/raid1/www/Hosts/bankrupt/TCR_Public/220424.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, April 24, 2022, Vol. 26, No. 113
Headlines
245 PARK AVENUE 2017-245: Fitch Affirms BB Rating on HRR Certs
AMERICAN CREDIT 2022-2: S&P Assigns Prelim B(sf) Rating on F Certs
AMSR TRUST 2022-SFR1: DBRS Finalizes B(low) Rating on Class G Certs
BALBOA BAY 2022-1: S&P Assigns Prelim BB-(sf) Rating on E Notes
BAMLL COMMERCIAL 2017-SCH: S&P Cuts Class D-L Certs Rating to 'B'
BANK 2022-BNK41: Fitch to Rate 2 Cert. Classes 'B-'
BANK OF AMERICA 2015-UBS7: Fitch Affirms CC Rating on Class F Debt
BEAR STEARNS 2004-PWR6: Moody's Hikes Rating on Cl. M Certs to B2
BLUEMOUNTAIN CLO XXXIV: S&P Assigns Prelim BB- Rating on E Notes
BROOKSIDE MILL: Moody's Upgrades Rating on $3.15MM F Notes to B3
BSST 2022-1700: DBRS Finalizes B(low) Rating on Class G Certs
BX COMMERCIAL 2019-XL: DBRS Confirms B(low) Rating on J Certs
BX TRUST 2022-IND: Moody's Assigns B3 Rating to Cl. F Certs
CALI MORTGAGE 2019-101C: S&P Affirms B (sf) Rating on Cl. F Certs
CHERRYWOOD SB 2016-1: DBRS Hikes Class B2 Certs Rating to BB
CHNGE MORTGAGE 2022-2: DBRS Finalizes B Rating on Class B2 Certs
CITIGROUP COMMERCIAL 2015-GC33: Fitch Affirms B- Rating on F Certs
COLT 2022-4: Fitch Rates Class B-2 Certs 'Bsf'
COMM 2013-CCRE10: DBRS Confirms B Rating on Class F Certs
COMM 2013-CCRE11: DBRS Confirms B Rating on Class F Certs
COMM 2014-CCRE19: Fitch Affirms BB Rating on Class E Debt
COMM 2014-UBS3: DBRS Lowers Class G Certs Rating to C
COMM 2014-UBS4: DBRS Confirms B Rating on 2 Classes Certs
CSAIL 2019-C15: DBRS Confirms B Rating on Class G-RR Certs
CSAIL 2019-C16: Fitch Affirms B-sf Rating on Class G-RR Certs
ELLINGTON FINANCIAL 2022-2: Fitch Gives Final B Rating to B-2 Debt
ELMWOOD CLO 16: S&P Assigns Prelim BB- (sf) Rating on Cl. E Notes
EXETER AUTOMOBILE 2022-1: DBRS Finalizes BB Rating on E Notes
EXETER AUTOMOBILE 2022-2: S&P Assigns BB (sf) Rating on E Notes
FINANCE OF AMERICA 2022-HB1: DBRS Finalizes B Rating on M5 Notes
FLAGSHIP CREDIT 2022-1: DBRS Finalizes BB Rating on Class E Notes
FREDDIE MAC 2022-DNA3: S&P Assigns B+ (sf) Rating on B-1I Notes
GOLUB CAPITAL 60(B): Moody's Assigns (P)Ba3 Rating to Cl. E Notes
GRACIE POINT 2022-1: DBRS Gives Prov. BB Rating on Class E Notes
GS MORTGAGE 2022-PJ4: Fitch to Rate Class B-5 Certs 'B+(EXP)'
GS MORTGAGE 2022-PJ4: Moody's Gives (P)B3 Rating to Cl. B-5 Certs
IMPACT FUNDING 2014-1: DBRS Confirms B Rating on Class F Certs
JP MORGAN 2018-PTC: S&P Lowers Cl. HRR Certs Rating to 'B-(sf)'
JPMBB COMMERCIAL 2015-C32: DBRS Confirms C Rating on 4 Classes
KKR CLO 38: Moody's Assigns Ba3 Rating to $16MM Class E Notes
