/raid1/www/Hosts/bankrupt/TCR_Public/170319.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, March 19, 2017, Vol. 21, No. 77
Headlines
ASCENTIUM EQUIPMENT 2016-2: Moody's Ups Cl. E Debt Rating From Ba1
ATTENTUS CDO II: Fitch Withdraws Dsf Ratings on 10 Note Classes
CIFC FUNDING 2017-I: Moody's Assigns Ba3(sf) Rating to Cl. E Notes
COMM 2003-LNB1: Moody's Affirms Ca(sf) Rating on Class J Certs
COMM 2012-CCRE1: Moody's Affirms B2(sf) Rating on Class G Certs
COMM 2014-LC17: Fitch Affirms 'B-sf' Rating on Cl. X-E
GALE FORCE 3: Moody's Affirms Ba1(sf) Rating on Class E Debt
GRAMERCY REAL 2006-1: Moody's Hikes Class D Debt Rating to Ba3
JP MORGAN 2014-C19: Fitch Affirms 'Bsf' Rating on Class F Debt
MILL CITY 2017-1: Fitch to Rate Cl. B2 Notes 'Bsf', Outlook Stable
MILL CITY 2017-1: Moody's Assigns (P)Ba2 Rating to Class B1 Notes
MORGAN STANLEY 1999-WF1: Moody's Cuts Rating on Cl. X Debt to Caa2
SOUND POINT XV: Moody's Assigns Ba3(sf) Rating to Class E Notes
[*] Moody's Hikes $125MM of Subprime RMBS Issued 2002-2004
[*] Moody's Takes Action on $73.8MM of Alt-A Loans Issued in 2004
*********
ASCENTIUM EQUIPMENT 2016-2: Moody's Ups Cl. E Debt Rating From Ba1
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Moody's Investors Service has upgraded eight securities and
affirmed sixteen securities issued from the Ascentium Equipment
Receivables (ACER) 2015-1 LLC, 2015-2 Trust, 2016-1 Trust, and
2016-2 Trust. The transactions are the securitizations of
small-ticket equipment leases serviced by Ascentium Capital LLC.
Also upgraded were two securities issued by Securitized Equipment
Receivables Trust 2016-1 (SERT 2016-1). SERT 2016-1 is a
securitization of the certificate representing the equity interest
in ACER 2015-1. The back-up servicer for all transactions is U.S.
Bank National Association (Aa2(cr), P-1(cr), Not on Watch).
The complete rating actions are as follow:
Issuer: Ascentium Equipment Receivables 2015-1 LLC
Class A-3 Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class B Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class C Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class D Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class E Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Issuer: Ascentium Equipment Receivables 2015-2 Trust
Class A-2 Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class A-3 Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class B Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class C Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Upgraded to Aaa (sf)
Class D Notes, Upgraded to Aaa (sf); previously on Dec 19, 2016
Upgraded to Aa1 (sf)
Class E Notes, Upgraded to Aa1 (sf); previously on Dec 19, 2016
Upgraded to Aa3 (sf)
Class F Notes, Upgraded to Aa2 (sf); previously on Dec 19, 2016
Upgraded to A3 (sf)
Issuer: Ascentium Equipment Receivables 2016-1 Trust
Class A-2 Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class A-3 Notes, Affirmed Aaa (sf); previously on Dec 19, 2016
Affirmed Aaa (sf)
Class B Notes, Upgraded to Aaa (sf); previously on Dec 19, 2016
Upgraded to Aa1 (sf)
Class C Notes, Upgraded to Aa2 (sf); previously on Dec 19, 2016
Affirmed A1 (sf)
Class D Notes, Upgraded to Aa3 (sf); previously on Dec 19, 2016
Affirmed A3 (sf)
Class E Notes, Upgraded to A2 (sf); previously on Dec 19, 2016
Upgraded to Baa2 (sf)
Issuer: Ascentium Equipment Receivables 2016-2 Trust
Class A-2 Notes, Affirmed Aaa (sf); previously on Oct 26, 2016
Definitive Rating Assigned Aaa (sf)
Class A-3 Notes, Affirmed Aaa (sf); previously on Oct 26, 2016
Definitive Rating Assigned Aaa (sf)
Class B Notes, Affirmed Aa2 (sf); previously on Oct 26, 2016
Definitive Rating Assigned Aa2 (sf)
Class C Notes, Affirmed A1 (sf); previously on Oct 26, 2016
Definitive Rating Assigned A1 (sf)
Class D Notes, Affirmed Baa1 (sf); previously on Oct 26, 2016
Definitive Rating Assigned Baa1 (sf)
Class E Notes, Upgraded to Baa3 (sf); previously on Oct 26, 2016
Definitive Rating Assigned Ba1 (sf)
Issuer: Securitized Equipment Receivables Trust 2016-1
Class A Notes, Upgraded to Aa1 (sf); previously on Nov 1, 2016
Assigned Aa2 (sf)
Class B Notes, Upgraded to A1 (sf); previously on Nov 1, 2016
Assigned A3 (sf)
RATINGS RATIONALE
The actions were prompted by the build-up of credit enhancement due
to the full-turbo sequential structures of the transactions and
non-declining overcollateralization and reserve accounts.
The remaining net loss expectation for all the transactions is
unchanged at 2.50% of the remaining pool balances. For all the
transactions, issuer has been substituting delinquent contracts
with performing, seasoned collateral. When projecting the remaining
net loss, Moody's took into consideration the amount of substituted
delinquent contracts to date - 2.60% of the 2015-1 transaction's
original balance, 1.91% of the 2015-2 transaction's original
balance, 0.99% of the 2016-1 transaction's original balance, and
0.01% of the 2016-2 transaction's original balance -- and an
average realized recovery rate for the small-ticket collateral.
Moody's projected remaining loss assumes that no substitutions of
delinquent collateral will occur in the future. The substitution
limit for the delinquent contracts in all pools is 5.0%.
Below are key performance metrics (as of the February 2017
distribution date) and credit assumptions for each affected
transaction. The credit assumptions include Moody's remaining net
loss expectation as a percentage of the current pool balance.
Performance metrics include the pool factor (the ratio of the
current collateral balance and the original collateral balance at
closing); total hard credit enhancement (expressed as a percentage
of the outstanding collateral pool balance), which typically
consists of subordination, overcollateralization, and reserve fund
as applicable.
Issuer: Ascentium Equipment Receivables 2015-1 LLC
Remaining net loss expectation --2.50% of the remaining pool
balance
Pool Factor -- 44.3%
Total Hard credit enhancement -- Cl. A -- 90.4%, Cl. B -- 63.9%,
Cl. C -- 54.6%, Cl. D -- 46.9%, Cl. E -- 41.9%
Issuer -- Ascentium Equipment Receivables 2015-2 Trust
Remaining net loss expectation --2.50% of the remaining pool
balance
Pool Factor -- 61.2%
Total Hard credit enhancement -- Cl. A -- 57.2%, Cl. B -- 38.2%,
Cl. C -- 31.7%, Cl. D -- 27.8%, Cl. E -- 24.6%, Cl. F -- 22.3%
Issuer: Ascentium Equipment Receivables 2016-1 Trust
Remaining net loss expectation --2.50% of the remaining pool
balance
Pool Factor -- 78.0%
Total Hard credit enhancement -- Cl. A -- 40.7%, Cl. B -- 26.7%,
Cl. C -- 21.5%, Cl. D -- 18.9%, Cl. E -- 15.6%
Issuer: Ascentium Equipment Receivables 2016-2 Trust
Remaining net loss expectation --2.50% of the remaining pool
balance
Pool Factor -- 91.7%
Total Hard credit enhancement -- Cl. A -- 27.7%, Cl. B -- 20.6%,
Cl. C -- 14.8%, Cl. D -- 12.0%, Cl. E -- 9.0%
Issuer: Securitized Equipment Receivables Trust 2016-1
Remaining net loss expectation --2.50% of the remaining pool
balance
Pool Factor -- 44.3% (ACER 2015-1 pool factor)
Total Hard credit enhancement -- Cl. A -- 26.0%, Cl. B -- 20.6%
The principal methodology used in these ratings was "Moody's
Approach to Rating ABS Backed by Equipment Leases and Loans"
published in December 2015.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are greater than necessary to
protect investors against current expectations of loss could lead
to an upgrade of the rating. Moody's current expectations of loss
may be better than its original expectations because of lower
frequency of default by the underlying obligors or appreciation in
the value of the equipment that secure the obligor's promise of
payment. The US macro economy and the equipment markets are primary
drivers of performance. Other reasons for better performance than
Moody's expected include changes in servicing practices to maximize
collections on the leases.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could lead to a
downgrade of the ratings. Moody's current expectations of loss may
be worse than its original expectations because of higher frequency
of default by the underlying obligors of the loans or a
deterioration in the value of the vehicles that secure the
obligor's promise of payment. The US macro economy and the
equipment markets are primary drivers of performance. Other reasons
for worse performance than Moody's expected include poor servicing,
error on the part of transaction parties, lack of transactional
governance and fraud.
ATTENTUS CDO II: Fitch Withdraws Dsf Ratings on 10 Note Classes
---------------------------------------------------------------
Fitch Ratings has downgraded eight and affirmed two classes of
notes issued by Attentus CDO II, Ltd./LLC and simultaneously
withdraws all ratings.
KEY RATING DRIVERS
Attentus II entered an Event of Default on April 14, 2009 due to
the failure of the Class A Overcollateralization Ratio to be equal
to or greater than 102%. On April 21, 2009, the controlling class
voted to accelerate the transaction and directed the Trustee to
declare the principal of the notes to be immediately due and
payable. The public sale of the collateral was conducted on Jan.
19, 2017 and resulted in net sale proceeds of approximately $84.1
million. Total principal proceeds of $80.7 million were distributed
to the noteholders on Feb. 24, 2017 which was sufficient to repay
the class A-2 notes in full, while classes A-3A and A-3B received
3.3% of their original combined principal balance of $60 million.
Classes B, C, D, E-1, E-2, F-1, F-2 and subordinated notes did not
receive any liquidation proceeds.
RATING SENSITIVITIES
Not applicable as the ratings are being withdrawn.
DUE DILIGENCE USAGE
No third-party due diligence was reviewed in relation to this
rating action.
Fitch has downgraded and withdrawn the following ratings:
-- $22,442,223 Class B notes to 'Dsf' from 'Csf';
-- $39,142,885 Class C notes to 'Dsf' from 'Csf'
-- $36,764,359 Class D notes to 'Dsf' from 'Csf';
-- $23,368,325 Class E-1 notes to 'Dsf' from 'Csf';
-- $4,289,813 Class E-2 notes to 'Dsf' from 'Csf';
-- $23,298,838 Class F-1 notes to 'Dsf' from 'Csf';
-- $13,094,461 Class F-2 notes to 'Dsf' from 'Csf';
-- $40,000,000 subordinate notes to 'Dsf' from 'Csf.
Fitch has affirmed and withdrawn the following ratings:
-- $53,168,133 Class A-3A notes at 'Dsf';
-- $4,833,467 Class A-3B notes at 'Dsf.
Class A-2 notes have been marked 'PIF'.
