with fixed interest rates and no interest-only
loans. As of the cut-off date, none of the mortgage loans are
subject to a COVID-19 related forbearance plan. GSMC is a wholly
owned subsidiary of Goldman Sachs Bank USA and Goldman Sachs. The
mortgage loans for this transaction were acquired by GSMC, the
sponsor and the primary mortgage loan seller (94.8% by UPB), MTGLQ
Investors, L.P. (MTGLQ) (0.4% by UPB), and MCLP Asset Company, Inc.
(MCLP) (4.8% by UPB), the mortgage loan sellers, from certain of
the originators or the aggregator, MAXEX Clearing LLC (which
aggregated 3.2% of the mortgage loans by UPB).
NewRez LLC (formerly known as New Penn Financial, LLC) d/b/a
Shellpoint Mortgage Servicing (Shellpoint) will service 77.0% (by
UPB) and United Wholesale Mortgage, LLC will service 23.0% (by UPB)
of the pool. Wells Fargo Bank, N.A. (Wells Fargo, long term
deposit, Aa1; long term debt Aa2) will be the master servicer and
securities administrator. U.S. Bank Trust National Association will
be the trustee. Pentalpha Surveillance LLC will be the
representations and warranties (R&W) breach reviewer.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. In addition, Moody's
adjusted 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-PJ9
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aa1 (sf)
Cl. A-4, Definitive Rating Assigned Aa1 (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-7-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-11-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aaa (sf)
Cl. A-15, Definitive Rating Assigned Aaa (sf)
Cl. A-15-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-16, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aaa (sf)
Cl. A-17-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-18, Definitive Rating Assigned Aaa (sf)
Cl. A-18-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-19, Definitive Rating Assigned Aaa (sf)
Cl. A-20, Definitive Rating Assigned Aaa (sf)
Cl. A-21, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-1*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-2*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-3*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-4*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-5*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-9*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-13*, Definitive Rating Assigned Aaa (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A3 (sf)
Cl. B-3, Definitive Rating Assigned Baa3 (sf)
Cl. B-4, Definitive Rating Assigned Ba3 (sf)
Cl. B-5, Definitive Rating Assigned B2 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
0.50%, in a baseline scenario-median is 0.32%, and reaches 3.96% 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%
(7.11% 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
The aggregate collateral pool comprises 851 (98.8% by UPB) prime
jumbo (non-conforming) and 31 (1.2% by UPB) conforming,
predominantly 30-year, fully-amortizing fixed-rate mortgage loans,
none of which have the benefit of primary mortgage guaranty
insurance, with an aggregate stated principal balance (UPB)
$873,692,017 and a weighted average (WA) mortgage rate of 3.1%. The
WA current FICO score of the borrowers in the pool is 774. The WA
Original LTV ratio of the mortgage pool is 71.4%, which is in line
with GSMBS 2021-PJ8 and also with other prime jumbo transactions.
All the mortgage loans in the aggregate pool are QM, with the prime
jumbo non-conforming mortgage loans meeting the requirements of the
QM-Safe Harbor rule (Appendix Q) or the new General QM rule (see
bullet point below), and the GSE eligible mortgage loans meeting
the temporary QM criteria applicable to loans underwritten in
accordance with GSE guidelines. The other characteristics of the
mortgage loans in the pool are generally comparable to that of
GSMBS 2021-PJ8 and recent prime jumbo transactions.
A portion of the loans purchased from various sellers into the pool
were originated pursuant to the new general QM rule (70.1% of the
pool by loan balance). The majority of these loans are Movement
Mortgage and UWM loans underwritten to GS AUS underwriting
guidelines. For avoidance of doubt, Movement Mortgage originated
both new-QM and QM-Safe Harbor loans into the pool. The third-party
reviewer verified that the loans' APRs met the QM rule's
thresholds. Furthermore, these loans were underwritten and
documented pursuant to the QM rule's verification safe harbor via a
mix of the Fannie Mae Single Family Selling Guide, the Freddie Mac
Single-Family Seller/Servicer Guide, and applicable program
overlays. As part of the origination quality review and in
consideration of the detailed loan-level third-party diligence
reports, which included supplemental information with the specific
documentation received for each loan, Moody's concluded that these
loans were fully documented loans, and that the underwriting of the
loans is acceptable. Therefore, Moody's ran these loans as "full
documentation" loans in Moody's MILAN model, but increased Moody's
Aaa and expected loss assumptions due to the lack of performance,
track records and overlays of the AUS-underwritten loans.
The mortgage loans in the pool were originated mostly in California
(49.8%) and in high cost metropolitan statistical areas (MSAs) of
Los Angeles (20.8%), San Francisco (10.1%), San Diego (7.3%),
Seattle (3.5%) and others (17.7%), by UPB, respectively. The high
geographic concentration in high cost MSAs is reflected in the high
average balance of the pool ($990,581). Moody's made adjustments to
Moody's losses to account for this geographic concentration risk.
Top 10 MSAs comprise 59.3% of the pool, by UPB.
Aggregator/Origination Quality
GSMC is the loan aggregator and the primary mortgage seller for the
transaction. GSMC's general partner is Goldman Sachs Real Estate
Funding Corp. and its limited partner is Goldman Sachs Bank USA.
Goldman Sachs Real Estate Funding Corp. is a wholly owned
subsidiary of Goldman Sachs Bank USA. GSMC is an affiliate of
Goldman Sachs & Co. LLC. GSMC is overseen by the mortgage capital
markets group within Goldman Sachs. Senior management averages 16
years of mortgage experience and 15 years of Goldman Sachs tenure.
The mortgage loans for this transaction were acquired by GSMC, the
sponsor and the primary mortgage loan seller (94.8% by UPB), MTGLQ
Investors, L.P. (MTGLQ) (0.4% by UPB), and MCLP Asset Company, Inc.
(MCLP) (4.8% by UPB), the mortgage loan sellers, from certain of
the originators or the aggregator, MAXEX Clearing LLC (which
aggregated 3.2% of the mortgage loans by UPB). The mortgage loans
in the pool are underwritten to either GSMC's underwriting
guidelines, or seller's applicable guidelines. The mortgage loan
sellers do not originate any mortgage loans, including the mortgage
loans included in the mortgage pool. Instead, the mortgage loan
sellers acquired the mortgage loans pursuant to contracts with the
originators or the aggregator.
Overall, Moody's consider GSMC's aggregation platform to be
comparable to that of peer aggregators and therefore did not apply
a separate loss-level adjustment for aggregation quality. In
addition to reviewing GSMC's aggregation quality, Moody's have also
reviewed the origination quality of each of the originators which
contributed at least approximately 10% of the mortgage loans (by
UPB) to the transaction. For these originators, Moody's reviewed
their underwriting guidelines, performance history, and quality
control and audit processes and procedures (to the extent
available, respectively). Approximately 38.2%, 16.7% and 11.2% of
the mortgage loans, by a UPB as of the cut-off date (approximately
65.5% by UPB), were originated by United Wholesale Mortgage, LLC
(UWM), Movement Mortgage, LLC (Movement Mortgage) and Guaranteed
Rate affiliates (including Guaranteed Rate, Inc. (GRI), Guaranteed
Rate Affinity, LLC (GRA) and Proper Rate, LLC) respectively. No
other originator or group of affiliated originators originated more
than approximately 10% of the mortgage loans in the aggregate.
Moody's consider Guaranteed Rate affiliates to have adequate
residential prime jumbo loan origination practices that are in line
with peers due to: (1) adequate underwriting policies and
procedures, (2) consistent performance with low delinquency and
repurchase and (3) adequate quality control, Moody's did not make
any adjustments to Moody's loss levels for mortgage loans
originated by these parties. However, Moody's made an adjustment to
Moody's losses for loans originated by Better Mortgage primarily
due to limited insight into originators' prime jumbo performance
and risk management practices. Moody's also made an adjustment to
Moody's losses for loans originated by UWM primarily due to the
fact that underwriting prime jumbo loans mainly through DU is
fairly new and no performance history has been provided to Moody's
on these types of loans. More time is needed to assess UWM's
ability to consistently produce high-quality prime jumbo
residential mortgage loans under this program.
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 77.0% (by UPB) of the pool and United
Wholesale Mortgage, LLC will service 23.0% (by UPB). 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 100% of the mortgage loans for
regulatory compliance, credit and property valuation. Overall,
Moody's believe that the TPR results are weaker due to the
relatively high number of exceptions compared to those in prime
transactions Moody's recently rated. The majority of these credit
exceptions are related to hazard and title insurance. While many of
these may be rectified in the future by the servicer or by
subsequent documentation, Moody's made an adjustment to the Aaa
loss and EL to reflect the additional risk that these exceptions
could impair the deal's insurance coverage if not rectified and
because the R&Ws specifically exclude these exceptions.
Representations & Warranties
GSMBS 2021-PJ9's R&W framework is in line with that of prior GSMBS
transactions Moody's have rated where an independent reviewer is
named at closing, and costs and manner of review are clearly
outlined at issuance. Moody's review of the R&W framework takes
into account the financial strength of the R&W providers, scope of
R&Ws (including qualifiers and sunsets) and the R&W enforcement
mechanism. The loan-level R&Ws meet or exceed the baseline set of
credit-neutral R&Ws Moody's have identified for US RMBS. R&W
breaches are evaluated by an independent third-party using a set of
objective criteria. The transaction requires mandatory independent
reviews of mortgage loans that become 120 days delinquent and those
that liquidate at a loss to determine if any of the R&Ws are
breached. There is a provision for binding arbitration in the event
of a dispute between the trust and the R&W provider concerning R&W
breaches.
The creditworthiness of the R&W provider determines the probability
that the R&W provider will be available and have the financial
strength to repurchase defective loans upon identifying a breach.
An investment-grade rated R&W provider lends substantial strength
to its R&Ws. Moody's analyze the impact of less creditworthy R&W
providers case by case, in conjunction with other aspects of the
transaction. Here, because most of the R&W providers are unrated
and/or exhibit limited financial flexibility, Moody's applied an
adjustment to the mortgage loans for which these entities provided
R&Ws. In addition, a R&W breach will be deemed not to have occurred
if it arose as a result of a TPR exception disclosed in Appendix I
of the Private Placement Memorandum. There were a relatively high
number of B-grade exceptions in the TPR review, the disclosure of
which weakens the R&W framework.
Tail Risk and Locked Out Percentage
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.70% of the cut-off date pool
balance, and as subordination lock-out amount of 0.70% of the
cut-off date pool balance. The floors are consistent with the
credit neutral floors for the assigned ratings according to Moody's
methodology.
COVID-19 Impacted Borrowers
As of the cut-off date, none of the mortgage loans are subject to a
COVID-19 related forbearance plan. Also, any mortgage loan, with
respect to which the related borrower requests or enters into a
COVID-19 related forbearance plan after the cut-off date, will
remain in the pool.
In the event the servicer enters into a forbearance plan with a
COVID-19 impacted borrower, the servicer will report such mortgage
loan as delinquent (to the extent payments are not actually
received from the borrower) and the servicer will be required to
make advances in respect of delinquent interest and principal (as
well as servicing advances) on such loan during the forbearance
period (unless the servicer determines any such advances would be a
nonrecoverable advance). At the end of the forbearance period, if
the borrower is able to make the current payment on such mortgage
loan but is unable to make the previously forborne payments as a
lump sum payment or as part of a repayment plan, then such
principal forbearance amount will be recognized as a realized loss.
At the end of the forbearance period, if the borrower repays the
forborne payments via a lump sum or repayment plan, advances will
be recovered via the borrower payment(s). In an event of
modification, Shellpoint will recover advances made during the
period of COVID-19 related forbearance from pool level
collections.
Any principal forbearance amount created in connection with any
modification (whether as a result of a COVID-19 forbearance or
otherwise) will result in the allocation of a realized loss and to
the extent any such amount is later recovered, will result in the
allocation of a subsequent recovery.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
GULF STREAM 6: S&P Assigns BB- Prelim Rating on $15MM Class D Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Gulf Stream
Meridian 6 Ltd./Gulf Stream Meridian 6 LLC's floating-rate notes.
The note issuance is a CLO securitization backed primarily by
broadly syndicated speculative-grade (rated 'BB+' and lower) senior
secured term loans that are governed by collateral quality tests.
The preliminary ratings are based on information as of Sept. 30,
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, which consists
primarily of broadly syndicated speculative-grade (rated 'BB+' and
lower) senior secured term loans that are governed by collateral
quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
Gulf Stream Meridian 5 Ltd./Gulf Stream Meridian 5 LLC
Class A-1, $248.00 million: AAA (sf)
Class A-2, $48.00 million: AA (sf)
Class B (deferrable), $32.00 million: A (sf)
Class C (deferrable), $24.00 million: BBB- (sf)
Class D (deferrable), $15.00 million: BB- (sf)
Subordinated notes, $35.75 million: Not rated
HUNDRED ACRE 2021-INV2: Moody's Assigns B3 Rating to Cl. B5 Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to
fifty-seven classes of residential mortgage-backed securities
(RMBS) issued by Hundred Acre Wood Trust 2021-INV2 (HAWT
2021-INV2). The ratings range from Aaa (sf) to B3 (sf).
Hundred Acre Wood Trust 2021-INV2 (HAWT 2021-INV2) is the second
issue from Finance of America Mortgage LLC (FAM) in 2021 backed by
investor properties and second home loans.
HAWT 2021-INV2 is a securitization of GSE eligible first-lien
investment property and second homes mortgage loans. 100.0% of the
pool by loan balance were originated by FAM. All the loans are
underwritten in accordance with Freddie Mac or Fannie Mae
guidelines, which take into consideration, among other factors, the
income, assets, employment and credit score of the borrower as well
as loan-to-value (LTV). These loans were run through one of the
government-sponsored enterprises' (GSE) automated underwriting
systems (AUS) and received an "Approve" or "Accept"
recommendation.
In this transaction, the Class A-11 notes' coupon is indexed to
SOFR. In addition, the coupon on Class A-11X is also impacted by
changes in SOFR. However, based on the transaction's structure, the
particular choice of benchmark has no credit impact. First,
interest payments to the notes, including the floating rate notes,
are subject to the net WAC cap, which prevents the floating rate
notes from incurring interest shortfalls as a result of increases
in the benchmark index above the fixed rates at which the assets
bear interest. Second, the shifting-interest structure pays all
interest generated on the assets to the bonds and does not provide
for any excess spread.
Issuer: Hundred Acre Wood Trust 2021-INV2
Cl. A1, Definitive Rating Assigned Aaa (sf)
Cl. A2, Definitive Rating Assigned Aaa (sf)
Cl. A3, Definitive Rating Assigned Aaa (sf)
Cl. A4, Definitive Rating Assigned Aaa (sf)
Cl. A5, Definitive Rating Assigned Aaa (sf)
Cl. A6, Definitive Rating Assigned Aaa (sf)
Cl. A7, Definitive Rating Assigned Aaa (sf)
Cl. A8, Definitive Rating Assigned Aaa (sf)
Cl. A9, Definitive Rating Assigned Aaa (sf)
Cl. A10, Definitive Rating Assigned Aaa (sf)
Cl. A11, Definitive Rating Assigned Aaa (sf)
Cl. A11X*, Definitive Rating Assigned Aaa (sf)
Cl. A12, Definitive Rating Assigned Aaa (sf)
Cl. A13, Definitive Rating Assigned Aaa (sf)
Cl. A14, Definitive Rating Assigned Aaa (sf)
Cl. A15, Definitive Rating Assigned Aaa (sf)
Cl. A16, Definitive Rating Assigned Aaa (sf)
Cl. A17, Definitive Rating Assigned Aaa (sf)
Cl. A18, Definitive Rating Assigned Aaa (sf)
Cl. A19, Definitive Rating Assigned Aaa (sf)
Cl. A20, Definitive Rating Assigned Aaa (sf)
Cl. A21, Definitive Rating Assigned Aaa (sf)
Cl. A22, Definitive Rating Assigned Aaa (sf)
Cl. A23, Definitive Rating Assigned Aaa (sf)
Cl. A24, Definitive Rating Assigned Aaa (sf)
Cl. A25, Definitive Rating Assigned Aaa (sf)
Cl. A26, Definitive Rating Assigned Aa1 (sf)
Cl. A27, Definitive Rating Assigned Aa1 (sf)
Cl. A28, Definitive Rating Assigned Aa1 (sf)
Cl. A29, Definitive Rating Assigned Aaa (sf)
Cl. A30, Definitive Rating Assigned Aaa (sf)
Cl. A31, Definitive Rating Assigned Aaa (sf)
Cl. AX1*, Definitive Rating Assigned Aaa (sf)
Cl. AX4*, Definitive Rating Assigned Aaa (sf)
Cl. AX5*, Definitive Rating Assigned Aaa (sf)
Cl. AX6*, Definitive Rating Assigned Aaa (sf)
Cl. AX8*, Definitive Rating Assigned Aaa (sf)
Cl. AX10*, Definitive Rating Assigned Aaa (sf)
Cl. AX13*, Definitive Rating Assigned Aaa (sf)
Cl. AX15*, Definitive Rating Assigned Aaa (sf)
Cl. AX17*, Definitive Rating Assigned Aaa (sf)
Cl. AX19*, Definitive Rating Assigned Aaa (sf)
Cl. AX21*, Definitive Rating Assigned Aaa (sf)
Cl. AX25*, Definitive Rating Assigned Aaa (sf)
Cl. AX26*, Definitive Rating Assigned Aa1 (sf)
Cl. AX27*, Definitive Rating Assigned Aa1 (sf)
Cl. AX28*, Definitive Rating Assigned Aa1 (sf)
Cl. AX30*, Definitive Rating Assigned Aaa (sf)
Cl. B1, Definitive Rating Assigned Aa3 (sf)
Cl. B1A, Definitive Rating Assigned Aa3 (sf)
Cl. BX1*, Definitive Rating Assigned Aa3 (sf)
Cl. B2, Definitive Rating Assigned A2 (sf)
Cl. B2A, Definitive Rating Assigned A2 (sf)
Cl. BX2*, Definitive Rating Assigned A2 (sf)
Cl. B3, Definitive Rating Assigned Baa2 (sf)
Cl. B4, Definitive Rating Assigned Ba2 (sf)
Cl. B5, Definitive Rating Assigned 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 is 0.70%
at the mean, 0.48% at the median, and reaches 5.03% at a stress
level consistent with Moody's Aaa ratings.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of residential mortgage loans 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%
(7.56% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's base its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third party due diligence and the
R&W framework of the transaction.
Collateral description
As of the cut-off date of September 1, 2021, the $501,180,395 pool
consisted of 1,524 mortgage loans secured by first liens on
residential investment properties and second homes. The average
stated principal balance is $328,859 and the weighted average (WA)
current mortgage rate is 3.46%. The majority of the loans have a
30-year term, with 163 loans with terms ranging from 10 to 25
years. All of the loans have a fixed rate. The WA original credit
score is 771 for the primary borrower only and the WA combined
original LTV (CLTV) is 67.6%. The WA original debt-to-income (DTI)
ratio is 35.5%. Approximately, 3.9% by loan balance of the
borrowers have more than one mortgage loan in the mortgage pool.
Approximately 36.3% of the mortgage loans by loan balance are
backed by properties located in California. The next largest
geographic concentration of properties are Arizona, which
represents 8.2% by loan balance, Washington, which represents 6.7%
by loan balance, Oregon, which represents about 6.1% by loan
balance. All other states each represents less than 5% by loan
balance. Loans backed by single family residential properties
represent 57.0% (by loan balance) of the pool.
Approximately 9.5% of the mortgage loans by count are "Appraisal
Waiver" (AW) loans, whereby the sponsor obtained an AW for each
such mortgage loan from Fannie Mae or Freddie Mac through their
respective programs. In each case, neither Fannie Mae nor Freddie
Mac required an appraisal of the related mortgaged property as a
condition of approving the related mortgage loan for purchase by
Fannie Mae or Freddie Mac, as applicable.
Origination quality
FAM originated 100% of the loans in the pool. These loans were
underwritten in conformity with GSE guidelines with overlays.
However, these overlays are predominantly non-material with the
exception of verbal verification of employment and reserves for
investment properties. Overall, Moody's consider Finance of America
Mortgage LLC to be an adequate originator of conforming and
nonconforming mortgages. As a result, Moody's did not make any
adjustments to Moody's base case and Aaa stress loss assumptions
based on Moody's review of the loan performance and origination
practices.
Headquartered in Conshohocken, Pennsylvania, FAM is a wholly-owned
subsidiary of Finance of America Holdings LLC, a Delaware limited
liability company ("FAH"). FAH is ultimately owned by Finance of
America Companies Inc., a publicly traded company, and certain
other investors, including funds affiliated with The Blackstone
Group Inc. FAM is licensed as a residential mortgage lender in all
fifty states.
Servicing arrangements
Moody's consider the overall servicing arrangement for this pool to
be adequate. Moody's did not make any adjustments to Moody's base
case and Aaa stress loss assumptions based on the servicing
arrangement. Moody's also consider the presence of a strong master
servicer to be a mitigant against the risk of any servicing
disruptions.
Although FAM is the named servicer, ServiceMac, LLC and LoanCare,
LLC will be the subservicers, servicing approximately 50.5% and
49.5% of the mortgage loans, respectively. Nationstar Mortgage LLC
will be the master servicer. FAM will be responsible for principal
and interest advances as well as servicing advances. The master
servicer will be required to make principal and interest advances
if FAM is unable to do so. The securities administrator, Citibank,
N.A., will make the required advances to the extent the master
servicer is unable to do so.
Third-party review
The independent third party review firm, Evolve Mortgage Services,
was engaged to conduct due diligence for the credit, regulatory
compliance, property valuation, and data accuracy on a total of
approximately 20.5% of the pool (by loan count). Evolve conducted
due diligence for a total random sample of 312 loans (of those 312
loans, one loan was not included in the final tape) originated by
Finance of America Mortgage LLC in this transaction. Based on the
sample size reviewed, the TPR results indicate that there are no
material compliance, credit, or data issues and no appraisal
defects. Moody's took into account the sample size that was
reviewed and made an adjustment to Moody's losses because the
sample size does not meet Moody's credit neutral threshold.
Representations and Warranties Framework
Moody's increased its loss levels to account for weakness in the
overall R&W framework due to the financial weakness of the R&W
provider and the lack of repurchase mechanism for loans
experiencing an early payment default. The R&W provider may not
have the financial wherewithal to purchase defective loans.
Moreover, unlike other comparable transactions that Moody's have
rated, the R&W framework for this transaction does not include a
mechanism whereby loans that experience an early payment default
(EPD) are repurchased. However, the results of the independent due
diligence review revealed a high level of compliance with
underwriting guidelines and regulations, as well as overall strong
valuation quality. These results give us a clear indication that
the loans most likely do not breach the R&Ws. Also, the transaction
benefits from unqualified R&Ws and an independent breach reviewer.
Further, R&W breaches are evaluated by an independent third party
using a set of objective criteria to determine whether any R&Ws
were breached when (1) the loan becomes 120 days delinquent, (2)
the servicer stops advancing, (3) the loan is liquidated at a loss
or (4) the loan becomes between 30 days and 119 days delinquent and
is modified by the servicer. Similar to other private-label
transactions, the transaction contains a "prescriptive" R&W
framework. These reviews are prescriptive in that the transaction
documents set forth detailed tests for each R&W that the
independent reviewer will perform.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior subordination floor and a subordinate floor. Funds
collected, including principal, are first used to make interest
payments and then principal payments to the senior bonds, and then
interest and principal payments to each subordinate bond. As in all
transactions with shifting interest structures, the senior bonds
benefit from a cash flow waterfall that allocates all prepayments
to the senior bond for a specified period of time, and increasing
amounts of prepayments to the subordinate bonds thereafter, but
only if loan performance satisfies delinquency and loss tests.
Realized losses are allocated in a reverse sequential order, first
to the lowest subordinate bond. After the balances of the
subordinate bonds are written off, losses from the pool begin to
write off the principal balances of the senior support bonds until
their principal balances are reduced to zero. Next, realized losses
are allocated to super senior bonds until their principal balance
is written off.
Tail risk & subordination floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
shrinks, senior bonds are exposed to eroding credit enhancement
over time and increased performance volatility, known as tail risk.
To mitigate this risk, the transaction provides for a senior
subordination floor of 0.70% which mitigates tail risk by
protecting the senior bonds from eroding credit enhancement over
time. Additionally, there is a subordination lock-out amount which
is 0.70% of the closing pool balance.
Moody's calculate the credit neutral floors for a given target
rating as shown in Moody's principal methodology. The senior
subordination floor and the subordinate floor of 0.70% and 0.70%,
respectively, are consistent with the credit neutral floors for the
assigned ratings.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
JP MORGAN 2021-12: Moody's Assigns (P)B3 Rating to Cl. B-5 Certs
----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 55
classes of residential mortgage-backed securities (RMBS) issued by
J.P. Morgan Mortgage Trust (JPMMT) 2021-12. The ratings range from
(P)Aaa (sf) to (P)B3 (sf).
JPMMT 2021-12 is the twelfth prime jumbo transaction in 2021 issued
by J.P. Morgan Mortgage Acquisition Corporation (JPMMAC). The
credit characteristic of the mortgage loans backing this
transaction is similar to both recent JPMMT transactions and other
prime jumbo issuers that Moody's have rated. Moody's consider the
overall servicing framework for this pool to be adequate given the
servicing arrangement of the servicers, as well as the presence of
an experienced master servicer to oversee the servicers.
JPMMT 2021-12 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool. In
coding the cash flow, Moody's took into account the step-up
incentive servicing fee structure.
In this transaction, the Class A-11, A-11-A and A-11-B notes'
coupon is indexed to SOFR. However, based on the transaction's
structure, the particular choice of benchmark has no credit impact.
First, interest payments to the notes, including the floating rate
notes, are subject to the net WAC cap, which prevents the floating
rate notes from incurring interest shortfalls as a result of
increases in the benchmark index above the fixed rates at which the
assets bear interest. Second, the shifting-interest structure pays
all interest generated on the assets to the bonds and does not
provide for any excess spread.
Moody's base its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third-party review (TPR) and the
representations and warranties (R&W) framework of the transaction.
The complete rating actions are as follows:
Issuer: J.P. Morgan Mortgage Trust 2021-12
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-3-A, Assigned (P)Aaa (sf)
Cl. A-3-X*, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (sf)
Cl. A-4-A, Assigned (P)Aaa (sf)
Cl. A-4-X*, Assigned (P)Aaa (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-5-A, Assigned (P)Aaa (sf)
Cl. A-5-B, Assigned (P)Aaa (sf)
Cl. A-5-X*, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-6-A, Assigned (P)Aaa (sf)
Cl. A-6-X*, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-7-A, Assigned (P)Aaa (sf)
Cl. A-7-B, Assigned (P)Aaa (sf)
Cl. A-7-X*, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-8-A, Assigned (P)Aaa (sf)
Cl. A-8-X*, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-9-A, Assigned (P)Aaa (sf)
Cl. A-9-X*, Assigned (P)Aaa (sf)
Cl. A-10, Assigned (P)Aaa (sf)
Cl. A-10-A, Assigned (P)Aaa (sf)
Cl. A-10-X*, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-11-X*, Assigned (P)Aaa (sf)
Cl. A-11-A, Assigned (P)Aaa (sf)
Cl. A-11-AI*, Assigned (P)Aaa (sf)
Cl. A-11-B, Assigned (P)Aaa (sf)
Cl. A-11-BI*, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aa1 (sf)
Cl. A-15, Assigned (P)Aa1 (sf)
Cl. A-15-A, Assigned (P)Aa1 (sf)
Cl. A-15-X*, Assigned (P)Aa1 (sf)
Cl. A-16, Assigned (P)Aaa (sf)
Cl. A-17, 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)Aa1 (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)A3 (sf)
Cl. B-2-A, Assigned (P)A3 (sf)
Cl. B-2-X*, 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
Moody's expected loss for this pool in a baseline scenario-mean is
0.75%, in a baseline scenario-median is 0.52%, and reaches 4.98% 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% 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 15.00% median expected loss
and 5.00% 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.
Collateral Description
Moody's assessed the collateral pool as of September 1, 2021, the
cut-off date. The deal will be backed by 1,715 fully amortizing
fixed-rate mortgage loans with an aggregate unpaid principal
balance (UPB) of $1,646,634,432 and an original term to maturity of
up to 30 years. The pool consists of prime jumbo non-conforming
(96.2% by UPB) and GSE-eligible conforming (3.8% by UPB) mortgage
loans. The GSE-eligible loans were underwritten pursuant to GSE
guidelines and were approved by DU/LP.
All the loans with the exception of 258 loans were underwritten
pursuant to the new general QM rule. The other loans in the pool
either meet Appendix Q to the QM rules or the QM GSE patch.
There are 1,457 loans originated pursuant to the new general QM
rule in this pool. The third party review verified that the loans'
APRs met the QM rule's thresholds (APOR + 1.5%). Furthermore, these
loans were underwritten and documented pursuant to the QM rule's
verification safe harbor via a mix of the Fannie Mae Single Family
Selling Guide, the Freddie Mac Single-Family Seller/Servicer Guide,
and the applicable program overlays. As part of the origination
quality review and based on the documentation information Moody's
received in the ASF tape, Moody's concluded that these loans were
fully documented and therefore, Moody's ran these loans as "full
documentation" loans in Moody's MILAN model.
Overall, the pool is of strong credit quality and includes
borrowers with high FICO scores (weighted average primary borrower
FICO of 770), low loan-to-value ratios (WA CLTV 71.2%), high
borrower monthly incomes (about $29,962) and substantial liquid
cash reserves (about $276,507), on a weighted-average basis,
respectively, which have been verified as part of the underwriting
process and reviewed by the TPR firms. Approximately 49.9% of the
mortgage loans (by balance) were originated in California which
includes metropolitan statistical areas (MSAs) Los Angeles (18.2%
by UPB) and San Francisco (8.9% by UPB). The high geographic
concentration in high-cost MSAs is reflected in the high average
balance of the pool ($960,137). Approximately 10.2% of the mortgage
loans are designated as safe harbor Qualified Mortgages (QM) and
meet Appendix Q to the QM rules, 3.0% of the mortgage loans are
designated as Agency Safe Harbor loans, and 86.8% of the mortgage
loans are designated as Safe Harbor APOR loans, for which mortgage
loans are not underwritten to meet Appendix Q but satisfy AUS with
additional overlays of originators.
As of the cut-off date, none of the borrowers of the mortgage loans
have inquired about or requested forbearance plans with the related
servicer or have previously entered into a COVID-19 related
forbearance plan with the related servicer. Certain borrowers may
become subject to forbearance plans or other payment relief plans
following the cutoff date. In the event a borrower requests or
enters into a COVID-19 related forbearance plan after the cut-off
date but prior to the closing date, JPMMAC will remove such
mortgage loan from the mortgage pool and remit the related closing
date substitution amount. In the event that after the closing date
a borrower enters into or requests a COVID-19 related forbearance
plan, such mortgage loan (and the risks associated with it) will
remain in the mortgage pool.
Aggregation/Origination Quality
Moody's consider JPMMAC's aggregation platform to be adequate and
Moody's did not apply a separate loss-level adjustment for
aggregation quality. In addition to reviewing JPMMAC aggregation
quality, Moody's have also reviewed the origination quality of
originator(s) contributing a significant percentage of the
collateral pool (above 10%) and MAXEX Clearing LLC (an
aggregator).
United Wholesale Mortgage, LLC (UWM) and loanDepot (loanDepot.com,
LLC) sold/originated approximately 77.0% and 14.0% of the mortgage
loans (by UPB) in the pool. The remaining originators each account
for less than 5.0% (by UPB) in the pool (9.0% by UPB in the
aggregate). Approximately 2.4% (by UPB) of the mortgage loans were
acquired by JPMMAC from MAXEX Cleaning, LLC (aggregator),
respectively, which purchased such mortgage loans from the related
originators or from an unaffiliated third party which directly or
indirectly purchased such mortgage loans from the related
originators.
Moody's did not make an adjustment for GSE-eligible loans, since
those loans were underwritten in accordance with GSE guidelines.
Moody's increased its base case and Aaa loss expectations for
certain originators of non-conforming loans where Moody's do not
have clear insight into the underwriting practices, quality control
and credit risk management (except being neutral for Caliber Home
Loans, CrossCountry Mortgage, Guaranteed Rate, loanDepot, NewRez,
Proper Rate and Quicken loans under the old QM guidelines and for
Quicken Loans under the new QM guidelines).
United Wholesale Mortgage, LLC originated approximately 77.0% of
the mortgage loans by pool balance. The majority of these loans
were originated under UWM's prime jumbo program which are processed
using the Desktop Underwriter (DU) automated underwriting system
and are therefore predominantly underwritten to Fannie Mae
guidelines. The loans receive a DU Approve Ineligible feedback due
to the 1) loan amount or 2) LTV for non-released prime jumbo
cash-out refinances is over 80%. Moody's increased Moody's loss
expectations for UWM loans due mostly to the fact that underwriting
prime jumbo loans mainly through DU is fairly new and no
performance history has been provided to Moody's on these types of
loans. More time is needed to assess UWM's ability to consistently
produce high-quality prime jumbo residential mortgage loans under
this program.
Loans underwritten to the new general QM rule: The loan pool
backing this transaction includes 1,289 UWM loans originated
pursuant to the new general QM rule. To satisfy the new rule, UWM
implemented its prime jumbo underwriting overlays over the GSE
Automated Underwriting System (AUS) for applications on or after
March 1, 2021. Under UWM's new general QM underwriting, the APR on
all loans will not exceed the average prime offer rate (APOR)
+1.5%, and income and asset documentation will be governed by the
following, designed to meet the verification safe harbor provisions
of the new QM Rule: (i) applicable overlays, (ii) one of (x) Fannie
Mae Single Family Selling Guide or (y) Freddie Mac guidelines and
(iii) Desktop Underwriter.
loanDepot originated approximately 14.0% of the mortgage loans by
pool balance. Moody's consider loanDepot's origination quality to
be in line with its peers due to: (1) adequate underwriting
policies and procedures, (2) acceptable performance with low
delinquency and repurchase and (3) adequate quality control.
Therefore, Moody's have not made an origination adjustment for
loanDepot loans that are designated as safe harbor Qualified
Mortgages (QM) and meet Appendix Q to the QM rules.
loanDepot JumboAdvantage Express (tailored for the new general QM
rule): The loan pool backing this transaction includes 153
loanDepot loans originated pursuant to the new general QM rule. To
satisfy the new rule, loanDepot implemented its non-agency
JumboAdvantage Express program for applications on or after March
1, 2021. Under the program, the APR on all loans will not exceed
the average prime offer rate (APOR) +1.5%, and income and asset
documentation will be governed by the following, designed to meet
the verification safe harbor provisions of the new QM Rule harbor
via a mix of the Fannie Mae Single Family Selling Guide, the
Freddie Mac Single-Family Seller/ Servicer Guide, and the
applicable program overlays. Moody's applied an adjustment for
loanDepot loans originated under the new QM rules as more time is
needed to fully evaluate this origination program.
Servicing Arrangement
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement of the servicers, as
well as the presence of an experienced master servicer. Nationstar
Mortgage LLC (Nationstar) (Nationstar Mortgage Holdings Inc.
corporate family rating B2) will act as the master servicer.