LJV I MM: Moody's Assigns Ba3 Rating to $21.5MM Class E Notes
LOANCORE 2022-CRE7: DBRS Finalizes B(low) Rating on Class G Notes
MARINER FINANCE 2021-B: S&P Affirms BB- (sf) Rating on Cl. E Notes
MFA TRUST 2022-CHM1: DBRS Gives Prov. B Rating on Class B-2 Certs
MORGAN STANLEY 2013-C7: DBRS Confirms C Rating on 3 Tranches
MORGAN STANLEY 2015-C23: DBRS Confirms B Rating on X-FG Certs
MORGAN STANLEY 2019-H6: Fitch Affirms B- Rating on Class J-RR Certs
MORTIMER BTL 2022-1: S&P Assigns Prelim B- (sf) Rating on X Notes
NATIXIS COMMERCIAL 2022-RRI: S&P Assigns B-(sf) Rating on F Certs
NEW ORLEANS HOTEL 2019-HNLA: S&P Cuts Cl. F Certs Rating to 'CCC-'
OAKTREE CLO 2022-1: S&P Assigns Prelim 'BB-' Rating on Cl. E Notes
OCTANE 2022-1: S&P Assigns Prelim ' BB(sf)' Rating on Cl. E Notes
RCKT MORTGAGE 2022-3: Moody's Gives (P)B3 Rating to Cl. B-5 Certs
READY CAPITAL 2022-FL8: DBRS Gives Prov. B(low) Rating on G Notes
REGIONAL MANAGEMENT 2022-1: DBRS Finalizes BB Rating on D Notes
RR 20: S&P Assigns Prelim BB- (sf) Rating on Class D Notes
SARANAC CLO III: Moody's Ups Rating on $24MM Class E-R Notes to B3
SEVEN AUSTIN 2019-FAIR: S&P Affirms CCC (sf) Rating on F Certs
SLC STUDENT 2004-1: S&P Affirms 'B' Rating on Classes A-7/B Notes
STARWOOD MORTGAGE 2022-3: Fitch Gives 'B-(EXP)' Rating to B-2 Debt
VENTURE 45 CLO: Moody's Assigns (P)Ba3 Rating to $20MM Cl. E Notes
WAIKIKI BEACH 2019-WBM: S&P Affirms CCC (sf) Rating on F Certs
WELLS FARGO 2014-LC16: DBRS Lowers Class C Certs Rating to C
WELLS FARGO 2019-C50: Fitch Cuts Ratings on 2 Tranches to 'CCC'
WELLS FARGO 2022-C62: Fitch Gives Final 'B-' Rating to G-RR Certs
WFRBS COMMERCIAL 2011-C2: Moody's Cuts Rating on Cl. F Certs to Ca
WP GLIMCHER 2015-WPG: DBRS Confirms B(low) Rating on SQ-3 Certs
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245 PARK AVENUE 2017-245: Fitch Affirms BB Rating on HRR Certs
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Fitch Ratings affirms seven classes of 245 Park Avenue Trust
2017-245P (245 Park Avenue Trust 2017-245P) Commercial Mortgage
Trust Commercial Mortgage Pass-Through Certificates.
DEBT RATING PRIOR
---- ------ -----
245 Park Avenue 2017-245P
A 90187LAA7 LT AAAsf Affirmed AAAsf
B 90187LAG4 LT AA-sf Affirmed AA-sf
C 90187LAJ8 LT A-sf Affirmed A-sf
D 90187LAL3 LT BBB-sf Affirmed BBB-sf
E 90187LAN9 LT BBsf Affirmed BBsf
HRR 90187LAQ2 LT BBsf Affirmed BBsf
X-A 90187LAC3 LT AAAsf Affirmed AAAsf
HRR represents the horizontal credit risk retention interest, which
comprised at least 5% of the fair market value of the non-residual
classes in the aggregate (at issuance).
Class X-A is interest only.