CIFC FUNDING 2017-I: Moody's Assigns Ba3(sf) Rating to Cl. E Notes
------------------------------------------------------------------
Moody's Investors Service has assigned ratings to six classes of
notes issued by CIFC Funding 2017-I, Ltd.
Moody's rating action is:
US$503,600,000 Class A Senior Secured Floating Rate Notes due 2029
(the "Class A Notes"), Definitive Rating Assigned Aaa (sf)
US$92,000,000 Class B Senior Secured Floating Rate Notes due 2029
(the "Class B Notes"), Definitive Rating Assigned Aa1 (sf)
US$4,800,000 Class X Amortizing Senior Secured Deferrable Floating
Rate Notes due 2029 (the "Class X Notes"), Definitive Rating
Assigned Aa3 (sf)
US$60,400,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2029 (the "Class C Notes"), Definitive Rating Assigned A2
(sf)
US$46,400,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2029 (the "Class D Notes"), Definitive Rating Assigned
Baa3 (sf)
US$33,600,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2029 (the "Class E Notes"), Definitive Rating Assigned Ba3
(sf)
The Class A Notes, the Class B Notes, the Class X Notes, the Class
C Notes, the Class D Notes and the Class E Notes are referred to
herein, collectively, as the "Rated Notes."
RATINGS RATIONALE
Moody's ratings of the Rated Notes address the expected losses
posed to noteholders. The ratings reflect the risks due to defaults
on the underlying portfolio of assets, the transaction's legal
structure, and the characteristics of the underlying assets.
CIFC 2017-I is a managed cash flow CLO. The issued notes will be
collateralized primarily by broadly syndicated first lien 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
unsecured loans. Moody's expects the portfolio to be approximately
75% ramped as of the closing date.
CIFC CLO Management LLC (the "Manager"), an affiliate of CIFC Asset
Management LLC, 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 four year reinvestment period. Thereafter, the
Manager may reinvest unscheduled principal payments and proceeds
from sales of credit risk assets, subject to certain restrictions.
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 October 2016.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $800,000,000
Diversity Score: 65
Weighted Average Rating Factor (WARF): 2850
Weighted Average Spread (WAS): 3.80%
Weighted Average Coupon (WAC): 7.50%
Weighted Average Recovery Rate (WARR): 48.0%
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
October 2016.
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.
Together with the set of modeling assumptions above, Moody's
conducted an additional sensitivity analysis, which was a component
in determining the ratings assigned to the Rated Notes. This
sensitivity analysis includes increased default probability
relative to the base case.
Below is a summary of the impact of an increase in default
probability (expressed in terms of WARF level) on the Rated Notes
(shown in terms of the number of notch difference versus the
current model output, whereby a negative difference corresponds to
higher expected losses), assuming that all other factors are held
equal:
Percentage Change in WARF -- increase of 15% (from 2850 to 3278)
Rating Impact in Rating Notches
Class A Notes: 0
Class B Notes: -2
Class X Notes: -1
Class C Notes: -2
Class D Notes: -1
Class E Notes: 0
Percentage Change in WARF -- increase of 30% (from 2850 to 3705)
Rating Impact in Rating Notches
Class A Notes: -1
Class B Notes: -3
Class X Notes: -3
Class C Notes: -4
Class D Notes: -2
Class E Notes: -1
COMM 2003-LNB1: Moody's Affirms Ca(sf) Rating on Class J Certs
--------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on two classes
in COMM 2003-LNB1 Commercial Mortgage Pass-Through Certificates:
Cl. J, Affirmed Ca (sf); previously on Mar 18, 2016 Affirmed Ca
(sf)
Cl. X-1, Affirmed Caa3 (sf); previously on Mar 18, 2016 Affirmed
Caa3 (sf)
RATINGS RATIONALE
The rating on Class J was affirmed because the ratings are
consistent with Moody's expected loss plus realized losses. Class J
has already experienced a 34% realized loss as a result of
previously liquidated loans.
The rating on the IO class, Class X-1, was affirmed based on the
credit performance (or the weighted average rating factor) of the
referenced classes.
Moody's does not anticipate losses from the remaining collateral in
the current environment. However, over the remaining life of the
transaction, losses may emerge from macro stresses to the
environment and changes in collateral performance. Moody's ratings
reflect the potential for future losses under varying levels of
stress. Moody's base expected loss plus realized losses is now 4.7%
of the original pooled balance, unchanged from the last review.
Moody's provides a current list of base expected losses for conduit
and fusion CMBS transactions on moodys.com at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, loan concentration, 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 these ratings was "Moody's
Approach to Rating Large Loan and Single Asset/Single Borrower
CMBS" published in October 2015.
Additionally, the methodology used in rating Cl. X-1 was "Moody's
Approach to Rating Structured Finance Interest-Only Securities"
published in October 2015.
Please note that on February 27, 2017, Moody's released a "Request
for Comment" in which it has requested market feedback on proposed
changes to its methodology for rating IO securities called "Moody's
Approach to Rating Structured Finance Interest-Only Securities,"
dated October 20, 2015. If Moody's adopts the new methodology as
proposed, the changes could affect the ratings of COMM 2003-LNB1.
DESCRIPTION OF MODELS USED
Moody's analysis used the excel-based Large Loan Model. The large
loan model derives 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. Moody's also
further adjusts these aggregated proceeds for any pooling benefits
associated with loan level diversity and other concentrations and
correlations.
DEAL PERFORMANCE
As of the February 10, 2017 distribution date, the transaction's
aggregate certificate balance has decreased by 99% to $11.04
million from $846.03 million at securitization. The certificates
are collateralized by 4 mortgage loans. One loan, constituting 14%
of the pool, has defeased and is secured by US government
securities.
There are no loans on the master servicer's watchlist and no loans
currently in special servicing. Eleven loans have been liquidated
from the pool, resulting in an aggregate realized loss of $39.7
million (for an average loss severity of 56%).
The three remaining non-defeased loans present 86% of the pool. The
largest loan is the Shaw's Merrimack Loan ($7.2 million -- 65.3% of
the pool), which is secured by a 65,000 square foot (SF) grocery
center located in Merrimack, New Hampshire. The property is leased
to Shaw's Supermarket with a lease expiration in February 2024. The
loan is fully amortizing and has paid down over 47% since
securitization. Due to the single tenant exposure, Moody's value
incorporated a lit/dark analysis. Moody's LTV and stressed DSCR are
74% and 1.47X, respectively, compared to 77% and 1.40X at the last
review.
The second largest loan is the Walgreens Canton Mart Loan ($1.3
million -- 11.6% of the pool), which is secured by a 15,000 SF
Walgreens located in Jackson, Mississippi. Competition in the
immediate area includes a Rite Aid, CVS and the local Kroger. The
loan is fully amortizing and has paid down over 66% since
securitization. Due to the single tenant exposure, Moody's value
incorporated a lit/dark analysis. Moody's LTV and stressed DSCR are
35% and 2.94X, respectively, compared to 39% and 2.64X at the last
review.
The third largest loan is the Walgreens Lake Harbour Loan ($1.0
million -- 9.2% of the pool), which is secured by a 14,400 SF
Walgreens located in Ridgeland, Mississippi. This Walgreens is
located approximately 4.2 miles northeast of the Walgreens Canton
Mart property. The Walgreens Lake Harbour loan is fully amortizing
and has paid down over 64% since securitization. The loan is
co-terminus with the first termination option of the tenant. Due to
the single tenant exposure, Moody's value incorporated a lit/dark
analysis. Moody's LTV and stressed DSCR are 41% and 2.48X,
respectively, compared to 44% and 2.32X at the last review.
COMM 2012-CCRE1: Moody's Affirms B2(sf) Rating on Class G Certs
---------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on eleven
classes in COMM 2012-CCRE1 Mortgage Trust, Commercial Pass-Through
Certificates, Series 2012-CCRE1:
Cl. A-3, Affirmed Aaa (sf); previously on Apr 8, 2016 Affirmed Aaa
(sf)
Cl. A-M, Affirmed Aaa (sf); previously on Apr 8, 2016 Affirmed Aaa
(sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Apr 8, 2016 Affirmed Aaa
(sf)
Cl. B, Affirmed Aa2 (sf); previously on Apr 8, 2016 Affirmed Aa2
(sf)
Cl. C, Affirmed A2 (sf); previously on Apr 8, 2016 Affirmed A2
(sf)
Cl. D, Affirmed Baa3 (sf); previously on Apr 8, 2016 Affirmed Baa3
(sf)
Cl. E, Affirmed Ba2 (sf); previously on Apr 8, 2016 Affirmed Ba2
(sf)
Cl. F, Affirmed Ba2 (sf); previously on Apr 8, 2016 Affirmed Ba2
(sf)
Cl. G, Affirmed B2 (sf); previously on Apr 8, 2016 Affirmed B2
(sf)
Cl. X-A, Affirmed Aaa (sf); previously on Apr 8, 2016 Affirmed Aaa
(sf)
Cl. X-B, Affirmed Ba3 (sf); previously on Apr 8, 2016 Affirmed Ba3
(sf)
RATINGS RATIONALE
The ratings on the P&I classes were affirmed because the
transaction's key metrics, including Moody's loan-to-value (LTV)
ratio, Moody's stressed debt service coverage ratio (DSCR) and the
transaction's Herfindahl Index (Herf), are within acceptable
ranges.
The ratings on the IO classes X-A and X-B were affirmed based on
the credit performance (or the weighted average rating factor or
WARF) of the referenced classes.
Moody's rating action reflects a base expected loss of 1.9% of the
current balance, compared to 2.3% at Moody's last review. Moody's
base expected loss plus realized losses is now 1.5% of the original
pooled balance, compared to 2.1% at the last review. Moody's
provides a current list of base expected losses for conduit and
fusion CMBS transactions on moodys.com at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, loan concentration, an
increase in realized and expected losses from specially serviced
and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in these ratings were "Approach to Rating US
and Canadian Conduit/Fusion CMBS" published in December 2014, and
"Moody's Approach to Rating Large Loan and Single Asset/Single
Borrower CMBS" published in October 2015.
Additionally, the methodology used in rating Cl. X-A and Cl. X-B
was "Moody's Approach to Rating Structured Finance Interest-Only
Securities" published in October 2015.
DESCRIPTION OF MODELS USED
Moody's review used the excel-based CMBS Conduit Model, which it
uses for both conduit and fusion transactions. Credit enhancement
levels for conduit loans are driven by property type, Moody's
actual and stressed DSCR, and Moody's property quality grade (which
reflects the capitalization rate Moody's uses to estimate Moody's
value). Moody's fuses the conduit results with the results of its
analysis of investment grade structured credit assessed loans and
any conduit loan that represents 10% or greater of the current pool
balance.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of 18, compared to 21 at Moody's last review.
When the Herf falls below 20, Moody's uses the excel-based Large
Loan Model and then reconciles and weights the results from the
conduit and large loan models in formulating a rating
recommendation. The large loan model derives 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. Moody's also further adjusts these aggregated proceeds for
any pooling benefits associated with loan level diversity and other
concentrations and correlations.
DEAL PERFORMANCE
As of the February 17, 2017 distribution date, the transaction's
aggregate certificate balance has decreased by 20% to $744 million
from $933 million at securitization. The certificates are
collateralized by 43 mortgage loans ranging in size from less than
1% to 15% of the pool, with the top ten loans (excluding
defeasance) constituting 58% of the pool. Two loans, constituting
5% of the pool, have defeased and are secured by US government
securities.