United Shore Financing Services, LLC d/b/a United Wholesale
Mortgage, LLC and loanDepot.com, LLC (subserviced by Cenlar FSB)
and JPMorgan Chase Bank, National Association (JPMCB) (subserviced
by NewRez LLC f/k/a New Penn Financial, LLC d/b/a Shellpoint
Mortgage Servicing (Shellpoint)) are the principal servicers in
this transaction and will service approximately 77.0%, 14.0% and
8.5% loans (by UPB) of the mortgage loans, respectively. Shellpoint
will act as interim servicer for the mortgage loans serviced by
JPMCB from the closing date until the servicing transfer date,
which is expected to occur on or about December 1, 2021 (but which
may occur after such date).
The servicers are required to advance P&I on the mortgage loans. To
the extent that the servicers are unable to do so, the master
servicer will be obligated to make such advances. In the event that
the master servicer, Nationstar, is unable to make such advances,
the securities administrator, Citibank, N.A. (rated Aa3) will be
obligated to do so to the extent such advance is determined by the
securities administrator to be recoverable. The servicing fee for
loans in this transaction will be predominantly based on a step-up
incentive fee structure with a monthly base fee of $40 per loan and
additional fees for delinquent or defaulted loans (fixed fee
framework servicers, which will be paid a monthly flat servicing
fee equal to one-twelfth of 0.25% of the remaining principal
balance of the mortgage loans, account for less than 1.00% of
UPB).
Third-Party Review
The transaction benefits from a TPR on 100% of the loans for
regulatory compliance, credit and property valuation. The TPR
results confirm compliance with the originator's underwriting
guidelines for the vast majority of loans, no material regulatory
compliance issues, and no material property valuation issues. The
loans that had exceptions to the originator's underwriting
guidelines had significant compensating factors that were
documented.
R&W Framework
Moody's review of the R&W framework takes into account the
financial strength of the R&W providers, scope of R&Ws (including
qualifiers and sunsets) and enforcement mechanisms. JPMMT 2021-12's
R&W framework is in line with that of other JPMMT transactions
Moody's have rated where an independent reviewer is named at
closing, and costs and manner of review are clearly outlined at
issuance. The loan-level R&Ws meet or exceed the baseline set of
credit-neutral R&Ws Moody's have identified for US RMBS. The R&W
framework is "prescriptive", whereby the transaction documents set
forth detailed tests for each R&W.
The originators and the aggregators each make a comprehensive set
of R&Ws for their loans. The creditworthiness of the R&W provider
determines the probability that the R&W provider will be available
and have the financial strength to repurchase defective loans upon
identifying a breach. JPMMAC does not backstop the originator R&Ws,
except for certain "gap" R&Ws covering the period from the date as
of which such R&W is made by an originator or an aggregator,
respectively, to the cut-off date or closing date. In this
transaction, Moody's made adjustments to Moody's base case and Aaa
loss expectations for R&W providers that are unrated and/or
financially weaker entities.
Transaction Structure
The transaction has a shifting interest structure in which the
senior bonds benefit from a number of protections. Funds collected,
including principal, are first used to make interest payments to
the senior bonds. Next, principal payments are made to the senior
bonds. Next, available distribution amounts are used to reimburse
realized losses and certificate write-down amounts for the senior
bonds (after subordinate bonds have been reduced to zero i.e. the
credit support depletion date). Finally, interest and then
principal payments are paid to the subordinate bonds in sequential
order. Realized losses are allocated in a reverse sequential order,
first to the lowest subordinate bond. After the balance of the
subordinate bonds is written off, losses from the pool begin to
write off the principal balance of the senior support bond, and
finally losses are allocated to the super senior bonds.
The Class A-11, A-11-A and A-11-B Certificates will have a
pass-through rate that will vary directly with the SOFR rate and
the Class A-11-X Certificates will have a pass-through rate that
will vary inversely with the SOFR rate.
Tail Risk & Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinate bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinate bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.75% of the cut-off date pool
balance, and as subordination lockout amount of 0.75% of the
cut-off date pool balance. Moody's calculate the credit neutral
floors as shown in its principal methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
JP MORGAN 2021-12: Moody's Assigns B3 Rating to Cl. B-5 Certs
-------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 55
classes of residential mortgage-backed securities (RMBS) issued by
J.P. Morgan Mortgage Trust (JPMMT) 2021-12. The ratings range from
Aaa (sf) to B3 (sf).
JPMMT 2021-12 is the twelfth prime jumbo transaction in 2021 issued
by J.P. Morgan Mortgage Acquisition Corporation (JPMMAC). The
credit characteristic of the mortgage loans backing this
transaction is similar to both recent JPMMT transactions and other
prime jumbo issuers that Moody's have rated. Moody's consider the
overall servicing framework for this pool to be adequate given the
servicing arrangement of the servicers, as well as the presence of
an experienced master servicer to oversee the servicers.
JPMMT 2021-12 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool. In
coding the cash flow, Moody's took into account the step-up
incentive servicing fee structure.
In this transaction, the Class A-11, A-11-A and A-11-B notes'
coupon is indexed to SOFR. However, based on the transaction's
structure, the particular choice of benchmark has no credit impact.
First, interest payments to the notes, including the floating rate
notes, are subject to the net WAC cap, which prevents the floating
rate notes from incurring interest shortfalls as a result of
increases in the benchmark index above the fixed rates at which the
assets bear interest. Second, the shifting-interest structure pays
all interest generated on the assets to the bonds and does not
provide for any excess spread.
Moody's base its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third-party review (TPR) and the
representations and warranties (R&W) framework of the transaction.
The complete rating actions are as follows:
Issuer: J.P. Morgan Mortgage Trust 2021-12
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-3-A, Definitive Rating Assigned Aaa (sf)
Cl. A-3-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-4-A, Definitive Rating Assigned Aaa (sf)
Cl. A-4-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-5-A, Definitive Rating Assigned Aaa (sf)
Cl. A-5-B, Definitive Rating Assigned Aaa (sf)
Cl. A-5-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-6-A, Definitive Rating Assigned Aaa (sf)
Cl. A-6-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-7-A, Definitive Rating Assigned Aaa (sf)
Cl. A-7-B, Definitive Rating Assigned Aaa (sf)
Cl. A-7-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-8-A, Definitive Rating Assigned Aaa (sf)
Cl. A-8-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-9-A, Definitive Rating Assigned Aaa (sf)
Cl. A-9-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-10-A, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-11-A, Definitive Rating Assigned Aaa (sf)
Cl. A-11-AI*, Definitive Rating Assigned Aaa (sf)
Cl. A-11-B, Definitive Rating Assigned Aaa (sf)
Cl. A-11-BI*, Definitive Rating Assigned Aaa (sf)
Cl. A-11-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aa1 (sf)
Cl. A-15, Definitive Rating Assigned Aa1 (sf)
Cl. A-15-A, Definitive Rating Assigned Aa1 (sf)
Cl. A-15-X*, Definitive Rating Assigned Aa1 (sf)
Cl. A-16, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aaa (sf)
Cl. A-X-1*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-2*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-3*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-4*, Definitive Rating Assigned Aa1 (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-1-A, Definitive Rating Assigned Aa3 (sf)
Cl. B-1-X*, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A3 (sf)
Cl. B-2-A, Definitive Rating Assigned A3 (sf)
Cl. B-2-X*, Definitive Rating Assigned A3 (sf)
Cl. B-3, Definitive Rating Assigned Baa3 (sf)
Cl. B-4, Definitive Rating Assigned Ba3 (sf)
Cl. B-5, Definitive Rating Assigned B3 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Moody's expected loss for this pool in a baseline scenario-mean is
0.75%, in a baseline scenario-median is 0.52%, and reaches 4.98% 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% 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 15.00% median expected loss
and 5.00% 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.
Collateral Description
Moody's assessed the collateral pool as of September 1, 2021, the
cut-off date. The deal will be backed by 1,715 fully amortizing
fixed-rate mortgage loans with an aggregate unpaid principal
balance (UPB) of $1,646,634,432 and an original term to maturity of
up to 30 years. The pool consists of prime jumbo non-conforming
(96.2% by UPB) and GSE-eligible conforming (3.8% by UPB) mortgage
loans. The GSE-eligible loans were underwritten pursuant to GSE
guidelines and were approved by DU/LP.
All the loans with the exception of 258 loans were underwritten
pursuant to the new general QM rule. The other loans in the pool
either meet Appendix Q to the QM rules or the QM GSE patch.
There are 1,457 loans originated pursuant to the new general QM
rule in this pool. The third party review verified that the loans'
APRs met the QM rule's thresholds (APOR + 1.5%). Furthermore, these
loans were underwritten and documented pursuant to the QM rule's
verification safe harbor via a mix of the Fannie Mae Single Family
Selling Guide, the Freddie Mac Single-Family Seller/Servicer Guide,
and the applicable program overlays. As part of the origination
quality review and based on the documentation information Moody's
received in the ASF tape, Moody's concluded that these loans were
fully documented and therefore, Moody's ran these loans as "full
documentation" loans in Moody's MILAN model.
Overall, the pool is of strong credit quality and includes
borrowers with high FICO scores (weighted average primary borrower
FICO of 770), low loan-to-value ratios (WA CLTV 71.2%), high
borrower monthly incomes (about $29,962) and substantial liquid
cash reserves (about $276,507), on a weighted-average basis,
respectively, which have been verified as part of the underwriting
process and reviewed by the TPR firms. Approximately 49.9% of the
mortgage loans (by balance) were originated in California which
includes metropolitan statistical areas (MSAs) Los Angeles (18.2%
by UPB) and San Francisco (8.9% by UPB). The high geographic
concentration in high-cost MSAs is reflected in the high average
balance of the pool ($960,137). Approximately 10.2% of the mortgage
loans are designated as safe harbor Qualified Mortgages (QM) and
meet Appendix Q to the QM rules, 3.0% of the mortgage loans are
designated as Agency Safe Harbor loans, and 86.8% of the mortgage
loans are designated as Safe Harbor APOR loans, for which mortgage
loans are not underwritten to meet Appendix Q but satisfy AUS with
additional overlays of originators.
As of the cut-off date, none of the borrowers of the mortgage loans
have inquired about or requested forbearance plans with the related
servicer or have previously entered into a COVID-19 related
forbearance plan with the related servicer. Certain borrowers may
become subject to forbearance plans or other payment relief plans
following the cutoff date. In the event a borrower requests or
enters into a COVID-19 related forbearance plan after the cut-off
date but prior to the closing date, JPMMAC will remove such
mortgage loan from the mortgage pool and remit the related closing
date substitution amount. In the event that after the closing date
a borrower enters into or requests a COVID-19 related forbearance
plan, such mortgage loan (and the risks associated with it) will
remain in the mortgage pool.
Aggregation/Origination Quality
Moody's consider JPMMAC's aggregation platform to be adequate and
Moody's did not apply a separate loss-level adjustment for
aggregation quality. In addition to reviewing JPMMAC aggregation
quality, Moody's have also reviewed the origination quality of
originator(s) contributing a significant percentage of the
collateral pool (above 10%) and MAXEX Clearing LLC (an
aggregator).
United Wholesale Mortgage, LLC (UWM) and loanDepot (loanDepot.com,
LLC) sold/originated approximately 77.0% and 14.0% of the mortgage
loans (by UPB) in the pool. The remaining originators each account
for less than 5.0% (by UPB) in the pool (9.0% by UPB in the
aggregate). Approximately 2.4% (by UPB) of the mortgage loans were
acquired by JPMMAC from MAXEX Cleaning, LLC (aggregator),
respectively, which purchased such mortgage loans from the related
originators or from an unaffiliated third party which directly or
indirectly purchased such mortgage loans from the related
originators.
Moody's did not make an adjustment for GSE-eligible loans, since
those loans were underwritten in accordance with GSE guidelines.
Moody's increased Moody's base case and Aaa loss expectations for
certain originators of non-conforming loans where Moody's do not
have clear insight into the underwriting practices, quality control
and credit risk management (except being neutral for Caliber Home
Loans, CrossCountry Mortgage, Guaranteed Rate, loanDepot, NewRez,
Proper Rate and Quicken loans under the old QM guidelines and for
Quicken Loans under the new QM guidelines).
United Wholesale Mortgage, LLC originated approximately 77.0% of
the mortgage loans by pool balance. The majority of these loans
were originated under UWM's prime jumbo program which are processed
using the Desktop Underwriter (DU) automated underwriting system
and are therefore predominantly underwritten to Fannie Mae
guidelines. The loans receive a DU Approve Ineligible feedback due
to the 1) loan amount or 2) LTV for non-released prime jumbo
cash-out refinances is over 80%. Moody's increased Moody's loss
expectations for UWM loans due mostly to the fact that underwriting
prime jumbo loans mainly through DU is fairly new and no
performance history has been provided to Moody's on these types of
loans. More time is needed to assess UWM's ability to consistently
produce high-quality prime jumbo residential mortgage loans under
this program.
Loans underwritten to the new general QM rule: The loan pool
backing this transaction includes 1,289 UWM loans originated
pursuant to the new general QM rule. To satisfy the new rule, UWM
implemented its prime jumbo underwriting overlays over the GSE
Automated Underwriting System (AUS) for applications on or after
March 1, 2021. Under UWM's new general QM underwriting, the APR on
all loans will not exceed the average prime offer rate (APOR)
+1.5%, and income and asset documentation will be governed by the
following, designed to meet the verification safe harbor provisions
of the new QM Rule: (i) applicable overlays, (ii) one of (x) Fannie
Mae Single Family Selling Guide or (y) Freddie Mac guidelines and
(iii) Desktop Underwriter.
loanDepot originated approximately 14.0% of the mortgage loans by
pool balance. Moody's consider loanDepot's origination quality to
be in line with its peers due to: (1) adequate underwriting
policies and procedures, (2) acceptable performance with low
delinquency and repurchase and (3) adequate quality control.
Therefore, Moody's have not made an origination adjustment for
loanDepot loans that are designated as safe harbor Qualified
Mortgages (QM) and meet Appendix Q to the QM rules.
loanDepot JumboAdvantage Express (tailored for the new general QM
rule): The loan pool backing this transaction includes 153
loanDepot loans originated pursuant to the new general QM rule. To
satisfy the new rule, loanDepot implemented its non-agency
JumboAdvantage Express program for applications on or after March
1, 2021. Under the program, the APR on all loans will not exceed
the average prime offer rate (APOR) +1.5%, and income and asset
documentation will be governed by the following, designed to meet
the verification safe harbor provisions of the new QM Rule harbor
via a mix of the Fannie Mae Single Family Selling Guide, the
Freddie Mac Single-Family Seller/ Servicer Guide, and the
applicable program overlays. Moody's applied an adjustment for
loanDepot loans originated under the new QM rules as more time is
needed to fully evaluate this origination program.
Servicing Arrangement
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement of the servicers, as
well as the presence of an experienced master servicer. Nationstar
Mortgage LLC (Nationstar) (Nationstar Mortgage Holdings Inc.
corporate family rating B2) will act as the master servicer.
United Shore Financing Services, LLC d/b/a United Wholesale
Mortgage, LLC and loanDepot.com, LLC (subserviced by Cenlar FSB)
and JPMorgan Chase Bank, National Association (JPMCB) (subserviced
by NewRez LLC f/k/a New Penn Financial, LLC d/b/a Shellpoint
Mortgage Servicing (Shellpoint)) are the principal servicers in
this transaction and will service approximately 77.0%, 14.0% and
8.5% loans (by UPB) of the mortgage loans, respectively. Shellpoint
will act as interim servicer for the mortgage loans serviced by
JPMCB from the closing date until the servicing transfer date,
which is expected to occur on or about December 1, 2021 (but which
may occur after such date).
The servicers are required to advance P&I on the mortgage loans. To
the extent that the servicers are unable to do so, the master
servicer will be obligated to make such advances. In the event that
the master servicer, Nationstar, is unable to make such advances,
the securities administrator, Citibank, N.A. (rated Aa3) will be
obligated to do so to the extent such advance is determined by the
securities administrator to be recoverable. The servicing fee for
loans in this transaction will be predominantly based on a step-up
incentive fee structure with a monthly base fee of $40 per loan and
additional fees for delinquent or defaulted loans (fixed fee
framework servicers, which will be paid a monthly flat servicing
fee equal to one-twelfth of 0.25% of the remaining principal
balance of the mortgage loans, account for less than 1.00% of
UPB).
Third-Party Review
The transaction benefits from a TPR on 100% of the loans for
regulatory compliance, credit and property valuation. The TPR
results confirm compliance with the originator's underwriting
guidelines for the vast majority of loans, no material regulatory
compliance issues, and no material property valuation issues. The
loans that had exceptions to the originator's underwriting
guidelines had significant compensating factors that were
documented.
R&W Framework
Moody's review of the R&W framework takes into account the
financial strength of the R&W providers, scope of R&Ws (including
qualifiers and sunsets) and enforcement mechanisms. JPMMT 2021-12's
R&W framework is in line with that of other JPMMT transactions
Moody's have rated where an independent reviewer is named at
closing, and costs and manner of review are clearly outlined at
issuance. The loan-level R&Ws meet or exceed the baseline set of
credit-neutral R&Ws Moody's have identified for US RMBS. The R&W
framework is "prescriptive", whereby the transaction documents set
forth detailed tests for each R&W.
The originators and the aggregators each make a comprehensive set
of R&Ws for their loans. The creditworthiness of the R&W provider
determines the probability that the R&W provider will be available
and have the financial strength to repurchase defective loans upon
identifying a breach. JPMMAC does not backstop the originator R&Ws,
except for certain "gap" R&Ws covering the period from the date as
of which such R&W is made by an originator or an aggregator,
respectively, to the cut-off date or closing date. In this
transaction, Moody's made adjustments to Moody's base case and Aaa
loss expectations for R&W providers that are unrated and/or
financially weaker entities.
Transaction Structure
The transaction has a shifting interest structure in which the
senior bonds benefit from a number of protections. Funds collected,
including principal, are first used to make interest payments to
the senior bonds. Next, principal payments are made to the senior
bonds. Next, available distribution amounts are used to reimburse
realized losses and certificate write-down amounts for the senior
bonds (after subordinate bonds have been reduced to zero i.e. the
credit support depletion date). Finally, interest and then
principal payments are paid to the subordinate bonds in sequential
order. Realized losses are allocated in a reverse sequential order,
first to the lowest subordinate bond. After the balance of the
subordinate bonds is written off, losses from the pool begin to
write off the principal balance of the senior support bond, and
finally losses are allocated to the super senior bonds.
The Class A-11, A-11-A and A-11-B Certificates will have a
pass-through rate that will vary directly with the SOFR rate and
the Class A-11-X Certificates will have a pass-through rate that
will vary inversely with the SOFR rate.
Tail Risk & Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinate bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinate bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.75% of the cut-off date pool
balance, and as subordination lockout amount of 0.75% of the
cut-off date pool balance. Moody's calculate the credit neutral
floors as shown in its principal methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
JP MORGAN 2021-INV5: Moody's Assigns (P)B3 Rating to Cl. B-5 Certs
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 21
classes of residential mortgage-backed securities (RMBS) issued by
J.P. Morgan Mortgage Trust (JPMMT) 2021-INV5. The ratings range
from (P)Aaa (sf) to (P)B3 (sf).
JPMMT 2021-INV5 is the fifth JPMMT transaction in 2021 backed by
100% investment property loans issued by J.P. Morgan Mortgage
Acquisition Corporation (JPMMAC). JPMMT 2021-INV5 is a
securitization of agency-eligible investor (INV) mortgage loans
backed by 2,086 fixed rate, non-owner occupied mortgage loans
(designated for investment purposes by the borrower), with an
aggregate unpaid principal balance (UPB) of $707,086,149.61.
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement, as well as the
presence of an experienced master servicer. United Wholesale
Mortgage, LLC (UWM) will service 100% of the mortgage loans. Cenlar
FSB (Cenlar) will sub-service the loans for UWM.
JPMMT 2021-INV5 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool. In
coding the cash flow, Moody's took into account the step-up
incentive servicing fee structure.
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 review (TPR) and the
representations and warranties (R&W) framework of the transaction.
The complete rating actions are as follows:
Issuer: J.P. Morgan Mortgage Trust 2021-INV5
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-1-A, Assigned (P)Aaa (sf)
Cl. A-1-X*, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-2-A, Assigned (P)Aaa (sf)
Cl. A-2-X*, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-3-A, Assigned (P)Aaa (sf)
Cl. A-3-X*, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (sf)
Cl. A-4-A, Assigned (P)Aaa (sf)
Cl. A-4-X*, Assigned (P)Aaa (sf)
Cl. A-5, Assigned (P)Aa1 (sf)
Cl. A-5-A, Assigned (P)Aa1 (sf)
Cl. A-5-X*, Assigned (P)Aa1 (sf)
Cl. A-X-1*, Assigned (P)Aaa (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-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
Moody's expected loss for this pool in a baseline scenario-mean is
0.94%, in a baseline scenario-median is 0.66%, and reaches 6.97% 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 10.0%
(6.8% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Collateral Description
Moody's assessed the collateral pool as of September 1, 2021, the
cut-off date. The deal will be backed by 2,086 fully amortizing
fixed-rate mortgage loans with an aggregate unpaid principal
balance (UPB) of $707,086,150 and an original term to maturity of
up to 30 years. The pool consists of 100.0% GSE-eligible conforming
mortgage loans. The GSE-eligible loans were underwritten pursuant
to GSE guidelines and were approved by DU/LP.
Overall, the pool is of strong credit quality and includes
borrowers with high FICO scores (weighted average primary borrower
FICO of 770) and low loan-to-value ratios (WA CLTV 65.9%). The
average borrower total monthly income is $16,535 with an average of
$186,460 cash reserves. Approximately 50.5% of the mortgage loans
(by UPB) were originated in California followed by Colorado (6.3%
by UPB) and Utah (5.0% by UPB). The high geographic concentration
in the high-cost state of California is reflected in the high
average balance of the pool ($338,967). Approximately 81.6% of the
mortgage loans are designated as safe harbor Qualified Mortgages
(QM) and meet Appendix Q to the QM rules with only one such loan
originated under the new QM APOR framework, and the remaining 18.4%
of the mortgage loans are an extension of credit primarily for a
business or commercial purpose and are not a covered transaction as
defined in Section 1026.43(b)(1) of Regulation Z.
As of the cut-off date, none of the borrowers of the mortgage loans
have inquired about or requested forbearance plans with the related
servicer or have previously entered into a COVID-19 related
forbearance plan with the related servicer. Certain borrowers may
become subject to forbearance plans or other payment relief plans
following the cutoff date. In the event a borrower requests or
enters into a COVID-19 related forbearance plan after the cut-off
date but prior to the closing date, JPMMAC will remove such
mortgage loan from the mortgage pool and remit the related closing
date substitution amount. In the event that after the closing date
a borrower enters into or requests a COVID-19 related forbearance
plan, such mortgage loan (and the risks associated with it) will
remain in the mortgage pool.
Aggregation/Origination Quality
Moody's consider JPMMAC's aggregation platform to be adequate and
Moody's did not apply a separate loss-level adjustment for
aggregation quality. In addition to reviewing JPMMAC aggregation
quality, Moody's have also reviewed the origination quality of UWM
who originated and sold 100% of the mortgage loans in the pool.
Moody's did not make an adjustment for GSE-eligible loans (100% of
the pool by balance) since those loans were underwritten in
accordance with GSE guidelines.
Servicing Arrangement
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement of the servicer, as
well as the presence of an experienced master servicer. Nationstar
Mortgage LLC (Nationstar) (Nationstar Mortgage Holdings Inc.
corporate family rating B2) will act as the master servicer.
UWM will service 100% of the mortgage loans. Cenlar will
sub-service the loans for UWM. The servicer is required to advance
P&I on the mortgage loans. To the extent that the servicer is
unable to do so, the master servicer will be obligated to make such
advances. In the event that the master servicer, Nationstar, is
unable to make such advances, the securities administrator,
Citibank, N.A. (rated Aa3) will be obligated to do so to the extent
such advance is determined by the securities administrator to be
recoverable. The servicing fee for loans in this transaction is
based on a step-up incentive fee structure with a monthly base fee
of $25 per loan and additional fees for delinquent or defaulted
loans.
Third-Party Review
An independent TPR firm, AMC Diligence, LLC (AMC), was engaged to
conduct due diligence for the credit, regulatory compliance,
property valuation, and data accuracy for approximately 25.3% (by
loan count) of the mortgage loans in the collateral pool. The
original population included 548 loans. During the course of the
review, 21 loans were removed for various reasons with the final
population consisting of 527 loans.
The TPR results indicate that the majority of reviewed mortgage
loans were in compliance with the underwriting guidelines, no
material compliance or data issues, and no appraisal defects. The
loans that had exceptions to the originator's underwriting
guidelines had significant compensating factors that were
documented.
The number of loans that went through a full due diligence review
is above Moody's credit-neutral sample size. Hence, Moody's did not
make any adjustments to Moody's credit enhancement for sample size.
However, Moody's applied an adjustment to Moody's Aaa and expected
losses due to the sample size of the loans with (i) secondary
valuations (using a third-party valuation product such as a CDA and
field review) and (ii) with CU score less than 2.5 being
insufficient (348 loans) and not meeting Moody's credit neutral
criteria. With sampling, there is a risk that loan defects may not
be discovered and such loans would remain in the pool.
R&W Framework
Moody's review of the R&W framework takes into account the
financial strength of the R&W providers, scope of R&Ws (including
qualifiers and sunsets) and enforcement mechanisms. JPMMT
2021-INV5's R&W framework is in line with that of other JPMMT
transactions Moody's have rated where an independent reviewer is
named at closing, and costs and manner of review are clearly
outlined at issuance. The loan-level R&Ws meet or exceed the
baseline set of credit-neutral R&Ws Moody's have identified for US
RMBS. The R&W framework is "prescriptive", whereby the transaction
documents set forth detailed tests for each R&W.
The originators and the aggregators each makes a comprehensive set
of R&Ws for their loans. The creditworthiness of the R&W provider
determines the probability that the R&W provider will be available
and have the financial strength to repurchase defective loans upon
identifying a breach. JPMMAC does not backstop the originator R&Ws,
except for certain "gap" R&Ws covering the period from the date as
of which such R&W is made by an originator or an aggregator,
respectively, to the cut-off date or closing date. In this
transaction, Moody's made adjustments to Moody's base case and Aaa
loss expectations for R&W providers that are unrated and/or
financially weaker entities.
Transaction Structure
The transaction has a shifting interest structure in which the
senior bonds benefit from a number of protections. Funds collected,
including principal, are first used to make interest payments to
the senior bonds. Next, principal payments are made to the senior
bonds. Next, available distribution amounts are used to reimburse
realized losses and certificate write-down amounts for the senior
bonds (after subordinate bonds have been reduced to zero i.e. the
credit support depletion date). Finally, interest and then
principal payments are paid to the subordinate bonds in sequential
order. Realized losses are allocated in a reverse sequential order,
first to the lowest subordinate bond. After the balance of the
subordinate bonds is written off, losses from the pool begin to
write off the principal balance of the senior support bond, and
finally losses are allocated to the super senior bonds.
Tail Risk & Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinate bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinate bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.95% of the cut-off date pool
balance, and as subordination lockout amount of 0.95% of the
cut-off date pool balance. Moody's calculate the credit neutral
floors as shown in Moody's principal methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
JP MORGAN 2021-INV5: Moody's Assigns B3 Rating to Cl. B-5 Certs
---------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 21
classes of residential mortgage-backed securities (RMBS) issued by
J.P. Morgan Mortgage Trust (JPMMT) 2021-INV5. The ratings range
from Aaa (sf) to B3 (sf).
JPMMT 2021-INV5 is the fifth JPMMT transaction in 2021 backed by
100% investment property loans issued by J.P. Morgan Mortgage
Acquisition Corporation (JPMMAC). JPMMT 2021-INV5 is a
securitization of agency-eligible investor (INV) mortgage loans
backed by 2,086 fixed-rate, non-owner occupied mortgage loans
(designated for investment purposes by the borrower), with an
aggregate unpaid principal balance (UPB) of $707,086,149.61.
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement, as well as the
presence of an experienced master servicer. United Wholesale
Mortgage, LLC (UWM) will service 100% of the mortgage loans. Cenlar
FSB (Cenlar) will sub-service the loans for UWM.
JPMMT 2021-INV5 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool. In
coding the cash flow, Moody's took into account the step-up
incentive servicing fee structure.
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 review (TPR) and the
representations and warranties (R&W) framework of the transaction.
The complete rating actions are as follows:
Issuer: J.P. Morgan Mortgage Trust 2021-INV5
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-1-A, Definitive Rating Assigned Aaa (sf)
Cl. A-1-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-2-A, Definitive Rating Assigned Aaa (sf)
Cl. A-2-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-3-A, Definitive Rating Assigned Aaa (sf)
Cl. A-3-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-4-A, Definitive Rating Assigned Aaa (sf)
Cl. A-4-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aa1 (sf)
Cl. A-5-A, Definitive Rating Assigned Aa1 (sf)
Cl. A-5-X*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-1*, Definitive Rating Assigned Aaa (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A3 (sf)
Cl. B-3, Definitive Rating Assigned Baa3 (sf)
Cl. B-4, Definitive Rating Assigned Ba3 (sf)
Cl. B-5, Definitive Rating Assigned B3 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Moody's expected loss for this pool in a baseline scenario-mean is
0.94%, in a baseline scenario-median is 0.66%, and reaches 6.97% 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 10.0%
(6.8% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Collateral Description
Moody's assessed the collateral pool as of September 1, 2021, the
cut-off date. The deal will be backed by 2,086 fully amortizing
fixed-rate mortgage loans with an aggregate unpaid principal
balance (UPB) of $707,086,150 and an original term to maturity of
up to 30 years. The pool consists of 100.0% GSE-eligible conforming
mortgage loans. The GSE-eligible loans were underwritten pursuant
to GSE guidelines and were approved by DU/LP.
Overall, the pool is of strong credit quality and includes
borrowers with high FICO scores (weighted average primary borrower
FICO of 770) and low loan-to-value ratios (WA CLTV 65.9%). The
average borrower total monthly income is $16,535 with an average of
$186,460 cash reserves. Approximately 50.5% of the mortgage loans
(by UPB) were originated in California followed by Colorado (6.3%
by UPB) and Utah (5.0% by UPB). The high geographic concentration
in the high-cost state of California is reflected in the high
average balance of the pool ($338,967). Approximately 81.6% of the
mortgage loans are designated as safe harbor Qualified Mortgages
(QM) and meet Appendix Q to the QM rules with only one such loan
originated under the new QM APOR framework, and the remaining 18.4%
of the mortgage loans are an extension of credit primarily for a
business or commercial purpose and are not a covered transaction as
defined in Section 1026.43(b)(1) of Regulation Z.
As of the cut-off date, none of the borrowers of the mortgage loans
have inquired about or requested forbearance plans with the related
servicer or have previously entered into a COVID-19 related
forbearance plan with the related servicer. Certain borrowers may
become subject to forbearance plans or other payment relief plans
following the cutoff date. In the event a borrower requests or
enters into a COVID-19 related forbearance plan after the cut-off
date but prior to the closing date, JPMMAC will remove such
mortgage loan from the mortgage pool and remit the related closing
date substitution amount. In the event that after the closing date
a borrower enters into or requests a COVID-19 related forbearance
plan, such mortgage loan (and the risks associated with it) will
remain in the mortgage pool.
Aggregation/Origination Quality
Moody's consider JPMMAC's aggregation platform to be adequate and
Moody's did not apply a separate loss-level adjustment for
aggregation quality. In addition to reviewing JPMMAC aggregation
quality, Moody's have also reviewed the origination quality of UWM
who originated and sold 100% of the mortgage loans in the pool.
Moody's did not make an adjustment for GSE-eligible loans (100% of
the pool by balance) since those loans were underwritten in
accordance with GSE guidelines.
Servicing Arrangement
Moody's consider the overall servicing framework for this pool to
be adequate given the servicing arrangement of the servicer, as
well as the presence of an experienced master servicer. Nationstar
Mortgage LLC (Nationstar) (Nationstar Mortgage Holdings Inc.
corporate family rating B2) will act as the master servicer.
UWM will service 100% of the mortgage loans. Cenlar will
sub-service the loans for UWM. The servicer is required to advance
P&I on the mortgage loans. To the extent that the servicer is
unable to do so, the master servicer will be obligated to make such
advances. In the event that the master servicer, Nationstar, is
unable to make such advances, the securities administrator,
Citibank, N.A. (rated Aa3) will be obligated to do so to the extent
such advance is determined by the securities administrator to be
recoverable. The servicing fee for loans in this transaction is
based on a step-up incentive fee structure with a monthly base fee
of $25 per loan and additional fees for delinquent or defaulted
loans.
Third-Party Review
An independent TPR firm, AMC Diligence, LLC (AMC), was engaged to
conduct due diligence for the credit, regulatory compliance,
property valuation, and data accuracy for approximately 25.3% (by
loan count) of the mortgage loans in the collateral pool. The
original population included 548 loans. During the course of the
review, 21 loans were removed for various reasons with the final
population consisting of 527 loans.
The TPR results indicate that the majority of reviewed mortgage
loans were in compliance with the underwriting guidelines, no
material compliance or data issues, and no appraisal defects. The
loans that had exceptions to the originator's underwriting
guidelines had significant compensating factors that were
documented.
The number of loans that went through a full due diligence review
is above Moody's credit-neutral sample size. Hence, Moody's did not
make any adjustments to Moody's credit enhancement for sample size.
However, Moody's applied an adjustment to Moody's Aaa and expected
losses due to the sample size of the loans with (i) secondary
valuations (using a third-party valuation product such as a CDA and
field review) and (ii) with CU score less than 2.5 being
insufficient (348 loans) and not meeting Moody's credit neutral
criteria. With sampling, there is a risk that loan defects may not
be discovered and such loans would remain in the pool.
R&W Framework
Moody's review of the R&W framework takes into account the
financial strength of the R&W providers, scope of R&Ws (including
qualifiers and sunsets) and enforcement mechanisms. JPMMT
2021-INV5's R&W framework is in line with that of other JPMMT
transactions Moody's have rated where an independent reviewer is
named at closing, and costs and manner of review are clearly
outlined at issuance. The loan-level R&Ws meet or exceed the
baseline set of credit-neutral R&Ws Moody's have identified for US
RMBS. The R&W framework is "prescriptive", whereby the transaction
documents set forth detailed tests for each R&W.
The originators and the aggregators each makes a comprehensive set
of R&Ws for their loans. The creditworthiness of the R&W provider
determines the probability that the R&W provider will be available
and have the financial strength to repurchase defective loans upon
identifying a breach. JPMMAC does not backstop the originator R&Ws,
except for certain "gap" R&Ws covering the period from the date as
of which such R&W is made by an originator or an aggregator,
respectively, to the cut-off date or closing date. In this
transaction, Moody's made adjustments to its base case and Aaa loss
expectations for R&W providers that are unrated and/or financially
weaker entities.
Transaction Structure
The transaction has a shifting interest structure in which the
senior bonds benefit from a number of protections. Funds collected,
including principal, are first used to make interest payments to
the senior bonds. Next, principal payments are made to the senior
bonds. Next, available distribution amounts are used to reimburse
realized losses and certificate write-down amounts for the senior
bonds (after subordinate bonds have been reduced to zero i.e. the
credit support depletion date). Finally, interest and then
principal payments are paid to the subordinate bonds in sequential
order. Realized losses are allocated in a reverse sequential order,
first to the lowest subordinate bond. After the balance of the
subordinate bonds is written off, losses from the pool begin to
write off the principal balance of the senior support bond, and
finally losses are allocated to the super senior bonds.