KEY RATING DRIVERS
The affirmations reflect the high quality and prime location of the
collateral, and the historically strong performance and quality
tenant base at the property. While performance is expected to be
depressed in 2022 due to a variety of factors, including the
borrower's bankruptcy action, substantial 2022 lease rollover, and
a transition to new property management, Fitch expects the property
to improve and stabilize in the next two years at a cash flow in
line with Fitch's cash flow at issuance.
Specially Serviced; Performing Loan: The loan transferred to
special servicing in November 2021 after the loan's borrower, which
is controlled by HNA of China, filed for bankruptcy in October
2021. Per the special servicer, the borrower and lender have agreed
to a final cash collateral order, which requires the borrower to
remain current on its debt service and reserve payments as well as
pay any monthly servicer fees or related legal expenses. As of
April 2022, the loan remains current and has combined in place
reserves of $26.4 million.
Historical Occupancy and High-Quality Tenancy: Per the YE 2021
servicer reporting, occupancy had slipped to 83.3% from 93.2%, as
of the December 2020 rent roll. Historically, the property has
maintained an average occupancy of over 90% since 2007.
Further, creditworthy tenants account for a majority of the
property's tenancy, including Societe Generale (33% of NRA through
2032; A-/F1/Stable), Angelo Gordon (8% through 2031), Ares Capital
(8% through 2026, A-/Stable), and Rabobank (6% through 2026;
A+/F1/Stable).
Concentrated Lease Rollover in 2022: As expected at issuance,
JPMorgan Chase Bank (45% of NRA) is vacating its space at its
upcoming lease expiration in October 2022; JPMorgan Chase has been
subleasing the bulk of its space for several years. In 2012,
sub-tenant, Societe Generale, executed a direct 10-year lease with
the prior owner to commence November 2022 with two five-year
extension options. JPMorgan Chase also subleases much of its
remaining space to various other tenants.
MLB (13% of NRA) is also vacating its space at its October 2022
lease expiration, as expected. Prior to issuance, MLB, which pays
above market rents, had indicated its intention to relocate during
the term of its lease. The loan was structured with a cash flow
sweep at issuance that would be triggered should MLB not renew its
lease. Per the servicer, approximately $1.5 million per month is
currently being depositing into a reserve account by the borrower.
Houlihan Lokey, which has been sub-leasing space from both JPMorgan
Chase and MLB, has executed a direct lease at market level for
several floors in the building that is scheduled to commence in
November 2022. Property management is reportedly in talks with
several other tenants to go direct or expand their current spaces
as well.
New Property Management: In 2018, SL Green acquired a
non-controlling indirect interest in the borrower from HNA. SL
Green also served as property manager with day-to day management
and leasing responsibilities. However, in December 2021, the
property management agreement was terminated in a bankruptcy court
ruling. Per recent news reporting, litigation between the parties
appears to be ongoing. The new manager, Newmark Group, took over
the day-to-day management responsibilities in January 2022.
Fitch Leverage: Based on current in-place cash flow and near-term
tenancy projections, the Fitch Trust debt service coverage ratio
(DSCR) and loan-to-value (LTV) are 0.95X and 92.4%, respectively.
Fitch deems the DSCR and LTV metrics at issuance of 1.08x and 81.1%
to be more sustainable metrics, which led to the affirmations and
Stable Rating Outlooks.
The total debt package includes mezzanine financing in the amount
of $568 million that is not included in the trust.
As noted previously, Fitch expects loan metrics to improve as the
property begins to stabilize over the next year. The loan has a
debt of $696 per square foot (psf); Fitch deems the leverage psf at
each rating category reasonable for the market and the quality of
the asset and expects full recovery of the trust debt.
High-Quality Office Collateral in Prime Location: The loan is
secured by a 44-story class A office building located on an entire
block bound by Park Avenue, Lexington Avenue and 47th and 48th
Streets in the Grand Central office submarket of Midtown Manhattan.
Fitch Ratings assigned a property quality grade of
'A-'.