Three loans, constituting 2% of the pool, are on the master
servicer's watchlist. The watchlist includes loans that meet
certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of
Moody's ongoing monitoring of a transaction, the agency reviews the
watchlist to assess which loans have material issues that could
affect performance.
No loans have been liquidated from the pool and there are currently
no loans in special servicing.
Moody's received full year 2015 operating results for 76% of the
pool, and full or partial year 2016 operating results for 98% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 81%, compared to 82% at Moody's
last review. Moody's conduit component excludes loans with
structured credit assessments, defeased and CTL loans, and
specially serviced and troubled loans. Moody's net cash flow (NCF)
reflects a weighted average haircut of 13% to the most recently
available net operating income (NOI). Moody's value reflects a
weighted average capitalization rate of 9.7%.
Moody's actual and stressed conduit DSCRs are 1.74X and 1.35X,
respectively, compared to 1.71X and 1.32X at the last review.
Moody's actual DSCR is based on Moody's NCF and the loan's actual
debt service. Moody's stressed DSCR is based on Moody's NCF and a
9.25% stress rate the agency applied to the loan balance.
The top three conduit loans represent 29% of the pool. The largest
conduit loan is the Crossgates Mall Loan ($111.9 million -- 15.0%
of the pool), which represents a pari passu interest in a $279.6
million loan. The loan is secured by a two-story, 1.3 million
square foot (SF) super regional mall located in Albany, New York.
The mall is anchored by J.C. Penney, Dick's Sporting Goods, Best
Buy and Regal Crossgates and shadow anchored by Macy's. As of
December 2016, the inline space was 78% leased and the total mall
was 93% leased, compared to 71% and 90%, respectively, in December
2015. Moody's LTV and stressed DSCR are 99% and 1.04X,
respectively.
The second largest conduit loan is the Creekside Plaza Loan ($55.0
million -- 7.4% of the pool), which is secured by 228,000 SF, Class
A, three-building office complex and an above-ground parking
structure located in San Leandro, California. As of December 2016,
the property was 89% leased, compared to 100% in December 2015.
Moody's LTV and stressed DSCR are 83% and 1.23X, respectively.
The third largest conduit loan is the RiverTown Crossings Mall Loan
($51.4 million -- 6.9% of the pool), which represents a pari passu
interest in a $143.2 million senior mortgage loan. The property is
also encumbered by $12.8 million in mezzanine debt. The loan is
secured by a 636,000 SF portion of a 1.3 million SF super regional
mall located in Grandville, Michigan. The mall is anchored by
Macy's, Younkers, Sears, Kohl's, J.C. Penney, Dick's Sporting Goods
and Celebration Cinemas, however, only the latter two anchors serve
as collateral for the loan. As of September 2016, the anchor space
was 100% leased and the inline space was 92% leased, compared to
100% and 94% leased, respectively, in December 2015. Moody's A-Note
LTV and stressed DSCR are 66% and 1.43X, respectively.
COMM 2014-LC17: Fitch Affirms 'B-sf' Rating on Cl. X-E
------------------------------------------------------
Fitch Ratings has affirmed the ratings for Deutsche Bank
Securities, Inc.'s COMM 2014-LC17 commercial mortgage trust
pass-through certificates.
KEY RATING DRIVERS
Specially Serviced Assets: There are three loans in special
servicing. The largest is Eagle Ford, a portfolio of three limited
service hotels located in the Eagle Ford oil shale region of Texas.
This asset is now real estate owned (REO). The remaining two are
multifamily portfolios and are in the process of being foreclosed.
The timing on resolution for any of these assets is uncertain.
Limited Amortization: The pool has amortized 2.2% since issuance.
Loans representing 27.1% of the pool are interest only for the full
term. An additional 33.4% of the pool was structured with partial
interest-only periods at issuance. As of the February 2017
remittance, 16 partial interest-only loans representing 21.8% of
the pool had not yet begun amortizing.
Interest Shortfalls: Fitch rated classes E and F have interest
shortfalls. With the February 2017 remittance, class E was shorted
partial interest while class F did not receive any distributable
interest.
Limited Reporting: This transaction closed in September 2014 and
has experienced only one full year of servicer reporting since
issuance, as most year-end (YE) 2016 statements have not yet been
reported. Additionally, the servicer has not been forthcoming with
information on two top 15 loans which Fitch is monitoring for
performance decline. Given the uncertainty in workout timing of the
specially serviced loans and ongoing performance of the watchlist
loans, Fitch has determined that the Rating Outlooks appropriately
reflect credit risk migration since issuance.
Hotel Concentration: Four loans in the top 20 (including three in
the top 15) are secured by hotel properties, and represent 18.5% of
the pool combined. One of these assets is currently REO.
RATING SENSITIVITIES
The Outlooks on all but four classes remain Stable, reflecting
Fitch's loss expectations for the pool since Fitch's last rating
action. The Rating Outlook for Classes E, F, X-D and X-E remains
Negative due to three loans in special servicing and four loans in
the top 15 on the servicer's watchlist. Class E is currently
receiving only partial interest disbursements and class F is
currently not receiving interest at all. None of the three loans in
special servicing are expected to resolve in the near term. A
downgrade to these classes, as well as the notional class X-D and
X-E certificates, is possible if the loans languish in special
servicing for an extended period of time.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation
to this rating action.
Fitch has affirmed the following classes as indicated:
-- $ 28.1 million class A-1 at 'AAAsf', Outlook Stable;
-- $227.4 million class A-2 at 'AAAsf', Outlook Stable;
-- $96.7 million class A-SB at 'AAAsf', Outlook Stable;
-- $34.2 million class A-3 at 'AAAsf', Outlook Stable;
-- $190 million class A-4 at 'AAAsf', Outlook Stable;
-- $262 million class A-5 at 'AAAsf', Outlook Stable;
-- $81.9 million class A-M at 'AAAsf', Outlook Stable;
-- $920.3 million class X-A at 'AAAsf', Outlook Stable;
-- $57.2 million class B at 'AAsf', Outlook Stable;
-- $44.8 million class C at 'Asf', Outlook Stable;
-- $0 class PEZ at 'Asf', Outlook Stable;
-- $102 million class X-B at 'Asf', Outlook Stable;
-- $91.1 million class D at 'BBB-sf', Outlook Stable;
-- $91.1 million class X-C at 'BBB-sf', Outlook Stable;
-- $29.3 million class E at 'BB-sf', Outlook Negative;
-- $29.3 million class X-D at 'BB-sf', Outlook Negative;
-- $12.4 million class F at 'B-sf', Outlook Negative;
-- $12.4 million class X-E at 'B-sf', Outlook Negative.
GALE FORCE 3: Moody's Affirms Ba1(sf) Rating on Class E Debt
------------------------------------------------------------
Moody's Investors Service has upgraded the rating on the following
note issued by Gale Force 3 CLO, Ltd.:
US$27,600,000 Class D Fourth Priority Mezzanine Deferrable Floating
Rate Notes Due 2021, Upgraded to Aa1 (sf); previously on September
12, 2016 Upgraded to A1 (sf)
Moody's also affirmed the ratings on the following notes:
US$300,000,000 Class A-1 First Priority Senior Secured Floating
Rate Delayed Draw Notes Due 2021 (current outstanding balance of
$2,677,228), Affirmed Aaa (sf); previously on September 12, 2016
Affirmed Aaa (sf)
US$143,300,000 Class A-2 First Priority Senior Secured Floating
Rate Term Notes Due 2021 (current outstanding balance of
$1,278,823), Affirmed Aaa (sf); previously on September 12, 2016
Affirmed Aaa (sf)
US$32,400,000 Class B-1 Second Priority Senior Secured Floating
Rate Notes Due 2021, Affirmed Aaa (sf); previously on September 12,
2016 Affirmed Aaa (sf)
US$12,000,000 Class B-2 Second Priority Senior Secured Fixed Rate
Notes Due 2021, Affirmed Aaa (sf); previously on September 12, 2016
Affirmed Aaa (sf)
US$26,100,000 Class C Third Priority Senior Secured Deferrable
Floating Rate Notes Due 2021, Affirmed Aaa (sf); previously on
September 12, 2016 Affirmed to Aaa (sf)
US$21,600,000 Class E Fifth Priority Mezzanine Deferrable Floating
Rate Notes Due 2021 (current outstanding balance of $20,666,829),
Affirmed Ba1 (sf); previously on September 12, 2016 Affirmed Ba1
(sf)
Gale Force 3 CLO, Ltd., issued in March 2007, is a collateralized
loan obligation (CLO) backed primarily by a portfolio of senior
secured loans. The transaction's reinvestment period ended in April
2013.
RATINGS RATIONALE
These rating actions are primarily a result of deleveraging of the
senior notes and an increase in the transaction's
over-collateralization (OC) ratios since September 2016. The Class
A notes have been paid down by approximately 95% or $81.1 million
since then. Based on the trustee's February 2017 report, the OC
ratios for the Class A/B, Class C, Class D and Class E notes are
reported at 283.53%, 184.14%, 134.34% and 111.72%, respectively,
versus August 2016 levels of 168.00%, 140.47%, 119.30% and 107.21%,
respectively.
Nevertheless, the credit quality of the portfolio has deteriorated
since August 2016. Based on the trustee's February 2017 report, the
weighted average rating factor is currently 2692 compared to 2489
in August 2016.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
October 2016.
Factors that Would Lead to an Upgrade or Downgrade of the Ratings:
This transaction is subject to a number of factors and
circumstances that could lead to either an upgrade or downgrade of
the ratings:
1) Macroeconomic uncertainty: CLO performance is subject to a)
uncertainty about credit conditions in the general economy and b)
the large concentration of upcoming speculative-grade debt
maturities, which could make refinancing difficult for issuers.
2) Collateral Manager: Performance can also be affected positively
or negatively by a) the manager's investment strategy and behavior
and b) differences in the legal interpretation of CLO documentation
by different transactional parties owing to embedded ambiguities.
3) Collateral credit risk: A shift towards collateral of better
credit quality, or better credit performance of assets
collateralizing the transaction than Moody's current expectations,
can lead to positive CLO performance. Conversely, a negative shift
in credit quality or performance of the collateral can have adverse
consequences for CLO performance.
4) Deleveraging: An important source of uncertainty in this
transaction is whether deleveraging from unscheduled principal
proceeds will continue and at what pace. Deleveraging of the CLO
could accelerate owing to high prepayment levels in the loan market
and/or collateral sales by the manager, which could have a
significant impact on the notes' ratings. Note repayments that are
faster than Moody's current expectations will usually have a
positive impact on CLO notes, beginning with those with the highest
payment priority.
5) Recovery of defaulted assets: Fluctuations in the market value
of defaulted assets reported by the trustee and those that Moody's
assumes as having defaulted could result in volatility in the
deal's OC levels. Further, the timing of recoveries and whether a
manager decides to work out or sell defaulted assets create
additional uncertainty. Moody's analyzed defaulted recoveries
assuming the lower of the market price and the recovery rate in
order to account for potential volatility in market prices.
Realization of higher than assumed recoveries would positively
impact the CLO.