Tail Risk & Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinate bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinate bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.95% of the cut-off date pool
balance, and as subordination lockout amount of 0.95% of the
cut-off date pool balance. Moody's calculate the credit neutral
floors as shown in Moody's principal methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
JP MORGAN 2021-LTV1: S&P Assigns B- (sf) Rating on B-5 Certs
------------------------------------------------------------
S&P Global Ratings assigned its ratings to J.P. Morgan Mortgage
Trust 2021-LTV1's mortgage pass-through certificates.
The certificate issuance is an RMBS transaction backed by
first-lien, fixed-rate, fully amortizing mortgage loans secured by
one- to two-family residential properties, planned-unit
developments, and condominiums to primarily prime borrowers.
The ratings reflect S&P's view of:
-- The high-quality collateral in the pool;
-- The available credit enhancement;
-- The transaction's associated structural mechanics,
representation and warranty framework, and geographic
concentration;
-- The experienced aggregator; and
-- The 100% due diligence results consistent with the represented
loan characteristics.
Ratings Assigned
J.P. Morgan Mortgage Trust 2021-LTV1
Class A-1, $293,922,000: AAA (sf)
Class A-2, $293,922,000: AAA (sf)
Class A-2-A, $293,922,000: AAA (sf)
Class A-2-X, $293,922,000(i): AAA (sf)
Class A-3, $259,955,000: AAA (sf)
Class A-3-A, $259,955,000: AAA (sf)
Class A-3-X, $259,955,000(i): AAA (sf)
Class A-4, $194,966,000: AAA (sf)
Class A-4-A, $194,966,000: AAA (sf)
Class A-4-X, $194,966,000(i): AAA (sf)
Class A-5, $64,989,000: AAA (sf)
Class A-5-A, $64,989,000: AAA (sf)
Class A-5-X, $64,989,000(i): AAA (sf)
Class A-6, $170,255,000: AAA (sf)
Class A-6-A, $170,255,000: AAA (sf)
Class A-6-X, $170,255,000(i): AAA (sf)
Class A-7, $89,700,000: AAA (sf)
Class A-7-A, $89,700,000: AAA (sf)
Class A-7-X, $89,700,000(i): AAA (sf)
Class A-8, $24,711,000: AAA (sf)
Class A-8-A, $24,711,000: AAA (sf)
Class A-8-X, $24,711,000(i): AAA (sf)
Class A-9, $32,494,000: AAA (sf)
Class A-9-A, $32,494,000: AAA (sf)
Class A-9-X, $32,494,000(i): AAA (sf)
Class A-10, $32,495,000: AAA (sf)
Class A-10-A, $32,495,000: AAA (sf)
Class A-10-X, $32,495,000(i): AAA (sf)
Class A-M, $33,967,000: AAA (sf)
Class A-M-A, $33,967,000: AAA (sf)
Class A-M-X, $33,967,000(i): AAA (sf)
Class A-X-1, $293,922,000(i): AAA (sf)
Class B-1, $13,865,000: AA- (sf)
Class B-2, $10,225,000: A- (sf)
Class B-3, $10,744,000: BBB- (sf)
Class B-4, $7,626,000: BB- (sf)
Class B-5, $5,892,000: B- (sf)
Class B-6, $4,333,083: Not rated
Class A-R, N/A: Not rated
(i)Notional balance.
N/A--Not applicable.
KKR CLO 16: S&P Assigns BB- (sf) Rating on Class D-R2 Notes
-----------------------------------------------------------
S&P Global Ratings assigned its ratings to the class A-1-R2,
A-2-R2, B-R2, C-R2, and D-R2 replacement notes and new class X
notes from KKR CLO 16 Ltd./KKR CLO 16 LLC, a CLO that is managed by
KKR Financial Advisors II LLC. This is a second refinancing of KKR
Financial's Dec. 15, 2016, transaction, which was not rated by S&P
Global Ratings, and was issued through an amended and restated
indenture.
The replacement notes were issued via an amended and restated
indenture, which outlines the terms of the replacement notes.
According to the amended and restated indenture:
-- The non-call period was extended by approximately 3.33 years to
Oct. 5, 2023.
-- The reinvestment period was by extended approximately 5.75
years to Oct. 20, 2026.
-- The legal final maturity date (for the replacement notes and
the existing subordinated notes) was extended by approximately 5.75
years to Oct. 20, 2034.
-- The weighted average life test was extended to nine years from
the second refinancing date.
-- There will be additional assets purchased on and after the Oct.
5, 2021, second refinancing date, using the additional par amount
available after payment of the refinanced notes. This will ramp the
pool back up to the target initial par amount (which will remain at
$700.00 million). There was no additional effective date or ramp-up
period, and the first payment date following the refinancing is
Oct. 20, 2021.
-- The class X notes were issued on the refinancing date and are
expected to be paid down using interest proceeds during the first
eight payment dates beginning Jan. 20, 2022, in equal installments
of $875,000.
-- The required minimum overcollateralization ratios and the
required minimum interest diversion threshold were amended, and the
class D interest coverage ratio was removed.
-- Additional subordinated notes were issued on the second
refinancing date, increasing their par amount to $71.05 million
from $67.00 million.
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
KKR CLO 16 Ltd./KKR CLO 16 LLC
Class X, $7.000 million: AAA (sf)
Class A-1-R2, $441.000 million: AAA (sf)
Class A-2-R2, $91.000 million: AA (sf)
Class B-R2 (deferrable), $38.900 million: A (sf)
Class C-R2 (deferrable), $41.600 million: BBB- (sf)
Class D-R2 (deferrable), $29.750 million: BB- (sf)
Subordinated notes, $71.050 million: Not rated
LCM 34 LTD: Moody's Assigns Ba3 Rating to $20MM Class E Notes
-------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by LCM 34 Ltd. (the "Issuer" or "LCM 34").
Moody's rating action is as follows:
US$300,000,000 Class A-1 Senior Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$20,000,000 Class A-2 Senior Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$60,000,000 Class B Senior Floating Rate Notes due 2034, Assigned
Aa2 (sf)
US$27,500,000 Class C Deferrable Mezzanine Floating Rate Notes due
2034, Assigned A2 (sf)
US$32,500,000 Class D Deferrable Mezzanine Floating Rate Notes due
2034, Assigned Baa3 (sf)
US$20,000,000 Class E Deferrable Mezzanine Floating Rate Notes due
2034, 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.
LCM 34 is a managed cash flow CLO. The issued notes will be
collateralized primarily by broadly syndicated senior secured
corporate loans. At least 92.5% of the portfolio must consist of
first lien senior secured loans and eligible investments, and up to
7.5% of the portfolio may consist of second lien loans, permitted
debt securities, and unsecured loans. The portfolio is
approximately 90% ramped as of the closing date.
LCM EURO LLC (the "Manager") will direct the selection, acquisition
and disposition of the assets on behalf of the Issuer and may
engage in trading activity, including discretionary trading, during
the transaction's five year reinvestment period. Thereafter,
subject to certain restrictions, the Manager may reinvest
unscheduled principal payments and proceeds from sales of credit
risk assets.
In addition to the Rated Notes, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 80
Weighted Average Rating Factor (WARF): 2923
Weighted Average Spread (WAS): 3.45%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 9.06 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.
MADISON PARK XXXIX: S&P Assigns Prelim BB- (sf) Rating on E Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Madison Park
Funding XXXIX Ltd./Elmwood CLO XI 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 Credit Suisse Asset Management LLC.
The preliminary ratings are based on information as of Oct. 6,
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
Madison Park Funding XXXIX Ltd./Madison Park Funding XXXIX LLC
Class A, $465.00 million: AAA (sf)
Class B, $105.00 million: AA (sf)
Class C (deferrable), $45.00 million: A (sf)
Class D (deferrable), $45.00 million: BBB- (sf)
Class E (deferrable), $29.07 million: BB- (sf)
Subordinated notes, $61.00 million: Not rated
MARBLE POINT XVIII: Moody's Assigns Ba3 Rating to $20MM E-R Notes
-----------------------------------------------------------------
Moody's Investors Service assigned ratings to three classes of CLO
refinancing notes issued by Marble Point CLO XVIII Ltd. (the
"Issuer").
Moody's rating action is as follows:
US$300,000,000 Class A-1-R Senior Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$15,900,000 Class A-2-R Senior Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$20,000,000 Class E-R Mezzanine Deferrable Floating Rate Notes
due 2034, 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
92.5% of the portfolio must consist of senior secured loans and
eligible investments, and up to 7.5% of the portfolio may consist
of non-senior secured loans.
Marble Point CLO Management LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the issuance of the Refinancing Notes and the other
classes of secured 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 revision 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:
Performing par and principal proceeds balance: $500,000,000
Diversity Score: 62
Weighted Average Rating Factor (WARF): 2900
Weighted Average Spread (WAS): 3.35%
Weighted Average Coupon (WAC): 6.00%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 9.04 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.
MCF CLO IV: S&P Assigns Prelim BB+ (sf) Rating on Class E-RR Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to the class
A-RR, B-RR, C-RR, D-RR, and E-RR replacement notes from MCF CLO IV
LLC, a CLO originally issued in October 2017 that is managed by
Madison Capital Funding LLC.
The preliminary ratings are based on information as of Oct. 6,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
On the Nov. 1, 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 A-RR, B-RR, C-RR, D-RR, and E-RR notes
are expected to be issued at a floating rate spread over
three-month LIBOR that is lower than the original notes.
-- The stated maturity, reinvestment period, and the non-call
period will be extended to Oct. 20, 2033, Oct. 20, 2025, and Oct,
20, 2023, respectively.
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
MCF CLO IV LLC
Class A-RR, $262.50 million: AAA (sf)
Class B-RR, $39.00 million: AA (sf)
Class C-RR (deferrable), $40.00 million: A (sf)
Class D-RR (deferrable), $27.00 million: BBB- (sf)
Class E-RR (deferrable), $27.00 million: BB+ (sf)
Subordinated notes, $66.32 million: Not rated
MELLO MORTGAGE 2021-INV3: Moody's Assigns B3 Rating to B-5 Certs
----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to
forty-seven classes of residential mortgage-backed securities
(RMBS) issued by Mello Mortgage Capital Acceptance 2021-INV3 (MMCA
2021-INV3). The ratings range from Aaa (sf) to B3 (sf).
MMCA 2021-INV3 is a securitization of GSE eligible first-lien
investment property loans. Similarly to the MMCA 2021-INV1 and
INV2, 100.0% of the pool by loan balance is originated by
loanDepot.com, LLC (loanDepot).
In this transaction, the Class A-11, Class A-11-A, and Class A-11-B
notes' coupon is indexed to SOFR. In addition, the coupon on Class
A-11-X, Class A-11-AI, and Class A-11-BI is also impacted by
changes in SOFR. However, based on the transaction's structure, the
particular choice of benchmark has no credit impact. First,
interest payments to the notes, including the floating rate notes,
are subject to the net WAC cap, which prevents the floating rate
notes from incurring interest shortfalls as a result of increases
in the benchmark index above the fixed rates at which the assets
bear interest. Second, the shifting-interest structure pays all
interest generated on the assets to the bonds and does not provide
for any excess spread.
Servicing compensation is subject to a step-up incentive fee
structure. Servicing fee includes base fee plus delinquency and
incentive fees. Delinquency and incentive fees will be deducted
reverse sequentially starting from the Class B-6 interest payment
amount first and could result in interest shortfall to the
certificates depending on the magnitude of the delinquency and
incentive fees.
The complete rating actions are as follows:
Issuer: Mello Mortgage Capital Acceptance 2021-INV3
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-3-A, Definitive Rating Assigned Aaa (sf)
Cl. A-3-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-4-A, Definitive Rating Assigned Aaa (sf)
Cl. A-4-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-5-A, Definitive Rating Assigned Aaa (sf)
Cl. A-5-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-6-A, Definitive Rating Assigned Aaa (sf)
Cl. A-6-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-7-A, Definitive Rating Assigned Aaa (sf)
Cl. A-7-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-8-A, Definitive Rating Assigned Aaa (sf)
Cl. A-8-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-9-A, Definitive Rating Assigned Aaa (sf)
Cl. A-9-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-10-A, Definitive Rating Assigned Aaa (sf)
Cl. A-10-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-11-A, Definitive Rating Assigned Aaa (sf)
Cl. A-11-AI*, Definitive Rating Assigned Aaa (sf)
Cl. A-11-B, Definitive Rating Assigned Aaa (sf)
Cl. A-11-BI*, Definitive Rating Assigned Aaa (sf)
Cl. A-11-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aa1 (sf)
Cl. A-15, Definitive Rating Assigned Aa1 (sf)
Cl. A-16, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aaa (sf)
Cl. A-X-1*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-2*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-3*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-4*, Definitive Rating Assigned Aa1 (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A3 (sf)
Cl. B-3, Definitive Rating Assigned Baa3 (sf)
Cl. B-4, Definitive Rating Assigned Ba3 (sf)
Cl. B-5, Definitive Rating Assigned 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 is 0.98%
at the mean, 0.70% at the median, and reaches 6.84% 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%
and Moody's Aaa losses by 2.5% to reflect the likely performance
deterioration resulting from a slowdown in US economic activity in
2020 due to the coronavirus outbreak. These adjustments are lower
than the 15% median expected loss and 5% Aaa loss adjustments
Moody's made on pools from deals issued after the onset of the
pandemic until February 2021. Moody's reduced adjustments reflect
the fact that the loan pool in this deal does not contain any loans
to borrowers who are not currently making payments. For newly
originated loans, post-COVID underwriting takes into account the
impact of the pandemic on a borrower's ability to repay the
mortgage. For seasoned loans, as time passes, the likelihood that
borrowers who have continued to make payments throughout the
pandemic will now become non-cash flowing due to COVID-19 continues
to decline.
Moody's base its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third-party due diligence and the
R&W framework of the transaction.
Collateral description
As of the cut-off date of September 1, 2021, the $356,973,421 pool
consisted of 1,016 mortgage loans secured by first liens on
residential investment properties. All the loans are underwritten
in accordance with Freddie Mac or Fannie Mae guidelines, which take
into consideration, among other factors, the income, assets,
employment and credit score of the borrower as well as
loan-to-value (LTV). These loans are run through one of the
government-sponsored enterprises' (GSE) automated underwriting
systems (AUS) and have received an "Approve" or "Accept"
recommendation.
The average stated principal balance is $351,352 and the weighted
average (WA) current mortgage rate is 3.4%. The majority of the
loans have a 30 year term. All of the loans have a fixed rate. The
WA original credit score is 766 for the primary borrower only and
the WA combined original LTV (CLTV) is 64.2%%. The WA original
debt-to-income (DTI) ratio is 36.7%. Approximately, 9.8% by loan
balance of the borrowers have more than one mortgage loan in the
mortgage pool.
Over a third of the mortgages (36.9% by loan balance) are backed by
properties located in California. The next largest geographic
concentration is New York (9.8% by loan balance), Washington (8.8%
by loan balance), and Texas (5.6% by loan balance). All other
states each represent less than 5.0% by loan balance. Loans backed
by single family residential properties represent 36.9% (by loan
balance) of the pool. Approximately 0.5% of the mortgage loans by
count are "Appraisal Waiver" (AW) loans, whereby the sponsor
obtained an AW for each such mortgage loan from Fannie Mae or
Freddie Mac through their respective programs. In each case,
neither Fannie Mae nor Freddie Mac required an appraisal of the
related mortgaged property as a condition of approving the related
mortgage loan for purchase by Fannie Mae or Freddie Mac, as
applicable.
Origination quality
LoanDepot originated 100% of the loans in the pool. These loans
were underwritten in conformity with GSE guidelines with
predominantly non-material overlays. Moody's consider loanDepot's
origination quality to be in line with its peers due to: (1)
adequate underwriting policies and procedures, (2) acceptable
performance with low delinquency and repurchase and (3) adequate
quality control. Therefore, Moody's have not applied an additional
adjustment for origination quality.
Servicing arrangements
Moody's consider the overall servicing arrangement for this pool to
be adequate. Cenlar FSB (Cenlar) will service all the mortgage
loans in the transaction. Wells Fargo Bank, N.A. (Long term debt
Aa2) will serve as the master servicer. The servicing
administrator, loanDepot, will be primarily responsible for funding
certain servicing advances of delinquent scheduled interest and
principal payments for the mortgage loans, unless the servicer
determines that such amounts would not be recoverable. The master
servicer will be obligated to fund any required monthly advance if
the servicing administrator fails in its obligation to do so.
Moody's did not make any adjustments to Moody's base case and Aaa
stress loss assumptions based on this servicing arrangement.
Servicing compensation in this transaction is based on a
fee-for-service incentive structure. The servicer receives higher
fees for labor-intensive activities that are associated with
servicing delinquent loans, including loss mitigation, than they
receive for servicing a performing loan, which is less labor
intensive. The fee-for-service compensation is reasonable and
adequate for this transaction because it better aligns the
servicer's costs with the deal's performance. Furthermore, higher
fees for the more labor-intensive tasks make the transfer of these
loans to another servicer easier, should that become necessary.
Third-party review
Full due diligence (i.e. compliance, credit, property valuation and
data integrity review) was conducted by the TPR firms on a sample
of 240 loans in the pool and valuation only review was conducted on
remaining loans (ie property valuation review was done on 100% of
the loans in the pool). Moody's calculated the credit-neutral
sample size using a confidence interval, error rate and a precision
level of 95%/5%/2%. The number of loans that went through a full
due diligence review does not meet Moody's calculated threshold.
With sampling, there is a risk that loan defects may not be
discovered and such loans would remain in the pool. Moreover,
vulnerabilities of the R&W framework, such as the lack of an
automatic review of R&Ws by independent reviewer and the weaker
financial strength of the R&W provider, reduce the likelihood that
such defects would be discovered and cured during the transaction's
life. As a result, Moody's made an adjustment to Moody's Aaa loss
and EL after taking account the risks associated with these
factors.
Representations and Warranties Framework
The R&W provider and the guarantor are both loanDepot entities,
which may not have the financial wherewithal to purchase defective
loans. The Guarantor (LD Holdings Group LLC) will guarantee certain
performance obligations of the R&W provider (loanDepot.com, LLC).
Moreover, unlike other transactions that Moody's have rated, the
R&W framework for this transaction does not include a mechanism
whereby loans that experience an early payment default (EPD) are
repurchased. Moody's have adjusted its Aaa CE and expected losses
to account for these weaknesses in the R&W framework.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior subordination floor and a subordinate floor. Funds
collected, including principal, are first used to make interest
payments and then principal payments to the senior bonds, and then
interest and principal payments to each subordinate bond. As in all
transactions with shifting interest structures, the senior bonds
benefit from a cash flow waterfall that allocates all prepayments
to the senior bond for a specified period of time, and increasing
amounts of prepayments to the subordinate bonds thereafter, but
only if loan performance satisfies delinquency and loss tests.
Realized losses are allocated in a reverse sequential order, first
to the lowest subordinate bond. After the balances of the
subordinate bonds are written off, losses from the pool begin to
write off the principal balances of the senior support bonds until
their principal balances are reduced to zero. Next, realized losses
are allocated to super senior bonds until their principal balance
is written off.
Tail risk & subordination floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
shrinks, senior bonds are exposed to eroding credit enhancement
over time and increased performance volatility, known as tail risk.
To mitigate this risk, the transaction provides for a senior
subordination floor of 0.95% which mitigates tail risk by
protecting the senior bonds from eroding credit enhancement over
time. Additionally, there is a subordination lock-out amount which
is 0.85% of the closing pool balance.
Moody's calculate the credit neutral floors for a given target
rating as shown in Moody's principal methodology. The senior
subordination floor and the subordinate floor of 0.95% and 0.85%,
respectively, are consistent with the credit neutral floors for the
assigned ratings.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
NATIXIS COMMERCIAL 2021-APPL: Moody's Gives (P)B3 Rating to F Debt
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to seven
classes of CMBS securities, issued by Natixis Commercial Mortgage
Securities Trust 2021-APPL, Commercial Mortgage Pass Through
Certificates, Series 2021-APPL.
Cl. A, Assigned (P)Aaa (sf)
Cl. X-CP*, Assigned (P)Aaa (sf)
Cl. B, Assigned (P)Aa3 (sf)
Cl. C, Assigned (P)A3 (sf)
Cl. D, Assigned (P)Baa3 (sf)
Cl. E, Assigned (P)Ba3 (sf)
Cl. F, Assigned (P)B3 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The certificates are collateralized by a single floating-rate loan
backed by the fee simple interest in an office complex comprised of
three office buildings located in Sunnyvale, CA. Moody's ratings
are based on the credit quality of the loan and the strength of the
securitization structure.
Moody's approach to rating this transaction involved the
application of both Moody's Large Loan and Single Asset/Single
Borrower CMBS methodology and Moody's IO Rating methodology. The
rating approach for securities backed by a single loan compares the
credit risk inherent in the underlying collateral with the credit
protection offered by the structure. The structure's credit
enhancement is quantified by the maximum deterioration in property
value that the securities are able to withstand under various
stress scenarios without causing an increase in the expected loss
for various rating levels. In assigning single borrower ratings,
Moody's also consider a range of qualitative issues as well as the
transaction's structural and legal aspects.
The credit risk of loans is determined primarily by two factors: 1)
Moody's assessment of the probability of default, which is largely
driven by each loan's DSCR, and 2) Moody's assessment of the
severity of loss upon a default, which is largely driven by each
loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV.
As described in the CMBS methodology used to rate this transaction,
Moody's make various adjustments to the MLTV. Moody's adjust the
MLTV for each loan using a value that reflects capitalization (cap)
rates that are between Moody's sustainable cap rates and market cap
rates. Moody's also use an adjusted loan balance that reflects each
loan's amortization profile. The MLTV reported in this publication
reflects the MLTV before the adjustments described in the
methodology.
The Moody's first-mortgage DSCR is 2.70x and Moody's first-mortgage
stressed DSCR at a 9.25% constant is 0.70x. Moody's DSCR is based
on Moody's stabilized net cash flow.
The Moody's LTV ratio for the first-mortgage balance is 132.9%. The
Moody's LTV ratio is based on Moody's value.
Moody's also grades properties on a scale of 0 to 5 (best to worst)
and considers those grades when assessing the likelihood of debt
payment. The factors considered include property age, quality of
construction, location, market, and tenancy. The property quality
grade for the property is 0.75.
Notable strengths of the transaction include: asset location and
accessibility, tenancy, strong office market, appraised land value,
and strong sponsorship.
Notable concerns of the transaction include: high Moody's LTV,
single-tenant exposure, uncertainty in future office usage within
Silicon Valley office markets, and full-term interest-only and
floating-rate loan profile.
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating Large Loan
and Single Asset/Single Borrower CMBS" published in September
2020.
Moody's approach for single borrower and large loan multi-borrower
transactions evaluates credit enhancement levels based on an
aggregation of adjusted loan level proceeds derived from Moody's
loan level LTV ratios. Major adjustments to determining proceeds
include leverage, loan structure, and property type. These
aggregated proceeds are then further adjusted for any pooling
benefits associated with loan level diversity, other concentrations
and correlations.
Moody's analysis considers the following inputs to calculate the
proposed IO rating based on the published methodology: original and
current bond ratings and credit estimates; original and current
bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and IO type corresponding to
an IO type as defined in the published methodology.
Factors that would lead to an Upgrade or Downgrade of the Ratings:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously anticipated. Factors that may cause an
upgrade of the ratings include significant loan pay downs or
amortization, an increase in the pool's share of defeasance or
overall improved pool performance. Factors that may cause a
downgrade of the ratings include a decline in the overall
performance of the pool, loan concentration, increased expected
losses from specially serviced and troubled loans or interest
shortfalls.
NEW RESIDENTIAL 2021-NQM3: Fitch Gives B Rating to B-2 Notes
------------------------------------------------------------
Fitch rates the residential mortgage-backed notes issued by New
Residential Mortgage Loan Trust 2021-NQM3.
DEBT RATING PRIOR
---- ------ -----
NRMLT 2021-NQM3
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAsf New Rating AA(EXP)sf
A-3 LT Asf New Rating A(EXP)sf
M-1 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT Bsf New Rating B(EXP)sf
B-3 LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
XS-1 LT NRsf New Rating NR(EXP)sf
XS-2 LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The notes are supported by a mix of 483 seasoned and newly
originated loans that had a balance of $262.2 million as of the
Sept. 1, 2021 cutoff date. The pool consists of loans primarily
originated by NewRez LLC (NewRez), which was formerly known as New
Penn Financial, LLC. The seasoned loans in this pool are from the
recently collapsed New Residential Mortgage Loan Trust 2019-NQM3.
The notes are secured mainly by non-qualified mortgage (non-QM)
loans as defined by the Ability-to-Repay (ATR) Rule. Of the loans
in the pool, 85.3% are designated as non-QM while the remainder are
not subject to the ATR Rule.
There is Libor exposure in this transaction. The collateral
consists of 21.9% adjustable-rate loans, which reference one-year
Libor. The notes are fixed rate and capped at the net weighted
average coupon.
KEY RATING DRIVERS
Non-Prime Credit Quality (Mixed): The collateral consists of 483
loans, totaling $262 million and seasoned approximately 18 months
in aggregate, according to Fitch (as calculated from origination
date). The borrowers have a moderate credit profile similar to
other non-QM transactions from the issuer (736 FICO and 36% debt to
income ratios as determined by Fitch) and moderate leverage (77.8%
sLTV).
The pool consists of 71.7% of loans where the borrower maintains a
primary residence, while 28.3% is considered an investor property
or second home. Additionally, only 14% of the loans were originated
through a retail channel. Moreover, 85% are considered non-QM and
the remainder are not subject to QM. NewRez LLC originated 83.5% of
the loans, which have been serviced since origination by Shellpoint
Mortgage Servicing. The remaining 16.5% of the loans were
originated by various entities.
Geographic Concentration (Negative): Approximately 41% of the pool
is concentrated in California. The largest MSA concentration is in
the Los Angeles area (24.4%), followed by the New York City area
MSA (22.0%) and the Miami-Fort Lauderdale MSA (7.8%). The top three
MSAs account for 54% of the pool. As a result, there was a 1.10x
payment default (PD) penalty for geographic concentration.
Loan Documentation (Negative): Approximately 83.4% of the pool was
underwritten to less than full documentation, according to Fitch.
Approximately 68% was underwritten to a 12- or 24-month bank
statement program for verifying income, which is not consistent
with Fitch's view of a full documentation program.
A key distinction between this pool and legacy Alt-A loans is that
these loans adhere to underwriting and documentation standards
required under the Consumer Financial Protection Bureau's ATR Rule,
which reduces the risk of borrower default arising from lack of
affordability, misrepresentation or other operational quality risks
due to rigor of the ATR Rule's mandates with respect to the
underwriting and documentation of the borrower's ATR. Additionally,
0.05% are Asset Depletion product (1 loan) and 14.7% are a debt
service coverage ratio product.
Fitch considered 16.6% of the pool as fully documented based on the
loans being underwritten to 12-24 months of W2s and/or tax
returns.
High Investor Property Concentrations (Negative): Approximately 25%
of the pool comprises investment property loans, including 14.7%
underwritten to a cash flow ratio rather than the borrower's
debt-to-income ratio. Investor property loans exhibit higher PDs
and higher loss severities than owner-occupied homes. Fitch
increased the PD by approximately 2.0x for the cash flow ratio
loans (relative to a traditional income documentation investor
loan) to account for the increased risk.
Modified Sequential Payment Structure (Neutral): The structure
distributes collected principal pro rata among the class A notes
while shutting out the subordinate bonds from principal until all
three classes are reduced to zero. To the extent that either the
cumulative loss trigger event or the delinquency trigger event
occurs in a given period, principal will be distributed
sequentially to the class A-1, A-2 and A-3 bonds until they are
reduced to zero.
Macro or Sector Risks (Positive): Consistent with the "Additional
Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data,
and the unexpected development in the health crisis arising from
the advancement and availability of 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 "March 2021 Global Economic Outlook" and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper market value declines
(MVDs) at the national level. The analysis assumes MVDs of
10.0%, 20.0% and 30.0% in addition to the model projected 41%
at 'AAA'. The analysis indicates that there is some potential
rating migration with higher MVDs for all rated classes,
compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated
classes by one full category.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by situsAMC and Infinity IPS. The third-party due
diligence described in Form 15E focused on a full review of the
loans as it relates to credit, compliance and property valuation.
Fitch considered this information in its analysis and, as a result,
Fitch made the following adjustment to its analysis: a 5% credit
was applied to each loan's probability of default assumption. This
adjustment resulted in a 47bps reduction to the 'AAAsf' expected
loss.
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.
OAKTREE CLO 2019-3: S&P Assigns BB- (sf) Rating on Class ER Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its ratings to the class A1R, A2R, BR,
CR, D1R, D2F, D2L, and ER replacement notes from Oaktree CLO 2019-3
Ltd./Oaktree CLO 2019-3 LLC, a CLO originally issued in August 2019
that is managed by Oaktree Capital Management L.P. At the same
time, S&P withdrew its ratings on the original class A-1, B, C, D,
and E notes following payment in full on the Oct. 1, 2021,
refinancing date. The original class A-2 notes were not rated by
S&P Global Ratings.
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 A1R, A2R, BR, CR, and ER notes were
issued at a lower spread than the original notes.
-- The replacement class D1R, D2F, and D2L notes replaced the
original class D notes.
-- The stated maturity, reinvestment period, and non-call period
were extended three, two, and two years, respectively.
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
Oaktree CLO 2019-3 Ltd./Oaktree CLO 2019-3 LLC
Class A1R, $461.200 million: AAA (sf)
Class A2R, $22.300 million: AAA (sf)
Class BR, $81.875 million: AA (sf)
Class CR (deferrable), $44.625 million: A (sf)
Class D1R (deferrable), $31.000 million: BBB+ (sf)
Class D2F (deferrable), $7.625 million: BBB- (sf)
Class D2L (deferrable), $6.000 million: BBB- (sf)
Class ER (deferrable), $29.750 million: BB- (sf)
Subordinated notes, $84.225 million: NR
Ratings Withdrawn
Oaktree CLO 2019-3 Ltd./Oaktree CLO 2019-3 LLC
Class A-1: to NR from 'AAA (sf)'
Class B: to NR from 'AA (sf)'
Class C-1: to NR from 'A (sf)'
Class C-2: to NR from 'A (sf)'
Class D: to NR from 'BBB- (sf)'
Class E: to NR from 'BB- (sf)'
OBX TRUST 2021-INV1: Moody's Assigns (P)B3 Rating to Cl. B-5 Certs
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 49
classes of residential mortgage-backed securities (RMBS) issued by
OBX 2021-INV1 Trust (OBX 2021-INV1). The ratings range from (P)Aaa
(sf) to (P)B3 (sf).
OBX 2021-INV1, the fifth rated issue from Onslow Bay Financial LLC
(Onslow Bay) in 2021, is a prime RMBS securitization of fixed-rate,
agency-eligible mortgage loans secured by first liens on non-owner
occupied residential properties of mostly 30 years. All of the
loans were underwritten using one of the government-sponsored
enterprises' (GSE) automated underwriting systems (AUS) and
received an "Approve" or "Accept" recommendation. As of the cut-off
date, no borrower under any mortgage loan is currently in an active
Covid-19 related forbearance plan with the related servicer.
Onslow Bay does not originate residential mortgage loans. Onslow
Bay, the seller/sponsor, purchased approximately 28.4%, 18.8%, and
18.4%, by UPB, from Caliber Home Loans, Inc. (Caliber), Guaranteed
Rate Inc. (Guaranteed Rate) and loanDepot.com, LLC (loanDepot), and
the remainder from various other mortgage originators.
Select Portfolio Servicing, Inc. (SPS), Shellpoint Mortgage
Servicing (SMS) and Specialized Loan Servicing LLC (SLS) will
service 65.5%, 29.7%, and 4.7% of the aggregate balance of the
mortgage pool, respectively, and Wells Fargo Bank, N.A. (Wells
Fargo) will be the master servicer. Certain servicing advances and
advances for delinquent scheduled interest and principal payments
will be funded, unless the related mortgage loan is 120 days or
more delinquent or the servicer determines that such delinquency
advances would not be recoverable. The master servicer is obligated
to fund any required monthly advances if the servicer fails in its
obligation to do so. The master servicer and servicer will be
entitled to reimbursements for any such monthly advances from
future payments and collections with respect to those mortgage
loans.
The sponsor, directly or through a majority-owned affiliate,
intends to retain an eligible horizontal residual interest with a
fair value of at least 5% of the aggregate fair value of the notes
issued by the trust.
OBX 2021-INV1 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordination floor. In Moody's analysis of tail risk, Moody's
considered the increased risk from borrowers with more than one
mortgage in the pool.
The complete rating actions are as follows:
Issuer: OBX 2021-INV1 Trust
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-11IO*, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aa1 (sf)
Cl. A-15, Assigned (P)Aa1 (sf)
Cl. A-16, Assigned (P)Aaa (sf)
Cl. A-17, Assigned (P)Aaa (sf)
Cl. A-18, Assigned (P)Aaa (sf)
Cl. A-19, Assigned (P)Aa1 (sf)
Cl. A-20, Assigned (P)Aa1 (sf)
Cl. A-21, Assigned (P)Aa1 (sf)
Cl. A-IO1*, Assigned (P)Aa1 (sf)
Cl. A-IO2*, Assigned (P)Aa1 (sf)
Cl. A-IO3*, Assigned (P)Aaa (sf)
Cl. A-IO4*, Assigned (P)Aa1 (sf)
Cl. A-IO5*, Assigned (P)Aa1 (sf)
Cl. A-IO6*, Assigned (P)Aaa (sf)
Cl. A-IO7*, Assigned (P)Aa1 (sf)
Cl. A-IO8*, Assigned (P)Aaa (sf)
Cl. A-IO9*, Assigned (P)Aaa (sf)
Cl. A-IO10*, Assigned (P)Aa1 (sf)
Cl. A-IO12*, Assigned (P)Aaa (sf)
Cl. A-IO13*, Assigned (P)Aaa (sf)
Cl. A-IO14*, Assigned (P)Aa1 (sf)
Cl. A-IO15*, Assigned (P)Aa1 (sf)
Cl. A-IO16*, Assigned (P)Aaa (sf)
Cl. A-IO17*, Assigned (P)Aa1 (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-IO1*, Assigned (P)Aa3 (sf)
Cl. B-1A, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-IO2*, Assigned (P)A2 (sf)
Cl. B-2A, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa2 (sf)
Cl. B-IO3*, Assigned (P)Baa2 (sf)
Cl. B-3A, Assigned (P)Baa2 (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 losses in a base case scenario are 0.77% and reach
5.46% at a stress level consistent with Moody's Aaa rating
scenario.
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%
(7.5% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's base its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third-party due diligence and the
R&W framework of the transaction.
Collateral Description
The OBX 2021-INV1 transaction is a securitization of 979 mortgage
loans secured by fixed-rate, agency-eligible first liens on one-to
four-family residential properties, planned unit developments,
townhouses, condominiums and attached planned unit developments
with an unpaid principal balance of $320,199,498. All of the loans
have a 30-year original term. The mortgage pool has a WA seasoning
of about 5 months. The loans in this transaction have strong
borrower credit characteristics with a weighted average original
FICO score of 773 and a weighted-average original combined
loan-to-value ratio (CLTV) of 63.2%. In addition, 23.4% of the
borrowers are self-employed and refinance loans comprise about 62%
of the aggregate pool. The pool has a high geographic concentration
with 42.3% of the aggregate pool located in California, with 15%
located in the Los Angeles-Long Beach-Anaheim MSA and 6.0% located
in the San Francisco-Oakland-Hayward MSA. The characteristics of
the loans underlying the pool are generally comparable to other
recent prime RMBS transactions backed primarily by 30-year mortgage
loans that Moody's have rated.