Sponsorship: The loan funded the acquisition of the subject
property for $2.21 billion by HNA Group (HNA). HNA, a China based
global conglomerate, filed for bankruptcy protection in China in
2021 becoming China's largest corporate bankruptcy case. News
reports indicate that the Hainan High Court in China approved a
multibillion dollar restructuring of HNA in October 2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Factors that could lead to downgrades include a continued and
sustainable decline in performance of the underlying asset or
further loan default. While performance is expected to be depressed
in 2022, Fitch expects the property to improve and stabilize in the
next two years. Fitch will continue monitoring performance, and
should it not continue to improve, Outlooks could be revised to
Negative.
A downgrade to the senior 'AAAsf' or 'AA-sf' rated classes is not
considered likely due to the position in the capital structure, but
may occur should interest shortfalls occur.
Fitch has identified both a baseline and a worse-than-expected,
adverse stagflation scenario based on fallout from the
Russia-Ukraine war whereby growth is sharply lower amid higher
inflation and interest rates; even if the adverse scenario should
play out, Fitch expects virtually no impact on ratings performance,
indicating very few rating or Outlook changes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
An upgrade to classes B, C, D, E and HRR would occur with
significant improvement in performance of the underlying asset.
Paydown would not play a role in contemplating an upgrade, given
the single-asset and non-amortizing nature of the securitized
loan.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
AMERICAN CREDIT 2022-2: S&P Assigns Prelim B(sf) Rating on F Certs
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S&P Global Ratings assigned its preliminary ratings to American
Credit Acceptance Receivables Trust 2022-2's asset-backed notes.
The note issuance is an ABS securitization backed by subprime auto
loan receivables.
The preliminary ratings are based on information as of April 18,
2022. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The availability of approximately 61.81%, 56.01%, 45.98%,
38.63%, 33.53%, and 32.03% credit support, including excess spread,
for the class A, B, C, D, E, and F notes, respectively, based on
stressed cash flow scenarios. These credit support levels provide
more than 2.35x, 2.10x, 1.70x, 1.37x, 1.20x, and 1.10x coverage of
S&P's expected net loss range of 25.50%-26.50% on the class A, B,
C, D, E, and F notes, respectively.
-- The hard credit enhancement in the form of subordination,
overcollateralization, and a reserve account in addition to excess
spread.
-- The expectation that under a moderate ('BBB') stress scenario
(1.37x our expected loss level), all else being equal, S&P's
preliminary ratings on the class A, B, C, D, E, and F notes will be
within the credit stability limits specified by section A.4 of the
Appendix of "S&P Global Ratings Definitions," published Nov. 10,
2021.
-- The timely payment of interest and principal by the designated
legal final maturity dates under our stressed cash flow modeling
scenarios that S&P believes are appropriate for the assigned
preliminary ratings.
-- The collateral characteristics of the subprime automobile loans
securitized in this transaction.
-- The backup servicing arrangement with Computershare Trust Co.
N.A. (Computershare).
-- The transaction's payment and legal structure.
Preliminary Ratings Assigned
American Credit Acceptance Receivables Trust 2022-2
Class A, $197.73 million: AAA (sf)
Class B, $42.05 million: AA (sf)
Class C, $75.00 million: A (sf)
Class D, $53.86 million: BBB (sf)
Class E, $41.82 million: BB- (sf)
Class F, $14.54 million: B (sf)
AMSR TRUST 2022-SFR1: DBRS Finalizes B(low) Rating on Class G Certs
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DBRS, Inc. finalized its provisional ratings on the following
Single-Family Rental Pass-Through Certificates issued by AMSR
2022-SFR1 Trust (AMSR 2022-SFR1):
-- $143.2 million Class A at AAA (sf)
-- $53.7 million Class B at AAA (sf)
-- $17.9 million Class C at AA (high) (sf)
-- $23.9 million Class D at AA (low) (sf)
-- $62.0 million Class E-1 at BBB (high) (sf)
-- $29.8 million Class E-2 at BBB (low) (sf)
-- $48.9 million Class F at BB (low) (sf)
-- $26.2 million Class G at B (low) (sf)
The AAA (sf) rating on the Class A and B Certificates reflect 69.7%
and 58.3%, respectively, of credit enhancement provided by
subordinated notes in the pool. The AA (high) (sf), AA (low) (sf),
BBB (high) (sf), BBB (low) (sf), BB (low) (sf), and B (low) (sf)
ratings reflect 54.6%, 49.5%, 36.4%, 30.1%, 19.7%, and 14.1% credit
enhancement, respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
The AMSR 2022-SFR1 certificates are supported by the income streams
and values from 1,720 rental properties. The properties are
distributed across 16 states and 42 metropolitan statistical area
(MSAs) in the United States. DBRS Morningstar maps an MSA based on
the ZIP code provided in the data tape, which may result in
different MSA stratifications than those provided in offering
documents. As measured by broker price opinion value, 55.4% of the
portfolio is concentrated in three states: Florida (30.1%), North
Carolina (15.6%), and Georgia (9.7%). The average value is
$277,441. The average age of the properties is roughly 31 years.