6) Post-Reinvestment Period Trading: Subject to certain
requirements, the deal can reinvest certain proceeds after the end
of the reinvestment period, and as such the manager has the ability
to erode some of the collateral quality metrics to the covenant
levels. Such reinvestment could affect the transaction either
positively or negatively.
7) Exposure to assets with low credit quality and weak liquidity:
The presence of assets rated Caa3 with a negative outlook, Caa2 or
Caa3 on review for downgrade or the worst Moody's speculative grade
liquidity (SGL) rating, SGL-4, exposes the notes to additional
risks if these assets default. The historical default rate is
higher than average for these assets. Due to the deal's exposure to
such assets, which constitute around $2.5 million of par, Moody's
ran a sensitivity case defaulting those assets.
In addition to the base case analysis, Moody's also conducted
sensitivity analyses to test the impact of a number of default
probabilities on the rated notes relative to the base case modeling
results, which may be different from the current public ratings of
the notes. Below is a summary of the impact of different default
probabilities (expressed in terms of WARF) on all of the rated
notes (by the difference in the number of notches versus the
current model output, for which a positive difference corresponds
to lower expected loss):
Moody's Adjusted WARF -- 20% (2178)
Class A1: 0
Class A2: 0
Class B1: 0
Class B2: 0
Class C: 0
Class D: +1
Class E: +2
Moody's Adjusted WARF + 20% (3266)
Class A1: 0
Class A2: 0
Class B1: 0
Class B2: 0
Class C: 0
Class D: -1
Class E: -1
Loss and Cash Flow Analysis:
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. In its base case,
Moody's analyzed the collateral pool as having a performing par and
principal proceeds balance of $135 million, defaulted par of $3
million, a weighted average default probability of 13.74% (implying
a WARF of 2722) a weighted average recovery rate upon default of
50.47%, a diversity score of 29 and a weighted average spread of
2.97% (before accounting for LIBOR floors).
Moody's incorporates the default and recovery properties of the
collateral pool in cash flow model analysis where they are subject
to stresses as a function of the target rating on each CLO
liability reviewed. Moody's derives the default probability from
the credit quality of the collateral pool and Moody's expectation
of the remaining life of the collateral pool. The average recovery
rate for future defaults is based primarily on the seniority of the
assets in the collateral pool. Moody's generally applies recovery
rates for CLO securities as published in "Moody's Approach to
Rating SF CDOs". In some cases, alternative recovery assumptions
may be considered based on the specifics of the analysis of the CLO
transaction. In each case, historical and market performance and
the collateral manager's latitude for trading the collateral are
also factors.
GRAMERCY REAL 2006-1: Moody's Hikes Class D Debt Rating to Ba3
--------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Gramercy Real Estate CDO 2006-1, Ltd.:
Cl. C, Upgraded to Baa2 (sf); previously on May 12, 2016 Upgraded
to Ba1 (sf)
Cl. D, Upgraded to Ba3 (sf); previously on May 12, 2016 Upgraded to
B2 (sf)
Cl. E, Upgraded to B2 (sf); previously on May 12, 2016 Upgraded to
Caa1 (sf)
Cl. F, Upgraded to Caa1 (sf); previously on May 12, 2016 Affirmed
Caa3 (sf)
Moody's has also affirmed the ratings on the following notes:
Cl. G, Affirmed Caa3 (sf); previously on May 12, 2016 Affirmed Caa3
(sf)
Cl. H, Affirmed Ca (sf); previously on May 12, 2016 Affirmed Ca
(sf)
Cl. J, Affirmed C (sf); previously on May 12, 2016 Affirmed C (sf)
Cl. K, Affirmed C (sf); previously on May 12, 2016 Affirmed C (sf)
RATINGS RATIONALE
Moody's has upgraded the ratings of four classes of notes due to
rapid amortization of the underlying collateral from greater than
anticipated recoveries on high credit risk collateral, which more
than offsets any decrease in credit quality as evidenced by WARF
and WARR. Moody's has also affirmed the ratings of four classes
because key transaction metrics are commensurate with the existing
ratings. The rating action is the result of Moody's on-going
surveillance of commercial real estate collateralized debt
obligation and collateralized loan obligation (CRE CDO CLO)
transactions.
Gramercy Real Estate CDO 2006-1 Ltd. is a currently static cash
transaction (reinvestment period ended in July 2011) backed by a
portfolio of: i) commercial mortgage backed securities (CMBS)
(51.1% of the pool balance); ii) b-notes (46.9%); and iii) CRE CDO
notes (2.0%). As of the January 31, 2017 trustee report, the
aggregate note balance of the transaction, including preferred
shares, has decreased to $234.4 million from $1.0 billion at
issuance, with previous partial junior notes cancellation to the
class C, class D, class E, class F, and class G notes and principal
pay-down directed to the senior most outstanding class of notes.
The pay-down was the result of a combination of regular
amortization, resolution and sales of defaulted collateral, and the
failing of certain par value tests. Currently, the transaction has
implied under-collateralization of $101.9 million, compared to
$101.0 million at last review, primarily due to implied losses on
the collateral.
In general, holding all key parameters static, junior note
cancellations results in slightly higher expected losses and longer
weighted average lives on the senior notes, while producing
slightly lower expected losses on the mezzanine and junior notes.
However, this does not cause, in and of itself, a downgrade or
upgrade of any outstanding classes of notes.
The collateral pool contains one CMBS asset totaling $12.0 million
(9.1% of the collateral pool balance) listed as defaulted security
as of the January 31, 2017 trustee report. There have been over
10.2% of implied losses on the underlying collateral to date since
securitization and Moody's does expect moderate/high severity of
loss on the defaulted security.
Moody's has identified the following as key indicators of the
expected loss in CRE CLO transactions: the weighted average rating
factor (WARF), the weighted average life (WAL), the weighted
average recovery rate (WARR), and Moody's asset correlation (MAC).
Moody's typically models these as actual parameters for static
deals and as covenants for managed deals.
WARF is a primary measure of the credit quality of a CRE CDO pool.
Moody's has updated its assessments for the collateral it does not
rate. The rating agency modeled a bottom-dollar WARF of 4178,
compared to 4022 at last review. The current distribution of
Moody's rated collateral and assessments for non-Moody's rated
collateral is: Aaa-Aa3 and 0.0% compared to 2.3% at last review;
A1-A3 and 4.9 compared to 0.0% at last review; Baa1-Baa3 and 2.1%
compared to 6.0% at last review; Ba1-Ba3 and 9.8% compared to 5.7%
at last review; B1-B3 and 13.6% compared to 23.3% at last review;
and Caa1-Ca/C and 69.6% compared to 62.7% at last review.
Moody's modeled a WAL of 0.7 years, compared to 0.9 years at last
review The WAL is based on assumptions about extensions on
underlying collateral and look-through CMBS loan collateral.
Moody's modeled a fixed WARR of 2.9%, compared to 6.8% at last
review. The decrease in WARR is primarily due to amortization and
resolution of whole loan collateral since last review, which
carried a higher recovery rate than the average of the pool.
Moody's modeled a MAC of 25.3%, compared to 27.2% at last review.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Approach to Rating SF CDOs" published in October 2016.
Factors that would lead to an upgrade or downgrade of the ratings:
The performance of the notes is subject to uncertainty, because it
is sensitive to the performance of the underlying portfolio, which
in turn depends on economic and credit conditions that are subject
to change. The servicing decisions of the master and special
servicer and surveillance by the operating advisor with respect to
the collateral interests and oversight of the transaction will also
affect the performance of the rated notes.
Moody's Parameter Sensitivities: Changes to any one or more of the
key parameters could have rating implications for some of the rated
notes, although a change in one key parameter assumption could be
offset by a change in one or more of the other key parameter
assumptions. The rated notes are particularly sensitive to changes
in the recovery rates of the underlying collateral and credit
assessments. Holding all other key parameters static, reducing the
recovery rate of 100% of the collateral pool to 0% would result in
an average modeled rating movement on the rated notes of zero to
one notch downward (e.g. one notch down implies a rating movement
from Baa3 to Ba1). Increasing the recovery rate of 100% of the
collateral pool by +10.0% would result in an average modeled rating
movement on the rated notes of zero to three notches upward (e.g.,
one notch upward implies a ratings movement of Baa3 to Baa2).
The primary sources of uncertainty in Moody's assumptions are the
extent of growth in the current macroeconomic environment given the
weak recovery and certain commercial real estate property markets.
Commercial real estate property values continue to improve
modestly, along with a rise in investment activity and
stabilization in core property type performance. Limited new
construction and moderate job growth have aided this improvement.
However, sustained growth will not be possible until investment
increases steadily for a significant period, non-performing
properties are cleared from the pipeline and fears of a euro area
recession abate.
JP MORGAN 2014-C19: Fitch Affirms 'Bsf' Rating on Class F Debt
--------------------------------------------------------------
Fitch Ratings has affirmed the ratings on all 14 classes of J.P.
Morgan Chase Commercial Mortgage Securities Trust (JPMBB)
commercial mortgage pass-through certificates series 2014-C19.
Fitch has issued a focus report on this transaction. The report
provides a detailed and up-to-date perspective on key credit
characteristics of the JPMBB 2014-C19 transaction and
property-level performance of the related trust loans.
KEY RATING DRIVERS
The affirmations are based on the stable performance of the
underlying collateral. As of the February 2017 distribution date,
the pool's aggregate principal balance has been reduced by 3.4% to
$1.36 billion from $1.41 billion at issuance.
Fitch modeled losses of 4.8% of the remaining pool; expected losses
on the original pool balance total 4.6%. There are currently no
delinquent or specially serviced loans. One loan (0.7%) appears on
the servicer watchlist due to performance deterioration as detailed
below.
Stable Performance: Overall pool performance is stable and remains
in-line with issuance. As of year-end 2015, aggregate pool-level
NOI has improved 0.4% from issuance.
High Retail Concentration and Mall Exposure: Loans backed by retail
properties represent 42.9% of the pool, including nine within the
top 15. Three loans (13.8%) are secured by regional malls, two of
which have exposure to Sears. The Sears at the Northtowne Mall
(Gumberg Portfolio) has closed. A third Sears, which had strong
sales at issuance, is also located at power center, Foothill
Crossing (2.8%). The largest loan (9.2%) in the pool is an outlet
mall in Orange, CA.
Oil & Gas Exposure - Loan of Concern: Two loans (1.3%) within the
pool have exposure to the oil and gas sector including the Grand
Williston Hotel (0.7%), identified as a Fitch Loan of Concern due
to deteriorating performance. Fitch modeled a significant loss on
the loan.
High Interest-Only Concentration: The pool has a high concentration
of full-term interest-only loans which represents 37.1% of the
pool. This is higher than the Fitch issued average of 20.1% for
2014 vintage transactions. There is one fully amortizing loan,
Centerville Square (2.7%) and Grand Williston Hotel (0.8%) is a
five-year loan amortizing on a 10-year schedule.
Subordinate Debt: 13 loans, representing 26.9% of the pool balance,
have subordinate debt, including the second largest loan, NSP
Multifamily Portfolio (8.6%). Six loans, representing 9% of the
pool, permit borrowers to incur future subordinate debt.