As of the cut-off date, no borrower under any mortgage loan is
currently in an active Covid-19 related forbearance plan with the
related servicer. Four of the borrowers of the mortgage loans,
representing approximately 0.51% of the mortgage loans (by UPB),
have previously entered into a Covid-19 related forbearance plan
with the related servicer. In the event that, after 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.
Appraisal Waiver (AW) loans, all of which are GSE-eligible loans,
which constitute approximately 6.2% of the mortgage loans by
aggregate cut-off date balance, may present a greater risk as the
value of the related mortgaged properties may be less than the
value ascribed to such mortgaged properties. Moody's made an
adjustment in Moody's analysis to account for the increased risk
associated with such loans. However, Moody's have tempered this
adjustment by taking into account the GSEs' robust risk modeling,
which helps minimize collateral valuation risk, as well as the
GSEs' conservative eligibility requirements for AW loans which
helps to support deal collateral quality.
Origination Quality
Majority of the mortgage loans in the pool were originated by
Caliber Home Loans, Inc. (28.4%), Guaranteed Rate, Inc. (18.8%) and
loanDepot (18.4%). All of the loans comply with Freddie Mac and
Fannie Mae underwriting guidelines, which take into consideration,
among other factors, the income, assets, employment and credit
score of the borrower. All the loans received an "Approve" or
"Accept" recommendation from one of the GSE' AUS. Moody's consider
these entities as adequate originators of GSE-eligible loans based
on the its staff and processes for underwriting, quality control,
risk management and satisfactory performance history.
Servicing Arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate given the servicing abilities of the servicers, as well
as the presence of a strong master servicer to oversee the
servicers. SPS Services Inc., SMS and SLS will be the primary
servicers for this transaction. SPS Services Inc. will service
65.5% of the mortgage pool by balance, SMS will service 29.7% and
SLS the remaining 4.7%. Wells Fargo will be the master servicer.
The master servicer will monitor the performance of the servicers.
The presence of a strong master servicer mitigates the risk of
servicing disruptions.
The P&I Advancing Party (Onslow Bay) will make principal and
interest advances (subject to a determination of recoverability)
for the mortgage loans serviced by SPS to the extent that such
delinquency advances exceed amounts on deposit for future
distribution, the excess servicing strip fee that would otherwise
be paid to the Class A-IO-S notes and the P&I Advancing Party fee.
Similarly to the OBX 2020-INV1 transaction Moody's have rated, and
in contrast to the OBX 2021-J shelf, no advances of delinquent
principal or interest will be made for mortgage loans that become
120 days or more delinquent under the MBA method. Subsequently, if
there are mortgage loans that are 120 days or more delinquent on
any payment date, there will be a reduction in amounts available to
pay principal and interest otherwise payable to note holders.
Moody's did not make an adjustment for the stop advance feature due
to the strong reimbursement mechanism for liquidated mortgage
loans. Proceeds from liquidated mortgage loans are included in the
available distribution amount and are paid according to the
waterfall.
Third Party Review (TPR)
Nine TPR firms verified the accuracy of the loan-level information
that Moody's received from the sponsor. These firms conducted
detailed credit, property valuation, data integrity and regulatory
compliance reviews on 100% of the mortgage pool. The TPR checked to
ensure that all of the reviewed loans were in compliance with (AUS)
underwriting guidelines and AUS loan eligibility requirements with
generally no material compliance, credit data or valuation issues.
The TPR results indicate that there are no material compliance,
credit, or data issues.
Reps & Warranties (R&W)
Moody's analysis of the R&W framework considers the adequacy of the
R&Ws and enforcement mechanisms, and the creditworthiness of the
R&W provider.
Overall, the loan-level R&Ws are strong and, in general, either
meet or exceed the baseline set of credit-neutral R&Ws Moody's
identified for US RMBS. Among other considerations, the R&Ws
address property valuation, underwriting, fraud, data accuracy,
regulatory compliance, the presence of title and hazard insurance,
the absence of material property damage, and the enforceability of
the mortgage.
Each originator will provide comprehensive loan level reps and
warranties for their respective loans. BANA will assign each
originator's R&W to the seller (OBX) through AAR, who will in turn
assign to the depositor, which will assign to the trust. To
mitigate the potential concerns regarding the originators' ability
to meet their respective R&W obligations, Onslow Bay Financial LLC
(the seller, an unrated party) will backstop the R&Ws for all
originator's loans. The R&W provider's obligation to backstop third
party R&Ws will terminate 5 years after the closing date, subject
to certain performance conditions. The R&W provider will also
provide the gap reps. The rep provider is an unrated entity with
weak financial that may not have the financial wherewithal to
purchase defective loans. Moody's have increased its loss levels to
account for the financial weakness of the R&W provider (Onslow
Bay).
Tail Risk and Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility, as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.85% of the closing pool balance,
and a subordination lock-out amount equal 0.85% of the closing 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.
OBX TRUST 2021-INV1: Moody's Assigns B3 Rating to Cl. B-5 Certs
---------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 49
classes of residential mortgage-backed securities (RMBS) issued by
OBX 2021-INV1 Trust (OBX 2021-INV1). The ratings range from Aaa
(sf) to B3 (sf).
OBX 2021-INV1, the fifth rated issue from Onslow Bay Financial LLC
(Onslow Bay) in 2021, is a prime RMBS securitization of fixed-rate,
agency-eligible mortgage loans secured by first liens on non-owner
occupied residential properties of mostly 30 years. All of the
loans were underwritten using one of the government-sponsored
enterprises' (GSE) automated underwriting systems (AUS) and
received an "Approve" or "Accept" recommendation. As of the cut-off
date, no borrower under any mortgage loan is currently in an active
Covid-19 related forbearance plan with the related servicer.
Onslow Bay does not originate residential mortgage loans. Onslow
Bay, the seller/sponsor, purchased approximately 28.4%, 18.8%, and
18.4%, by UPB, from Caliber Home Loans, Inc. (Caliber), Guaranteed
Rate Inc. (Guaranteed Rate) and loanDepot.com, LLC (loanDepot), and
the remainder from various other mortgage originators.
Select Portfolio Servicing, Inc. (SPS), Shellpoint Mortgage
Servicing (SMS) and Specialized Loan Servicing LLC (SLS) will
service 65.5%, 29.7%, and 4.7% of the aggregate balance of the
mortgage pool, respectively, and Wells Fargo Bank, N.A. (Wells
Fargo) will be the master servicer. Certain servicing advances and
advances for delinquent scheduled interest and principal payments
will be funded, unless the related mortgage loan is 120 days or
more delinquent or the servicer determines that such delinquency
advances would not be recoverable. The master servicer is obligated
to fund any required monthly advances if the servicer fails in its
obligation to do so. The master servicer and servicer will be
entitled to reimbursements for any such monthly advances from
future payments and collections with respect to those mortgage
loans.
The sponsor, directly or through a majority-owned affiliate,
intends to retain an eligible horizontal residual interest with a
fair value of at least 5% of the aggregate fair value of the notes
issued by the trust.
OBX 2021-INV1 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordination floor. In Moody's analysis of tail risk, Moody's
considered the increased risk from borrowers with more than one
mortgage in the pool.
The complete rating actions are as follows:
Issuer: OBX 2021-INV1 Trust
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-11IO*, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aa1 (sf)
Cl. A-15, Definitive Rating Assigned Aa1 (sf)
Cl. A-16, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aaa (sf)
Cl. A-18, Definitive Rating Assigned Aaa (sf)
Cl. A-19, Definitive Rating Assigned Aa1 (sf)
Cl. A-20, Definitive Rating Assigned Aa1 (sf)
Cl. A-21, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO1*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO2*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO3*, Definitive Rating Assigned Aaa (sf)
Cl. A-IO4*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO5*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO6*, Definitive Rating Assigned Aaa (sf)
Cl. A-IO7*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO8*, Definitive Rating Assigned Aaa (sf)
Cl. A-IO9*, Definitive Rating Assigned Aaa (sf)
Cl. A-IO10*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO12*, Definitive Rating Assigned Aaa (sf)
Cl. A-IO13*, Definitive Rating Assigned Aaa (sf)
Cl. A-IO14*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO15*, Definitive Rating Assigned Aa1 (sf)
Cl. A-IO16*, Definitive Rating Assigned Aaa (sf)
Cl. A-IO17*, Definitive Rating Assigned Aa1 (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-IO1*, Definitive Rating Assigned Aa3 (sf)
Cl. B-1A, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A2 (sf)
Cl. B-IO2*, Definitive Rating Assigned A2 (sf)
Cl. B-2A, Definitive Rating Assigned A2 (sf)
Cl. B-3, Definitive Rating Assigned Baa2 (sf)
Cl. B-IO3*, Definitive Rating Assigned Baa2 (sf)
Cl. B-3A, Definitive Rating Assigned Baa2 (sf)
Cl. B-4, Definitive Rating Assigned Ba2 (sf)
Cl. B-5, Definitive Rating Assigned B3 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected losses in a base case scenario are 0.77% and reach
5.46% at a stress level consistent with Moody's Aaa rating
scenario.
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%
(7.5% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's base its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third-party due diligence and the
R&W framework of the transaction.
Collateral Description
The OBX 2021-INV1 transaction is a securitization of 979 mortgage
loans secured by fixed-rate, agency-eligible first liens on one-to
four-family residential properties, planned unit developments,
townhouses, condominiums and attached planned unit developments
with an unpaid principal balance of $320,199,498. All of the loans
have a 30-year original term. The mortgage pool has a WA seasoning
of about 5 months. The loans in this transaction have strong
borrower credit characteristics with a weighted average original
FICO score of 773 and a weighted-average original combined
loan-to-value ratio (CLTV) of 63.2%. In addition, 23.4% of the
borrowers are self-employed and refinance loans comprise about 62%
of the aggregate pool. The pool has a high geographic concentration
with 42.3% of the aggregate pool located in California, with 15%
located in the Los Angeles-Long Beach-Anaheim MSA and 6.0% located
in the San Francisco-Oakland-Hayward MSA. The characteristics of
the loans underlying the pool are generally comparable to other
recent prime RMBS transactions backed primarily by 30-year mortgage
loans that Moody's have rated.
As of the cut-off date, no borrower under any mortgage loan is
currently in an active Covid-19 related forbearance plan with the
related servicer. Four of the borrowers of the mortgage loans,
representing approximately 0.51% of the mortgage loans (by UPB),
have previously entered into a Covid-19 related forbearance plan
with the related servicer. In the event that, after 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.
Appraisal Waiver (AW) loans, all of which are GSE-eligible loans,
which constitute approximately 6.2% of the mortgage loans by
aggregate cut-off date balance, may present a greater risk as the
value of the related mortgaged properties may be less than the
value ascribed to such mortgaged properties. Moody's made an
adjustment in Moody's analysis to account for the increased risk
associated with such loans. However, w Moody's have tempered this
adjustment by taking into account the GSEs' robust risk modeling,
which helps minimize collateral valuation risk, as well as the
GSEs' conservative eligibility requirements for AW loans which
helps to support deal collateral quality.
Origination Quality
Majority of the mortgage loans in the pool were originated by
Caliber Home Loans, Inc. (28.4%), Guaranteed Rate, Inc. (18.8%) and
loanDepot (18.4%). All of the loans comply with Freddie Mac and
Fannie Mae underwriting guidelines, which take into consideration,
among other factors, the income, assets, employment and credit
score of the borrower. All the loans received an "Approve" or
"Accept" recommendation from one of the GSE' AUS. Moody's consider
these entities as adequate originators of GSE-eligible loans based
on the its staff and processes for underwriting, quality control,
risk management and satisfactory performance history.
Servicing Arrangement
Moody's consider the overall servicing arrangement for this pool to
be adequate given the servicing abilities of the servicers, as well
as the presence of a strong master servicer to oversee the
servicers. SPS, SMS and SLS will be the primary servicers for this
transaction. SPS will service 65.5% of the mortgage pool by
balance, SMS will service 29.7% and SLS the remaining 4.7%. Wells
Fargo will be the master servicer. The master servicer will monitor
the performance of the servicers. The presence of a strong master
servicer mitigates the risk of servicing disruptions.
The P&I Advancing Party (Onslow Bay) will make principal and
interest advances (subject to a determination of recoverability)
for the mortgage loans serviced by SPS to the extent that such
delinquency advances exceed amounts on deposit for future
distribution, the excess servicing strip fee that would otherwise
be paid to the Class A-IO-S notes and the P&I Advancing Party fee.
Similarly to the OBX 2020-INV1 transaction Moody's have rated, and
in contrast to the OBX 2021-J shelf, no advances of delinquent
principal or interest will be made for mortgage loans that become
120 days or more delinquent under the MBA method. Subsequently, if
there are mortgage loans that are 120 days or more delinquent on
any payment date, there will be a reduction in amounts available to
pay principal and interest otherwise payable to note holders.
Moody's did not make an adjustment for the stop advance feature due
to the strong reimbursement mechanism for liquidated mortgage
loans. Proceeds from liquidated mortgage loans are included in the
available distribution amount and are paid according to the
waterfall.
Third Party Review (TPR)
Nine TPR firms verified the accuracy of the loan-level information
that Moody's received from the sponsor. These firms conducted
detailed credit, property valuation, data integrity and regulatory
compliance reviews on 100% of the mortgage pool. The TPR checked to
ensure that all of the reviewed loans were in compliance with (AUS)
underwriting guidelines and AUS loan eligibility requirements with
generally no material compliance, credit data or valuation issues.
The TPR results indicate that there are no material compliance,
credit, or data issues.
Reps & Warranties (R&W)
Moody's analysis of the R&W framework considers the adequacy of the
R&Ws and enforcement mechanisms, and the creditworthiness of the
R&W provider.
Overall, the loan-level R&Ws are strong and, in general, either
meet or exceed the baseline set of credit-neutral R&Ws Moody's
identified for US RMBS. Among other considerations, the R&Ws
address property valuation, underwriting, fraud, data accuracy,
regulatory compliance, the presence of title and hazard insurance,
the absence of material property damage, and the enforceability of
the mortgage.
Each originator will provide comprehensive loan level reps and
warranties for their respective loans. BANA will assign each
originator's R&W to the seller (OBX) through AAR, who will in turn
assign to the depositor, which will assign to the trust. To
mitigate the potential concerns regarding the originators' ability
to meet their respective R&W obligations, Onslow Bay Financial LLC
(the seller, an unrated party) will backstop the R&Ws for all
originator's loans. The R&W provider's obligation to backstop third
party R&Ws will terminate 5 years after the closing date, subject
to certain performance conditions. The R&W provider will also
provide the gap reps. The rep provider is an unrated entity with
weak financial that may not have the financial wherewithal to
purchase defective loans. Moody's have increased its loss levels to
account for the financial weakness of the R&W provider (Onslow
Bay).
Tail Risk and Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
balance declines, senior bonds are exposed to eroding credit
enhancement over time, and increased performance volatility, as a
result. To mitigate this risk, the transaction provides for a
senior subordination floor of 0.85% of the closing pool balance,
and a subordination lock-out amount equal 0.85% of the closing 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.
OBX TRUST 2021-J3: Moody's Assigns (P)B2 Rating to Cl. B-5 Certs
----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to
fifty-eight classes of residential mortgage-backed securities
(RMBS) issued by OBX 2021-J3 Trust. The ratings range from (P)Aaa
(sf) to (P)B2 (sf).
This transaction represents the third prime jumbo issuance by
Onslow Bay Financial LLC (the sponsor). The transaction includes
465 fixed rate, first lien mortgages with an aggregate loan balance
of approximately $453,649,616. The pool consists of 100%
non-conforming mortgage loans. The mortgage loans for this
transaction have been acquired by the sponsor and the seller,
Onslow Bay Financial LLC, from Bank of America, National
Association (BANA). BANA acquired the mortgage loans through its
whole loan purchase program from various originators.
Approximately, 87.9% of the loans in the pool were underwritten to
the OBX 2021-J3 Trust acquisition criteria, and the remaining loans
were underwritten to MAXEX's guidelines (6.3%) or loanDepot's
guidelines (5.8%). All the loans are designated as safe harbor
qualified mortgages (QM) and meet Appendix Q to the QM rules.
NewRez LLC d/b/a Shellpoint Mortgage Servicing (Shellpoint) will
service the loans and Wells Fargo Bank, N.A. (Wells Fargo) (Aa2)
will be the master servicer. Shellpoint will be responsible for
advancing principal and interest and other corporate advances, with
the master servicer backing up Shellpoint's advancing obligations
if Shellpoint cannot fulfill them.
Four third-party review (TPR) firms verified the accuracy of the
loan level information that Moody's received from the sponsor.
These firms conducted detailed credit, property valuation, data
accuracy and compliance reviews on 100% of the mortgage loans in
the collateral pool. The TPR results indicate that there are no
material compliance, credit, valuation, or data issues. Moody's did
not make any adjustments to Moody's base case and Aaa loss
expectations for TPR given the nature of the identified exceptions
and the presence of documented compensating factors.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. Moody's also compared the
collateral pool to other prime jumbo securitizations. In addition,
Moody's adjusted its expected losses based on qualitative
attributes, including the financial strength of the representation
and warranties (R&W) providers.
OBX 2021-J3 Trust has a shifting interest structure in which
subordinates will receive no unscheduled principal payment
(prepayment) during the first five years, which protects and
accelerates the pay-down of the senior classes and therefore
protects the senior classes from losses. The transaction also has a
senior subordination floor and a subordination lockout percentage,
which accelerates the pay-down of the senior and senior subordinate
classes if losses exceed certain thresholds.
The complete rating actions are as follows
Issuer: OBX 2021-J3 Trust
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-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. 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)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 0.32%
at the mean, 0.19% at the median, and reaches 2.38% 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%
(6.75% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity in 2020 due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Moody's base its ratings on the certificates on the credit quality
of the mortgage loans, the structural features of the transaction,
Moody's assessments of the origination quality and servicing
arrangement, the strength of the third-party due diligence and the
R&W framework of the transaction.
Collateral Description
Moody's assessed the collateral pool as of the cut-off date of
September 1, 2021. OBX 2021-J3 Trust is a securitization of 465
prime residential mortgage loans with an aggregate principal
balance of approximately $453,649,616. The pool comprises 465
30-year fixed rate mortgages.
Overall, the credit quality of the mortgage loans backing this
transaction is similar to recently-issued prime jumbo transactions.
The WA FICO for the aggregate pool is 781 with a WA LTV of 63.8%
and WA CLTV of 64.0%. Approximately 17.1% (by loan balance) of the
pool has an LTV ratio greater than 75%. High LTV loans generally
have a higher probability of default and higher loss severity
compared to lower LTV loans. There is no loan in the pool having
LTV greater than 80%.
Loans with delinquency and forbearance history: As of the cut-off
date, no borrower under any mortgage loan is currently in an active
COVID-19 related forbearance plan. None of the borrowers have
previously entered into a COVID-19 related forbearance plan. In the
event that after the cut-off date a borrower enters into or
requests an active COVID-19 related forbearance plan, such 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 other servicing advances) on such mortgage loan during
the forbearance period (to the extent such advances are deemed
recoverable) and the loan will be considered delinquent for all
purposes under the transaction documents. There were five borrowers
reported with recent 30-day delinquency, which were in certain
cases due to borrower confusion under servicing transfer.
Origination Quality and Underwriting Guidelines
There are 15 originators in the transaction. The largest
originators in the pool with more than 10% by loan balance are
Fairway Independent Mortgage Corporation (26.2%) and Guaranteed
Rate, Inc, Guaranteed Rate Affinity, LLC, and Proper Rate, LLC
(24.2%).
The seller, Onslow Bay Financial LLC, acquired the mortgage loans
from Bank of America, National Association (BANA). As of the
cut-off date, approximately 87.9% of the mortgage loans (by loan
balance) were acquired by BANA from various mortgage loan
originators or sellers through Bank of America's whole loan
purchase program. These mortgage loans have principal balances in
excess of the requirements for purchase by Fannie Mae and Freddie
Mac (i.e. 100% of the loans in the pool are prime jumbo loans) and
were generally acquired pursuant to the OBX 2021-J3 Trust
acquisition criteria. The remaining loans were acquired by BANA but
originated pursuant to the guidelines of MAXEX (6.3%) or loanDepot
(5.8%). The OBX 2021-J3 Trust acquisition criteria does not apply
to the eligibility criteria, underwriting, origination or
acquisition for these mortgage loans.
Moody's increased its base case and Aaa loss expectations for all
loans underwritten to the OBX 2021-J3 Trust acquisition criteria,
which include loans originated by Fairway Independent Mortgage
Corporation and Guaranteed Rate, Inc, Guaranteed Rate Affinity,
LLC, and Proper Rate, LLC, because Moody's do not have performance
available for the jumbo loans underwritten to OBX 2021-J3 Trust
acquisition criteria and securitized through OBX platform, and
Moody's have been considering such mortgage loans to have been
acquired to slightly less conservative prime jumbo underwriting
standards. Moody's did not make any adjustments to Moody's loss
levels for loans originated by loanDepot as these loans were
underwritten to its own guidelines. Moody's considered loanDepot's
performance history and risk management as adequate.
Servicing arrangement
Shellpoint will service all the mortgage loans in the transaction.
Wells Fargo will serve as the master servicer.
Shellpoint is generally obligated to fund monthly advances of cash
(to the extent such advances are deemed recoverable) and to make
interest payments to compensate in part for any shortfall in
interest payments due to prepayment of the mortgage loans. The
master servicer will monitor the performance of the servicer and
will be obligated to fund any required advance and interest
shortfall payments if a servicer fails in its obligation to do so.
As of the cut-off date, no borrower under any mortgage loan is
currently in an active COVID-19 related forbearance plan with the
servicer. None of the borrowers of the mortgage loans (by aggregate
loan balance as of the cut-off date) have previously entered into a
COVID-19 related forbearance plan with the servicer. 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 other 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. At the end of the
forbearance period, as with any other modification, to the extent
the related borrower is not able to make a lump sum payment of the
forborne amount, the servicer may, subject to the servicing matrix,
offer the borrower a repayment plan, enter into a modification with
the borrower (including a modification to defer the forborne
amounts) or utilize any other loss mitigation option permitted
under the pooling and servicing agreement.
Wells Fargo provides oversight of the servicer. Moody's consider
the presence of a strong master servicer to be a mitigant for any
servicing disruptions. Moody's evaluation of Wells Fargo as a
master servicer takes into account the bank's strong reporting and
remittance procedures, servicer compliance and monitoring
capabilities and servicing stability. Wells Fargo's oversight
encompasses loan administration, default administration, compliance
and cash management.
Third Party Review
Four independent third party review (TPR) firms, Clayton Services
LLC (Clayton), Wipro Opus Risk Solutions, LLC (Opus), AMC
Diligence, LLC (AMC) and Consolidated Analytics, Inc. (Consolidated
Analytics), reviewed 100% of the loans in this transaction for
credit, regulatory compliance, appraisal, and data integrity. The
TPR results indicate that the majority of reviewed loans were in
compliance with respective originators' underwriting guidelines, no
material compliance or data issues, and no appraisal defects.
For property valuation, the TPR firms identified all loans as
either A or B level grades. There were two loans with B grades for
appraisal review because either their second appraisal is missing
or the property is located in a natural disaster area with no
subsequent inspection. Moody's did not make any adjustments because
these loans represent a small portion of the overall pool and the
issues are relatively minor.
For credit review, the TPR firms applied A and B level grades in
their review, with no C or D level grades. The credit exceptions
had documented compensating factors such as high FICOs, low LTVs,
low DTIs, high reserves, and long stable employment history.
For compliance review, the TPR firms applied A and B level grades
in their review, with no C or D level grades. The identified
compliance exceptions were related to issues such as missing
affiliated business disclosures or non-compliant lists of
homeowners counseling organizations. Moody's did not make any
adjustments to Moody's credit enhancement due to regulatory
compliance issues because Moody's did not view the compliance
exceptions as material.
Representations and Warranties Framework
Each originator will provide comprehensive loan level reps and
warranties for their respective loans. BANA will assign each
originator's R&W to the seller, who will in turn assign to the
depositor, which will assign to the trust. Onslow Bay Financial LLC
will provide the gap reps. Moody's considered the R&W framework in
its analysis and found it to be adequate. However, Moody's have
increased its loss levels to account for the risk that the R&W
providers may not have financial wherewithal to purchase defective
loans.
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 us a clear
indication that the loans do not breach the R&Ws the originators
have made and that the originators are unlikely to face any
material repurchase requests in the future. The loan-level R&Ws are
strong and, in general, either meet or exceed the baseline set of
credit-neutral R&Ws Moody's identified for US RMBS. Among other
considerations, the R&Ws address property valuation, underwriting,
fraud, data accuracy, regulatory compliance, the presence of title
and hazard insurance, the absence of material property damage, and
the enforceability of the mortgage.
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 delinquency trigger. These excluded
disaster loans include COVID-19 forbearance loans.
Tail Risk & Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
shrinks, senior bonds are exposed to increased performance
volatility, known as tail risk. The transaction provides for a
senior subordination floor of 1.15% of the closing pool balance,
which mitigates tail risk by protecting the senior bonds from
eroding credit enhancement over time. Additionally, there is a
subordination lock-out amount which is 1.15% of the cut-off pool
balance.
Other Considerations
In OBX 2021-J3 Trust, the controlling holder has the option to hire
at its own expense the independent reviewer upon the occurrence of
a review event. If there is no controlling holder (no single entity
holds a majority of the Class Principal Amount of the most
subordinate class of certificates outstanding), the trustee shall,
upon receipt of a direction of the certificate holders of more than
25% of the aggregate voting interest of all certificates and upon
receipt of the deposit, appoint an independent reviewer at a cost
to the trust. However, if the controlling holder does not hire the
independent reviewer, the holders of more than 50% of the aggregate
voting interests of all outstanding certificates may direct (at
their expense) the trustee to appoint an independent reviewer. In
this transaction, the controlling holder can be the depositor or a
seller (or an affiliate of these parties). If the controlling
holder is affiliated with the depositor, seller or Sponsor, then
the controlling holder may not be motivated to discover and enforce
R&W breaches for which its affiliate is responsible.
The servicer will not commence foreclosure proceedings on a
mortgage loan unless the servicer has notified the controlling
holder at least five business days in advance of the foreclosure
and the controlling holder has not objected to such action. If the
controlling holder objects, the servicer has to obtain three
appraisals from the appraisal firms as listed in the pooling and
servicing agreement. The cost of the appraisals is borne by the
controlling holder. The controlling holder will be required to
purchase such mortgage loan at a price equal to the highest of the
three appraisals plus accrued and unpaid interest on such mortgage
loan as of the purchase date. If the servicer cannot obtain three
appraisals there are alternate methods for determining the purchase
price. If the controlling holder fails to purchase the mortgage
loan within the time frame, the controlling holder forfeits any
foreclosure rights thereafter. Moody's consider this credit neutral
because a) the appraiser is chosen by the servicer from the
approved list of appraisers, b) the fair value of the property is
decided by the servicer, based on third party appraisals, and c)
the controlling holder will pay the fair price and accrued
interest.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings 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.
OHA CREDIT XVI: S&P Assigns BB- (sf) Rating on $24MM Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to OHA Credit Partners XVI
Ltd./OHA Credit Partners XVI 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 Oak Hill Advisors L.P.
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
OHA Credit Partners XVI Ltd./OHA Credit Partners XVI LLC
Class A, $372.00 million: AAA (sf)
Class B, $84.00 million: AA (sf)
Class C (deferrable), $36.00 million: A (sf)
Class D (deferrable), $36.00 million: BBB- (sf)
Class E (deferrable), $24.00 million: BB- (sf)
Subordinated notes, $56.52 million: Not rated
PALMER SQUARE 2021-4: Moody's Assigns B3 Rating to $15MM F Notes
----------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by Palmer Square CLO 2021-4, Ltd. (the "Issuer" or
"Palmer 2021-4").
Moody's rating action is as follows:
US$480,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Assigned Aaa (sf)
US$90,000,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned Aa2 (sf)
US$45,000,000 Class C Senior Secured Deferrable Floating Rate Notes
due 2034, Assigned A2 (sf)
US$45,000,000 Class D Senior Secured Deferrable Floating Rate Notes
due 2034, Assigned Baa3 (sf)
US$30,000,000 Class E Secured Deferrable Floating Rate Notes due
2034, Assigned Ba3 (sf)
US$15,000,000 Class F Secured Deferrable Floating Rate Notes due
2034, Assigned B3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
Palmer 2021-4 is a managed cash flow CLO. The issued notes will be
collateralized primarily by broadly syndicated senior secured
corporate loans. At least 90.0% of the portfolio must consist of
senior secured loans, cash, and eligible investments, and up to
10.0% of the portfolio may consist of second lien loans, senior
unsecured loans and permitted non-loan assets. The portfolio is
approximately 92% ramped as of the closing date.
Palmer Square Capital Management LLC (the "Manager") will direct
the selection, acquisition and disposition of the assets on behalf
of the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Notes, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $750,000,000
Diversity Score: 70
Weighted Average Rating Factor (WARF): 2819
Weighted Average Spread (WAS): 3.20%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 48.0%
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.
PSMC TRUST 2021-3: Fitch Assigns B+ Rating on B-5 Debt
------------------------------------------------------
Fitch rates American International Group, Inc.'s (AIG) PSMC 2021-3
Trust (PSMC 2021-3).
DEBT RATING PRIOR
---- ------ -----
PSMC 2021-3
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
A-4 LT AAAsf New Rating AAA(EXP)sf
A-5 LT AAAsf New Rating AAA(EXP)sf
A-6 LT AAAsf New Rating AAA(EXP)sf
A-7 LT AAAsf New Rating AAA(EXP)sf
A-8 LT AAAsf New Rating AAA(EXP)sf
A-9 LT AAAsf New Rating AAA(EXP)sf
A-10 LT AAAsf New Rating AAA(EXP)sf
A-11 LT AAAsf New Rating AAA(EXP)sf
A-12 LT AAAsf New Rating AAA(EXP)sf
A-13 LT AAAsf New Rating AAA(EXP)sf
A-14 LT AAAsf New Rating AAA(EXP)sf
A-15 LT AAAsf New Rating AAA(EXP)sf
A-16 LT AAAsf New Rating AAA(EXP)sf
A-17 LT AAAsf New Rating AAA(EXP)sf
A-18 LT AAAsf New Rating AAA(EXP)sf
A-19 LT AAAsf New Rating AAA(EXP)sf
A-20 LT AAAsf New Rating AAA(EXP)sf
A-21 LT AAAsf New Rating AAA(EXP)sf
A-22 LT AAAsf New Rating AAA(EXP)sf
A-23 LT AAAsf New Rating AAA(EXP)sf
A-24 LT AAAsf New Rating AAA(EXP)sf
A-25 LT AAAsf New Rating AAA(EXP)sf
A-26 LT AAAsf New Rating AAA(EXP)sf
A-X-1 LT AAAsf New Rating AAA(EXP)sf
A-X-2 LT AAAsf New Rating AAA(EXP)sf
A-X-3 LT AAAsf New Rating AAA(EXP)sf
A-X-4 LT AAAsf New Rating AAA(EXP)sf
A-X-5 LT AAAsf New Rating AAA(EXP)sf
A-X-6 LT AAAsf New Rating AAA(EXP)sf
A-X-7 LT AAAsf New Rating AAA(EXP)sf
A-X-8 LT AAAsf New Rating AAA(EXP)sf
A-X-9 LT AAAsf New Rating AAA(EXP)sf
A-X-10 LT AAAsf New Rating AAA(EXP)sf
A-X-11 LT AAAsf New Rating AAA(EXP)sf
B-1 LT AA-sf New Rating AA-(EXP)sf
B-2 LT Asf New Rating A(EXP)sf
B-3 LT BBBsf New Rating BBB(EXP)sf
B-4 LT BBsf New Rating BB(EXP)sf
B-5 LT B+sf New Rating B+(EXP)sf
B-6 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The certificates are supported by 469 loans with a total balance of
approximately $428.67 million as of the cutoff date. The pool
consists of prime fixed-rate mortgages (FRMs) acquired by
subsidiaries of American International Group, Inc. (AIG) from
various mortgage originators. Distributions of principal and
interest and loss allocations are based on a traditional
senior-subordinate, shifting-interest structure.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The pool consists of very
high-quality 30-year fixed-rate fully amortizing Safe Harbor
Qualified Mortgage (SHQM) loans to borrowers with strong credit
profiles, relatively low leverage, and large liquid reserves. The
loans are seasoned an average of six months, as calculated by
Fitch. The pool has a weighted average (WA) original FICO score of
777, which is indicative of very high credit-quality borrowers.
Approximately 87.1% of the loans have a borrower with an original
FICO score equal to or above 750. In addition, the original WA CLTV
ratio of 67.2% represents substantial borrower equity in the
property and reduced default risk. Agency eligible loans comprise
0.9% of the pool.
Geographic Concentration (Neutral): The pool is geographically
diverse, and as a result, no geographic concentration penalty was
applied. Approximately 33% of the pool is located in California,
which is in line with other recent Fitch-rated transactions. The
top three MSAs account for 36.4% of the pool. The largest MSA
concentration is in the Washington, D.C. MSA (16.5%), followed by
the San Francisco, CA MSA (10.7%) and the Los Angeles, CA MSA
(9.3%).
Shifting Interest Structure (Mixed): The mortgage cash flow and
loss allocation are based on a senior-subordinate,
shifting-interest structure, whereby the subordinate classes
receive only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained.
Full Servicer Advancing (Mixed): The servicer is required to make
monthly advances of delinquent principal and interest payments to
the bondholders to the extent that it is deemed recoverable. While
this feature provides liquidity to the bonds, it results in higher
loss severities as these amounts need to be recouped out of
liquidation proceeds. In the event the servicer is unable to make
the advances, they will be funded by Wells Fargo as Master
Servicer.
CE Floor (Positive): To mitigate tail risk, which arises as the
pool seasons and fewer loans are outstanding, a subordination floor
of 1.05% of the original balance will be maintained for the
certificates. Additionally, the stepdown tests do not allow
principal prepayments to subordinate bondholders in the first five
years following deal closing.
Updated Economic Risk Factor (Positive): Consistent with the
Additional Scenario Analysis section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data 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 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 September 2021 "Global Economic Outlook" and related
baseline economic scenario forecasts have been revised to a 6.2%
U.S. GDP growth for 2021 and 3.9% for 2022 following a 3.4% GDP
decline in 2020. Additionally, Fitch's U.S. unemployment forecasts
for 2021 and 2022 are 5.6% and 4.4%, respectively, down from 8.1%
in 2020. These revised forecasts support Fitch reverting to the 1.5
and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan Loss Model
Criteria."
PSMC 2021-3 has an ESG Relevance Score of '4[+]' for Transaction
Parties & Operational Risk due to well-controlled operational risk
that includes strong R&W framework, transaction due diligence
results, an 'Above Average' aggregator, and an 'Above Average'
master servicer, all of which resulted in a reduction in the
expected losses. This has a positive impact on the credit profile
and is relevant to the ratings in conjunction with other factors.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model projected 42.1% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
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 Recovco, AMC and EdgeMac. The third-party due diligence
described in Form 15E focused on credit, compliance, and property
valuation for each loan and is consistent with Fitch's criteria.