The majority of the properties have three or more bedrooms. The
certificates represent a beneficial ownership in an approximately
seven-year, fixed-rate, interest-only loan with an initial
aggregate principal balance of approximately $472.2 million.
DBRS Morningstar assigned the provisional ratings to each class of
certificates by performing a quantitative and qualitative
collateral, structural, and legal analysis. This analysis uses DBRS
Morningstar's single-family rental subordination model and is based
on DBRS Morningstar's published criteria. DBRS Morningstar
developed property-level stresses for the analysis of single-family
rental assets. DBRS Morningstar assigned the provisional ratings to
each class based on the level of stresses each class can withstand
and whether such stresses are commensurate with the applicable
rating level. DBRS Morningstar's analysis includes estimated
base-case net cash flow (NCF) by evaluating the gross rent,
concession, vacancy, operating expenses, and capital expenditure
data. The DBRS Morningstar NCF analysis resulted in a minimum debt
service coverage ratio of higher than 1.0 times.
Furthermore, DBRS Morningstar reviewed the third-party participants
in the transaction, including the property manager, servicer, and
special servicer. These transaction parties are acceptable to DBRS
Morningstar. DBRS Morningstar also conducted a legal review and
found no material rating concerns.
Notes: All figures are in U.S. dollars unless otherwise noted.
BALBOA BAY 2022-1: S&P Assigns Prelim BB-(sf) Rating on E Notes
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S&P Global Ratings assigned its preliminary ratings to Balboa Bay
Loan Funding 2022-1 Ltd./Balboa Bay Loan Funding 2022-1 LLC's
floating-rate notes.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term loans.
The transaction is managed by PGIM Inc.
The preliminary ratings are based on information as of April 20,
2022. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The collateral pool's diversification;
-- The credit enhancement provided through subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
Balboa Bay Loan Funding 2022-1 Ltd./
Balboa Bay Loan Funding 2022-1 LLC
Class A, $256.00 million: AAA (sf)
Class B, $48.00 million: AA (sf)
Class C (deferrable), $24.00 million: A (sf)
Class D (deferrable), $24.00 million: BBB- (sf)
Class E (deferrable), $16.00 million: BB- (sf)
Subordinated notes, $37.00 million: Not rated
BAMLL COMMERCIAL 2017-SCH: S&P Cuts Class D-L Certs Rating to 'B'
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S&P Global Ratings lowered its ratings on five classes of
commercial mortgage pass-through certificates from BAMLL Commercial
Mortgage Securities Trust 2017-SCH, a U.S. commercial
mortgage-backed securities (CMBS) transaction.
This is a U.S. CMBS transaction backed by a floating-rate
interest-only (IO) mortgage loan secured by the borrower's
leasehold interest in the Sheraton Grand Chicago, a
1,218-guestroom, full-service convention hotel in Chicago.
Rating Actions
S&P said, "The downgrades of classes A-L, B-L, and C-L, and the
further downgrade on class D-L (first initiated in July 2020)
reflect our re-evaluation of the lodging property that secures the
sole loan in the transaction. Our analysis included a review of the
most recent available performance data provided by the servicer and
our assessment that both meeting and group and corporate transient
demand at the property and in the Chicago central business district
(CBD) overall has been severely impacted since the outset of the
pandemic. Occupancy for the Chicago lodging market was 35.6% in
2020 and 50.0% in 2021, compared to the pre-pandemic level of 69.6%
in 2019. As of year-end 2021, revenue per available room (RevPAR)
for Chicago was 40.3% below 2019 levels, compared to 16.8% for the
U.S. overall and 32.7% for the top 25 markets, according to STR.