One loan is on the servicer watchlist. The loan (0.7%) is secured
by a 147 room full-service hotel located in Williston, ND. The
hotel is within the Bakken shale region, which is an area that has
been affected by the volatility of oil prices. Performance at the
hotel has declined sharply since issuance. Per servicer reporting,
the net operating income (NOI) debt service coverage ratio (DSCR)
dropped to -0.27x as of September 2016 from 0.15 at year-end (YE)
2015 and 1.36x at YE 2014. Occupancy as of September 2016 declined
to 23% from 67% in 2014. While the loan remains current, the drop
in the NOI DSCR has triggered the lockbox provision and the
property is currently being cash managed. The sponsors recently
spent $3 million to upgrade the hotel. Given the decline in
performance and market conditions, Fitch modeled a significant loss
on the loan.
RATING SENSITIVITIES
Stable Outlooks are due to the overall stable performance of the
pool. The Negative Outlook reflects the high concentration of
retail properties with exposure to weak anchor tenants and slowing
sales trends. Additionally, the Grand Williston Hotel has the
potential to incur substantial losses. Upgrades may occur with
improved pool performance and significant paydown or defeasance.
Fitch affirms the following classes:
-- $18.7 million class A-1 at 'AAAsf'; Outlook Stable;
-- $468.7 million class A-2 at 'AAAsf'; Outlook Stable;
-- $112.4 million class A-3 at 'AAAsf'; Outlook Stable;
-- $276.3 million class A-4 at 'AAAsf'; Outlook Stable;
-- $62.1 million class A-SB at 'AAAsf'; Outlook Stable;
-- $1.04* billion class X-A at 'AAAsf'; Outlook Stable;
-- $98.7 million class A-S at 'AAAsf'; Outlook Stable;
-- $89.9 million class B at 'AA-sf'; Outlook Stable;
-- $89.9* million class X-B at 'AA-sf'; Outlook Stable;
-- $63.4 million class C at 'A-sf'; Outlook Stable;
-- $252 class EC at 'A-sf'; Outlook Stable;
-- $65.2 million class D at 'BBB-sf'; Outlook Stable;
-- $31.7 million class E at 'BBsf'; Outlook Stable;
-- $17.6 million class F at 'Bsf'; Outlook Negative.
*Notional and interest-only.
Fitch does not rate the class NR, CSQ and the interest-only X-C
certificates. Class A-S, B, and C certificates may be exchanged for
a related amount of class EC certificates, and class EC
certificates may be exchanged for class A-S, B, and C certificates.
MILL CITY 2017-1: Fitch to Rate Cl. B2 Notes 'Bsf', Outlook Stable
------------------------------------------------------------------
Fitch Ratings expects to rate Mill City Mortgage Loan Trust 2017-1
(MCMLT 2017-1):
-- $241,735,000 class A1 notes 'AAAsf'; Outlook Stable;
-- $32,219,000 class M1 notes 'AAsf'; Outlook Stable;
-- $24,114,000 class M2 notes 'Asf'; Outlook Stable;
-- $23,719,000 class M3 notes 'BBBsf'; Outlook Stable;
-- $18,184,000 class B1 notes 'BBsf'; Outlook Stable;
-- $16,011,000 class B2 notes 'Bsf'; Outlook Stable.
The following classes will not be rated by Fitch:
-- $20,358,000 class B3 notes;
-- $18,976,146 class B4 notes.
The notes are supported by one collateral group that consists of
1,660 seasoned performing and re-performing mortgages with a total
balance of approximately $395.32 million (which includes $22.1
million, or 5.6%, of the aggregate pool balance in
non-interest-bearing deferred principal amounts) as of the
statistical calculation date.
The 'AAAsf' rating on the class A1 notes reflects the 38.85%
subordination provided by the 8.15% class M1, 6.10% class M2, 6.00%
class M3, 4.60% class B1, 4.05% class B2, 5.15% class B3 and 4.80%
class B4 notes.
Fitch's ratings on the class notes reflect the credit attributes of
the underlying collateral, the quality of the servicers: Shellpoint
Mortgage Servicing (Shellpoint) and Fay Servicing, LLC (Fay), both
rated 'RSS3+', the representation (rep) and warranty framework,
minimal due diligence findings and the sequential pay structure.
KEY RATING DRIVERS
Distressed Performance History (Concern): The collateral pool
consists primarily of peak-vintage seasoned re-performing loans
(RPLs), including loans that have been paying for the past 24
months, which Fitch identifies as "clean current" (64.2%), and
loans that are current but have recent delinquencies or incomplete
paystrings, identified as "dirty current" (35.8%). All loans were
current as of the cutoff date; 58.9% of the loans have received
modifications.
Due Diligence Findings (Concern): The third-party review (TPR)
firm's due diligence review resulted in approximately 341 loans
(20%) graded 'C' and 'D', of which 77 were subject to a loss
severity (LS) adjustment for issues regarding high cost testing,
including 12 loans that were unable to perform a compliance review
due to incomplete loan files. In addition, timelines were extended
on 132 loans that were missing final modification documents. The
TPR firm did not review the servicing comments for the loans that
experienced a delinquency in the past 12 months as described in the
Criteria Application section on page 12.
Tax and Title Search Aged Over Six months (Concern): For
approximately 85% of the loans, the tax and title search was
performed more than six months prior to securitization. Fitch
believes the risk of any potential liens existing at time of its
analysis is low due to the servicers' very close oversight of
borrower payments and the tools employed for identifying delinquent
tax payments and the homeowner association (HOA) and municipal
liens placed on the property. For more information, see the
Criteria Application section on page 12.
HELOCs Included (Concern): Approximately 16% of the total pool is
made up of home equity lines of credit (HELOCs). To account for
future potential draws, Fitch added the available draw amount to
the loans where the line was marked as anything other than
"permanently closed." This approach impacted 163 loans and
increased the amount owed by $3.7 million for determining
borrowers' probability of default (PD) and loss severity (LS) in
Fitch's analysis.
Distressed Performance History (Concern): The collateral pool
consists primarily of peak-vintage seasoned re-performing loans
(RPLs), including loans that have been paying for the past 24
months, which Fitch identifies as "clean current" (64.2%), and
loans that are current but have recent delinquencies or incomplete
paystrings, identified as "dirty current" (35.8%). All loans were
current as of the cutoff date; 58.9% of the loans have received
modifications.
Due Diligence Findings (Concern): The third-party review (TPR)
firm's due diligence review resulted in approximately 341 loans
(20%) graded 'C' and 'D', of which 77 were subject to a LS
adjustment for issues regarding high cost testing, including 12
loans that were unable to perform a compliance review due to
incomplete loan files. In addition, timelines were extended on 132
loans that were missing final modification documents.
No Servicer P&I Advances (Mixed): The servicers will not be
advancing delinquent monthly payments of P&I, which reduces
liquidity to the trust. However, as P&I advances made on behalf of
loans that become delinquent and eventually liquidate reduce
liquidation proceeds to the trust, the loan-level 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 (Mixed): The transaction's cash flow is
based on a sequential-pay structure whereby the subordinate classes
do not receive principal until the senior classes are repaid in
full. Losses are allocated in reverse-sequential order.
Furthermore, the provision to re-allocate principal to pay interest
on the 'AAAsf' and 'AAsf' rated notes prior to other principal
distributions is highly supportive of timely interest payments to
those classes, in the absence of servicer advancing.
Potential Interest Deferrals (Mixed): To address the lack of an
external P&I advance mechanism, principal otherwise distributable
to the notes may be used to pay monthly interest. While this helps
provide stability in the cash flows to the high
investment-grade-rated bonds, the lower rated bonds may experience
long periods of interest deferral that will generally not be repaid
until such note becomes the most senior outstanding.
Limited Life of Rep Provider (Concern): CVI CVF II Lux Master
S.a.r.l., as rep provider, will only be obligated to repurchase a
loan due to breaches prior to the payment date in April 2018.
Thereafter, a reserve fund will be available to cover amounts due
to noteholders for loans identified as having rep breaches. Amounts
on deposit in the reserve fund, as well as the increased level of
subordination, will be available to cover additional defaults and
losses resulting from rep weaknesses or breaches occurring on or
after the payment date in April 2018.
Tier 2 Representation Framework (Concern): Fitch generally
considers the representation, warranty, and enforcement (RW&E)
mechanism construct for this transaction to be generally consistent
with a Tier 2 framework due to the inclusion of knowledge
qualifiers and the exclusion of loans from certain reps as a result
of third-party due diligence findings. Thus, Fitch increased its
'AAAsf' loss expectations by approximately 242 basis points (bps)
to account for a potential increase in defaults and losses arising
from weaknesses in the reps.
Timing of Recordation and Document Remediation (Neutral): A review
to confirm that the mortgage and subsequent assignments were
recorded in the relevant local jurisdiction, was performed. The
review confirmed that all mortgages and subsequent assignments were
recorded in the relevant local jurisdiction or were being
recorded.
While the expected timelines for recordation and remediation are
viewed by Fitch as reasonable, the obligation of CVI CVF II Lux
Master S.a.r.l. to repurchase loans, for which assignments are not
recorded and endorsements are not completed by the payment date in
April 2018, aligns the issuer's interests regarding completing the
recordation process with those of noteholders. While there will not
be an asset manager in this transaction, the indenture trustee will
be reviewing the custodian reports. The indenture trustee will
request CVI CVF II Lux Master S.a.r.l. to purchase any loans with
outstanding assignment and endorsement issues two days prior to the
April 2018 payment date.
Deferred Amounts (Negative): Non-interest-bearing principal
forbearance amounts totaling $22.1 million (5.6% of the unpaid
principal balance) are outstanding on 507 loans. Fitch included the
deferred amounts when calculating the borrower's LTV and sLTV,
despite the lower payment and amounts not being owed during the
term of the loan. The inclusion resulted in higher PDs and LS than
if there were no deferrals. Fitch believes that borrower default
behavior for these loans will resemble that of the higher LTVs, as
exit strategies (that is, sale or refinancing) will be limited
relative to those borrowers with more equity in the property.
Solid Alignment of Interest (Positive): The sponsor, Mill City
Holdings, LLC, will acquire and retain a 5% interest in each class
of the securities to be issued. In addition, the rep provider is an
indirect owner of the sponsor.
CRITERIA APPLICATION
Fitch's analysis incorporated three criteria variations from the
'U.S. RMBS Seasoned and Re-performing Loan Criteria' as described
below.
The first applied variation is non-application of a default penalty
to income documentation for loans with less than full income
documentation that are over five years seasoned. Fitch conducted
analysis comparing the performance between loans that were full
documentation and non-full documentation at origination. The
analysis showed that after five years of seasoning, the performance
was similar. The impact on the loss expectations from application
of this variation resulted in lower loss expectations of roughly
75bps at the 'AAAsf' rating stress level.
The second variation was a lack of third party review of servicer
comments for loans that have been delinquent in the past 12 months.
Despite the lack of third party review, a default penalty was not
applied as all of the borrowers were current as of the cutoff date.
The purpose of the review is to make sure no borrowers are
contesting foreclosure or other delay tactics. As all borrowers are
current, this possibility is unlikely. Further, as borrowers that
have been delinquent in the past 12 months already receive a high
model output default assumption, the lack of a penalty has a
minimal impact on the levels.