The due diligence companies performed a review on 100% of the
loans. The results indicate high quality loan origination practices
that are consistent with non-agency prime RMBS. Fitch considered
this information in its analysis and, as a result, loans with due
diligence received a credit in the loss model. This adjustment
reduced the 'AAAsf' expected losses by 19 bps.
ESG CONSIDERATIONS
PSMC 2021-3 has an ESG Relevance Score of '4[+]' for Transaction
Parties & Operational Risk due to well-controlled operational risk
that includes strong R&W framework, transaction due diligence
results, an 'Above Average' aggregator, and an 'Above Average'
master servicer, all of which resulted in a reduction in the
expected losses. This has a positive impact on the credit profile
and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
RCKT MORTGAGE 2021-4: Moody's Assigns B3 Rating to Cl. B-5 Certs
----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 46
classes of residential mortgage-backed securities (RMBS) issued by
RCKT Mortgage Trust 2021-4 (RCKT 2021-4). The ratings range from
Aaa (sf) to B3 (sf). RCKT 2021-4 is a securitization of prime jumbo
mortgage loans originated and serviced by Rocket Mortgage, LLC
(Rocket Mortgage, f/k/a Quicken Loans, LLC, rated Ba1 with Positive
outlook). The transaction is backed by 1,002 first-lien, fully
amortizing, 30-year fixed-rate qualified mortgage (QM) loans, with
an aggregate unpaid principal balance (UPB) of $968,368,411. The
average stated principal balance is $966,436.
100% of the collateral pool comprises prime jumbo mortgage loans
underwritten to Rocket Mortgage's Jumbo Smart prime jumbo
underwriting standards. The underwriting incorporates the new QM
rule that replaces the strict 43% debt-to-income (DTI) ratio basis
for the general QM with an annual percentage rate (APR) limit,
while still requiring the consideration of the DTI ratio or
residual income (the new general QM rule).
The transaction is sponsored by Woodward Capital Management LLC, a
wholly owned subsidiary of RKT Holdings, LLC (RKT Holdings). Rocket
Companies, Inc. (NYSE: RKT), is the sole managing member and an
owner of equity interests in RKT Holdings. This will be the fourth
issuance from RCKT Mortgage Trust in 2021 and the sixth transaction
for which Rocket Mortgage (wholly owned subsidiary of RKT Holdings)
is the sole originator and servicer. There is no master servicer in
this transaction. Citibank, N.A. (Citibank, rated Aa3) will be the
securities administrator and Wilmington Savings Fund Society, FSB
will be the trustee.
Transaction credit strengths include the high credit quality of the
collateral pool, the strong third-party review (TPR) results for
credit and compliance, and the prescriptive and unambiguous
representations & warranties (R&W) framework. Transaction credit
weaknesses include weaker property valuation review and having no
master servicer to oversee the primary servicer, unlike typical
prime jumbo transactions Moody's have rated.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. Moody's also compared the
collateral pool to other prime jumbo securitizations and adjusted
Moody's expected losses based on qualitative attributes, including
the financial strength of the R&W provider and TPR results.
RCKT 2021-4 has a shifting interest structure with a five-year
lockout period that benefits from a senior subordination floor and
a subordinate floor. Moody's coded the cash flow to each of the
certificate classes using Moody's proprietary cash flow tool.
The complete rating actions are as follows:
Issuer: RCKT Mortgage Trust 2021-4
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aaa (sf)
Cl. A-15, Definitive Rating Assigned Aaa (sf)
Cl. A-16, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aaa (sf)
Cl. A-18, Definitive Rating Assigned Aaa (sf)
Cl. A-19, Definitive Rating Assigned Aaa (sf)
Cl. A-20, Definitive Rating Assigned Aaa (sf)
Cl. A-21, Definitive Rating Assigned Aa1 (sf)
Cl. A-22, Definitive Rating Assigned Aa1 (sf)
Cl. A-23, Definitive Rating Assigned Aa1 (sf)
Cl. A-24, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-1*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-2*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-3*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-4*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-5*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-6*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-7*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-8*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-9*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-10*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-11*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-12*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-13*, Definitive Rating Assigned Aa1 (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-X-1*, Definitive Rating Assigned Aa3 (sf)
Cl. B-1A, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A3 (sf)
Cl. B-X-2*, Definitive Rating Assigned A3 (sf)
Cl. B-2A, Definitive Rating Assigned A3 (sf)
Cl. B-3, Definitive Rating Assigned Baa3 (sf)
Cl. B-4, Definitive Rating Assigned Ba3 (sf)
Cl. B-5, Definitive Rating Assigned 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 is 0.77%
at the mean (0.52% at the median) and reaches 5.76% 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%
(7.45%% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated 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 R&W framework of the
transaction.
Collateral Description
RCKT 2021-4 is a securitization of 1,002 first lien prime jumbo
mortgage loans with an unpaid principal balance of $968,368,411.
100% of the mortgage loans in the pool are underwritten to Rocket
Mortgage's prime jumbo guidelines. The average stated principal
balance is $966,436 and the weighted average (WA) current mortgage
rate is 3.29%. The loans in this transaction have strong borrower
characteristics with a weighted average primary borrower FICO score
of 764 and a weighted-average original loan-to-value ratio (LTV) of
73.6%. The WA original debt-to-income (DTI) ratio is 35.0%. The
average borrower total monthly income is $27,494 with an average
$143,854 of reserves.
Approximately 47.0% of the mortgages are backed by properties in
California. The next largest states by geographic concentration in
the pool are Florida (6.7% by UPB). All other states each represent
5% or less by UPB. Approximately 60.1% of the pool is backed by
single family residential properties and 36.7% is backed by PUDs.
Approximately 36.4% of the mortgages (by UPB) were originated
through the retail channel, 59.6% of the mortgages (by UPB) were
originated through the broker channel and the remaining 4.0% were
originated through the correspondent channel. Loans originated
through different origination channels often perform differently.
Typically, loans originated through a broker or correspondent
channel do not perform as well as loans originated through a retail
channel, although performance will vary by originator.
As of the cut-off date, none of the borrowers of the mortgage loans
are currently subject to a COVID-19 forbearance plan or have
contacted the servicer regarding the same. In the event a borrower
enters into a COVID-19 related forbearance plan after the cut-off
date, such mortgage loan will remain in the pool.
Origination Quality
In this transaction, the loans originated by Rocket Mortgage are
originated pursuant to the new general QM rule. To satisfy the new
rule, Rocket Mortgage implemented its non-agency Jumbo Smart
program for applications on or after March 1, 2021. Under the
program, the APR on all loans will not exceed the average prime
offer rate (APOR) +1.5%, and income and asset documentation will be
governed by the following, designed to meet the verification safe
harbor provisions of the new QM Rule via a mix of the Fannie Mae
Single Family Selling Guide, the Freddie Mac Single-Family
Seller/Servicer Guide, and the applicable program overlays.
Applicable program overlays are in place for FICO, LTV, DTI, and
reserves, among others in its underwriting.
Servicing Arrangement
Moody's assess the overall servicing arrangement for this pool as
adequate, given the ability, scale and experience of Rocket
Mortgage as a servicer. However, compared to other prime jumbo
transactions which typically have a master servicer, servicer
oversight for this transaction is weaker. While third-party review
of Rocket Mortgage's servicing operations, performance and
regulatory compliance will be conducted at least annually by an
independent accounting firm, the government-sponsored entities
(GSEs), the Consumer Financial Protection Bureau (CFPB) and state
regulators, such oversight lacks the depth and frequency that a
master servicer would typically provide.
However, Moody's did not adjust its expected losses for the weaker
servicing arrangement due to the following reasons: (1) Rocket
Mortgage's relative financial strength, scale, franchise value,
experience and demonstrated ability as a servicer, (2) Citibank as
the securities administrator will be responsible for making
advances of delinquent interest and principal if Rocket Mortgage is
unable to do so and for reconciling monthly remittances of cash by
Rocket Mortgage, (3) the R&W framework is strong and includes
triggers for delinquency and modification, which ensures that
poorly performing mortgage loans will be reviewed by a third-party,
and (4) the mortgage pool is of high credit quality.
Servicer compensation will be a monthly fee based on the
outstanding principal amount of the mortgage loans serviced, of a
per annum rate equal to 25 basis points (0.25%).
Third-Party Review
An independent TPR firm, AMC Diligence, LLC (AMC), was engaged to
conduct due diligence for the credit, regulatory compliance,
property valuation, and data accuracy for approximately 73.9% of
the loans in the transaction.
The due diligence results confirm compliance with the originator's
UW guidelines for the vast majority of mortgage loans, no material
regulatory compliance issues, and no material property valuation
exceptions. However, weaknesses exist in the property valuation
review, where 467 non-conforming loans originated under Rocket
Mortgage's Jumbo Smart prime jumbo guidelines had a property
valuation review consisting of Fannie Mae's Collateral Underwriter
score or AVM and no other third-party valuation product such as a
Collateral Desktop Analysis (CDA) and field review or second full
appraisal. Also, there are 262 loans in the pool that were not
reviewed by the due-diligence firm. As a result, Moody's applied an
adjustment to the collateral loss to these 729 loans since the
sample size of loans in the pool that were reviewed using a
third-party valuation product such as a CDA was insufficient.
Representations & Warranties
Moody's assessed RCKT 2021-4's R&W framework for this transaction
as adequate, consistent with that of other prime jumbo transactions
for which an independent reviewer is named at closing, the breach
review process is thorough, transparent and objective, and the
costs and manner of review are clearly outlined at issuance.
However, Moody's applied an adjustment to its losses to account for
the risk that Rocket Mortgage may be unable to repurchase defective
mortgage loans in a stressed economic environment, given that it is
a non-bank entity with a monoline business (mortgage origination
and servicing) that is highly correlated with the economy. However,
Moody's tempered this adjustment by taking into account Rocket
Mortgage's relative financial strength and strong TPR results which
suggest a lower probability that poorly performing mortgage loans
will be found defective following review by the independent
reviewer.
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 and a subordination lock-out amount of
1.25% and 1.10% of the cut-off date pool balance, respectively. The
floors are consistent with the credit neutral floors for the
assigned ratings according to Moody's methodology.
Transaction Structure
The securitization has a shifting interest structure that benefits
from a senior floor and a subordinate floor. Funds collected,
including principal, are first used to make interest payments and
then principal payments to the senior bonds, and then interest and
principal payments to each subordinate bond. As in all transactions
with shifting interest structures, the senior bonds benefit from a
cash flow waterfall that allocates all unscheduled principal
collections to the senior bond for a specified period and
increasing amounts of unscheduled principal collections to the
senior bond for a specified period and increasing amounts of
unscheduled principal collections to the subordinate bonds
thereafter, but only if loan performance satisfies delinquency and
loss tests. Realized losses are allocated reverse sequentially
among the subordinate and senior support certificates and on a
pro-rata basis among the super senior certificates.
Furthermore, similar to RCKT 2021-3, this transaction contains a
structural deal mechanism in which the servicer and the securities
administrator will not advance principal and interest (P&I) to
mortgage 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, because interest shortfalls resulting from
delinquencies from "Stop Advance Mortgage Loans" (SAML) is
allocated to the subordinate certificates (in reverse order of
distribution priority), then to the senior support certificates and
finally to the super-senior certificates. 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. 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.
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.
SEQUOIA MORTGAGE 2019-H6: Fitch to Rate Class B-4 Debt 'BB-(sf)'
----------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by Sequoia Mortgage Trust 2021-7 (SEMT
2021-7).
DEBT RATING
---- ------
SEMT 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-25 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
AIO-1 LT AAA(EXP)sf Expected Rating
AIO-10 LT AAA(EXP)sf Expected Rating
AIO-11 LT AAA(EXP)sf Expected Rating
AIO-12 LT AAA(EXP)sf Expected Rating
AIO-13 LT AAA(EXP)sf Expected Rating
AIO-14 LT AAA(EXP)sf Expected Rating
AIO-15 LT AAA(EXP)sf Expected Rating
AIO-16 LT AAA(EXP)sf Expected Rating
AIO-17 LT AAA(EXP)sf Expected Rating
AIO-18 LT AAA(EXP)sf Expected Rating
AIO-19 LT AAA(EXP)sf Expected Rating
AIO-2 LT AAA(EXP)sf Expected Rating
AIO-20 LT AAA(EXP)sf Expected Rating
AIO-21 LT AAA(EXP)sf Expected Rating
AIO-22 LT AAA(EXP)sf Expected Rating
AIO-23 LT AAA(EXP)sf Expected Rating
AIO-24 LT AAA(EXP)sf Expected Rating
AIO-25 LT AAA(EXP)sf Expected Rating
AIO-26 LT AAA(EXP)sf Expected Rating
AIO-3 LT AAA(EXP)sf Expected Rating
AIO-4 LT AAA(EXP)sf Expected Rating
AIO-5 LT AAA(EXP)sf Expected Rating
AIO-6 LT AAA(EXP)sf Expected Rating
AIO-7 LT AAA(EXP)sf Expected Rating
AIO-8 LT AAA(EXP)sf Expected Rating
AIO-9 LT AAA(EXP)sf Expected Rating
AIO-S LT NR(EXP)sf Expected Rating
B-1 LT AA-(EXP)sf Expected Rating
B-2 LT A-(EXP)sf Expected Rating
B-3 LT BBB-(EXP)sf Expected Rating
B-4 LT BB-(EXP)sf Expected Rating
B-5 LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 455 loans with a total balance of
approximately $407.14 million, as of the cut-off date. The pool
consists of prime fixed-rate mortgages acquired by Redwood
Residential Acquisition Corp. from various mortgage originators.
Distributions of principal and interest (P&I) and loss allocations
are based on a senior-subordinate, shifting-interest structure.
KEY RATING DRIVERS
High Quality Mortgage Pool (Positive): The collateral consists of
455 full documentation loans, totaling $407.14 million and seasoned
at approximately one month in aggregate (the difference between the
origination date and the cut-off date). The borrowers have a strong
credit profile (773 model FICO; 32.3% debt-to-income ratio]) and
moderate leverage (81.6% sustainable loan-to-value ratio). Of the
pool, 94.2% consist of loans for primary residences, while 5.8% are
for second homes. Additionally, 91.1% of the loans were originated
through a retail channel, and 100% are designated as qualified
mortgage (QM) loans.
Updated Sustainable Home Prices (Negative): "Updated Sustainable
Home Prices: Due to Fitch's updated view on sustainable home
prices, Fitch views the home price values of this pool as 13.3%
above a long-term sustainable level (vs. 11.7% on a national
level). Underlying fundamentals are not keeping pace with the
growth in prices, which is a result of a supply/demand imbalance
driven by low inventory, low mortgage rates and new buyers entering
the market. These trends have led to significant home price
increases over the past year, with home prices rising 18.6% yoy
nationally as of June 2021.
Shifting-Interest Structure (Negative): The mortgage cash flow and
loss allocation are based on a senior-subordinate,
shifting-interest structure whereby the subordinate classes receive
only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps to maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained.
Interest Reduction Risk (Negative): The transaction incorporates a
structural feature most commonly used by Redwood's program for
loans more than 120 days' delinquent (a stop-advance loan). Unpaid
interest on stop-advance loans reduces the amount of interest that
is contractually due to bondholders in reverse-sequential order.
While this feature helps to limit cash flow leakage to subordinate
bonds, it can result in interest reductions to rated bonds in
high-stress scenarios.
120-Day Stop Advance (Mixed): The deal is structured to four months
of servicer advances for delinquent P&I. The limited advancing
reduces loss severities, as a lower amount is repaid to the
servicer when a loan liquidates.
CE Floor (Positive): To mitigate tail risk, which arises as the
pool seasons and fewer loans are outstanding, a subordination floor
of 0.85% of the original balance will be maintained for the
certificates.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Fitch's incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper market value declines
(MVDs) than assumed at the MSA level. Sensitivity analysis was
conducted at the state and national level to assess the effect
of higher MVDs for the subject pool.
-- 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.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch's incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper MVDs than assumed at the
MSA level. Sensitivity analysis was conducted at the state and
national level to assess the effect of lower MVDs.
-- 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 Clayton and EdgeMac. The third-party due diligence
described in Form 15E focused on credit, compliance and property
valuations. Fitch considered this information in its analysis and,
as a result, Fitch made the following adjustment(s) to its
analysis: a 5% reduction to the loan's probability of default. This
adjustment(s) resulted in a less than 15bps reduction to the
'AAAsf' expected loss.
DATA ADEQUACY
Fitch relied in its analysis on an independent third-party due
diligence review performed on about 83% of the pool. The
third-party due diligence was consistent with Fitch's "U.S. RMBS
Rating Criteria." Clayton and EdgeMac, were engaged to perform the
review. Loans reviewed under this engagement were given compliance,
credit and valuation grades and assigned initial grades for each
subcategory. Minimal exceptions and waivers were noted in the due
diligence reports. Refer to the Third-Party Due Diligence section
of the presale report for 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
SEMT 2021-7 has an ESG Relevance Score of '4' [+] for Transaction
Parties & Operational Risk due to {DESCRIPTION OF ISSUE/RATIONALE},
which has a positive impact on the credit profile, and is relevant
to the rating[s] in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
SEQUOIA MORTGAGE 2021-6: Fitch Rates Class B4 Certs 'BB-'
---------------------------------------------------------
Fitch Ratings has rated the residential mortgage-backed
certificates issued by Sequoia Mortgage Trust 2021-6 (SEMT
2021-6).
DEBT RATING PRIOR
---- ------ -----
SEMT 2021-6
A1 LT AAAsf New Rating AAA(EXP)sf
A10 LT AAAsf New Rating AAA(EXP)sf
A11 LT AAAsf New Rating AAA(EXP)sf
A12 LT AAAsf New Rating AAA(EXP)sf
A13 LT AAAsf New Rating AAA(EXP)sf
A14 LT AAAsf New Rating AAA(EXP)sf
A15 LT AAAsf New Rating AAA(EXP)sf
A16 LT AAAsf New Rating AAA(EXP)sf
A17 LT AAAsf New Rating AAA(EXP)sf
A18 LT AAAsf New Rating AAA(EXP)sf
A19 LT AAAsf New Rating AAA(EXP)sf
A2 LT AAAsf New Rating AAA(EXP)sf
A20 LT AAAsf New Rating AAA(EXP)sf
A21 LT AAAsf New Rating AAA(EXP)sf
A22 LT AAAsf New Rating AAA(EXP)sf
A23 LT AAAsf New Rating AAA(EXP)sf
A24 LT AAAsf New Rating AAA(EXP)sf
A25 LT AAAsf New Rating AAA(EXP)sf
A3 LT AAAsf New Rating AAA(EXP)sf
A4 LT AAAsf New Rating AAA(EXP)sf
A5 LT AAAsf New Rating AAA(EXP)sf
A6 LT AAAsf New Rating AAA(EXP)sf
A7 LT AAAsf New Rating AAA(EXP)sf
A8 LT AAAsf New Rating AAA(EXP)sf
A9 LT AAAsf New Rating AAA(EXP)sf
AIO1 LT AAAsf New Rating AAA(EXP)sf
AIO10 LT AAAsf New Rating AAA(EXP)sf
AIO11 LT AAAsf New Rating AAA(EXP)sf
AIO12 LT AAAsf New Rating AAA(EXP)sf
AIO13 LT AAAsf New Rating AAA(EXP)sf
AIO14 LT AAAsf New Rating AAA(EXP)sf
AIO15 LT AAAsf New Rating AAA(EXP)sf
AIO16 LT AAAsf New Rating AAA(EXP)sf
AIO17 LT AAAsf New Rating AAA(EXP)sf
AIO18 LT AAAsf New Rating AAA(EXP)sf
AIO19 LT AAAsf New Rating AAA(EXP)sf
AIO2 LT AAAsf New Rating AAA(EXP)sf
AIO20 LT AAAsf New Rating AAA(EXP)sf
AIO21 LT AAAsf New Rating AAA(EXP)sf
AIO22 LT AAAsf New Rating AAA(EXP)sf
AIO23 LT AAAsf New Rating AAA(EXP)sf
AIO24 LT AAAsf New Rating AAA(EXP)sf
AIO25 LT AAAsf New Rating AAA(EXP)sf
AIO26 LT AAAsf New Rating AAA(EXP)sf
AIO3 LT AAAsf New Rating AAA(EXP)sf
AIO4 LT AAAsf New Rating AAA(EXP)sf
AIO5 LT AAAsf New Rating AAA(EXP)sf
AIO6 LT AAAsf New Rating AAA(EXP)sf
AIO7 LT AAAsf New Rating AAA(EXP)sf
AIO8 LT AAAsf New Rating AAA(EXP)sf
AIO9 LT AAAsf New Rating AAA(EXP)sf
AIOS LT NRsf New Rating NR(EXP)sf
B1 LT AA-sf New Rating AA-(EXP)sf
B2 LT A-sf New Rating A-(EXP)sf
B3 LT BBB-sf New Rating BBB-(EXP)sf
B4 LT BB-sf New Rating BB-(EXP)sf
B5 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The certificates are supported by 497 loans with a total balance of
approximately $448.88 million, as of the cut-off date. The pool
consists of prime fixed-rate mortgages acquired by Redwood
Residential Acquisition Corp. from various mortgage originators.
Distributions of principal and interest (P&I) and loss allocations
are based on a senior-subordinate, shifting-interest structure.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The collateral consists of
497 full documentation loans, totaling $448.88 million and seasoned
approximately one month in aggregate (difference between
origination date and cut-off date). The borrowers have a strong
credit profile (773 model FICO, 32.3% debt to income ratio) and
moderate leverage (75.5% sustainable loan to value ratio). Of the
pool, 94.5% consist of loans for primary residences, while 5.5% are
for second homes. Additionally, 91.0% of the loans were originated
through a retail channel, and 100% are designated as a qualified
mortgage loan.
Shifting-Interest Structure (Negative): 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.
Interest Reduction Risk (Negative): The transaction incorporates a
structural feature most commonly used by Redwood's program for
loans more than 120 days delinquent (a stop-advance loan). Unpaid
interest on stop-advance loans reduces the amount of interest that
is contractually due to bondholders in reverse-sequential order.
While this feature helps limit cash flow leakage to subordinate
bonds, it can result in interest reductions to rated bonds in high
stress scenarios.
120-Day Stop Advance (Mixed): The deal is structured to four months
of servicer advances for delinquent P&I. The limited advancing
reduces loss severities as a lower amount is repaid to the servicer
when a loan liquidates.
CE Floor (Positive): To mitigate tail risk, which arises as the
pool seasons and fewer loans are outstanding, a subordination floor
of 0.85% of the original balance will be maintained for the
certificates.
Updated Economic Risk Factor (Positive): Consistent with the
Additional Scenario Analysis section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario or
if actual performance data 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 Economic Risk Factor (ERF)
floors of 2.0 and used ERF floors of 1.5 and 1.0 for the 'BBsf' and
'Bsf' rating stresses, respectively. Fitch's "Global Economic
Outlook - March 2021" and related baseline economic scenario
forecasts have been revised to 6.2% U.S. GDP growth for 2021 and
3.3% for 2022 following negative 3.5% GDP growth in 2020.
Additionally, Fitch's U.S. unemployment forecasts for 2021 and 2022
are 5.8% and 4.7%, respectively, which is down from 8.1% in 2020.
These revised forecasts support Fitch reverting to the 1.5 and 1.0
ERF floors described in Fitch's "U.S. RMBS Loan Loss Model
Criteria."
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Fitch's incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper market value declines
(MVDs) than assumed at the MSA level. Sensitivity analysis was
conducted at the state and national level to assess the effect
of higher MVDs for the subject pool. 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.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch's incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper MVDs than assumed at the
MSA level. Sensitivity analysis was conducted at the state and
national level to assess the effect of lower MVDs. 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 Clayton and EdgeMac. The third-party due diligence
described in Form 15E focused on credit, compliance and property
valuations. Fitch considered this information in its analysis and,
as a result, Fitch made the following adjustment(s) to its
analysis: a 5% reduction to the loan's probability of default. This
adjustment(s) resulted in a less than 13bps reduction to the
'AAAsf' expected loss.
DATA ADEQUACY
Fitch relied in its analysis on an independent third-party due
diligence review performed on about 81% of the pool. The
third-party due diligence was consistent with Fitch's "U.S. RMBS
Rating Criteria." Clayton and EdgeMac, were engaged to perform the
review. Loans reviewed under this engagement were given compliance,
credit and valuation grades and assigned initial grades for each
subcategory. Minimal exceptions and waivers were noted in the due
diligence reports. Refer to the Third-Party Due Diligence section
of the presale report for 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
Sequoia Mortgage Trust 2021-6 has an ESG Relevance Score of '4' [+]
for Transaction Parties & Operational Risk due to the strong
counterparties and well controlled operational considerations.,
which has a positive impact on the credit profile, and is relevant
to the rating[s] in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
SHACKLETON LTD 2021-XVI: Moody's Gives (P)Ba3 Rating to Cl. E Notes
-------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to six
classes of notes to be issued by Shackleton 2021-XVI CLO, Ltd. (the
"Issuer" or "Shackleton 2021-XVI").
Moody's rating action is as follows:
US$252,000,000 Class A Senior Secured Floating Rate Notes due 2034,
Assigned (P)Aaa (sf)
US$48,600,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned (P)Aa2 (sf)
US$19,400,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)A2 (sf)
US$19,000,000 Class D-1 Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Baa2 (sf)
US$11,000,000 Class D-2 Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned (P)Ba1 (sf)
US$18,000,000 Class E Mezzanine 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.
Shackleton 2021-XVI 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 second lien loans, senior
unsecured loans and first-lien last-out loans. Moody's expect the
portfolio to be approximately 80% ramped as of the closing date.
Alcentra NY, 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: $400,000,000
Diversity Score: 65
Weighted Average Rating Factor (WARF): 2925
Weighted Average Spread (WAS): 3.35%
Weighted Average Coupon (WAC): 7.0%
Weighted Average Recovery Rate (WARR): 47.25%
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.
SREIT TRUST 2021-PALM: S&P Assigns Prelim B- (sf) Rating F Certs
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to SREIT Trust
2021-PALM's commercial mortgage pass-through certificates.
The note issuance is a U.S. CMBS securitization backed by the
borrower's fee simple interests in a two-building multifamily
rental property located in Dadeland, Fla.
The preliminary ratings are based on information as of Oct. 6,
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 collateral's
historical and projected performance, the experience of the sponsor
and the manager, the trustee-provided liquidity, the mortgage loan
terms, and the transaction's structure.
Preliminary Ratings Assigned(i)
SRIET Trust 2021-PALM
Class A, $93,680,000: AAA (sf)
Class B, $22,520,000: AA- (sf)
Class C, $16,750,000: A- (sf)
Class D, $17,140,000: BBB- (sf)
Class E, $19,930,000: BB- (sf)
Class F, $20,930,000: B- (sf)
Class G, $55,860,000: NR
Class HRR(ii), $12,990,000: NR
(i)The issuer will issue the certificates to qualified
institutional buyers in line with Rule 144A of the Securities Act
of 1933.
(ii)Horizontal risk retention certificates.
NR--Not rated.
STACR REMIC 2021-HQA3: Moody's Assigns B1 Rating to 10 Tranches
---------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to
classes of credit risk transfer notes issued by Freddie Mac STACR
REMIC TRUST 2021-HQA3. The ratings range from Baa3 (sf) to B1 (sf).
Freddie Mac STACR REMIC TRUST 2021-HQA3 (STACR 2021-HQA3) is the
third transaction of 2021 in the HQA series issued by the Federal
Home Loan Mortgage Corporation (Freddie Mac) to share the credit
risk on a reference pool of mortgages with the capital markets. The
transaction is structured as a real estate mortgage investment
conduit (REMIC). Class coupons of floating rate notes are based on
secured overnight financing rate (SOFR) and their respective fixed
margin.
The notes in STACR 2021-HQA3 receive principal payments as the
loans in the reference pool amortize or prepay. Principal payments
to the notes are paid from assets in the trust account established
from proceeds of the notes issuance. Interest payments to the notes
are paid from a combination of investment income from trust assets,
an asset of the trust known as the interest-only (IO) Q-REMIC
interest, and Freddie Mac. Freddie Mac is responsible to cover (1)
any interest owed on the notes not covered by the investment income
from the trust assets and the yield on the IO Q-REMIC interest and
(2) to reimburse the trust for any investment losses from sales of
the trust assets.
Investors have no recourse to the underlying reference pool. The
credit risk exposure of the notes depends on the actual realized
losses and modification losses incurred by the reference pool.
Freddie Mac is obligated to pay off the notes in September 2041 if
any balances remain outstanding. Of note, this is the first STACR
REMIC transaction in the 2021 HQA series with 20-year stated bullet
maturity on the offered notes, instead of 12.5-year maturity for
most recent transactions.
In this transaction, the notes' coupon is indexed to SOFR. Based on
the transaction's synthetic structure, the particular choice of
benchmark has minimal credit impact. Interest payments to the notes
are backstopped by the sponsor, which prevents the notes from
incurring interest shortfalls as a result of increases in the
benchmark index. However, the coupon rate on the notes could impact
the amount of interest available to absorb modification losses, if
any, from the reference pool.
The complete rating actions are as follows:
Issuer: Freddie Mac STACR REMIC TRUST 2021-HQA3
Cl. M-1, Definitive Rating Assigned Baa3 (sf)
Cl. M-2, Definitive Rating Assigned Ba3 (sf)
Cl. M-2A, Definitive Rating Assigned Ba2 (sf)
Cl. M-2AI*, Definitive Rating Assigned Ba2 (sf)
Cl. M-2AR, Definitive Rating Assigned Ba2 (sf)
Cl. M-2AS, Definitive Rating Assigned Ba2 (sf)
Cl. M-2AT, Definitive Rating Assigned Ba2 (sf)
Cl. M-2AU, Definitive Rating Assigned Ba2 (sf)
Cl. M-2B, Definitive Rating Assigned B1 (sf)
Cl. M-2BI*, Definitive Rating Assigned B1 (sf)
Cl. M-2BR, Definitive Rating Assigned B1 (sf)
Cl. M-2BS, Definitive Rating Assigned B1 (sf)
Cl. M-2BT, Definitive Rating Assigned B1 (sf)
Cl. M-2BU, Definitive Rating Assigned B1 (sf)
Cl. M-2I*, Definitive Rating Assigned Ba3 (sf)
Cl. M-2R, Definitive Rating Assigned Ba3 (sf)
Cl. M-2RB, Definitive Rating Assigned B1 (sf)
Cl. M-2S, Definitive Rating Assigned Ba3 (sf)
Cl. M-2SB, Definitive Rating Assigned B1 (sf)
Cl. M-2T, Definitive Rating Assigned Ba3 (sf)
Cl. M-2TB, Definitive Rating Assigned B1 (sf)
Cl. M-2U, Definitive Rating Assigned Ba3 (sf)
Cl. M-2UB, Definitive Rating Assigned B1 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss for this pool in a baseline scenario-mean is
0.93%, in a baseline scenario-median is 0.71%, and reaches 5.06% at
a stress level consistent with Moody's Aaa ratings.
Moody's calculated losses on the pool using US Moody's Individual
Loan Analysis (MILAN) GSE model based on the loan-level collateral
information as of the cut-off date. Loan-level adjustments to the
model results included, but were not limited to, qualitative
adjustments for origination quality and third-party review (TPR)
scope.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of MBS - Other 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%
(8% for the mean) and Moody's Aaa loss by 2.5% to reflect the
likely performance deterioration resulting from the slowdown in US
economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5% Aaa
loss adjustments Moody's made on pools from deals issued after the
onset of the pandemic until February 2021. Moody's reduced
adjustments reflect the fact that the loan pool in this deal does
not contain any loans to borrowers who are not currently making
payments. For newly originated loans, post-COVID underwriting takes
into account the impact of the pandemic on a borrower's ability to
repay the mortgage. For seasoned loans, as time passes, the
likelihood that borrowers who have continued to make payments
throughout the pandemic will now become non-cash flowing due to
COVID-19 continues to decline.
Servicing practices, including tracking coronavirus related loss
mitigation activities, may vary among servicers in the transaction.
These inconsistencies could impact reported collateral performance
and affect the timing of any breach of performance triggers and the
amount of modification losses. Moody's may infer and extrapolate
from the information provided based on this or other transactions
or industry information, or make stressed assumptions.
Collateral Description
The reference pool consists of 123,827 prime, fixed-rate, one- to
four-unit, first-lien conforming mortgage loans acquired by Freddie
Mac. The loans were originated on or after January 1, 2015 with a
weighted average seasoning of seven months. Each of the loans in
the reference pool had a loan-to-value (LTV) ratio at origination
that was greater than 80% and less than or equal to 97%. 8.6% of
the pool are loans underwritten through Home Possible and 98.4% of
loans in the pool are covered by mortgage insurance as of the
cut-off date.
About 20.5% of loans (by balance) in this transaction were
underwritten through Freddie Mac's Automated Collateral Evaluation
(ACE) program. Under ACE program, Freddie Mac assesses whether the
estimate of value or sales price of a mortgaged property, as
submitted by the seller, is acceptable as the basis for the
underwriting of the mortgage loan. If a loan is assessed as
eligible for appraisal waiver, the seller will not be required to
obtain an appraisal and will be relieved from R&Ws related to
value, condition and marketability of the property. A loan
originated without a full appraisal will lack details about the
property's condition. Moody's consider ACE loans weaker than loans
with full appraisal. Specifically, for refinance loans, seller
estimated value, which is the basis for calculating LTV, may be
biased where there is no arms-length transaction information.
Although such value is validated against Freddie Mac's in-house HVE
model, there's still possibility for over valuations subject to
Freddie Mac's tolerance levels. All ACE loans in this transaction
are either rate or term refinance loans where Moody's made haircuts
to property values to account for overvaluation risk.
Aggregation/Origination Quality
Moody's consider Freddie Mac's overall seller management and
aggregation practices to be adequate and Moody's did not apply a
separate loss-level adjustment for aggregation quality.
Underwriting
Freddie Mac uses a delegated underwriting process to purchase
loans. Sellers are required to represent and warrant that loans are
made in accordance with negotiated terms or Freddie Mac's guide.
Numerous checks in the selling system ensures that loans with the
correct characteristics are delivered to Freddie Mac. Sellers are
required to cure, make an indemnification payment or repurchase the
loans if a material underwriting defect is discovered subject to
certain limits. In certain cases, Freddie Mac may elect to waive
the enforcements of the repurchase if an alternative such as an
indemnification payment is provided.
Quality Control
Freddie Mac monitors each seller's risk exposure both on an
aggregated basis as well as by product lines. A surveillance team
reviews sellers' financials at least on an annual basis, monitors
exposure limits, risk ratings, lenders QC reports and internal
audit results and may adjust credit limits, require additional
loan/operational reviews or put the seller on a watch list, as
needed.
Home Possible Program
Approximately 8.6% of the loans by cut-off date balance were
originated under the Home Possible program. The program is designed
to make responsible homeownership accessible to low- to
moderate-income homebuyers, by requiring low down payments, lower
risk-adjusted pricing, flexibility in sources of income, and, in
certain circumstances, lower than standard mortgage insurance
coverage.
Home Possible loans in STACR 2021-HQA3's reference pool,
collectively, have a WA FICO of 749 and WA LTV of 92.8%, versus a
WA FICO of 754 and a WA LTV of 90.1% for the rest of the loans in
the pool. While Moody's MILAN model takes into account
characteristics listed on the loan tape, such as lower FICOs and
higher LTVs, there may be risks not captured by Moody's model due
to less stringent underwriting, including allowing more flexible
sources of funds for down payment and lower risk-adjusted pricing.