Due to its heavy reliance on corporate and group demand, Chicago
CBD RevPAR overall is not expected to return to pre-pandemic levels
until approximately 2024, according to CoStar, compared to early
2023 for the U.S. lodging sector overall based on most industry
estimates. Specifically, our rating actions today reflect our
concern that the hotel will continue to exhibit stressed net cash
flow (NCF) performance due to low demand from the sectors it is
most reliant on and because of its high fixed cost structure
stemming from rising taxes and its ground rent expense. The
property's underlying cash flow was insufficient to fully cover
debt service in the last two years, and we believe that the return
to pre-pandemic meeting and group and corporate transient demand
levels at the property and in the Chicago market overall will take
longer to recover than some of the other major CBD markets.
"As a result, our expected-case valuation has declined 26.8% since
our last review in July 2020, driven largely by the lower S&P
Global Ratings' sustainable NCF to account for the aforementioned
challenges facing the property and market. Based on our current
analysis, we revised our RevPAR and sustainable NCF to $143.50 and
$10.5 million, respectively, down from $151.70 and $14.4 million,
respectively, at issuance and last review. Using an S&P Global
Ratings' capitalization rate of 10.25%, the same as in our last
review, our expected-case valuation yielded an S&P Global Ratings'
loan-to-value (LTV) ratio and debt service coverage (DSC) of 100.3%
and 1.35x (using a LIBOR cap of 6.00% and 1.25% spread),
respectively, on the trust balance."
Although the model-indicated ratings were lower than the classes'
revised rating levels, S&P tempered its downgrades on classes A-L,
B-L, C-L, and D-L because we weighed certain qualitative
considerations, including:
-- The potential that the operating performance of the lodging
property could improve above our revised expectations;
-- The lodging property's prime location within walking distance
of Chicago's Magnificent Mile, a top dining and retail
destination;
-- The significant market value decline that would be needed
before these classes experience principal losses;
-- The liquidity support provided in the form of servicer
advancing; and
-- The relative position of the classes in the waterfall.
The trust loan had a reported current payment status through its
March 2022 payment date; and the borrower, Cityfront Hotel
Associates L.P., a recycled, bankruptcy-remote special purpose
entity, indirectly owned and controlled by Tishman Hotel & Reality
L.P. (the sponsor), did not request COVID-19 relief despite
reported negative cash flow in 2020 and 2021. However, this is
partly due to payments provided to the borrower by Marriott
International (Marriott; 'BBB-/Positive/A-3') as part of a
settlement arising from its acquisition of Starwood Hotels &
Resorts Worldwide LLC that resulted in the breach of certain area
protection clauses stipulated in the hotel's initial management
agreement. Marriott agreed to guarantee a minimum annual net
operating income (NOI) of approximately $34.5 million (subject to
an annual payment cap of $10.3 million per year with 2.0% annual
increases) for the property for six years commencing Jan. 1, 2017,
and expiring Jan. 1, 2023 (details below).
S&P lowered its rating on the class X-LEX IO certificates based on
its criteria for rating IO securities, in which the rating on the
IO securities would not be higher than that of the lowest-rated
reference class. The notional amount of class X-LEX references
class A-L.
Property-Level Analysis
The 1,218 guestroom Sheraton Grand Chicago hotel offers over
125,000 sq. ft. of meeting space, including a 40,000-sq.-ft.
ballroom, the largest in the Midwest. Given its significant meeting
space, the hotel historically generated about 60% of its occupied
room nights from the meeting and group sector. Hotel amenities
include six food and beverage outlets, a business center, a fitness
center, an indoor pool, a sun deck, and spa services. The property
is subject to a 99-year ground lease, which commenced in 2017, with
a contractual ground rent payment of $9.0 million annually,
increasing 10.5% every five years, with the next increase scheduled
to take place in November 2022 to rent of $9.9 million. The fee
owner and the leasehold owner are both 100% owned by affiliates of
the sponsor, Tishman Hotel & Realty LP. The property is managed by
Sheraton Operating Corp., an affiliate of Marriott through December
2022. At expiration, the borrower has the option to extend the
management agreement, convert it into a franchise agreement, or
install a new management company/brand affiliation.