The third related to timing of the updated tax and title search.
Fitch's criteria looks for an updated search to be completed within
six months of securitization. Approximately 85% of the loans had a
search performed outside of this window. Both of the transaction
servicers are rated by Fitch and utilize a suite of CoreLogic
products to monitor delinquent taxes or tax liens. Both servicers
would also be notified of any HOA liens and would work towards
resolution helping to mitigate the outdated search. Additionally,
the majority of the borrowers have been performing since the search
was completed. Borrowers that have been current on their mortgage
are less likely to have defaulted on other home related payments
further reducing the risk of the older search.
RATING SENSITIVITIES
Fitch's analysis incorporates sensitivity analyses to demonstrate
how the ratings would react to steeper market value declines (MVDs)
than assumed at both the metropolitan statistical area (MSA) and
national levels. The implied rating sensitivities are only an
indication of some of the potential outcomes and do not consider
other risk factors that the transaction may become exposed to or be
considered in the surveillance of the transaction.
Fitch conducted sensitivity analysis determining how the ratings
would react to steeper MVDs at the national level. The analysis
assumes MVDs of 10%, 20%, and 30%, in addition to the
model-projected 38.4% at 'AAAsf'. The analysis indicates there is
some potential rating migration with higher MVDs, compared with the
model projection.
Fitch also conducted sensitivities to determine the stresses to
MVDs that would reduce a rating by one full category, to
non-investment grade, and to 'CCCsf'.
Fitch's stress and rating sensitivity analysis are discussed in its
presale report released today 'Mill City Mortgage Loan Trust
2017-1', available at 'www.fitchratings.com' or by clicking on the
link.
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 Meridian Asset Services (Meridian), Clayton Services
LLC, and AMC Diligence, LLC (AMC)/JCIII & Associates, Inc. (JCIII).
The third-party due diligence described in Form 15E focused on:
regulatory compliance, pay history, the presence of key documents
in the loan file and data integrity. In addition, Meridian was
retained to perform an updated title and tax search, as well as a
review to confirm that the mortgages were recorded in the relevant
local jurisdiction and the related assignment chains.
A regulatory compliance and data integrity review was completed on
more than 99% of the pool. A pay history review was conducted on
100% of the pool, and a servicing comment review was not performed
as described in the criteria application section above.
Fitch considered this information in its analysis and based on the
findings, Fitch made the following adjustments:
Fitch made an adjustment on 77 loans that were subject to federal,
state, and/or local predatory testing. These loans contained
material violations including an inability to test for high-cost
violations or confirm compliance, which could expose the trust to
potential assignee liability. These loans were marked as
"indeterminate". The 77 loans also include 12 loans where the
compliance review was not completed due to incomplete loan files.
Typically the HUD issues are related to missing the Final HUD,
illegible HUDs, incomplete HUDs due to missing pages, or only
having estimated HUDs. The final HUD1 was not used to test for
High-Cost loans. To mitigate this risk, Fitch assumed a 100% LS for
loans in the states that fall under Freddie Mac's do not purchase
list of "high cost" or "high risk"; 13 loans were affected by this
approach.
For the remaining 64 loans, where the properties are not located in
the states that fall under Freddie Mac's do not purchase list, the
likelihood of all loans being high cost is low. However, we assumes
the trust could potentially incur notable legal expenses. Fitch
increased its loss severity expectations by 5% for these loans to
account for the risk.
There were 132 loans missing modification documents or a signature
on modification documents. For these loans, timelines were extended
by an additional three months, in addition to the six-month
timeline extension applied to the entire pool.
The statute of limitations had not expired for five loans for TILA.
As a result, Fitch increased its LS expectations by 5% for this
loan to account for the risk of the possibility of challenges to
foreclosure and associated legal costs. Eighteen loans had material
TRID violations and received an increase to the expected loss of
$15,500 to account for potential legal costs and statutory
damages.
Three loans had exceptions that were outside of Texas cash-out
regulation. Borrowers in these cases have affirmative rights, which
could lead to the loss of lien against the subject property. A 100%
loss severity was applied to these loans.
MILL CITY 2017-1: Moody's Assigns (P)Ba2 Rating to Class B1 Notes
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Moody's Investors Service has assigned provisional ratings to five
classes of notes issued by Mill City Mortgage Loan Trust 2017-1.
The certificates are backed by one pool of 1,660 seasoned
performing and modified re-performing loans which include home
equity lines of credit (HELOC) mortgage loans. The collateral pool
has a non-zero updated weighted average FICO score of 687 and a
weighted average current LTV of 84.36%.
There are approximately 16.50% HELOC loans in this pool, of which
5.08% of the borrowers are currently eligible to make draws up to
their credit limit. Approximately 67.93% of the HELOC loans have
their credit line temporarily frozen due to certain circumstances
including but not limited to the event where the current home value
has declined below a specified level. The borrowers may unfreeze
their credit line in future if the circumstances that cause such
credit line to be frozen are cured. The remaining HELOC loans
(approx. 27%) have their credit lines permanently frozen. In the
event that all HELOC loans (other than the HELOC loans that are
permanently frozen) are no longer precluded from making draws, the
maximum amount of draws available to the borrowers as of February
2017 is equal to $3,698,072.73 or approximately 0.94% of closing
date UPB.
A HELOC borrower will be assessed a principal payment only in the
case that their credit limit amortizes to an amount that is below
the outstanding principal balance of the loan, otherwise the
borrower will be required to make only an interest payment. During
the amortization period, the credit limit will decrease at a fixed
rate. For example, if the amortization period is 240 months then in
each month, the credit limit will reduce by 1/240 of the original
credit limit.
In addition, there are approximately 5.9% of newly originated loans
for which Moody's also performed additional loan level analysis
similar to Moody's analysis of newly originated prime quality
loans. 58.87% of the loans in the collateral pool were also
previously modified and the remaining loans have never been
modified.
Fay Servicing LLC and Shellpoint Mortgage Servicing, are the
servicers for the loans in the pool. The servicers will not advance
any principal or interest on the delinquent loans. However, the
servicers will be required to advance costs and expenses incurred
in connection with a default, delinquency or other event in the
performance of its servicing obligations. In addition, if a
borrower of a HELOC loan requests a draw on the related HELOC
credit line, the related servicer will be required to fund such
draw.
The complete rating actions are:
Issuer: Mill City Mortgage Loan Trust 2017-1
Cl. A1, Assigned (P)Aaa (sf)
Cl. M1, Assigned (P)Aa2 (sf)
Cl. M2, Assigned (P)A2 (sf)
Cl. M3, Assigned (P)Baa2 (sf)
Cl. B1, Assigned (P)Ba2 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected losses on MCMLT 2017-1's collateral pool average
10.00% in Moody's base case scenario. Moody's loss estimates take
into account the historical performance of loans that have similar
collateral characteristics as the loans in the pool. For example,
Moody's observed the performance of 10 year IO-ARM loans of as a
proxy to estimate future delinquencies for first lien HELOC loans.
Similarly, for the non-modified portion of this pool, Moody's
analyzed data on delinquency rates for always current (including
self-cured) loans. Moody's final loss estimates also incorporates
adjustments for the strength of the third party due diligence, the
servicing framework (including the capability to service HELOC
loans) and the representations and warranties (R&W) framework of
the transaction.
The methodologies used in these ratings were "Moody's Approach to
Rating Securitisations Backed by Non-Performing and Re-Performing
Loans" published in August 2016 and "US RMBS Surveillance
Methodology" published in January 2017.
Collateral Description
MCMLT 2017-1 is a securitization of 1,660 loans and is primarily
comprised of seasoned performing and modified re-performing
mortgage loans. Approximately 58.87% of the loans in the collateral
pool have been previously modified.
Moody's based Moody's expected losses on a pool of seasoned
performing and re-performing mortgage loans on Moody's estimates of
1) the default rate on the remaining balance of the loans and 2)
the principal recovery rate on the defaulted balances. The two
factors that most strongly influence a re-performing mortgage
loan's likelihood of re-default are the length of time that the
loan has performed since a loan modification, and the amount of the
reduction in the monthly mortgage payment as a result of the
modification. The longer a borrower has been current on a
re-performing loan, the less likely the borrower is to re-default.
Approximately 58.86% of the borrowers have been current on their
payments for at least the past 24 months.
Moody's estimated expected losses for the pool using two approaches
-- (1) pool-level approach, and (2) re-performing loan level
analysis.
In the pool-level approach, Moody's estimates losses on the pool by
using a approach similar to Moody's surveillance approach wherein
Moody's apply assumptions on expected future delinquencies, default
rates, loss severities and prepayments as observed from Moody's
surveillance of similar collateral. Moody's projects future annual
delinquencies for eight years by applying an initial annual default
rate and delinquency burnout factors. Based on the loan
characteristics of the pool and the demonstrated pay histories,
Moody's expects an annual delinquency rate of 8.4% on the
collateral pool for year one. Moody's then calculated future
delinquencies on the pool using Moody's default burnout and
voluntary conditional prepayment rate (CPR) assumptions. Moody's
assumptions also factor in the high delinquency rates expected in
the early stages of the transaction due to payment shock expected
during the amortization phase for HELOC loans originated in
2006-2008. The delinquency burnout factors reflect Moody's future
expectations of the economy and the U.S. housing market. Moody's
then aggregated the delinquencies and converted them to losses by
applying pool-specific lifetime default frequency and loss severity
assumptions. Moody's loss severity assumptions are based off
observed severities on liquidated seasoned loans and reflect the
lack of principal and interest advancing on the loans.
Moody's also conducted a loan level analysis on MCMLT 2017-1's
collateral pool. Moody's applied loan-level baseline lifetime
propensity to default assumptions based on the historical
performance of loans with similar collateral characteristics and
payment histories. Moody's then adjusted this base default
propensity up for (1) adjustable-rate loans, (2) loans that have
the risk of coupon step-ups and (3) loans with high updated loan to
value ratios (LTVs). Moody's applied a higher baseline lifetime
default propensity for interest-only loans, using the same
adjustments. To calculate the final expected loss for the pool,
Moody's applied a loan-level loss severity assumption based on the
loans' updated estimated LTVs. Moody's further adjusted the loss
severity assumption upwards for loans in states that give
super-priority status to homeowner association (HOA) liens, to
account for potential risk of HOA liens trumping a mortgage. For
5.9% of newly originated loans for which Moody's also performed
additional loan level analysis similar to Moody's analysis of newly
originated prime quality loans.
The deferred balance in this transaction is $22,118,555,
representing approximately 5.59% of the total unpaid principal
balance. Loans that have HAMP and proprietary remaining principal
reduction amount (PRA) totaled $529,291, representing approximately
2.39% of total deferred balance.
Under HAMP-PRA, the principal of the borrower's mortgage may be
reduced by a predetermined amount called the PRA forbearance amount
if the borrower satisfies certain conditions during a trial period.
If the borrower continues to make timely payments on the loan for
three years, the entire PRA forbearance amount is forgiven. Also,
if the loan is in good standing and the borrower voluntary pays off
the loan, the entire forbearance amount is forgiven.