Moody's applied an adjustment to the loss levels to address the
additional risks that Home Possible loans may add to the reference
pool.
Enhanced Relief Refinance (ERR)
The ERR program is designed to provide refinance opportunities to
borrowers with existing Freddie Mac's mortgage loans who are
current on their mortgage payments but whose LTV ratios exceed the
maximum permitted for standard refinance products. The program is
intended to offer refinance opportunities to borrowers so they can
reduce their monthly payment. STACR 2021-HQA3's reference pool does
not include ERR loans at closing, however, transaction documents
allow for the replacement of loans in the reference pool with ERR
loans in the future. The replacement will not constitute a
prepayment on the replaced loan, credit event or a modification
event.
At closing, Moody's did not make any adjustment to its collateral
losses due to the existence of the ERR program. Moody's believe the
programs are beneficial for loans in the pool, especially during an
economic downturn when limited refinancing opportunities would be
available to borrowers with low or negative equity in their
properties. However, since such refinanced loans are likely to have
later maturities and slower prepayment rates than the rest of the
loans, the reference pool is at risk of having a high concentration
of high LTV loans at the tail of the transaction's life. Moody's
will monitor ERR loans in the reference pool and may make an
adjustment in the future if the percentage of them becomes
significant after closing.
Mortgage insurance
99.9% (by balance) of the loans in the pool were originated with
mortgage insurance. 98.2% of the loans benefit from BPMI which is
usually terminated when LTV falls below 78% under scheduled
amortization, and 1.7% of the loans benefit from LPMI or IPMI which
lasts through the life of the loan.
Freddie Mac will cover the amount that is reported as payable under
any effective mortgage insurance policy, but not received due to a
mortgage insurer insolvency or due to a settlement between the
mortgage insurer and Freddie Mac. The servicer is required to
reimburse Freddie Mac for claim curtailments rejections due to the
servicer's violation of the mortgage insurance policy.
The MILAN model output accounts for the presence of mortgage
insurance backed by Freddie Mac. Moody's rejection rate assumption
is 0% under base case and 1% under Aaa scenario.
Servicing arrangement
As master servicer, Freddie Mac has strong servicer oversight and
monitoring processes. Generally, Freddie Mac does not itself
conduct servicing activities. When a mortgage loan is sold to
Freddie Mac, the seller enters into an agreement to service the
mortgage loan for Freddie Mac in accordance with a comprehensive
servicing guide for servicers to follow. Freddie Mac monitors
primary servicer performance and compliance through its Servicer
Success Program, scorecard and servicing quality assurance group.
Freddie Mac also reviews individual loan files to identify
servicing performance gaps and trends.
Moody's consider the servicing arrangement to be adequate and
Moody's did not make any adjustments to Moody's loss levels based
on Freddie Mac's servicer management.
Third-party Review
Moody's consider the scope of the TPR based on Freddie Mac's
acquisition and QC framework to be adequate. Moody's assessed an
adjustment to loss at a Aaa stress level due to lack of compliance
review on TILA-RESPA Integrated Disclosure (TRID) violations.
The results and scope of the pre-securitization third-party,
loan-level review (due diligence) suggest a heavier reliance on
sellers' representations and warranties (R&Ws) compared with
private label securitizations. The scope of the TPR, for example,
is weaker because the sample size is small (only 0.37% of the loans
in reference pool are included in the sample). To the extent that
the TPR firm classifies certain credit or valuation discrepancies
as 'findings', Freddie Mac will review and may provide rebuttals to
those findings, which could result in the change of event grades by
the review firm.
The third-party due diligence scope focuses on the following:
Compliance: The diligence firm reviewed 332 loans for compliance
with federal, state and local high cost Home Ownership and Equity
Protection Act (HOEPA) regulations (304 loans were reviewed for
compliance plus 28 loans were reviewed for both credit/valuation
and compliance). None were determined to be noncompliant.
Appraisals: The third-party diligence provider also reviewed
property valuation on 1,108 loans in the sample pool (1,080 loans
were reviewed for credit/valuation plus 28 loans were reviewed for
both credit/valuation and compliance). 22 loans received final
valuation grades of "C". 20 of the 22 loans are ACE loans and had
Appraisal Desktop with Inspections (ADI) which did not support the
original appraised value within the 10% tolerance. The valuation
result is in line with the prior STACR transaction in terms of
percentage of TPR sample. Moody's didn't make additional adjustment
based on this result given Moody's have already made property value
haircuts to all ACE loans in the reference pool.
Credit: The third-party diligence provider reviewed credit on 1,108
loans in the sample pool. Within these 1,108 loans, the diligence
provider reviewed 1,080 loans for credit only, and 28 loans were
reviewed for both credit/valuation and compliance. 4 loans had
final grades of "C" and 2 loans had final grades of "D" due to
underwriting defects. These loans were removed from the
transaction. The results were better than prior STACR transactions
Moody's rated.
Data integrity: The third-party review firm analyzed the sample
pool for data calculation and comparison to the imaged file
documents. The review revealed 84 data discrepancies on 79 loans.
Unlike private label RMBS transactions, a review of TRID violation
was not part of Freddie Mac's due diligence scope. A lack of
transparency regarding how many loans in the transaction contain
material violations of the TRID rule is a credit negative. However,
since Moody's expect overall losses on STACR transactions owing to
TRID violations to be fairly minimal, Moody's only made a slight
qualitative adjustment to losses under a Aaa scenario. Furthermore,
lender R&Ws and the GSEs' ability to remove defective loans from
the transactions will likely mitigate some of aforementioned
concerns.
Reps & Warranties Framework
Freddie Mac is not providing loan level R&Ws for this transaction
because the notes are a direct obligation of Freddie Mac. The
reference obligations are subject to R&Ws made by the sellers. As
such, Freddie Mac commands robust R&Ws from its seller/servicers
pertaining to all facets of the loan, including but not limited to
compliance with laws, compliance with all underwriting guidelines,
enforceability, good property condition and appraisal procedures.
Freddie Mac will be responsible for enforcing the R&Ws made by the
sellers/lenders in the reference pool. To the extent that Freddie
Mac discovers a confirmed underwriting defect or a major servicing
defect, the respective loan will be removed from the reference
pool. Since Freddie Mac retains a significant portion of the risk
in the transaction, it will likely take necessary steps to address
any breaches of R&Ws. For example, Freddie Mac undertakes quality
control reviews and servicing quality assurance reviews of small
samples of the mortgage loans that sellers deliver to Freddie Mac.
These processes are intended to determine, among other things, the
accuracy of the R&Ws made by the sellers in respect of the mortgage
loans that are sold to Freddie Mac. Moody's made no adjustments to
the transaction regarding the R&W framework.
The notes
Moody's refer to the M-1, M-2A, M-2B, B-1A, B-1B, B-2A and B-2B
notes as the original notes, and the M-2, M-2R, M-2S, M-2T, M-2U,
M-2I, M-2AR, M-2AS, M-2AT, M-2AU, M-2AI, M-2BR, M-2BS, M-2BT,
M-2BU, M-2BI, M-2RB, M-2SB, M-2TB, M-2UB, B-1, B-2, B-1AR, B-1AI,
B-2AR and B-2AI notes as the Modifiable and Combinable REMICs
(MACR) notes; together Moody's refer to them as the notes.
The M-2 notes can be exchanged for M-2A and M-2B notes, M-2R and
M-2I notes, M-2S and M-2I, M-2T and M-2I, and M-2U and M-2I notes.
The M-2A notes can be exchanged for M-2AR and M-2AI notes, M-2AS
and M-2AI notes, M-2AT and M-2AI, and M-2AU and M-2AI notes.
The M-2B notes can be exchanged for M-2BR and M-2BI notes, M-2BS
and M-2BI notes, M-2BT and M-2BI notes, and M-2BU and M-2BI notes.
Classes M-2I, M-2AI, M-2BI, B-1AI and B-2AI are interest only notes
referencing to the balances of Classes M-2, M-2A, M-2B, B-1A and
B-2A, respectively.
Classes M-2RB, M-2SB, M-2TB and M-2UB are each an exchangeable for
two classes that are initially offered at closing. Moody's ratings
of M-2RB, M-2SB, M-2TB and M-2UB reference the rating of Class M-2B
only, disregarding the rating of M-2AI. This is the case because
Class M-2AI's cash flow represents an insignificant portion of the
overall promise. In the event Class M-2B gets written down through
losses and Class M-2AI is still outstanding, Moody's would continue
to rate Classes M-2RB, M-2SB, M-2TB and M-2UB consistent with Class
M-2B's last outstanding rating so long as Classes M-2RB, M-2SB,
M-2TB and M-2UB are still outstanding.
Transaction Structure
Credit enhancement in this transaction is comprised of
subordination provided by mezzanine and junior tranches. Realized
losses are allocated in a reverse sequential order starting with
the Class B-3H reference tranche.
Interest due on the notes is determined by the outstanding
principal balance and the interest rate of the notes. The interest
payment amount is the interest accrual amount of a class of notes
minus any modification loss amount allocated to such class on each
payment date, or plus any modification gain amount. The
modification loss and gain amounts are calculated by taking the
respective positive and negative difference between the original
accrual rate of the loans, multiplied by the unpaid balance of the
loans, and the current accrual rate of the loans, multiplied by the
interest-bearing unpaid balance.
So long as the senior reference tranche is outstanding, and no
performance trigger event occurs, the transaction structure
allocates principal payments on a pro-rata basis between the senior
and non-senior reference tranches. Principal is then allocated
sequentially amongst the non-senior tranches.
The STACR 2021-HQA3 transaction allows for principal distribution
to subordinate notes by the supplemental subordinate reduction
amount even if performance triggers fail. The supplemental
subordinate reduction amount equals the excess of the offered
reference tranche percentage over 5.5%. The distribution of the
supplemental subordinated reduction amount would reduce principal
balances of the offered reference tranche and correspondingly limit
the credit enhancement of class A-H reference tranche to be always
below 5.5% plus the note balance of B-3H. This feature is
beneficial to the offered certificates.
Credit Events and Modification Events
Reference tranche write-downs occur as a result of loan level
credit events. A credit event with respect to any loan means any of
the following events: (i) a short sale with respect to the related
mortgaged property is settled, (ii) a related seriously delinquent
mortgage note is sold prior to foreclosure, (iii) the mortgaged
property that secured the related mortgage note is sold to a third
party at a foreclosure sale, (iv) an REO disposition occurs, or (v)
the related mortgage note is charged-off. As a result, the
frequency of credit events will be the same as actual loan default
frequency, and losses will impact the notes similar to that of a
typical RMBS deal.
Loans that experience credit events that are subsequently found to
have an underwriting defect, a major servicing defect or are deemed
ineligible will be subject to a reverse credit event. Reference
tranche balances will be written up for all reverse credit events
in sequential order, beginning with the most senior tranche that
has been subject to a previous write-down. In addition, the amount
of the tranche write-up will be treated as an additional principal
recovery, and will be paid to noteholders in accordance with the
cash flow waterfall.
If a loan experiences a forbearance or mortgage rate modification,
the difference between the original mortgage rate and the current
mortgage rate will be allocated to the reference tranches as a
modification loss. The Class B-3H reference tranche, which
represents 0.25% of the pool, will absorb modification losses
first. The final coupons on the notes will have an impact on the
amount of interest available to absorb modification losses from the
reference pool.
Tail Risk
Similar to prior STACR transactions, the initial subordination
level of 3.25% is lower than the deal's minimum credit enhancement
trigger level of 3.5%. The transaction begins by failing the
minimum credit enhancement test, leaving the subordinate tranches
locked out of unscheduled principal payments until the deal builds
an additional 0.25% subordination. STACR 2021-HQA3 does not have a
subordination floor. This is mitigated by the sequential principal
payment structure of the deal, which ensures that the credit
enhancement of the subordinate tranches is not eroded early in the
life of the transaction.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
STARWOOD MORTGAGE 2021-4: Fitch Gives Final 'B-' to B-2 Debt
-------------------------------------------------------------
Fitch Ratings has assigned final ratings to Starwood Mortgage
Residential Trust 2021-4.
DEBT RATING PRIOR
---- ------ -----
STAR 2021-4
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAsf New Rating AA(EXP)sf
A-3 LT Asf New Rating A(EXP)sf
M-1 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT B-sf New Rating B-(EXP)sf
B-3-1 LT NRsf New Rating NR(EXP)sf
B-3-2-RR LT NRsf New Rating NR(EXP)sf
XS LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Fitch rates the residential mortgage-backed certificates to be
issued by Starwood Mortgage Residential Trust 2021-4,
Mortgage-Backed Certificates, Series 2021-4 (STAR 2021-4) as
indicated above. The certificates are supported by 915 loans with a
balance of approximately $465.3 million as of the cutoff date. This
will be the third Fitch-rated STAR transaction in 2021.
The certificates are secured primarily by mortgage loans that were
originated by third-party originators, with Luxury Mortgage
Corporation, HomeBridge Financial Services, Inc., Impac Mortgage
Corp., and United Shore Financial Services, LLC sourcing 83.3% of
the pool while the remaining 16.7% of the pool were originated by
various third-party originators each contributing less than 10%. Of
the loans in the pool, 34.9% are designated as nonqualified
mortgage (non-QM), and 51.3% are investment properties not subject
to Ability to Repay Rule (ATR). 14.2% of loans are designated as QM
or higher priced QM in the pool.
There is LIBOR exposure in this transaction. The collateral
consists of 24.5% adjustable-rate loans, which reference one-year
LIBOR while the remaining adjustable-rate loans reference one-year
treasury, and one-month SOFR. The certificates are fixed rate and
capped at the net weighted average coupon.
Fitch determined that 96 loans are in a FEMA declared disaster area
for individual assistance. The Servicers confirmed that as of Sept.
8, 2021 none of the homes in the impacted areas suffered damage. As
a result, there was no impact to the transaction.
KEY RATING DRIVERS
Nonprime Credit Quality (Mixed): The collateral consists mainly of
30-year, fixed-rate fully amortizing loans (59.3%), the remaining
40.7% are adjustable rate loans (mainly 5/1, 7/1 ARMs). The pool is
seasoned approximately 23 months in aggregate, as determined by
Fitch. The borrowers in this pool have a relatively strong credit
profiles with a 734 WA FICO score and an original combined loan to
value (CLTV) of 68.3% that translates to a Fitch calculated sLTV of
70.9%. Fitch determined the DTI to be 46%. The Fitch DTI is higher
than the DTI in the transaction documents, due to Fitch assuming a
55% DTI for asset depletion loans and converting debt service
coverage ratio (DSCR) to a DTI for the DSCR loans.
Of the pool, 46.6% consists of loans where the borrower maintains a
primary residence, while 53.4% comprises an investor property or
second home; 24.1% of the loans were originated through a retail
channel. Additionally, 34.9% are designated as Non-QM, 13.6% are
designated as QM, 0.6% are designated as high-priced QM, and 51.3%
are exempt from QM since they are investor loans.
The pool contains 95 loans over $1 million, with the largest $4.41
million. Self-employed non-DSCR borrowers make up 43.7% of the
pool, 4.6% are asset depletion loans, and 43.0% are investor cash
flow DSCR loans.
Approximately 51.3% of the pool comprises loans on investor
properties (8.5% underwritten to the borrowers' credit profile and
42.8% comprising investor cash flow loans). 0.7% of the loans have
subordinate financing, and there are no second lien loans. 122
loans in the pool had a deferred balance, which was treated by
Fitch as a junior lien and the CLTV for that loan was increased to
account for the amount still owed on the loan.
14 loans in the pool were underwritten to foreign nationals or
non-permanent residents. Fitch treated these loans as being
investor occupied, having no documentation for income and
employment, and having no liquid reserve. Fitch assumed a FICO of
650 for non-permanent residents without a credit score.
Although the credit quality of the borrowers is higher than prior
NQM transactions, the pool characteristics resemble non-prime
collateral, and therefore, the pool was analyzed using Fitch's
non-prime model.
Approximately 48% of the pool is concentrated in California. The
largest MSA concentration is in the Los Angeles-Long Beach-Santa
Ana, CA MSA (27.4%), followed by the New York-Northern New
Jersey-Long Island, NY-NJ-PA MSA (23.5%) and the Miami-Fort
Lauderdale-Miami Beach MSA (6.2%). The top three MSAs account for
57.1% of the pool. As a result, there was a 1.29x PD penalty for
geographic concentration which increased the 'AAAsf' loss by
1.13%.
Loan Documentation (Negative): Approximately 80.9% of the pool was
underwritten to less than full documentation. 29.9% was
underwritten to a 12 or 24 month bank statement program for
verifying income, which is not consistent with Appendix Q standards
and Fitch's view of a full documentation program. A key distinction
between this pool and legacy Alt-A loans is that these loans adhere
to underwriting and documentation standards required under the
CFPB's ATR Rule (Rule), which reduces the risk of borrower default
arising from lack of affordability, misrepresentation or other
operational quality risks due to rigor of the Rule's mandates with
respect to the underwriting and documentation of the borrower's
ATR. Additionally, 4.6% is an Asset Depletion product, 0% is a CPA
or PnL product, and 43.0% is DSCR product.
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
certificates while shutting out the mezzanine and subordinate bonds
from principal until all three classes have been reduced to zero.
To the extent that either the cumulative loss trigger event or the
delinquency trigger event occurs in a given period, principal will
be distributed sequentially to the class A-1, A-2 and A-3 bonds
until they are reduced to zero.
Macro or Sector Risks (Positive): Consistent with the Additional
Scenario Analysis section of Fitch's "U.S. RMBS Coronavirus-Related
Analytical Assumptions" criteria, Fitch will consider applying
additional scenario analysis based on stressed assumptions as
described in the section to remain consistent with significant
revisions to Fitch's macroeconomic baseline scenario or if actual
performance data indicate the current assumptions require
reconsideration.
In response to revisions made to Fitch's macroeconomic baseline
scenario, observed actual performance data, and the unexpected
development in the health crisis arising from the advancement and
availability of Covid-19 vaccines, Fitch reconsidered the
application of the coronavirus-related Economic Risk Factor (ERF)
floors of 2.0 and used ERF floors of 1.5 and 1.0 for the 'BBsf' and
'Bsf' rating stresses, respectively. Fitch's "September 2021 Global
Economic Outlook" and related base-line economic scenario forecasts
have been revised to a 6.2% U.S. GDP growth for 2021 and 3.9% for
2022 following a -3.4% GDP growth in 2020. Additionally, Fitch's
U.S. unemployment forecasts for 2021 and 2022 are 5.6% and 4.4%,
respectively, which is down from 8.1% in 2020. These revised
forecasts support Fitch reverting back to the 1.5 and 1.0 ERF
floors described in Fitch's "U.S. RMBS Loan Loss Model Criteria."
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- 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.
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 41.3% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper 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.
-- 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 AMC, Clayton, and Opus. 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 0.31%.
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,
Starwood Non-Agency Lending, LLC, engaged SitusAMC, Clayton
Services LLC, and Opus Capital Markets Consultants, LLC 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, but Fitch did not give due diligence credit
to five loans due to the findings.
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
STAR 2021-4 has an ESG Relevance Score of '4'[+] for Transaction
Parties & Operational Risk due to operational risk being well
controlled for in STAR 2021-4, strong transaction due diligence as
well as a 'RPS1-' Fitch-rated servicer, which resulted in a
reduction in expected losses and is relevant to the ratings in
conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
STRATA CLO II: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Strata CLO
II Ltd./Strata CLO II LLC's floating-rate notes.
The note issuance is a CLO transaction backed primarily by broadly
syndicated speculative-grade (rated 'BB+' and lower) senior secured
term loans.
The preliminary ratings are based on information as of Oct. 4,
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 subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through collateral
selection and ongoing portfolio management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
Strata CLO II Ltd./Strata CLO II LLC
Class A-1, $200.0 million: AAA (sf)
Class A-2, $20.0 million: AAA (sf)
Class B, $52.0 million: AA (sf)
Class C (deferrable), $39.0 million: A (sf)
Class D (deferrable), $26.0 million: BBB- (sf)
Class E (deferrable), $16.0 million: BB- (sf)
Subordinated notes, $56.6 million: Not rated
TRINITAS CLO XVII: Moody's Assigns Ba3 Rating to $26MM Cl. E Notes
------------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by Trinitas CLO XVII, Ltd.(the "Issuer" or "Trinitas
CLO XVII").
Moody's rating action is as follows:
US$320,000,000 Class A Floating Rate Notes Due 2034, Assigned Aaa
(sf)
US$45,000,000 Class B-1 Floating Rate Notes Due 2034, Assigned Aa2
(sf)
US$14,000,000 Class B-2 Fixed Rate Notes Due 2034, Assigned Aa2
(sf)
US$24,000,000 Class C Deferrable Floating Rate Notes Due 2034,
Assigned A2 (sf)
US$31,000,000 Class D Deferrable Floating Rate Notes Due 2034,
Assigned Baa3 (sf)
US$26,000,000 Class E Deferrable Floating Rate Notes Due 2034,
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.
Trinitas CLO XVII is a managed cash flow CLO. The issued notes will
be collateralized primarily by broadly syndicated senior secured
corporate loans. At least 92.5% of the portfolio must consist of
senior secured loans and eligible investments, and up to 7.5% of
the portfolio may consist of second lien loans and permitted
non-loan assets. The portfolio is approximately 85% ramped as of
the closing date.
Trinitas Capital Management, LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five-year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Notes, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2020.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 65
Weighted Average Rating Factor (WARF): 2781
Weighted Average Spread (WAS): 3.20%
Weighted Average Coupon (WAC): 6.50%
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.
UBS COMMERCIAL 2017-C6: Fitch Affirms B- Rating on 2 Tranches
-------------------------------------------------------------
Fitch Ratings has affirmed 19 classes and revised two Outlooks to
Stable from Negative of UBS Commercial Mortgage Trust, commercial
mortgage pass-through certificates, series 2017-C6 (UBSCM
2017-C6).
DEBT RATING PRIOR
---- ------ -----
UBS 2017-C6
A-1 90276UAS0 LT AAAsf Affirmed AAAsf
A-2 90276UAT8 LT AAAsf Affirmed AAAsf
A-3 90276UAV3 LT AAAsf Affirmed AAAsf
A-4 90276UAW1 LT AAAsf Affirmed AAAsf
A-5 90276UAX9 LT AAAsf Affirmed AAAsf
A-BP 90276UAY7 LT AAAsf Affirmed AAAsf
A-S 90276UBC4 LT AAAsf Affirmed AAAsf
A-SB 90276UAU5 LT AAAsf Affirmed AAAsf
B 90276UBD2 LT AA-sf Affirmed AA-sf
C 90276UBE0 LT A-sf Affirmed A-sf
D 90276UAJ0 LT BBB-sf Affirmed BBB-sf
E 90276UAL5 LT BB-sf Affirmed BB-sf
F 90276UAN1 LT B-sf Affirmed B-sf
X-A 90276UAZ4 LT AAAsf Affirmed AAAsf
X-B 90276UBB6 LT AA-sf Affirmed AA-sf
X-BP 90276UBA8 LT AAAsf Affirmed AAAsf
X-D 90276UAA9 LT BBB-sf Affirmed BBB-sf
X-E 90276UAC5 LT BB-sf Affirmed BB-sf
X-F 90276UAE1 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Improved Loss Expectations: Fitch's loss expectations for the pool
have improved since the prior rating action due to better than
expected 2020 performance on some of the Fitch Loans of Concern
(FLOCs) and larger loans in the pool. Fitch's current ratings
reflect a base case loss of 3.60%. The Negative Rating Outlooks
reflect losses that could reach 3.90% when factoring additional
coronavirus-related stresses.
There are 13 FLOCs (24.6% of pool), up from six loans (13.1%) at
the prior rating action. Five (7%) of the FLOCs are specially
serviced loans, two of which (3%) are new transfers since the prior
rating action.
The largest specially serviced loan is the 1001 Towne loan (2.3%),
which is secured by a mixed-use property located in Los Angeles,
CA. The loan transferred to special servicing in June 2020 for
imminent default at the borrower's request as a result of the
pandemic. A receiver is currently in place and foreclosure occurred
in August 2021. The servicer continues to evaluating potential
workout strategies.
Occupancy was 77.8% as of the July 2021 rent roll, compared with
74.9% in September 2020 and 86.5% at YE 2019. Major tenants include
Banjul (11.1% NRA), Hidden Jeans (10.5%) and Investment Consultants
(6.9%). Upcoming rollover includes 20.1% of the NRA in 2021, 15.8%
in 2022 and 26.5% in 2023. Fitch's loss expectation reflects a
stressed value of $348 psf.
The largest non-specially serviced FLOC is the National Office
Portfolio loan (5.6% of pool), which is secured by an 18-property,
2.6 million-sf office portfolio located across four states (TX, IL,
GA and AZ). The loan was flagged due to declining occupancy and
declining DSCR. The DSCR has since been adjusted by the servicer to
reflect an extraordinary expense incurred as an indirect result of
the Texas power grid issues during the February 2021 freeze event.
Portfolio occupancy was 72% as of March 2021, compared with 73% at
YE 2020, 79% at YE 2019 and 80.7% at YE 2018.
Major tenants among the portfolio include American Intercontinental
University (4.5% NRA), Trinity Universal Insurance Co. (3.3%) and
Assurance Agency (2.5%). Upcoming rollover includes 2.9% of NRA in
2021, 17.6% in 2022 and 11.6% in 2023.The next largest FLOC is the
HRC Hotels Portfolio loan (3.9%), which is secured by a portfolio
of eight limited-service/extended-stay hotels totaling 694 keys
located in Michigan and Indiana. This FLOC was flagged for
pandemic-related declines in cash flow and occupancy and low DSCR.
YE 2020 NOI was 78% below YE 2019 NOI. The portfolio reported TTM
December 2020 average occupancy, ADR and RevPAR of 50.5%, $114.92
and $114.92, respectively, compared with 67.4%, $134.92 and $135.54
as of TTM December 2019.
Fitch's base case loss of 4% incorporates a 10% haircut applied to
the portfolio's YE 2019 NOI to reflect hotel performance
volatility. Fitch ran an additional sensitivity that applies a loss
of 12%, which is based on a 26% haircut to the YE 2019 NOI to
reflect significant performance concerns related to the pandemic.
Minimal Change to Credit Enhancement: As of the September 2021
distribution date, the pool's aggregate principal balance has paid
down by 2.3% to $669.1 million from $684.7 million at issuance. The
majority of the pool (13 loans; 41.5% of pool) is comprised of
full-term interest-only loans and five loans (13.5%) still have a
partial interest-only component during their remaining loan term,
compared with 10 loans (28.6%) at issuance. Two loans (9.3%),
including the largest loan in the pool (Yorkshire & Lexington
Towers; 6%), mature in the fourth quarter of 2022, one loan (6%)
matures in October 2024, and the remaining 37 loans (84.7%) mature
in 2027.
Coronavirus Exposure: Loans secured by retail and hotel properties
represent 23.2% (12 loans) and 8.1% (six loans) of the pool,
respectively. Fitch's sensitivity analysis applied an additional
stress to the pre-pandemic cash flows for five hotel loans (7.6%)
given the significant 2020 NOI declines related to the pandemic.
These additional stresses contributed to the Negative Outlooks.
Credit Opinion Loans: Three loans, Yorkshire & Lexington Towers,
Burbank Office Portfolio and 111 West Jackson (combined, 16.4% of
pool), received standalone investment-grade credit opinions of
'BBBsf*,' 'BBB+sf*' and 'BBB+sf*', respectively, at issuance.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool-level losses from underperforming or
specially serviced loans. Downgrades to classes A-1, A-2, A-3,
A-4, A-5, A-BP, A-SB, A-S, X-A and X-BP are not likely due to
the position in the capital structure, but may occur should
interest shortfalls affect these classes. Downgrades to
classes B, C and X-B may occur should expected losses for the
pool increase significantly and/or the FLOCs and/or loans
susceptible to the pandemic suffer losses.
-- Downgrades to classes D, X-D, E, X-E, F and X-F would occur
should loss expectations increase from continued performance
decline of the FLOCs, loans susceptible to the pandemic not
stabilize, loans default or transfer to special servicing
and/or higher losses than expected are incurred on the
specially serviced loans.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance, particularly on the
FLOCs, coupled with additional paydown and/or defeasance.
Upgrades to classes B, C and X-B would only occur with
significant improvement in CE, defeasance, and/or performance
stabilization of FLOCs and other properties affected by the
coronavirus pandemic. Classes would not be upgraded above
'Asf' if there were likelihood of interest shortfalls.
-- Upgrades to classes D, X-D, E and X-E may occur as the number
of FLOCs are reduced, properties vulnerable to the pandemic
return to pre-pandemic levels and/or there is sufficient CE to
the classes. Upgrades to classes F and X-F are not likely
until the later years of the transaction and only if the
performance of the remaining pool is stable and/or properties
vulnerable to the coronavirus pandemic return to pre-pandemic
levels, and there is sufficient CE to the classes.
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.
UBS-BARCLAYS COMMERCIAL 2013-C5: Fitch Affirms CC Rating on F Certs
-------------------------------------------------------------------
Fitch Ratings has affirmed 12 classes of UBS-Barclays Commercial
Mortgage Trust (UBS-BB) commercial mortgage pass-through
certificates series 2013-C5.
DEBT RATING PRIOR
---- ------ -----
UBS-BB 2013-C5
A-3 90270YBE8 LT AAAsf Affirmed AAAsf
A-4 90270YBF5 LT AAAsf Affirmed AAAsf
A-AB 90270YBG3 LT AAAsf Affirmed AAAsf
A-S 90270YAA7 LT AAAsf Affirmed AAAsf
B 90270YAG4 LT AA-sf Affirmed AA-sf
C 90270YAL3 LT A-sf Affirmed A-sf
D 90270YAN9 LT BBsf Affirmed BBsf
E 90270YAQ2 LT CCCsf Affirmed CCCsf
EC 90270YAJ8 LT A-sf Affirmed A-sf
F 90270YAS8 LT CCsf Affirmed CCsf
XA 90270YAC3 LT AAAsf Affirmed AAAsf
XB 90270YAE9 LT AA-sf Affirmed AA-sf
KEY RATING DRIVERS
Increased Loss Expectations; High Concentration of Fitch Loans of
Concern (FLOC): The Negative Outlooks reflect higher certainty of
loss and an increase in Fitch's loss expectations since the last
rating action, largely attributable to the two largest loans, which
are secured by regional malls and the largest specially serviced
asset. There are 13 FLOCs, totaling 54.3% of the pool, two of which
(7.1%) are specially serviced loans. Fitch's current ratings
incorporate a base case loss of 8.4 %; Fitch also ran a sensitivity
scenario that applied additional coronavirus stresses where losses
were 11.4 %. The Negative Outlooks reflect this scenario and
concerns that these assets fail to stabilize.
Fitch Loans of Concern: The largest contributor to losses and
largest specially serviced loan, Harborplace (5.5%), is secured by
a 148,928-sf retail center located in the heart of Baltimore's
Inner Harbor at the intersection of Pratt and Light streets, and
situated steps away from the harbor itself. H&M (12.7%; exp January
2022) is the anchor tenant. Major restaurant tenants include Bubba
Gump Shrimp Company, Pizzeria Uno and The Cheesecake Factory. The
loan transferred to special servicing in February 2019 due to
imminent monetary default and is 90+ days delinquent. Occupancy has
remained below 75% since YE 2016 and has steadily declined
following the loss of several tenants. As of June 2021, occupancy
was reported at 62%. Fitch modeled losses of 69.5% based on a
discount to a recent appraisal; this results in a Fitch value of
approximately $189 psf. Fitch also considered that ultimate
recovery may be higher given the location of the collateral.
The second largest contributor to losses, Valencia Town Center
(17.1%), is secured by an 657,837-sf interest in a 1,106,145-sf
regional mall located in Valencia, CA. Anchors at the property
include Macy's and JC Penney, which are subject to ground leases.
Sears vacated during the first half of 2018, prior to its September
2045 ground lease expiration date. Fitch received no further
details on re-leasing efforts of the vacant space as the space is
not part of the loan's collateral. Major collateral tenants include
Edwards Theaters (10.2%; exp May 31, 2024), Gold's Gym (4.4%; exp
Nov. 30, 2027) and H&M (3.5%; exp Jan. 31, 2025). Occupancy has
fluctuated over the past several years: 99% (YE 2017), 84% (YE
2018), 95% (YE 2019), 83% (YE 2020) and 80% (March 2021). Debt
service coverage ratio (DSCR) has shown a consistent decline during
the same period: 3.29x (YE 2017), 3.21x (YE 2018), 2.69x (YE 2019)
and 2.43x (YE 2020). Upcoming rollover is as follows: 6.1% (2021);
14.8% (2022) and 10.3% (2023). Annualized sales as of September
2018 for Macy's and JC Penney were $288 psf and $111 psf,
respectively, compared to $300 psf and $114 psf in September 2016
and $276 psf and $146 psf at issuance. Excluding the non-collateral
anchor tenants and Apple, annualized sales as of September 2018
were $490 psf compared to $475 in September 2016 and $492 psf at
issuance. With Apple, annualized sales as of September 2018 were
$556 psf compared to $527 in September 2016. A YE 2020 and YE 2019
sales report was requested but remains outstanding. Fitch's loss
expectations of approximately 11% reflects a 12% cap rate applied
to the YE 2019 NOI. In addition to the base case loss, Fitch
applied a 15% loss severity to the loan's 2023 maturity balance due
to refinance concerns.
The third largest contributor to losses, Santa Anita Mall (18.9%),
is secured by an 956,343-sf interest in a 1,472,167-sf regional
mall located in Arcadia, CA. Anchors at the property include JC
Penney, Macy's and Nordstrom, which are subject to long-term ground
leases and are not part of the collateral. Major collateral tenants
include XXI Forever (12.3%; exp Jan. 31, 2028), AMC (7.7%; exp
Sept. 30, 2024), Dave & Busters (5.2%; exp Sept. 30, 2024) and
Gold's Gym (3.6%; exp June 30, 2028). The YE 2020 NOI decreased
approximately 10.5% from YE 2019 primarily due to rent abatements
at the property. However, overall collateral performance has
remained relatively stable, with occupancy in line with historical
levels. Fitch's loss expectations of approximately 5% reflects a
15% cap rate applied to the YE 2019 NOI. In addition to the base
case loss, Fitch applied a 15% loss severity to the loan's 2023
maturity balance due to refinance concerns.
Defeasance/Improved Credit Enhancement Since Issuance: 28 loans
(26.1%) are fully defeased including the fourth, fifth and sixth
largest loans; eight loans (6.1%) defeased since the 2019 rating
action. The sixth largest loan (2.3%) prepaid in full during its
open period. As of the September 2021 distribution date, the pool's
aggregate balance has been reduced by 23.2% to $1.1 billion from
$1.5 billion at issuance. Realized losses total $2.4 million and
interest shortfalls in the amount of $1.1 million are currently
affecting non-rated class G. Four loans (38.9% of the pool) are
full-term interest-only, one loan (0.04%) is fully amortizing and
the remaining 71 loans are amortizing.
Alternative Loss Consideration: Fitch performed an additional
sensitivity scenario that assumed potential outsized losses of 15%
on Santa Anita Mall and Valencia Towne Center, 23% on Residence Inn
Tysons Corner and 7% on Hampton Inn and Suites Mount Pleasant. This
scenario drove the Negative Rating Outlooks.