The hotel was built in 1992. The last known property renovation was
completed in July 2015 when $33.9 million ($27,801 per guestroom)
was spent on a multiphase renovation that included a redesign of
the lobby, and upgrades to the common areas, guestrooms, and
meeting spaces. However, at issuance, S&P noted on its site visit
that the guestrooms were in average condition. The servicer did not
provide an update on the status of any recent renovations. Hence,
if there has not been a hard or soft goods renovation since 2015,
the need for a property-wide guestroom renovation will further
stress the hotel's valuation.
The property exhibited declining performance prior to the COVID-19
pandemic. The hotel's RevPAR was $157.09 in the trailing-12-month
period (TTM) ended September 2017, $159.65 in 2018, and $150.05 in
2019. The reported NCF was $24.6 million in the TTM ended September
2017, then dropped 21.3% to $19.4 million in 2018, and declined
another 24.8% to $14.6 million in 2019. The NCF decline in 2018 was
driven mainly by an increase in ground rent upon execution of the
new ground lease in late 2017, while the decline in 2019 was driven
by the 6.0% RevPAR decline that year, likely stemming from the
opening of the 1,205 guestroom Marriott Marquis in October 2018,
and a $1.3 million increase in property taxes. Our RevPAR and NCF
at issuance were $151.70 and $14.4 million, respectively, and we
utilized a ground rent expense of $12.1 million (in S&P's initial
and current analysis) to account for future contractual increases
through 2034.
The hotel suspended operations from March 25, 2020, to June 7,
2021, due to a lack of demand during the COVID-19 pandemic,
particularly for hotels like the Sheraton Chicago in urban
locations that rely heavily on corporate and meeting and group
demand. Based on sponsor-provided financials, the property reported
a negative cash flow of $29.9 million and $16.3 million in 2020 and
2021, respectively. S&P said, "Our property-level analysis included
a re-evaluation of the lodging loan securitized in the pool, using
servicer-provided operating statements from 2018 through 2021. We
also utilized the most recent booking pace report and STR report to
supplement our analysis. The property level budget for 2022 was not
available."
S&P said, "To account for the property's declining performance,
coupled with the significant drop in occupancy due to the decline
in both meeting and group and corporate transient demand since the
pandemic, we revised our assumptions by using a lower occupancy
rate of 70.0% (compared to 74.0% at issuance and last review) and
an average daily rate (ADR) of $205.00, the same as at issuance to
derive an S&P Global Ratings' sustainable NCF of $10.5 million,
which is 27.1% lower than our last review in July 2020 and at
issuance. We lowered the occupancy to reflect the weaker group
booking pace report provided for 2022, which shows definite group
room nights that are approximately 40% below the group levels
provided at issuance for 2017. We also lowered our food and
beverage revenue given that it stems primarily from meeting- and
group-related events, which are depressed. In addition, the STR
report as of the trailing three months ended February 2022
indicated that the hotel and the competitive set, which comprises
six other branded Chicago convention hotels, only achieved
occupancy levels that averaged about 25% during this most recent
three-month period (compared to just over 50% pre-pandemic),
indicating the slow pace of recovery for most Chicago convention
hotels. However, our occupancy and rooms revenue assumption, as
well as food and beverage income estimate, remain significantly
higher than the levels achieved in 2021, as we expect demand to
recover, albeit at a slower pace than the industry overall. We
divided our NCF by an S&P Global Ratings' capitalization rate of
10.25% (unchanged from our last review), arriving at our
expected-case value of $114.6 million ($94,123 per guestroom),
which is down 26.8% from our last review value of $156.6 million."