For non-PRA forborne amounts, the deferred balance is the full
obligation of the borrower and must be paid in full upon (i) sale
of property (ii) voluntary payoff and (iii) final scheduled payment
date. Upon sale of the property, the servicer therefore could
potentially recover some of the deferred amount. For loans that
default in future or get modified after the closing date, the
servicer may opt for partial or full principal forgiveness to the
extent permitted under the servicing agreement.
Based on performance data and information from servicers, Moody's
assumes that 100% of the remaining PRA amount would be forgiven and
not recovered. For non-PRA deferred balance, Moody's applied a
slightly higher default rate for these loans than what Moody's
assumed for the overall pool given that these borrowers have
experienced past credit events that required loan modification, as
opposed to borrowers who have been current and have never been
modified. Also, for non-PRA loans Moody's assumed approximately 85%
severity as servicers can recover a portion of the deferred
balance. The final expected loss for the collateral pool reflects
the due diligence scope and findings of the independent third party
review (TPR) firms as well as Moody's assessment of MCMLT 2017-1's
representations & warranties (R&Ws) framework.
Transaction Structure
The securitization has a simple sequential priority of payments
structure without any cash flow triggers. However, due to the
inclusion of HELOC loans (and potential for future draws) certain
structural features were incorporated in this transaction. If a
borrower of a HELOC loan makes a draw on the related HELOC credit
line, the servicer will be required to fund such draw and will be
reimbursed through the following mechanism.
On the closing date, the depositor will remit $964,752 to the HELOC
Draw Reserve Account, which will be used to reimburse the servicer
for any draws made on the HELOC credit line. If amounts on deposit
in the HELOC Draw Reserve Account are not sufficient to reimburse
such draws, the Class D Certificates will be obligated to remit the
deficient amount to the HELOC Draw Reserve Account ("Class D Draw
Amount"). The Class D certificate is not an offered certificate and
will represent an equity interest in the issuer (MCMLT 2017-1)
In the event the holder of the Class D Certificates fails to remit
all or part of any Class D Draw Amount on any payment date, the
Indenture Trustee will fund any unpurchased draw or portion of a
draw on future Payment Dates from amounts in the HELOC Draw Reserve
Account.
The servicer will not advance any principal or interest on
delinquent loans. However, the servicer will be required to advance
costs and expenses incurred in connection with a default,
delinquency or other event in the performance of its servicing
obligations.
Credit enhancement in this transaction is comprised of
subordination provided by mezzanine and junior tranches, the
buildup of overcollateralization from available excess interest
(0.52% at closing) and from additional collateral available to the
trust if HELOC borrowers draw on their credit line. The principal
payment received from this additional collateral will facilitate a
faster pay down on the senior notes. The available excess interest
however, will be used to first replenish the HELOC Draw Reserve
Account, to the Class D certificate holder and to reimburse any
unpaid fees before paying down the rated notes sequentially.
To the extent that the overcollateralization amount is zero,
realized losses will be allocated to the notes in a reverse
sequential order starting with the lowest subordinate bond. The
Class A1, M1, M2, and M3 notes carry a fixed-rate coupon subject to
the collateral adjusted net weighted average coupon (WAC) and
applicable available funds cap. The Class B1, B2, B3 and B4 are
Variable Rate Notes where the coupon is equal to the lesser of
adjusted net WAC and applicable available funds cap.
Moody's modeled MCMLT 2017-1's cashflows using SFW(R), a cashflow
tool developed by Moody's Analytics. To assess the final rating on
the notes, Moody's ran 96 different loss and prepayment scenarios
through SFW. The scenarios encompass six loss levels, four loss
timing curves, and four prepayment curves. The structure allows for
timely payment of interest and ultimate payment of principal with
respect to the notes by the legal final maturity.
Third Party Review
Three third party review (TPR) firms conducted due diligence on all
but 12 of the loans in MCMLT 2017-1's collateral pool. The TPR
firms reviewed compliance, data integrity and key documents, to
verify that loans were originated in accordance with federal, state
and local anti-predatory laws. The TPR firms also conducted audits
of designated data fields to ensure the accuracy of the collateral
tape. An independent firm also reviewed the title and tax reports
for all the loans in the pool.
Based on Moody's analysis of the third-party review reports,
Moody's determined that a portion of the loans had legal or
compliance exceptions that could cause future losses to the trust.
Moody's incorporated an additional hit to the loss severities for
these loans to account for this risk. The title review includes
confirming the recordation status of the mortgage and the
intervening chain of assignments, the status of real estate taxes
and validating the lien position of the underlying mortgage loan.
Once securitized, delinquent taxes will be advanced on behalf of
the borrower and added to the borrower's account. The servicer will
be reimbursed for delinquent taxes from the top of the waterfall,
as a servicing advance. The representation provider has deposited
collateral of $750,000 in the Assignment Reserve Account (ARA) to
ensure one or more third parties monitored by the Depositor
completes all assignment and endorsement chains and record an
intervening assignment of mortgage as necessary. The amount
deposited in the ARA at the closing date is lower than previous
Mill City transactions. Moody's have considered the lower ARA
deposit and factors such as: (i) the high historical cure rate in
the previous Mill City transactions; (ii) the low delinquency rate
of the previous Mill City transactions; and (iii) quality of the
collateral.
Representations & Warranties
Moody's ratings also factor in MCMLT 2017-1's weak representations
and warranties (R&Ws) framework because they contain many knowledge
qualifiers and the regulatory compliance R&W does not cover
monetary damages that arise from TILA violations whose right of
rescission has expired. While the transaction provides for a Breach
Reserve Account to cover for any breaches of R&Ws, the size of the
account is small relative to MCMLT 2017-1's aggregate collateral
pool ($395.3 million). An initial deposit of $1.025 million will be
remitted to the Breach Reserve Account on the closing date, with an
initial Breach Reserve Account target amount of $1.4 million.
Transaction Parties
The transaction benefits from an adequate servicing arrangement.
Shellpoint Mortgage Servicing ("Shellpoint") will service 68.9% of
the pool and Fay Servicing LLC ("Fay") will service 31.1% of the
pool. Deutsche Bank National Trust Company is the Custodian of the
transaction. The Delaware Trustee for MCMLT 2017-1 is Wilmington
Savings Fund Society, FSB, d/b/a, Christiana Trust. MCMLT 2017-1's
Indenture Trustee is U.S. Bank National Association.
Factors that would lead to an upgrade or downgrade of the ratings:
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 obligors defaulting 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.
MORGAN STANLEY 1999-WF1: Moody's Cuts Rating on Cl. X Debt to Caa2
------------------------------------------------------------------
Moody's Investors Service has upgraded the rating on one class,
affirmed the rating on one class and downgraded the rating on one
class in Morgan Stanley Capital I Inc. 1999-WF1, Commercial
Mortgage Pass-Through Certificates, Series 1999-WF1:
Cl. M, Affirmed Aaa (sf); previously on Mar 30, 2016 Upgraded to
Aaa (sf)
Cl. N, Upgraded to Baa1 (sf); previously on Mar 30, 2016 Upgraded
to Baa3 (sf)
Cl. X, Downgraded to Caa2 (sf); previously on Mar 30, 2016
Downgraded to Caa1 (sf)
RATINGS RATIONALE
The rating on Class N was upgraded based primarily on an increase
in credit support resulting from loan paydowns and amortization.
The deal has paid down 26% since Moody's last review.
The rating on Class M was affirmed because the transaction's key
metrics, including Moody's loan-to-value (LTV) ratio, Moody's
stressed debt service coverage ratio (DSCR) and the transaction's
Herfindahl Index (Herf), are within acceptable ranges.
The rating on the IO Class, Class X, was downgraded due to the
decline in the credit performance of its reference classes
resulting from principal paydowns of higher quality reference
classes.
Moody's rating action reflects a base expected loss of 0.2% of the
current balance, compared to 0.8% at Moody's last review. Moody's
base expected loss plus realized losses is now 0.4% of the original
pooled balance, compared to 0.5% at the last review. Moody's
provides a current list of base expected losses for conduit and
fusion CMBS transactions on moodys.com at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, loan concentration, an
increase in realized and expected losses from specially serviced
and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in these ratings were "Approach to Rating US
and Canadian Conduit/Fusion CMBS" published in December 2014, and
"Moody's Approach to Rating Large Loan and Single Asset/Single
Borrower CMBS" published in October 2015.
Additionally, the methodology used in rating Cl. X was "Moody's
Approach to Rating Structured Finance Interest-Only Securities"
published in October 2015.
Please note that on February 27, 2017, Moody's released a "Request
for Comment" in which it has requested market feedback on proposed
changes to its methodology for rating structured finance
interest-only (IO) securities called "Moody's Approach to Rating
Structured Finance Interest-Only Securities," dated October 20,
2015. If Moody's adopts the new methodology as proposed, the
changes could affect the ratings of MSC 1999-WF1.
DESCRIPTION OF MODELS USED
Moody's review used the excel-based CMBS Conduit Model, which it
uses for both conduit and fusion transactions. Credit enhancement
levels for conduit loans are driven by property type, Moody's
actual and stressed DSCR, and Moody's property quality grade (which
reflects the capitalization rate Moody's uses to estimate Moody's
value). Moody's fuses the conduit results with the results of its
analysis of investment grade structured credit assessed loans and
any conduit loan that represents 10% or greater of the current pool
balance.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of 5, compared to 6 at Moody's last review.
When the Herf falls below 20, Moody's uses the excel-based Large
Loan Model and then reconciles and weights the results from the
conduit and large loan models in formulating a rating
recommendation. The large loan model derives 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. Moody's also further adjusts these aggregated proceeds for
any pooling benefits associated with loan level diversity and other
concentrations and correlations.
DEAL PERFORMANCE
As of the February 15, 2017 distribution date, the transaction's
aggregate certificate balance has decreased by 99% to $10.99
million from $968.51 million at securitization. The certificates
are collateralized by 16 mortgage loans ranging in size from less
than 2% to 32% of the pool, with the top ten loans (excluding
defeasance) constituting 88% of the pool. Three loans, constituting
8.7% of the pool, have defeased and are secured by US government
securities.
Two loans, constituting 3.6% of the pool, are on the master
servicer's watchlist. The watchlist includes loans that meet
certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of
Moody's ongoing monitoring of a transaction, the agency reviews the
watchlist to assess which loans have material issues that could
affect performance.
Seven loans have been liquidated from the pool, resulting in an
aggregate realized loss of $4.3 million (for an average loss
severity of 30%). There are not any loans currently in special
servicing.
Moody's received full or partial year 2016 operating results for
67% of the pool, and full year 2015 operating results for 100% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 20%, compared to 21% at Moody's
last review. Moody's conduit component excludes loans with
structured credit assessments, defeased and CTL loans, and
specially serviced and troubled loans. Moody's net cash flow (NCF)
reflects a weighted average haircut of 11% to the most recently
available net operating income (NOI). Moody's value reflects a
weighted average capitalization rate of 9.6 %.
Moody's actual and stressed conduit DSCRs are 2.08X and >4.00X,
respectively, compared to 1.98X and >4.00X at the last review.
Moody's actual DSCR is based on Moody's NCF and the loan's actual
debt service. Moody's stressed DSCR is based on Moody's NCF and a
9.25% stress rate the agency applied to the loan balance.