UBS-BB 2013-C5 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to retail properties that are underperforming as
a result of sustained structural shift in consumer preferences
affecting consumer and occupancy trends, which combined with other
factors, has a negative impact on the ratings.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades of Classes with Negative Outlooks are likely should
performance of the FLOCs deteriorate further or if losses on
the Santa Anita Mall and Valencia Towne Center become more
certain. Downgrades of classes A-3 through A-S are not likely
due to sufficient credit enhancement and expected continued
amortization but would occur with interest shortfalls.
Downgrades of classes E and F would occur as losses are
realized and/or become more certain.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The Stable Outlooks on classes A-3 through A-S (and interest
only classes X-A) reflect increasing credit enhancement (CE)
and continued amortization.
-- While not considered likely in the near term, upgrades to
classes B, C and D are possible with significant improvement
in CE and/or defeasance. However, adverse selection, increased
concentrations or the continued underperformance of FLOCs may
limit the potential for future upgrades. Upgrades to classes E
and F are considered unlikely unless there is significant
improvement or paydown and substantially higher recoveries
than expected on the specially serviced loans/assets. Classes
would not be upgraded above 'Asf' if there were a likelihood
for interest shortfalls.
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
UBS-BB 2013-C5 has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to retail properties that are underperforming as
a result of sustained structural shift in consumer preferences
affecting consumer and occupancy trends, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
UWM MORTGAGE 2021-INV2: Moody's Assigns B3 Rating to Cl. B-5 Certs
------------------------------------------------------------------
Moody's Investors Service has assigned Definitive ratings to
thirty-one classes of residential mortgage-backed securities (RMBS)
issued by UWM Mortgage Trust 2021-INV2. The ratings range from Aaa
(sf) to B3 (sf).
UWM Mortgage Trust 2021-INV2 is a securitization of 1,186
first-lien investor agency eligible mortgage loans. All the loans
in the pool are originated by United Wholesale Mortgage, LLC (UWM -
Ba3 long-term corporate family and Ba3 senior unsecured bond
ratings, with stable outlook) in accordance with the underwriting
guidelines of Fannie Mae or Freddie Mac with additional credit
overlays. The transaction is backed by 1,186 fully-amortizing and
fixed rate mortgage loans with original terms to maturity between
20 and 30 years, with an aggregate stated principal balance of
approximately $421,053,830. The average stated principal balance is
approximately $355,020 and the weighted average (WA) current
mortgage rate is 3.4%.
All of the personal- use loans are "qualified mortgages" under
Regulation Z as a 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 respect to these mortgage loans, the
sponsor will represent that such mortgage loans are "qualified
mortgages" under Regulation Z. With the exception of personal- use
loans, all other mortgage loans in the pool are not subject to TILA
because each such mortgage loan is an extension of credit primarily
for a business purpose and is not a "covered transaction" as
defined in Section 1026.43(b)(1) of Regulation Z.
Cenlar FSB (Cenlar) will service all the mortgage loans in the
pool. Servicing compensation is subject to a step-up incentive fee
structure. UWM will be the servicing administrator and Nationstar
Mortgage LLC (Nationstar - B2 long-term issuer rating, with
positive outlook) will be the master servicer. UWM will be
responsible for principal and interest advances as well as other
servicing advances. The master servicer will be required to make
principal and interest advances if UWM is unable to do so.
A third-party review (TPR) firm conducted credit, data accuracy,
property valuation, and compliance reviews on approximately 39.6%
of the loans in the pool by loan count. The number of loans that
went through a full due diligence review is above Moody's
credit-neutral sample size. Also, the TPR results indicate that
there are no material compliance, credit, or data issues and no
appraisal defects.
Moody's analyzed the underlying mortgage loans using Moody's
Individual Loan Analysis (MILAN) model. Moody's expected loss for
this pool in a baseline scenario-mean is 1.00% in a baseline
scenario-median is 0.70% and reaches 7.24% at a stress level
consistent with Moody's Aaa ratings. Moody's also compared the
collateral pool to other securitizations with agency eligible
loans. Overall, this pool has average credit risk profile as
compared to that of recent transactions.
The securitization has a shifting interest structure with a
five-year lockout period that benefits from a senior subordination
floor and a subordinate floor. Moody's coded the cash flow to each
of the certificate classes using Moody's proprietary cash flow
tool.
The complete rating actions are as follows:
Issuer: UWM Mortgage Trust 2021-INV2
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-9-X*, Definitive Rating Assigned Aaa (sf)
Cl. A-9-A, Definitive Rating Assigned Aaa (sf)
Cl. A-9-AI*, Definitive Rating Assigned Aaa (sf)
Cl. A-9-B, Definitive Rating Assigned Aaa (sf)
Cl. A-9-BI*, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aa1 (sf)
Cl. A-15, Definitive Rating Assigned Aa1 (sf)
Cl. A-16, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aaa (sf)
Cl. A-X-1*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-2*, Definitive Rating Assigned Aa1 (sf)
Cl. A-X-3*, Definitive Rating Assigned Aaa (sf)
Cl. A-X-4*, Definitive Rating Assigned Aa1 (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A3 (sf)
Cl. B-3, Definitive Rating Assigned Baa3 (sf)
Cl. B-4, Definitive Rating Assigned Ba3 (sf)
Cl. B-5, Definitive Rating Assigned 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 is 1.00%
at the mean, 0.70% at the median, and reaches 7.24% at a stress
level consistent with Moody's Aaa ratings.
The action reflects the coronavirus pandemic's residual impact on
the ongoing performance of 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 10.0%
(7.62% for the mean) and Moody's Aaa losses by 2.5% to reflect the
likely performance deterioration resulting from a slowdown in US
economic activity 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
The transaction is backed by 1,186 fully-amortizing, fixed rate,
first-lien non-owner occupied residential investor properties
mortgage loans with original terms to maturity between 20 and 30
years, with an aggregate stated principal balance of approximately
$421,053,830.The average stated principal balance is approximately
$355,020 and the weighted average (WA) current mortgage rate is
3.4%. Borrowers of the mortgage loans backing this transaction have
strong credit profiles demonstrated by strong credit scores and low
combined loan-to-value (CLTV) ratios. The weighted average primary
borrower original FICO score and original CLTV ratio of the pool is
768 and 65.5% respectively. The WA original debt-to income (DTI)
ratio is 37.7%. All of the loans are designated as Qualified
Mortgages (QM) under the GSE temporary exemption under the
Ability-to-Repay (ATR) rules.
Approximately 46.7% of the mortgages (by loan balance) are backed
by properties located in California. The next largest geographic
concentration is Colorado (6.8% by loan balance), Florida (5.6% by
loan balance), Arizona (5.0% by loan balance) and Texas (4.5% by
loan balance). All other states each represent 4.0% or less by loan
balance. Approximately 23.4% (by loan balance) of the pool is
backed by properties that are 2-to-4 unit residential properties
whereas loans backed by single family residential properties
represent 44.5% (by loan balance) of the pool.
Approximately 89.3% and 10.7% (by loan balance) of the loans were
originated through the broker and the correspondent channels
respectively. Irrespective of the origination channel, UWM
underwrites all the loans it originates through its underwriting
process. Nevertheless, the MILAN model adjusts the loan probability
of default (PD) to account for different loan origination channels
- retail (the least risk), broker (the most risk) and correspondent
(intermediate risk) channels.
Origination Quality and Underwriting Guidelines
All the mortgage loans in this pool (including correspondent
channel loans) were originated in accordance with the underwriting
guidelines of Fannie Mae or Freddie Mac with additional credit
overlays and approved for origination through Fannie Mae's Desktop
Underwriter Program or Freddie Mac's Loan Prospector Program. Loan
file reviews are conducted through a pre-funding and post-closing
quality control (QC) process.
Moody's consider UWM to be an adequate originator of GSE eligible
loans following Moody's review of its underwriting guidelines,
quality control processes, policies and procedures, and historical
performance relative to its peers. As a result, Moody's did not
make any adjustments to Moody's base case and Aaa stress loss
assumptions.
Servicing arrangement
Cenlar (the servicer) will service all the mortgage loans in the
transaction. UWM will serve as the servicing administrator and
Nationstar will serve as the master servicer. The servicing
administrator will be required to (i) make advances in respect of
delinquent interest and principal on the mortgage loans and (ii)
make certain servicing advances with respect to the preservation,
restoration, repair and protection of a mortgaged property,
including delinquent tax and insurance payments, unless the
servicer determines that such amounts would not be recoverable. The
master servicer will be obligated to fund any required monthly
advance if the servicing administrator fails in its obligation to
do so. Moody's consider the overall servicing arrangement for this
pool as adequate given the ability and experience of Cenlar as a
servicer and the presence of a master servicer, and as a result,
Moody's did not make any adjustments to Moody's base case and Aaa
stress loss assumptions.
As a result, Moody's did not make any adjustments to its base case
and Aaa stress loss assumptions.
COVID-19 Impacted Borrowers
As of the cut-off date, none of the borrowers under the mortgage
loans have entered into a disaster related forbearance plan,
including, but not limited to, in response to the COVID-19
outbreak. In the event a borrower requests or enters into a
disaster related forbearance plan after the cut-off date but prior
to the closing date, the sponsor will remove such mortgage loan
from the mortgage pool and remit the related closing date
substitution amount. In the event a borrower enters into a disaster
related forbearance plan after the closing date, such mortgage loan
will remain in the mortgage pool. While a mortgage loan is in a
disaster related forbearance period, the servicer will continue to
report the borrower's delinquency status based on the actual
payments received while in forbearance, which will show the
borrower as delinquent for any scheduled payments not made during
the disaster related forbearance period.
Servicing compensation in this transaction is based on a
fee-for-service incentive structure. The servicer receives higher
fees for labor-intensive activities that are associated with
servicing delinquent loans, including loss mitigation, than they
receive for servicing a performing loan, which is less labor
intensive. The fee-for-service incentive structure includes an
initial monthly base servicing fee of $40 for all performing loans
and increases according to certain delinquent and incentive fee
schedules. The fees in this transaction are similar to other
transactions with fee-for-service structure which Moody's have
rated.
Third-party review (TPR)
An independent third-party review firm, Wipro Opus Risk Solutions,
LLC (Opus), was engaged to conduct due diligence on approximately
39.5% of the loans in the pool for credit, compliance, property
valuation and data accuracy. The number of loans that went through
a full due diligence review is above Moody's calculated
credit-neutral sample size. Also, there were generally no material
findings. The loans that had exceptions to the originators'
underwriting guidelines had significant compensating factors that
were documented. Moody's did not make any adjustments to Moody's
credit enhancement for TPR scope, sample size and results.
Representations and Warranties Framework
UWM as the sponsor, makes the loan-level R&Ws for the mortgage
loans. The R&Ws cover most of the categories that Moody's
identified in Moody's methodology as credit neutral. Further, R&W
breaches are evaluated by an independent third party using a set of
objective criteria. The independent reviewer will perform detailed
reviews to determine whether any R&Ws were breached when any loan
becomes a severely delinquent mortgage loan, a delinquent modified
mortgage loan, or is liquidated at a loss. These reviews are
thorough in that the transaction documents set forth detailed tests
for each R&W that the independent reviewer will perform. However,
Moody's applied an adjustment to Moody's expected losses to account
for the risk that UWM may be unable to repurchase defective loans
in a stressed economic environment in which a substantial portion
of the loans breach the R&Ws, given that it is a non-bank entity
with a monoline business (mortgage origination and servicing) that
is highly correlated with the economy.
Transaction structure
The securitization has a shifting interest structure that benefits
from a senior subordination floor and a subordinate floor. Funds
collected, including principal, are first used to make interest
payments and then principal payments on a pro-rata basis up to the
senior bonds principal distribution amount, and then interest and
principal payments on a sequential basis up to each subordinate
bond principal distribution amount. As in all transactions with
shifting interest structures, the senior bonds benefit from a cash
flow waterfall that allocates all prepayments to the senior bonds
for a specified period of time, and increasing amounts of
prepayments to the subordinate bonds thereafter, but only if loan
performance satisfies delinquency and loss tests.
Realized losses are allocated reverse sequentially among the
subordinate and senior support certificates and on a pro-rata basis
among the super senior certificates.
Tail risk & subordination floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
shrinks, senior bonds are exposed to eroding credit enhancement
over time and increased performance volatility, known as tail risk.
To mitigate this risk, the transaction provides for a senior
subordination floor of 0.90% which mitigates tail risk by
protecting the senior bonds from eroding credit enhancement over
time. Additionally, there is a subordination lock-out amount which
is 0.80% of the closing pool balance.
Moody's calculate the credit neutral floors for a given target
rating as shown in its principal methodology. The senior
subordination floor and the subordinate floor of 0.90% and 0.80%,
respectively, are consistent with the credit neutral floors for the
assigned ratings.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2021.
WAMU COMMERCIAL 2006-SL1: Fitch Affirms D Rating on 6 Tranches
--------------------------------------------------------------
Fitch Ratings has upgraded two and affirmed eight classes of WaMu
Commercial Mortgage Securities Trust, small balance commercial
mortgage pass-through certificates, series 2006-SL1. In addition,
the Rating Outlook for one class was revised to Stable from
Positive.
DEBT RATING PRIOR
---- ------ -----
WaMu Commercial Mortgage Securities Trust 2006-SL1
C 933633AE9 LT AAAsf Affirmed AAAsf
D 933633AF6 LT Asf Upgrade BBBsf
E 933633AG4 LT BBsf Upgrade Bsf
F 933633AH2 LT CCCsf Affirmed CCCsf
G 933633AJ8 LT Dsf Affirmed Dsf
H 933633AK5 LT Dsf Affirmed Dsf
J 933633AL3 LT Dsf Affirmed Dsf
K 933633AM1 LT Dsf Affirmed Dsf
L 933633AN9 LT Dsf Affirmed Dsf
M 933633AP4 LT Dsf Affirmed Dsf
KEY RATING DRIVERS
Increased Credit Enhancement: The upgrades reflect increased credit
enhancement (CE) since the last rating action from continued
scheduled amortization and unscheduled principal from the
prepayment of six loans ($2.7 million) during their open period.
The trust has historically received unscheduled principal from
loans repaying ahead of their scheduled maturity dates. As of the
September 2021 remittance reporting, the pool balance has been
reduced by 95.1% to $25.2 million from $511.4 million at issuance.
Stable Loss Expectations: The majority of the pool has exhibited
relatively stable performance and loss expectations have remained
stable since the last rating action. There are 17 Fitch Loans of
Concerns (FLOCs; 36.8% of pool), including three specially serviced
loans (6.2%).
Pool Concentration: The pool consists entirely of small balance
loans which traditionally have higher loss severities. Loans
secured by multifamily properties account for 90.6% of the pool and
mixed-use properties with a multifamily component account for the
remaining 9.4%. There is geographic concentration in California
(62.4%) and New Jersey (11.1%).
Fitch utilized higher cap rates, refinance constants and haircuts
to the most recent servicer-reported NOI for performing loans to
mitigate concerns regarding the pool's concentration and collateral
quality. In addition, Fitch modeled conservative losses on the
specially serviced loans, ranging from 50% to 100%. The resulting
loan-level loss projections may be considered high relative to the
leverage points, but were deemed appropriate in testing the
durability of the ratings. The upgrades are supported by this
scenario.
Extended Maturity Profile: With scheduled monthly amortization,
class D is not anticipated to begin paying down until 2026.
However, this may occur sooner with continued unscheduled principal
from prepaying loans. Only one loan representing 1.0% of the pool
is scheduled to mature prior to 2036.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool level losses from underperforming or
specially serviced loans. A downgrade to class C is not likely
given the high CE, but may occur with interest shortfalls.
Classes D and E may be downgraded if a significant number of
loans default or should loss expectations increase
significantly. A downgrade to class F would occur when losses
are realized or with a greater certainty of loss.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance coupled with additional
paydown and/or defeasance. Classes D and E may be upgraded
with further improvement in CE or with additional defeasance,
but would be capped at 'Asf' if there is likelihood for
interest shortfalls. Class D had previously experienced an
interest shortfall. An upgrade to class F is not likely until
the later years in a transaction and only if the performance
of the remaining pool is stable and/or if there is sufficient
CE.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
WELLS FARGO 2021-2: Fitch Rates Class B-5 Certs 'B+'
----------------------------------------------------
Fitch Ratings rates the residential mortgage-backed certificates
issued by Wells Fargo Mortgage-Backed Securities 2021-2 Trust
(WFMBS 2021-2).
DEBT RATING PRIOR
---- ------ -----
WFMBS 2021-2
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
A-4 LT AAAsf New Rating AAA(EXP)sf
A-5 LT AAAsf New Rating AAA(EXP)sf
A-6 LT AAAsf New Rating AAA(EXP)sf
A-7 LT AAAsf New Rating AAA(EXP)sf
A-8 LT AAAsf New Rating AAA(EXP)sf
A-9 LT AAAsf New Rating AAA(EXP)sf
A-10 LT AAAsf New Rating AAA(EXP)sf
A-11 LT AAAsf New Rating AAA(EXP)sf
A-12 LT AAAsf New Rating AAA(EXP)sf
A-13 LT AAAsf New Rating AAA(EXP)sf
A-14 LT AAAsf New Rating AAA(EXP)sf
A-15 LT AAAsf New Rating AAA(EXP)sf
A-16 LT AAAsf New Rating AAA(EXP)sf
A-17 LT AAAsf New Rating AAA(EXP)sf
A-18 LT AAAsf New Rating AAA(EXP)sf
A-19 LT AAAsf New Rating AAA(EXP)sf
A-20 LT AAAsf New Rating AAA(EXP)sf
A-IO1 LT AAAsf New Rating AAA(EXP)sf
A-IO2 LT AAAsf New Rating AAA(EXP)sf
A-IO3 LT AAAsf New Rating AAA(EXP)sf
A-IO4 LT AAAsf New Rating AAA(EXP)sf
A-IO5 LT AAAsf New Rating AAA(EXP)sf
A-IO6 LT AAAsf New Rating AAA(EXP)sf
A-IO7 LT AAAsf New Rating AAA(EXP)sf
A-IO8 LT AAAsf New Rating AAA(EXP)sf
A-IO9 LT AAAsf New Rating AAA(EXP)sf
A-IO10 LT AAAsf New Rating AAA(EXP)sf
A-IO11 LT AAAsf New Rating AAA(EXP)sf
B-1 LT AAsf New Rating AA(EXP)sf
B-2 LT Asf New Rating A(EXP)sf
B-3 LT BBBsf New Rating BBB(EXP)sf
B-4 LT BB+sf New Rating BB+(EXP)sf
B-5 LT B+sf New Rating B+(EXP)sf
B-6 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The certificates are supported by 955 prime fixed-rate mortgage
loans with a total balance of approximately $644 million as of the
cutoff date. All the loans were originated by Wells Fargo Bank,
N.A. (Wells Fargo). This is the 14th post-crisis issuance from
Wells Fargo.
The B-5 certificates passed Fitch's 'BB-sf' stresses. However,
Fitch assigned a 'B+sf' rating to the class due to its position in
the capital structure and tranche size.
KEY RATING DRIVERS
Very High-Quality Mortgage Pool (Positive): The collateral
attributes are among the strongest of post-crisis RMBS rated by
Fitch. The pool consists entirely of 30-year fixed-rate fully
amortizing loans to borrowers with strong credit profiles and low
leverage. All loans are Safe Harbor Qualified Mortgages and 99% of
the loans are agency eligible. The loans are seasoned an average of
approximately 7.5 months, according to Fitch.
The pool has a weighted average (WA) original FICO score of 772,
which is indicative of very high credit-quality borrowers.
Approximately 76% has original FICO scores at or above 750. In
addition, the original WA combined loan to value ratio of 63.2%
represents solid borrower equity in the property. The pool's
attributes, together with Wells Fargo's sound origination
practices, support Fitch's very low default risk expectations.
High Geographic Concentration (Negative): Approximately 58% of the
pool is concentrated in California with relatively average MSA
concentration. The largest MSA concentration is the San Francisco
MSA (19.6%) followed by the Los Angeles MSA (19.3%) and the New
York MSA (13.3%). The top three MSAs account for 52.2% of the pool.
As a result, an additional penalty of approximately 11% was applied
to the pool's lifetime default expectations.
Straightforward Deal Structure (Mixed): The mortgage cash flow and
loss allocation are based on a senior-subordinate,
shifting-interest structure whereby the subordinate classes receive
only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. 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.
To mitigate tail risk, which arises as the pool seasons and fewer
loans are outstanding, a subordination floor of 0.60% of the
original balance will be maintained for the senior certificates.
Full Servicer Advancing (Neutral): The pool benefits from advances
of delinquent principal and interest until the primary servicer of
the pool, Wells Fargo, deems them nonrecoverable. Fitch's loss
severities reflect reimbursement of amounts advanced by the
servicer from liquidation proceeds based on its liquidation
timelines assumed at each rating stress. In addition, the CE for
the rated classes has some cushion for recovery of servicer
advances for loans that are modified following a payment
forbearance.
Extraordinary Expense Treatment (Neutral): The trust provides for
expenses, including indemnification amounts, reviewer fees and
costs of arbitration, to be paid by the net WA coupon of the loans,
which does not affect the contractual interest due on the
certificates. Furthermore, the expenses to be paid from the trust
are capped at $350,000 per annum, with the exception of independent
reviewer breach review fee, which can be carried over each year,
subject to the cap until paid in full.
Updated Economic Risk Factor (Positive): Consistent with the
"Additional Scenario Analysis" section of Fitch's "U.S. RMBS
Coronavirus-Related Analytical Assumptions" criteria, Fitch will
consider applying additional scenario analysis based on stressed
assumptions as described in the section to remain consistent with
significant revisions to Fitch's macroeconomic baseline scenario,
or if actual performance data indicates the current assumptions
require reconsideration. In response to revisions made to Fitch's
macroeconomic baseline scenario, observed actual performance data,
and the unexpected development in the health crisis arising from
the advancement and availability of COVID-19 vaccines, Fitch
reconsidered the application of the coronavirus-related Economic
Risk Factor (ERF) floors of 2.0 and used ERF Floors of 1.5 and 1.0
for the 'BBsf' and 'Bsf' rating stresses, respectively.
Fitch's March 2021 Global Economic Outlook and related base-line
economic scenario forecasts have been revised to a 6.2% U.S. GDP
growth for 2021 and 3.3% for 2022 following a -3.5% GDP growth in
2020. Additionally, Fitch's U.S. unemployment forecasts for 2021
and 2022 are 5.8% and 4.7%, respectively, which is down from 8.1%
in 2020. These revised forecasts support Fitch reverting back to
the 1.5 and 1.0 ERF floors described in Fitch's "U.S. RMBS Loan
Loss Model Criteria."
WFMBS 2021-2 has an ESG credit relevance score of '4' for Exposure
to Environmental Impacts due to an increased geographic
concentration/catastrophe risk which contributed to increased
stressed losses which were considered in the rating analysis.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 40.4% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to negative MVDs at the national
level, or in other words positive home price growth with no
assumed overvaluation. The analysis assumes positive home
price growth of 10%. Excluding the senior class, which is
already rated 'AAAsf', the analysis indicates there is
potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Fitch has added a Coronavirus Sensitivity Analysis that includes a
prolonged health crisis resulting in depressed consumer demand and
a protracted period of below-trend economic activity that delays
any meaningful recovery to beyond 2021. Under this severe scenario,
Fitch expects the ratings to be impacted by changes in its
sustainable home price model due to updates to the model's
underlying economic data inputs. Any long-term impact arising from
coronavirus disruptions on these economic inputs will likely affect
both investment and speculative grade ratings.
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 Clayton Services LLC. The third-party due diligence
described in Form 15E focused on a compliance review, credit review
and valuation review. The due diligence company performed a review
on 59% of the loans. Fitch considered this information in its
analysis and, as a result, Fitch made the following adjustment to
its analysis: loans with due diligence received a credit in the
loss model. This adjustment reduced the 'AAAsf' expected losses by
10bps.
ESG CONSIDERATIONS
WFMBS 2021-2 has an ESG credit relevance score of '4' for Exposure
to Environmental Impacts due to an increased geographic
concentration/catastrophe risk which contributed to increased
stressed losses which were considered in the rating analysis.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
WELLS FARGO 2021-2: Moody's Assigns Ba2 Rating to Cl. B-5 Certs
---------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to
twenty-five classes of residential mortgage-backed securities
(RMBS) issued by Wells Fargo Mortgage Backed Securities 2021-2
Trust (WFMBS 2021-2). The ratings range from Aaa (sf) to Ba2 (sf).
The transaction represents the fourteenth RMBS issuance sponsored
by Wells Fargo Bank, N.A. (Wells Fargo Bank, the sponsor and
mortgage loan seller) since 2018 and features mortgage loans with
strong collateral characteristics.
WFMBS 2021-2 is third prime issuance by Wells Fargo Bank in 2021
and the first agency-eligible pool. In total, the pool consists of
955 30-year, fixed rate, predominantly conforming residential
mortgage loans with an unpaid principal balance of $644,485,820.
The mortgage loans for this transaction were originated by Wells
Fargo Bank, through its retail and correspondent channels, in
accordance with its underwriting guidelines. In this transaction,
all loans are designated as qualified mortgages (QM) under the QM
safe harbor rules.
The pool has strong credit quality and consists of borrowers with
high FICO scores with significant equity in their properties. The
pool has clean pay history and weighted average seasoning of 5
months. There are 4 loans in the pool that had previously entered
into a forbearance plan but continued making their mortgage
payments while in forbearance and were thus never delinquent during
the forbearance period. Additionally, any borrowers that request
forbearance between the cut-off date and closing will be
repurchased within 30 days of closing.
Wells Fargo Bank will service all the loans and will also be the
master servicer for this transaction. Servicing compensation is
subject to a step-up incentive fee structure and the servicer will
advance delinquent principal and interest (P&I), unless deemed
nonrecoverable.
The credit quality of the transaction is further supported by an
unambiguous representation and warranty (R&W) framework and a
shifting interest structure with a five-year lockout period that
benefits from a senior floor and a subordinate floor. Moody's coded
the cash flow to each of the certificate classes using Moody's
proprietary cash flow tool.
The complete rating actions are as follows:
Issuer: Wells Fargo Mortgage Backed Securities 2021-2 Trust
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-6, Definitive Rating Assigned Aaa (sf)
Cl. A-7, Definitive Rating Assigned Aaa (sf)
Cl. A-8, Definitive Rating Assigned Aaa (sf)
Cl. A-9, Definitive Rating Assigned Aaa (sf)
Cl. A-10, Definitive Rating Assigned Aaa (sf)
Cl. A-11, Definitive Rating Assigned Aaa (sf)
Cl. A-12, Definitive Rating Assigned Aaa (sf)
Cl. A-13, Definitive Rating Assigned Aaa (sf)
Cl. A-14, Definitive Rating Assigned Aaa (sf)
Cl. A-15, Definitive Rating Assigned Aaa (sf)
Cl. A-16, Definitive Rating Assigned Aaa (sf)
Cl. A-17, Definitive Rating Assigned Aa1 (sf)
Cl. A-18, Definitive Rating Assigned Aa1 (sf)
Cl. A-19, Definitive Rating Assigned Aaa (sf)
Cl. A-20, Definitive Rating Assigned Aaa (sf)
Cl. B-1, Definitive Rating Assigned Aa3 (sf)
Cl. B-2, Definitive Rating Assigned A2 (sf)
Cl. B-3, Definitive Rating Assigned Baa1 (sf)
Cl. B-4, Definitive Rating Assigned Baa3 (sf)
Cl. B-5, Definitive Rating Assigned Ba2 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
In response to COVID-19, Wells Fargo Home Lending (WFHL) has
temporarily been allowing desktop appraisals and exterior-only
appraisals, instead of a full interior and exterior inspection of
the subject property on certain loans. A sizable percentage of the
mortgage loans (17.19% by unpaid principal balance) have been
evaluated using the desktop appraisal whereas only one loan was
evaluated using exterior-only appraisal method (0.1% by unpaid
principal balance. Since such desktop appraisals don't consider the
interior or the exterior condition of the property, there exists a
risk that the property condition cannot truly be verified, as
opposed to an appraiser having access to the property. Moody's
analysis considered this risk and Moody's increased the loss levels
for 158 loans where the original valuation type is a desktop
valuation review.
Moody's expected loss for this pool in a baseline scenario-mean is
0.17%, in a baseline scenario-median is 0.06%, and reaches 2.89% 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% (5.43% for the mean) and Moody's Aaa loss by 2.50% to
reflect the likely performance deterioration resulting from the
slowdown in US economic activity due to the coronavirus outbreak.
These adjustments are lower than the 15% median expected loss and
5% Aaa loss adjustments Moody's made on pools from deals issued
after the onset of the pandemic until February 2021. Moody's
reduced adjustments reflect the fact that the loan pool in this
deal does not contain any loans to borrowers who are not currently
making payments. For newly originated loans, post-COVID
underwriting takes into account the impact of the pandemic on a
borrower's ability to repay the mortgage. For seasoned loans, as
time passes, the likelihood that borrowers who have continued to
make payments throughout the pandemic will now become non-cash
flowing due to COVID-19 continues to decline.
Collateral Description
Moody's assessed the collateral pool as of the cut-off date of
September 1, 2021. WFMBS 2021-2 is a securitization of 955 30-year,
fixed rate, predominantly conforming residential mortgage loans
with an aggregate principal balance of approximately $644,485,820.
The mortgage loans in this transaction have strong borrower
characteristics with a WA original FICO score of 772 and a
weighted-average combined loan to-value ratio (LTV) of 62.0%. In
addition, by stated principal balance, 12.6% of the borrowers are
self-employed, refinance loans account for approximately 59.5%, of
which 3.2% are cash-out loans and 3.1% are construction to
permanent loans. The weighted-average seasoning of the pool is 5
months.
Construction to permanent loans account for 3.1% (by stated
principal balance) of the pool. The construction to permanent is a
two-part loan where the first part is for the construction and then
it becomes a permanent mortgage once the property is complete. For
such mortgage loans in the pool, the construction was complete and
because the borrower cannot receive cash from the permanent loan
proceeds or anything above the construction cost.
Approximately 88.6% (by stated principal balance) of the properties
backing the mortgage loans are located in five states: California,
Washington, New York, New Jersey and Virginia with 58.4% (by stated
principle balance) of the properties located in California.
Properties located in the states of Maryland, District of Columbia,
Colorado, Massachusetts and Utah round out the top ten states by
loan stated principal balance. Approximately 98.3% (by stated
principal balance) of the properties backing the mortgage loans
included in WFMBS 2021-2 are located in these ten states.
Origination Quality
Desktop Appraisals: Moody's assessment of an originator's property
valuation capabilities focuses primarily on the types of valuation
techniques lenders use and which products are subsequently utilized
to validate the soundness of the primary source of valuation in
originations. In March 2020, Wells Fargo implemented underwriting
policy changes allowing desktop appraisals for agency loans due to
the health and safety concerns associated with COVID-19.
Wells Fargo Bank, N.A. (Aa1 long term deposit; Aa2 long term debt)
is an indirect, wholly-owned subsidiary of Wells Fargo & Company
(long term debt A1). Wells Fargo & Company is a U.S. bank holding
company with approximately $1.97 trillion in assets and
approximately 266,000 employees as of June 30, 2021, which provides
banking, insurance, trust, mortgage and consumer finance services
throughout the United States and internationally. Wells Fargo Bank
has sponsored or has been engaged in the securitization of
residential mortgage loans since 1988. Wells Fargo Home Lending
(WFHL) is a key part of Wells Fargo & Company's diversified
business model.
Approximately 99% of the mortgage loans by balance for this
transaction are originated in accordance with the Wells Fargo
Bank's agency underwriting guidelines that generally conform to
either or both of the Fannie Mae and Freddie Mac guidelines and the
remaining 1% are originated in accordance with Wells Fargo Bank's
non-conforming underwriting guidelines. The company uses a solid
loan origination system which include embedded features such as a
proprietary risk scoring model, role based business rules and data
edits that ensure the quality of loan production. After considering
the company's origination practices including underwriting,
QC/audit and performance, Moody's made no additional adjustments to
Moody's base case and Aaa loss expectations for overall origination
quality.
Third Party Review
One independent third-party review (TPR) firm, Clayton Services LLC
(Clayton), was engaged to conduct due diligence for the credit,
regulatory compliance, property valuation and data accuracy for
59.0% of mortgage loans in this transaction as of the cut-off date.
The TPR results indicate that the majority of reviewed mortgage
loans were in compliance with the underwriting guidelines, no
material compliance or data issues, and no appraisal defects. For
the one mortgage loan with a level "C" grade the exception was
related to variance of secondary valuation being more than -10% as
compared to the original appraisal. However, the loan has
compensating factors such as strong collateral characteristics in
terms of DTI, LTV and FICO as well as high cash reserves & length
of employment. Moody's did not make any additional adjustments in
Moody's model analysis to account for this exception.
The TPR firm's property valuation review consisted of reviewing the
valuation materials utilized at origination to ensure the appraisal
report was complete and in conformity with the underwriting
guidelines. The TPR firm also compared third-party valuation
products to the original appraisals. The TPR firm generally
obtained a collateral desktop analysis (CDA) through an independent
third-party valuation company to determine whether such CDA
supported the appraisal value used in connection with the
origination of the mortgage loan within a negative 10% variance.
Instances where 10% negative variances (between the CDA and the
appraised value) were reported, a field review was ordered to
reconcile value per the original appraisal. Additionally, any loan
more than 12 months old received new Broker Price Opinion (BPO)
value.
Finally, the majority of the data integrity errors in the initial
population of the pool were due to minor discrepancies in CLTV
(30), property type (29), self-employment flag (27), first-time
purchase (13) and other data fields (which have less than 10 errors
found for each respective field). The data tape reconciled for
findings per the data integrity check to the extent that the
sponsor is able to validate the accuracy and hence Moody's didn't
make any adjustment in Moody's model analysis.
Representation & Warranties
Moody's assessed the R&W framework for this transaction as
adequate. Moody's analyzed the strength of the R&W provider, the
R&Ws themselves and the enforcement mechanisms. The R&W provider is
highly rated, the breach reviewer is independent and the breach
review process is thorough, transparent and objective. As a result,
Moody's did not make any additional adjustment to Moody's base case
and Aaa loss expectations for R&Ws.
Wells Fargo Bank, as the originator, makes the loan-level R&Ws for
the mortgage loans. The loan-level R&Ws are strong and, in general,
either meet or exceed the baseline set of credit-neutral R&Ws
Moody's have identified for US RMBS. Further, R&W breaches are
evaluated by an independent third party using a set of objective
criteria to determine whether any R&Ws were breached when mortgage
loans become 120 days delinquent, the property is liquidated at a
loss above a certain threshold, or the loan is modified by the
servicer. Similar to J.P. Morgan Mortgage Trust transactions, this
transaction contains a "prescriptive" R&W framework. These reviews
are prescriptive in that the transaction documents set forth
detailed tests for each R&W that the independent reviewer will
perform.
It should be noted that exceptions exist for certain excluded
disaster mortgage loans that trip the delinquency trigger. These
excluded disaster mortgage loans include COVID-19 forbearance
mortgage loans or any other loan with respect to which (a) the
related mortgaged property is located in an area that is subject to
a major disaster declaration by either the federal or state
government and (b) has either been modified or is being reported
delinquent by the servicer as a result of a forbearance, deferral
or other loss mitigation activity relating to the subject disaster.
Such excluded disaster mortgage loans may be subject to a review in
future periods if certain conditions are satisfied.
Tail Risk and Subordination Floor
The transaction cash flows follow a shifting interest structure
that allows subordinated bonds to receive principal payments under
certain defined scenarios. Because a shifting interest structure
allows subordinated bonds to pay down over time as the loan pool
shrinks, senior bonds are exposed to increased performance
volatility, known as tail risk. The transaction provides for a
senior subordination floor of 0.6% of the closing pool balance,
which mitigates tail risk by protecting the senior bonds from
eroding credit enhancement over time. Additionally, there is a
subordination lock-out amount which is 0.6% of the closing pool
balance.
Moody's calculate the credit neutral floors for a given target
rating as shown in Moody's principal methodology. The senior
subordination floor of 0.6% and subordinate floor of 0.6% are
consistent with the credit neutral floors for the assigned
ratings.
Transaction Structure
The securitization has a shifting interest structure that benefits
from a senior floor and a subordinate floor. Funds collected,
including principal, are first used to make interest payments and
then principal payments to the senior bonds, and then interest and
principal payments to each subordinate bond. As in all transactions
with shifting interest structures, the senior bonds benefit from a
cash flow waterfall that allocates all unscheduled principal
collections to the senior bond for a specified period of time and
increasing amounts of unscheduled principal collections to the
subordinate bonds thereafter, but only if loan performance
satisfies delinquency and loss tests.
All certificates in this transaction are subject to a net WAC cap.
Realized losses are allocated reverse sequentially among the
subordinate and senior support certificates and on a pro-rata basis
among the super senior certificates.
Servicing Arrangement
In WFMBS 2021-2, Wells Fargo Bank acts as servicer, master
servicer, securities administrator and custodian of all of the
mortgage loans for the deal. The servicer will be primarily
responsible for funding certain servicing advances and delinquent
scheduled interest and principal payments for the mortgage loans,
unless the servicer determines that such amounts would not be
recoverable. The master servicer and servicer will be entitled to
be reimbursed for any such monthly advances from future payments
and collections (including insurance and liquidation proceeds) with
respect to those mortgage loans (also see COVID-19 impacted
borrowers section for additional information).
In the case of the termination of the servicer, the master servicer
must consent to the trustee's selection of a successor servicer,
and the successor servicer must have a net worth of at least $15
million and be Fannie or Freddie approved. The master servicer
shall fund any advances that would otherwise be required to be made
by the terminated servicer (to the extent the terminated servicer
has failed to fund such advances) until such time as a successor
servicer is appointed. Additionally, in the case of the termination
of the master servicer, the trustee will be required to select a
successor master servicer in consultation with the depositor. The
termination of the master servicer will not become effective until
either the trustee or successor master servicer has assumed the
responsibilities and obligations of the master servicer which also
includes the advancing obligation.
After considering Wells Fargo Bank's servicing practices, Moody's
did not make any additional adjustment to Moody's losses.
COVID-19 Impacted Borrowers
As of the cut-off date, no mortgage loans in the pool are currently
subject to an active COVID-19 related forbearance plan. However,
borrowers of four loans in the pool had previously entered into a
forbearance plan but continued making their mortgage payments while
in forbearance and were thus never delinquent during the
forbearance period. The mortgage loan seller will covenant in the
mortgage loan purchase agreement to repurchase at the repurchase
price within 30 days of the closing date any mortgage loan with
respect to which the related borrower requests or enters into a
COVID-19 related forbearance plan after the cut-off date but on or
prior to the closing date. In the event that after the closing date
a borrower enters into or requests a COVID19 related forbearance
plan, such mortgage loan (and the risks associated with it) will
remain in the mortgage pool.
In the event the servicer enters into a forbearance plan with a
COVID-19 impacted borrower of a mortgage loan, the servicer will
report such mortgage loan as delinquent (to the extent payments are
not actually received from the borrower) and the servicer will be
required to make advances in respect of delinquent interest and
principal (as well as servicing advances) on such loan during the
forbearance period (unless the servicer determines any such
advances would be a nonrecoverable advance). At the end of the
forbearance period, if the borrower is able to make the current
payment on such mortgage loan but is unable to make the previously
forborne payments as a lump sum payment or as part of a repayment
plan, the servicer anticipates it will modify such mortgage loan
and any forborne amounts will be deferred as a non-interest bearing
balloon payment that is due upon the maturity of such mortgage
loan.
At the end of the forbearance period, if the borrower repays the
forborne payments via a lump sum or repayment plan, advances will
be recovered via the borrower payment(s). In an event of
modification, Wells Fargo Bank will recover advances made during
the period of COVID-19 related forbearance from pool level
collections.
Any principal forbearance amount created in connection with any
modification (whether as a result of a COVID19 forbearance or
otherwise) will result in the allocation of a realized loss and to
the extent any such amount is later recovered, will result in the
allocation of a subsequent recovery.
Factors that would lead to an upgrade or downgrade of the ratings:
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Methodology
The principal methodology used in these ratings was "Moody's
Approach to Rating US RMBS Using the MILAN Framework" published in
August 2021.
WOODMONT 2017-1: S&P Assigns Prelim BB- (sf) Rating on E-RR Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to the class
A-1-RR, A-2-RR, B-RR, C-RR, D-RR, and E-RR replacement notes from
Woodmont 2017-1 Trust, a CLO that was originally issued in 2017 and
reset in 2020, that is managed by MidCap Financial Services Capital
Management LLC.
The preliminary ratings are based on information as of Oct. 6,
2021. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
On the Oct. 19, 2021 refinancing date, the proceeds from the
replacement notes will be used to redeem the current notes. S&P
said, "At that time, we expect to withdraw our ratings on the
current notes and assign ratings to the replacement notes. However,
if the refinancing doesn't occur, we may affirm our ratings on the
current 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 reinvestment period will be by extended approximately two
years to Oct. 18, 2025.
-- The legal final maturity date will be extended by approximately
one year to Oct. 18, 2033.
-- No additional assets will be purchased on the refinancing date,
and the target initial par amount will remain at $650.00 million.
There will be no additional effective date or ramp-up period.
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
Woodmont 2017-1 Trust
Class A-1-RR, $380.250 million: AAA (sf)
Class A-2-RR, $9.750 million: AAA (sf)
Class B-RR, $52.000 million: AA (sf)
Class C-RR (deferrable), $52.000 million: A (sf)
Class D-RR (deferrable), $32.500 million: BBB- (sf)
Class E-RR (deferrable), $45.500 million: BB- (sf)
Certificates, $86.325 million: Not rated
[*] Fitch Takes Actions on 4 CMBS Transactions
----------------------------------------------
Fitch Ratings has downgraded one class, upgraded one class and
affirmed 54 in four 1.0 CMBS transactions.
DEBT RATING PRIOR
---- ------ -----
Morgan Stanley Capital I Trust 2007-IQ15
C 61755YAP9 LT CCCsf Upgrade Csf
D 61755YAQ7 LT Dsf Affirmed Dsf
E 61755YAR5 LT Dsf Affirmed Dsf
F 61755YAS3 LT Dsf Affirmed Dsf
G 61755YAT1 LT Dsf Affirmed Dsf
H 61755YAU8 LT Dsf Affirmed Dsf
J 61755YAV6 LT Dsf Affirmed Dsf
K 61755YAW4 LT Dsf Affirmed Dsf
L 61755YAX2 LT Dsf Affirmed Dsf
Bear Stearns Commercial Mortgage Securities Trust 2007-PWR16
C 07388YAU6 LT CCCsf Affirmed CCCsf
D 07388YAW2 LT Csf Affirmed Csf
E 07388YAY8 LT Dsf Affirmed Dsf
F 07388YBA9 LT Dsf Affirmed Dsf
G 07388YBC5 LT Dsf Affirmed Dsf
H 07388YBE1 LT Dsf Affirmed Dsf
J 07388YBG6 LT Dsf Affirmed Dsf
K 07388YBJ0 LT Dsf Affirmed Dsf
L 07388YBL5 LT Dsf Affirmed Dsf
M 07388YBN1 LT Dsf Affirmed Dsf
N 07388YBQ4 LT Dsf Affirmed Dsf
O 07388YBS0 LT Dsf Affirmed Dsf
P 07388YBU5 LT Dsf Affirmed Dsf
Q 07388YBW1 LT Dsf Affirmed Dsf
Credit Suisse First Boston Mortgage Securities Corp. 2005-C5
G 225470BA0 LT Csf Downgrade CCsf
H 225470BC6 LT Csf Affirmed Csf
J 225470BE2 LT Dsf Affirmed Dsf
K 225470BG7 LT Dsf Affirmed Dsf
L 225470BJ1 LT Dsf Affirmed Dsf
M 225470BL6 LT Dsf Affirmed Dsf
N 225470BN2 LT Dsf Affirmed Dsf
O 225470BQ5 LT Dsf Affirmed Dsf
P 225470BS1 LT Dsf Affirmed Dsf
Q 225470DQ3 LT Dsf Affirmed Dsf
J. P. Morgan Chase Commercial Mortgage Securities Corp. 2006-LDP9
A-J 46629PAF5 LT Dsf Affirmed Dsf
A-JS 46629PAR9 LT Dsf Affirmed Dsf
A-MS 46629PAQ1 LT CCCsf Affirmed CCCsf
B 46629PAG3 LT Dsf Affirmed Dsf
B-S 46629PAS7 LT Dsf Affirmed Dsf
C 46629PAH1 LT Dsf Affirmed Dsf
C-S 46629PAT5 LT Dsf Affirmed Dsf
D 46629PAJ7 LT Dsf Affirmed Dsf
D-S 46629PAU2 LT Dsf Affirmed Dsf
E 46630AAA6 LT Dsf Affirmed Dsf
E-S 46630AAC2 LT Dsf Affirmed Dsf
F 46630AAE8 LT Dsf Affirmed Dsf
F-S 46630AAG3 LT Dsf Affirmed Dsf
G 46630AAJ7 LT Dsf Affirmed Dsf
G-S 46630AAL2 LT Dsf Affirmed Dsf
H 46630AAN8 LT Dsf Affirmed Dsf
H-S 46630AAQ1 LT Dsf Affirmed Dsf
J 46630AAS7 LT Dsf Affirmed Dsf
K 46630AAU2 LT Dsf Affirmed Dsf
L 46630AAW8 LT Dsf Affirmed Dsf
M 46630AAY4 LT Dsf Affirmed Dsf
N 46630ABA5 LT Dsf Affirmed Dsf
P 46630ABC1 LT Dsf Affirmed Dsf
TRANSACTION SUMMARY
Fitch has affirmed all remaining classes of Bear Stearns Commercial
Mortgage Securities Trust 2007-PWR16 (BSCMSI 2007-PWR16) at their
distressed ratings due to continued high expected losses. Three of
the four remaining assets are REO or expected to be REO (92% of the
pool). The largest remaining asset is the REO grocery-anchored
Shops at Northern Boulevard in Long Island City, NY. Tenants at the
property include Stop & Shop (29.15%; 01/2023), Marshalls (15.6%;
01/2023), Old Navy (11.4%; 07/2023), Party City (9%; 01/2025) and
Guitar Center (9%; 02/2024). As REO, two long-term lease extensions
have been executed. The special servicer continues to make repairs
at the property including to the roof and for environmental
remediation.
Fitch has downgraded one class of Credit Suisse First Boston
Mortgage Securities Corp. series 2005-C5 (CSFB 2005-C5). Class G is
downgraded to 'Csf' RE 50 from 'CCsf' RE 100 due to increased
expected losses. There is one remaining REO asset, a 444,393-sf
portion of a 620,393-sf regional mall located in Decatur, GA, which
is shadow-anchored by a non-collateral Macy's store. The original
$44.1 million interest-only loan was previously modified (December
2015) while in special servicing. Terms of the modification
included a borrower equity contribution, plus a bifurcation of the
remaining loan into a $25 million A-Note and a $14.4 million B-Note
(Hope Note).
Property performance continues to struggle with the property being
74% leased and 65% occupied as of June 2021. Fitch's analysis
includes a full loss on the B note and partial loss on the A note.
Losses are now expected to impact all remaining classes due to
higher loan exposure and lower appraised value.
Fitch has affirmed all remaining classes of JP Morgan Chase
Commercial Mortgage Securities Corp. series 2006-LDP9 (JPMCC
2006-LDP9). Repayment of the A-MS class is reliant on the largest
loan, Discover Mills (94% of the pool). The collateral is a 1.2
million-sf superregional mall located in the greater Atlanta area
constructed in 2001 and renovated in 2006. Occupancy has declined
to 78% as of June 2021, but the reported NOI DSCR is high at
3.13x.
The loan, which is sponsored by Simon Property Group and Farallon
Capital, is current but has been periodically delinquent, and the
loan has already been modified three times, most recently in
December 2018, with an extension of the maturity date to December
2021. Given the challenges refinancing malls in the current
environment, a default at maturity is possible.
Fitch has upgraded class C to 'CCCsf' RE 75 from 'Csf' RE 75' in
Morgan Stanley Capital I Trust series 2007-IQ15 (MSCI 2007-IQ15)
due to reduced loss expectations. Nine loans remain in the
transaction, each of which continue to perform. The largest
remaining loan (64%) is Kmart Shopping Center - Sayville, which is
secured by a 212,800-sf, vacant former Kmart location. The property
was constructed in 1968 and is located in Sayville, NY. The loan
was assumed in March 2021. Tenant Floor & Decor (for approx. 80,000
sf) and At Home (for 85,000sf) have signed leases.
Tenant Floor & Decor has started construction on the space. Aldi
signed a letter of intent (LOI) for approximately 22,000 sf, and is
on the second draft of a lease. Additionally, the borrower has LOIs
from Chick-fil-A and Taco Bell. The loan matures in June 2022.
KEY RATING DRIVERS
High Expected Losses: All of the transactions have high expected
losses, as most of the remaining assets are in special servicing or
are of lower collateral quality. Each transaction has nine or fewer
assets remaining and losses are expected to impact most of the
remaining classes.
Low Credit Enhancement: Each of the remaining classes has low
credit enhancement. The distressed ratings on the bonds reflect
insufficient credit enhancement to absorb the expected losses.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades of the distressed ratings are expected if expected
losses increase or as losses are incurred.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- All ratings are distressed and upgrades are not expected, but
possible with reduced expected losses or better than expected
recoveries on the remaining assets.
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
Credit Suisse First Boston Mortgage Securities Corp. 2005-C5 has an
ESG Relevance Score of '4' for Exposure to Social Impacts due to
the exposure to the sustained structural shift in secular
preferences affecting consumer trends, occupancy trends, etc.
which, in combination with other factors, has a negative impact on
the credit profile, and is relevant to the ratings in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
[*] Fitch Takes Actions on Distressed Bonds on 4 US CMBS Deals
--------------------------------------------------------------
Fitch Ratings, on September 24, 2021, has taken various actions on
already distressed bonds across four U.S. commercial
mortgage-backed securities (CMBS) transactions.
DEBT RATING PRIOR
---- ------ -----
GS Mortgage Securities Corp. II 2006-GG8
A-J 362332AH1 LT Dsf Downgrade Csf
A-J 362332AH1 LT WDsf Withdrawn Csf
B 362332AJ7 LT Dsf Downgrade Csf
B 362332AJ7 LT WDsf Withdrawn Csf
C 362332AK4 LT Dsf Downgrade Csf
C 362332AK4 LT WDsf Withdrawn Csf
D 362332AL2 LT Dsf Affirmed Dsf
D 362332AL2 LT WDsf Withdrawn Dsf
E 362332AM0 LT Dsf Affirmed Dsf
E 362332AM0 LT WDsf Withdrawn Dsf
F 362332AN8 LT Dsf Affirmed Dsf
F 362332AN8 LT WDsf Withdrawn Dsf
G 362332AT5 LT Dsf Affirmed Dsf
G 362332AT5 LT WDsf Withdrawn Dsf
H 362332AV0 LT Dsf Affirmed Dsf
H 362332AV0 LT WDsf Withdrawn Dsf
J 362332AX6 LT Dsf Affirmed Dsf
J 362332AX6 LT WDsf Withdrawn Dsf
K 362332AZ1 LT Dsf Affirmed Dsf
K 362332AZ1 LT WDsf Withdrawn Dsf
L 362332BB3 LT Dsf Affirmed Dsf
L 362332BB3 LT WDsf Withdrawn Dsf
M 362332BD9 LT Dsf Affirmed Dsf
M 362332BD9 LT WDsf Withdrawn Dsf
N 362332BF4 LT Dsf Affirmed Dsf
N 362332BF4 LT WDsf Withdrawn Dsf
O 362332BH0 LT Dsf Affirmed Dsf
O 362332BH0 LT WDsf Withdrawn Dsf
P 362332BK3 LT Dsf Affirmed Dsf
P 362332BK3 LT WDsf Withdrawn Dsf
Q 362332BM9 LT Dsf Affirmed Dsf
Q 362332BM9 LT WDsf Withdrawn Dsf
Bear Stearns Commercial Mortgage Securities Trust 2003-PWR2
N 07383FWT1 LT Dsf Affirmed Dsf
N 07383FWT1 LT WDsf Withdrawn Dsf
LB-UBS Commercial Mortgage Trust 2007-C7
D 52109RBT7 LT Dsf Affirmed Dsf
D 52109RBT7 LT WDsf Withdrawn Dsf
E 52109RBU4 LT Dsf Affirmed Dsf
E 52109RBU4 LT WDsf Withdrawn Dsf
F 52109RBV2 LT Dsf Affirmed Dsf
F 52109RBV2 LT WDsf Withdrawn Dsf
G 52109RAL5 LT Dsf Affirmed Dsf
G 52109RAL5 LT WDsf Withdrawn Dsf
H 52109RAN1 LT Dsf Affirmed Dsf
H 52109RAN1 LT WDsf Withdrawn Dsf
J 52109RAQ4 LT Dsf Affirmed Dsf
J 52109RAQ4 LT WDsf Withdrawn Dsf
K 52109RAS0 LT Dsf Affirmed Dsf
K 52109RAS0 LT WDsf Withdrawn Dsf
L 52109RAU5 LT Dsf Affirmed Dsf
L 52109RAU5 LT WDsf Withdrawn Dsf
M 52109RAW1 LT Dsf Affirmed Dsf
M 52109RAW1 LT WDsf Withdrawn Dsf
N 52109RAY7 LT Dsf Affirmed Dsf
N 52109RAY7 LT WDsf Withdrawn Dsf
P 52109RBA8 LT Dsf Affirmed Dsf
P 52109RBA8 LT WDsf Withdrawn Dsf
Q 52109RBC4 LT Dsf Affirmed Dsf
Q 52109RBC4 LT WDsf Withdrawn Dsf
S 52109RBE0 LT Dsf Affirmed Dsf
S 52109RBE0 LT WDsf Withdrawn Dsf
IMSCI 2013-3
G 45779BAW9 LT Dsf Downgrade CCCsf
All ratings for GS Mortgage Securities Corp. II 2006-GG8, LB-UBS
Commercial Mortgage Trust 2007-C7 and Bear Stearns Commercial
Mortgage Securities Trust 2003-PWR2 have subsequently been
withdrawn. These ratings are no longer considered by Fitch to be
relevant to the agency's coverage.
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.
KEY RATING DRIVERS
Fitch has downgraded classes A-J, B and C of GS Mortgage Securities
Corp. II 2006-GG8 to 'Dsf' as they have incurred principal losses;
these classes were all previously rated 'Csf,' which indicated
default was inevitable. Fitch has also affirmed 13 classes of GS
Mortgage Securities Corp. II 2006-GG8 at 'Dsf' as a result of
previously incurred losses. Fitch has withdrawn the ratings for all
16 classes as there is no remaining collateral and the trust
balance has been reduced to zero.
Fitch has downgraded class G of Institutional Mortgage Securities
Canada Inc. 2013-3 to 'Dsf' due to realized losses from the
liquidation of the specially serviced Deerfoot Court and Airways
Business Plaza loans; the class was previously rated 'CCCsf,' which
indicated default was possible.
Additionally, Fitch has affirmed the remaining 13 classes of LB-UBS
Commercial Mortgage Trust 2007-C7 and one class of Bear Stearns
Commercial Mortgage Securities Trust 2003-PWR2 at 'Dsf' as a result
of previously incurred losses.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- No further rating changes are expected as these bonds have
incurred principal losses.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- While the bonds that have defaulted are not expected to
recover any material amount of lost principal in the future,
there is a limited possibility this may happen. In this
unlikely scenario, Fitch would further review the affected
classes.
-- Today's actions are limited to the bonds that have incurred
losses. Any remaining bonds in Institutional Mortgage
Securities Canada Inc. 2013-3 have not been analyzed as part
of this review.
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.
[*] Moody's Takes Actions on $437.4MM of US RMBS Issued 2004-2007
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of 21 bonds and
downgraded the ratings of 43 bonds from 13 US residential mortgage
backed transactions issued by multiple issuers.
The complete rating action is as follows:
Issuer: CHL Mortgage Pass-Through Trust 2005-1
Cl. 1-X*, Downgraded to Ca (sf); previously on Feb 13, 2019
Upgraded to Caa3 (sf)
Issuer: CHL Mortgage Pass-Through Trust 2006-15
Cl. A-1, Downgraded to Ca (sf); previously on Nov 9, 2016 Confirmed
at Caa2 (sf)
Cl. A-4, Downgraded to Ca (sf); previously on Nov 9, 2016 Confirmed
at Caa2 (sf)
Cl. A-5, Downgraded to Ca (sf); previously on Nov 9, 2016 Confirmed
at Caa2 (sf)
Cl. A-6, Downgraded to Ca (sf); previously on Nov 9, 2016 Confirmed
at Caa2 (sf)
Cl. PO, Downgraded to Ca (sf); previously on Nov 9, 2016 Confirmed
at Caa2 (sf)
Cl. X*, Downgraded to Ca (sf); previously on Nov 29, 2017 Confirmed
at Caa2 (sf)
Issuer: CHL Mortgage Pass-Through Trust 2006-20
Cl. 1-A-1, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-2, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-3, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-4, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-5, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-7, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-8, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-9, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-10, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-11, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-12, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-13, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-14, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-15, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-16, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-17, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-18, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-19*, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-20, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-21, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-22*, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-25*, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-26, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-27, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-28*, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-29*, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-30, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-31*, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-32*, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-33, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-34, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-35, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-36, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. 1-A-37, Downgraded to Ca (sf); previously on Nov 9, 2016
Confirmed at Caa2 (sf)
Cl. PO, Downgraded to Ca (sf); previously on Nov 9, 2016 Confirmed
at Caa2 (sf)
Cl. X*, Downgraded to Ca (sf); previously on Nov 29, 2017 Confirmed
at Caa2 (sf)
Issuer: Credit Suisse First Boston Mortgage Securities Corp. Series
2004-5
Cl. M-2, Upgraded to Aaa (sf); previously on Jun 3, 2019 Upgraded
to Aa2 (sf)
Cl. M-3, Upgraded to A1 (sf); previously on Jun 3, 2019 Upgraded to
A3 (sf)
Cl. M-4, Upgraded to A2 (sf); previously on Jun 3, 2019 Upgraded to
Baa1 (sf)
Issuer: Credit Suisse First Boston Mortgage Securities Corp. Series
2004-6
Cl. M-2, Upgraded to Aaa (sf); previously on Jun 3, 2019 Upgraded
to Aa1 (sf)
Cl. M-3, Upgraded to Aa3 (sf); previously on Jun 3, 2019 Upgraded
to A2 (sf)
Cl. M-4, Upgraded to A2 (sf); previously on Jun 3, 2019 Upgraded to
Baa1 (sf)
Issuer: First Franklin Mortgage Loan Trust 2005-FFH1
Cl. M-2, Upgraded to Baa3 (sf); previously on Aug 1, 2019 Upgraded
to Ba1 (sf)
Issuer: First Franklin Mortgage Loan Trust 2006-FF6
Cl. A-4, Upgraded to A2 (sf); previously on Oct 16, 2018 Upgraded
to Baa1 (sf)
Issuer: GSAMP Trust 2006-HE3
Cl. A-1, Upgraded to A3 (sf); previously on Feb 7, 2019 Upgraded to
Baa1 (sf)
Cl. A-2C, Upgraded to A2 (sf); previously on Feb 7, 2019 Upgraded
to Baa1 (sf)
Issuer: GSAMP Trust 2006-HE7
Cl. A-1, Upgraded to A2 (sf); previously on Jun 7, 2018 Upgraded to
Baa1 (sf)
Cl. A-2D, Upgraded to A1 (sf); previously on Jun 7, 2018 Upgraded
to A3 (sf)
Issuer: Bear Stearns Mortgage Funding Trust 2007-AR4
Cl. I-A-1, Upgraded to Baa3 (sf); previously on Aug 24, 2018
Upgraded to Ba2 (sf)
Cl. II-A-1, Upgraded to Ba3 (sf); previously on Aug 24, 2018
Upgraded to B2 (sf)
Issuer: C-BASS Mortgage Loan Asset-Backed Certificates, Series
2005-CB8
Cl. AF-3, Upgraded to Aa1 (sf); previously on Jun 3, 2019 Upgraded
to A1 (sf)
Cl. AF-4, Upgraded to Aa2 (sf); previously on Jun 3, 2019 Upgraded
to A2 (sf)
Cl. AF-5, Upgraded to Aa1 (sf); previously on Jun 3, 2019 Upgraded
to A1 (sf)
Issuer: Chase Funding Trust, Series 2004-1
Cl. IA-5, Upgraded to Baa3 (sf); previously on Mar 7, 2011
Downgraded to Ba2 (sf)
Cl. IA-7, Upgraded to Baa3 (sf); previously on Mar 7, 2011
Downgraded to Ba2 (sf)
Issuer: ChaseFlex Trust Series 2007-2
Cl. A-1, Upgraded to B1 (sf); previously on Jul 19, 2018 Upgraded
to B3 (sf)
Cl. A-2, Upgraded to Caa3 (sf); previously on Oct 20, 2010
Downgraded to C (sf)
*Reflects Interest-Only Classes
A List of Affected Credit Ratings is available at
https://bit.ly/3oAj3nl
RATINGS RATIONALE
The rating downgrade of Class 1-X from CHL Mortgage Pass-Through
Trust 2005-1, an interest only bond, is primarily due to the
principal paydown of Class 1-A-1, one of its linked P&I bonds. The
rating on an IO bond referencing multiple bonds is the weighted
average of the current ratings of its referenced bonds based on
their current balances, which are grossed up by their realized
losses, if any.
The rating actions also reflect the recent performance as well as
Moody's updated loss expectations on the underlying pools. In light
of the current macroeconomic environment, Moody's revised loss
expectations based on the extent of performance deterioration of
the underlying mortgage loans, resulting from a slowdown in
economic activity and increased unemployment due to the coronavirus
outbreak. Specifically, Moody's have observed an increase in
delinquencies, payment forbearance, and payment deferrals since the
start of pandemic, which could result in higher realized losses.
Moody's analysis considers the current proportion of loans granted
payment relief in each individual transaction. Moody's identified
these loans based on a review of loan level cashflows over the last
few months. Based on Moody's analysis, the proportion of borrowers
that are currently enrolled in payment relief plans varied greatly,
ranging between approximately 2% and 16% among RMBS transactions
issued before 2009. In Moody's analysis, Moody's assume these loans
to experience lifetime default rates that are 50% higher than
default rates on the performing loans.
In addition, for borrowers unable to make up missed payments
through a short-term repayment plan, servicers will generally defer
the forborne amount as a non-interest-bearing balance, due at
maturity of the loan as a balloon payment. Moody's analysis
considered the impact of six months of scheduled principal payments
on the loans enrolled in payment relief programs being passed to
the trust as a loss. The magnitude of this loss will depend on the
proportion of the borrowers in the pool subject to principal
deferral and the number of months of such deferral. The treatment
of deferred principal as a loss could incur write-downs on bonds
when missed payments are deferred.
Moody's rating actions also take into consideration the buildup in
credit enhancement of the bonds, especially in an environment of
elevated prepayment rates. The increase in credit enhancement,
driven by elevated prepayment rates, has helped offset the impact
of the increase in expected losses spurred by the pandemic.
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.
Principal Methodologies
The principal methodology used in rating all classes except
interest-only classes was "US RMBS Surveillance Methodology"
published in July 2020.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's expectations as a
result of a higher number of obligor defaults or deterioration in
the value of the mortgaged property securing an obligor's promise
of payment. Transaction performance also depends greatly on the US
macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
[*] S&P Takes Various Actions on 342 Bonds from 22 Tobacco Deals
----------------------------------------------------------------
S&P Global Ratings reviewed its ratings on 342 tobacco settlement
bonds from 22 transactions. The review resulted in 37 upgrades and
305 affirmations.
A list of Affected Ratings can be viewed at:
https://bit.ly/3CYjH24
The bond issuances are ABS transactions backed by tobacco
settlement revenues from the master settlement agreement (MSA)
payments, liquidity reserve accounts, and interest income.
In May 2021, the National Association of Attorneys General (NAAG)
released its annual domestic cigarette volume data, reporting a
2.02% increase in the 2020 sales year. S&P said, "We believe this
increase was largely due to COVID-19 quarantine measures keeping
smokers out of locations that legally restrict consumption, such as
offices, bars, restaurants, and other public places. Although
first- and second-quarter data indicate that 2021 shipments will
likely return to pre-pandemic levels, we believe our base-case
assumption of a 4.0%-4.5% annual consumption decline reflects
current market conditions."
S&P said, "During our review, we applied a cash flow analysis that
includes a cigarette volume decline test, a participating
manufacturer (PM) bankruptcy test, and a nonparticipating
manufacturer (NPM) adjustment, as well as additional sensitivity
stresses on market share shifts and spikes in volume decline. Our
cash flow results reflect the transactions' ability to pay timely
interest and scheduled principal at each bond's stated maturity
date, based on their underlying credit support and payment
priority.
"We considered the transactions' material exposure to social credit
factors within the ESG framework. Cigarette consumption has been
declining in recent years due to a variety of factors, including
pricing, alternative products, and legislative and social changes.
As the decline in social acceptability and the widespread awareness
of health concerns continue, these social factors could adversely
affect consumption of cigarettes and, therefore, the amounts
payable under the MSA. We have generally accounted for these social
credit factors, along with other factors, by applying stresses in
our cash flow analysis to the projected consumption rates."
The upgrades mainly reflect S&P's view of the following:
-- The transactions' performance. Many of the bonds have paid down
further than our stress assumptions implied from the 2020 review
due to the increased tobacco consumption in the 2020 sales year;
and
The bonds' time remaining until maturity. The shorter remaining
time to maturity has moved some of the bonds into different
maturity buckets for notching. For example, a bond that previously
had 20 years until maturity now has 19 years, and, therefore, only
received a one-notch adjustment instead of the prior two-notch
adjustment.
S&P said, "Consistent with our prior review, we assign a 'B-'
rating if a steady state test is passed (defined as 0% consumption
decline with 'B-' recovery assumption on NPM adjustments);
otherwise, we assigned a 'CCC+' rating. The capital appreciation
bonds that did not pass any rating tests were assigned a 'CCC-'
rating."
The majority of our rating actions were consistent with the
model-implied results with the tenor adjustment described above.
However, S&P made additional qualitative adjustments on the
transactions below:
California County Tobacco Securitization Agency (Fresno County
Tobacco Funding Corp.).
S&P said, "We raised our rating on the 2038 turbo term bond to
'BBB+' from 'BBB'. Although this bond passed all 'A' rating level
tests and sensitivities, we assigned a 'BBB+' rating, based on a
comparative analysis to the 'A-' rated 2035 turbo term bond because
the principal is paid in chronological order."
Erie Tobacco Asset Securitization Corp.
S&P said, "We raised our rating on the series 2005-A turbo term
bond due in 2031 to 'A-' from 'BBB'. Although this bond passed all
'A' rating level tests and sensitivities, we assigned a 'A-'
rating, based on a comparative analysis to the 'A' rated 2005-E
turbo term bond due in 2028 because the principal is paid in
chronological order. We raised our rating on the series 2005-A
turbo term bond due in 2038 to 'BB' from 'B-', consistent with the
model-implied results."
Michigan Finance Authority 2020 (2006 indenture).
S&P said, "We raised our rating on the series 2020A-2 turbo bond
due in 2040 to 'BBB+' from 'BBB'. Although this bond passed all 'A'
rating level tests and sensitivities, we assigned a 'BBB+' rating,
based on a comparative analysis to the 'A-' rated 2039 turbo term
bond because the principal is paid in chronological order."
New York Counties Tobacco Trust IV.
S&P said, "We affirmed our 'A' rating on the turbo term bond
maturing in 2026. The PM bankruptcy test projected a small
principal shortfall on the 2026 turbo term bond if we assumed the
largest PM, Altria Group (BBB/Stable/A-2), to be in bankruptcy from
2024 through 2026, and the recovery from the lost MSA payments
won't be realized until 2027. This bond passed all other 'A' rating
level tests and sensitivities. We don't believe a downgrade is
warranted at this point, given the relatively small probability of
an Altria bankruptcy, the size of the liquidity reserve, and the
principal payment in June 2021."
New York Counties Tobacco Trust VI.
S&P said, "We affirmed our 'BB+' and 'BB' ratings on the class C
turbo term bonds maturing in 2042 and 2045, respectively. Although
the 2042 and 2045 class C turbo term bonds passed our rating level
tests and sensitivities at the 'BBB-' and 'BB+' rating levels,
respectively, we continue to notch these bonds down for
subordination to the class A and B bonds."
TSASC Inc.
S&P said, "We affirmed our ratings on the class B serial bonds
maturing in 2022 through 2025. Although the bonds passed our rating
level tests and sensitivities at higher rating levels, we
determined that an upgrade is not warranted at this time because
the subserial bonds are subordinated to the class A serial bonds
and the sinking fund bonds. In addition, the subordinate liquidity
reserve has been depleted steadily in the past few years. The
current subordinate reserve balance is expected to be roughly $7
million after the December 2021 payment date, compared with its $40
million target."
Westchester Tobacco Asset Securitization Corp.
S&P said, "We raised our ratings on the 2042, 2045, and 2051
subordinated turbo bonds to 'BB+', 'BB', and 'BB-', respectively.
Although these bonds all passed our rating level tests at the 'BB+'
rating level, we adjusted the model-implied ratings, based on a
comparative analysis by maturity because the principal is paid in
chronological order.'
S&P will continue to monitor the tobacco sector and the tobacco
settlement bonds and assess any potential impact on its outstanding
ratings.
[*] S&P Takes Various Actions on 69 Classes from 14 U.S. RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 69 ratings from 14 U.S.
RMBS transactions issued in 2002 and 2007. These transactions are
backed by prime jumbo U.S. RMBS collateral types. The review
yielded one upgrade, 14 downgrades, 40 affirmations, and 14
withdrawals.
A list of Affected Ratings can be viewed at:
https://bit.ly/3B2dfXa
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;
-- Increase or decrease in available credit support;
-- Small loan count; and
-- Tail risk.
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. Please see the
ratings list for the specific rationales associated with each of
the classes with rating transitions.
"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 10 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.
"We lowered our rating on classes A-1, A-2, and A-3 from Sequoia
Mortgage Trust 2004-11 due to tail risk. As RMBS transactions
become more seasoned, the number of outstanding mortgage loans
backing them declines as loans are prepaid and default. As a
result, a liquidation and subsequent loss on one or a small number
of remaining loans at the tail end of a transaction's life may have
a disproportionate impact on remaining credit enhancement, which
could result in a level of credit instability that is inconsistent
with higher ratings."
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
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are not intended to reflect actual trades. Prices for actual
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