The top three conduit loans represent 64% of the pool balance. The
largest loan is the Vista Oaks Apartments Loan ($3.52 million --
32% of the pool), which is secured by a 108-unit garden style
apartment complex located in Martinez, California. As of December
2016, the property was 95% leased, unchanged from the prior year.
The property has been at least 93% leased since 2006. The loan has
amortized over 32% since securitization and Moody's LTV and
stressed DSCR are 27% and 3.80X, respectively, compared to 28% and
3.64X at the last review.
The second largest loan is the Ward Offices/Retail Loan ($2.19
million -- 20% of the pool), which is secured by three suburban
office and two unanchored retail properties located in Bel Air,
Maryland. As of September 2016 the portfolio was 94% leased. The
loan is fully amortizing and has paid down over 85% since
securitization. Moody's LTV and stressed DSCR are 10% and
>4.00X, respectively, compared to 15% and >4.00X at the last
review.
The third largest loan is the Canal Park Apartments Loan ($1.34
million -- 12% of the pool), which is secured by a 72-unit
apartment complex in Boise, Idaho. As of January 2017, the property
was 97% leased. The property has been at least 97% leased since
2006. The loan has amortized over 31% since securitization. Moody's
LTV and stressed DSCR are 44% and 2.26X, respectively, compared to
46% and 2.17X at the last review.
SOUND POINT XV: Moody's Assigns Ba3(sf) Rating to Class E Notes
---------------------------------------------------------------
Moody's Investors Service has assigned ratings to five classes of
notes issued by Sound Point CLO XV, Ltd.
Moody's rating action is:
US$416,000,000 Class A Senior Secured Floating Rate Notes due 2029
(the "Class A Notes"), Definitive Rating Assigned Aaa (sf)
US$74,750,000 Class B Senior Secured Floating Rate Notes due 2029
(the "Class B Notes"), Definitive Rating Assigned Aa2 (sf)
US$38,187,500 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2029 (the "Class C Notes"), Definitive Rating Assigned A2
(sf)
US$36,562,500 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2029 (the "Class D Notes"), Definitive Rating Assigned
Baa3 (sf)
US$32,500,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2029 (the "Class E Notes"), Definitive Rating Assigned Ba3
(sf)
The Class A Notes, the Class B Notes, the Class C Notes, the Class
D Notes and the Class E Notes are referred to herein, collectively,
as the "Rated Notes."
RATINGS RATIONALE
Moody's ratings of the Rated Notes address the expected losses
posed to noteholders. The ratings reflect the risks due to defaults
on the underlying portfolio of assets, the transaction's legal
structure, and the characteristics of the underlying assets.
Sound Point CLO XV is a managed cash flow CLO. The issued notes
will be collateralized primarily by broadly syndicated first lien
senior secured corporate loans. At least 92.5% of the portfolio
must consist of senior secured loans, cash, and eligible
investments, and up to 7.5% of the portfolio may consist of second
lien loans, senior unsecured loans and first-lien last-out loans.
The portfolio is at least 73% ramped as of the closing date.
Sound Point Capital Management, LP (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 four-year
reinvestment period. Thereafter, the Manager may reinvest
unscheduled principal payments and proceeds from sales of credit
risk assets, subject to certain restrictions.
In addition to the Rated Notes, the Issuer has 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 October 2016.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $650,000,000
Diversity Score: 55
Weighted Average Rating Factor (WARF): 2650
Weighted Average Spread (WAS): 3.60%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 46.0%
Weighted Average Life (WAL): 8.4 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
October 2016.
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.
Together with the set of modeling assumptions above, Moody's
conducted an additional sensitivity analysis, which was a component
in determining the ratings assigned to the Rated Notes. This
sensitivity analysis includes increased default probability
relative to the base case.
Below is a summary of the impact of an increase in default
probability (expressed in terms of WARF level) on the Rated Notes
(shown in terms of the number of notch difference versus the
current model output, whereby a negative difference corresponds to
higher expected losses), assuming that all other factors are held
equal:
Percentage Change in WARF -- increase of 15% (from 2650 to 3048)
Rating Impact in Rating Notches
Class A Notes: 0
Class B Notes: -1
Class C Notes: -2
Class D Notes: -1
Class E Notes: 0
Percentage Change in WARF -- increase of 30% (from 2650 to 3445)
Rating Impact in Rating Notches
Class A Notes: -1
Class B Notes: -3
Class C Notes: -4
Class D Notes: -2
Class E Notes: -1
[*] Moody's Hikes $125MM of Subprime RMBS Issued 2002-2004
----------------------------------------------------------
Moody's Investors Service, on March 9, 2017, upgraded the ratings
of 15 tranches, from 6 transactions issued by various issuers
backed by Subprime mortgage loans.
Complete rating actions are:
Issuer: Credit Suisse First Boston Mortgage Securities Corp. Series
2003-6
Cl. M-1, Upgraded to Ba1 (sf); previously on May 8, 2015 Upgraded
to Ba3 (sf)
Issuer: MASTR Asset Backed Securities Trust 2004-WMC1
Cl. M-6, Upgraded to B2 (sf); previously on Oct 1, 2015 Upgraded to
Ca (sf)
Issuer: Merrill Lynch Mortgage Investors, Inc. 2004-WMC3
Cl. M-2, Upgraded to Baa3 (sf); previously on Dec 20, 2012 Upgraded
to B1 (sf)
Cl. M-3, Upgraded to Caa1 (sf); previously on Dec 20, 2012 Upgraded
to Caa3 (sf)
Issuer: NovaStar Mortgage Funding Trust, Series 2002-3
Cl. A-2, Upgraded to Ba1 (sf); previously on Aug 7, 2014 Upgraded
to B1 (sf)
Issuer: Popular ABS Mortgage Pass-Through Trust 2004-5
Cl. AV-1A, Upgraded to Aa2 (sf); previously on Apr 12, 2016
Upgraded to A3 (sf)
Cl. AV-1B, Upgraded to Aa3 (sf); previously on Apr 12, 2016
Upgraded to Baa1 (sf)
Cl. AV-2, Upgraded to Aa2 (sf); previously on Apr 12, 2016 Upgraded
to A2 (sf)
Cl. AF-5, Upgraded to Aaa (sf); previously on Mar 18, 2011
Downgraded to Aa1 (sf)
Issuer: Structured Asset Investment Loan Trust 2004-9
Cl. A2, Upgraded to Aaa (sf); previously on Mar 4, 2011 Downgraded
to Aa1 (sf)
Cl. A5, Upgraded to Aa2 (sf); previously on Mar 4, 2011 Downgraded
to A1 (sf)
Cl. A7, Upgraded to Aa2 (sf); previously on Mar 4, 2011 Downgraded
to A1 (sf)
Cl. M1, Upgraded to Ba1 (sf); previously on May 6, 2015 Upgraded to
Ba3 (sf)
Cl. M2, Upgraded to B1 (sf); previously on Jul 11, 2014 Upgraded to
Caa2 (sf)
Cl. M3, Upgraded to B3 (sf); previously on Mar 4, 2011 Downgraded
to Ca (sf)
RATINGS RATIONALE
The upgrades are primarily due to the total credit enhancement
available to the bonds. The actions reflect the recent performance
of the underlying pools and Moody's updated loss expectations on
the pools.
The principal methodology used in these ratings was "US RMBS
Surveillance Methodology" published in Janurary 2017.
Factors that would lead to an upgrade or downgrade of the ratings:
Ratings in the US RMBS sector remain exposed to the high level of
macroeconomic uncertainty, and in particular the unemployment rate.
The unemployment rate fell to 4.8% in January 2017 from 4.9% in
January 2016. Moody's forecasts an unemployment central range of
4.5% to 5.5% for the 2017 year. Deviations from this central
scenario could lead to rating actions in the sector. House prices
are another key driver of US RMBS performance. Moody's expects
house prices to continue to rise in 2017. Lower increases than
Moody's expects or decreases could lead to negative rating actions.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures.
[*] Moody's Takes Action on $73.8MM of Alt-A Loans Issued in 2004
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of 14 tranches
from 5 transactions backed by Alt-A mortgage loans, issued by
multiple issuers.
Complete rating actions are:
Issuer: First Horizon Alternative Mortgage Securities Trust
2004-AA3
Cl. A-1, Upgraded to Ba3 (sf); previously on Jun 26, 2014
Downgraded to B2 (sf)
Cl. A-3, Upgraded to Ba3 (sf); previously on Jun 26, 2014
Downgraded to B2 (sf)
Issuer: Homestar Mortgage Acceptance Corp. Asset-Backed
Pass-Through Certificates, Series 2004-1
Cl. A-1, Upgraded to A1 (sf); previously on May 9, 2014 Downgraded
to A3 (sf)
Cl. A-2, Upgraded to A2 (sf); previously on May 9, 2014 Downgraded
to Baa1 (sf)
Issuer: Homestar Mortgage Acceptance Corp. Asset-Backed
Pass-Through Certificates, Series 2004-2
Cl. AV-1, Upgraded to Aa1 (sf); previously on Mar 25, 2011
Downgraded to Aa3 (sf)
Cl. AV-2, Upgraded to Aa2 (sf); previously on Mar 25, 2011
Downgraded to A1 (sf)
Issuer: Homestar Mortgage Acceptance Corp. Asset-Backed
Pass-Through Certificates, Series 2004-3
Cl. AV-1, Upgraded to Aaa (sf); previously on Mar 25, 2011
Downgraded to Aa2 (sf)
Cl. AV-2C, Upgraded to Aaa (sf); previously on Mar 25, 2011
Downgraded to Aa2 (sf)
Cl. AV-3, Upgraded to Aa1 (sf); previously on Mar 25, 2011
Downgraded to Aa3 (sf)
Issuer: Homestar Mortgage Acceptance Corp. Asset-Backed
Pass-Through Certificates, Series 2004-5
Cl. A-1, Upgraded to Aaa (sf) ; previously on Feb 15, 2013 Affirmed
Aa1(sf)
Cl. A-4, Upgraded to Aaa (sf); previously on Feb 15, 2013 Affirmed
Aa1 (sf)
Cl. M-4, Upgraded to Ba1 (sf); previously on Feb 15, 2013 Affirmed
Ba2 (sf)
Cl. M-5, Upgraded to Ba3 (sf); previously on Feb 15, 2013 Affirmed
B3 (sf)
Cl. M-6, Upgraded to Caa1 (sf); previously on Feb 15, 2013 Affirmed
Ca (sf)
RATINGS RATIONALE
The rating upgrades are primarily due to the improvement of credit
enhancement available to the bonds. The actions also reflect the
recent performance of the underlying pools and Moody's updated loss
expectation on these pools.
The principal methodology used in these ratings was "US RMBS
Surveillance Methodology" published in January 2017.
Factors that would lead to an upgrade or downgrade of the ratings:
Ratings in the US RMBS sector remain exposed to the high level of
macroeconomic uncertainty, and in particular the unemployment rate.
The unemployment rate fell to 4.8% in January 2017 from 4.9% in
January 2016. Moody's forecasts an unemployment central range of
4.5% to 5.5% for the 2017 year. Deviations from this central
scenario could lead to rating actions in the sector.
House prices are another key driver of US RMBS performance. Moody's
expects house prices to continue to rise in 2017. Lower increases
than Moody's expects or decreases could lead to negative rating
actions.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions.
*********
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