Transaction Summary
This is a stand-alone (single borrower) transaction backed by a
floating-rate IO mortgage loan secured by the borrower's leasehold
interest in the Sheraton Grand Chicago, a 1,218-guestroom
full-service convention hotel located in the Streeterville
neighborhood of Chicago. According to the March 15, 2022, trustee
remittance report, the loan has a trust and whole loan balance of
$115.0 million, the same as at issuance and S&P's last review. The
IO loan pays a per annum floating interest rate of one-month LIBOR
plus a spread of 1.25% and matures on Nov. 9, 2022, with two,
one-year extension options remaining. The borrower previously
exercised two of the four extension options. The conditions to
extend the loan include, among other conditions, the borrower
paying a 0.25% extension fee for each of the second, third, and
fourth extension options; obtaining an interest rate cap with a
6.00% maximum strike price; and achieving a debt yield no less than
17.0% for each of the second, third, and fourth extension options.
If the borrower does not satisfy the debt yield requirement, the
borrower can prepay the mortgage loan in an amount that achieves
the debt yield test for the applicable extension term. According to
the master servicer, Wells Fargo Bank N.A., this condition was
waived for the first and second extension options because the
property's reported NCF was negative due to the ongoing pandemic.
Additionally, in connection with exercising the third extension
option, the borrower must exercise the put option as set forth in
the option agreement between the borrower, the fee borrower, and
Marriott. This requirement is waived if Marriott has exercised the
call option as set forth in the same agreement. Wells Fargo
confirmed that Marriott did not exercise the call option, which
expired in 2020 and the put option has been extended; however, the
duration of the extension is unclear. To date, the trust has not
incurred any principal losses.
As previously noted, there is a settlement agreement between the
sponsor and Marriott stemming from Marriott's acquisition of
Starwood Hotels & Resorts Worldwide in 2016. As part of the
settlement, Marriott agreed to guarantee a minimum NOI through Jan.
1, 2023, to account for Marriott's breach of area competition
protections in the management agreement stemming from the
acquisition. In addition to the NOI guaranty, Marriott also entered
into an option agreement, which provides the leasehold borrower
with a right to sell the leasehold property to Marriott that may be
exercised between Jan. 1, 2022, and June 30, 2022, for $300.0
million ($246,305 per guestroom), in which case Marriott would have
a call option to also purchase the fee interest for an additional
$200.0 million. The put option, as outlined in the settlement
agreement, allows for a transfer of ownership, but does not require
repayment of the outstanding debt, which can be assumed. Therefore,
the put option would result in a transfer of ownership, but not
necessarily a loan payoff. Per the master servicer, there has been
an extension of the put option, but the duration of the extension
was not available.
The recent rapid spread of the omicron variant highlights the
inherent uncertainties of the pandemic as well as the importance
and benefits of vaccines. S&P said, "While the risk of new, more
severe variants displacing omicron and evading existing immunity
cannot be ruled out, our current base case assumes that existing
vaccines can continue to provide significant protection against
severe illness. Furthermore, many governments, businesses, and
households around the world are tailoring policies to limit the
adverse economic impact of recurring COVID-19 waves. Consequently,
we do not expect a repeat of the sharp global economic contraction
of second-quarter 2020. Meanwhile, we continue to assess how well
each issuer adapts to new waves in its geography or industry."
Ratings Lowered
BAMLL Commercial Mortgage Securities Trust 2017-SCH
Class A-L: to 'AA (sf)' from 'AAA (sf)'
Class B-L: to 'A- (sf)' from 'AA- (sf)'
Class C-L: to 'BBB- (sf)' from 'A- (sf)'
Class D-L: to 'B (sf)' from 'BB (sf)'
Class X-LEX: to 'AA (sf)' from 'AAA (sf)'
BANK 2022-BNK41: Fitch to Rate 2 Cert. Classes 'B-'
---------------------------------------------------
Fitch Ratings has issued a presale report on BANK 2022-BNK41,
commercial mortgage pass-through certificates, series 2022-BNK41.
Ratings are expected to be assigned as follows:
BANK 2022-BNK41
-- $13,400,000 class A-1 'AAAsf'; Outlook Stable;
-- $18,700,000 class A-SB 'AAAsf'; Outlook Stable;
-- $170,000,000a class A-3 'AAAsf'; Outlook Stable;
-- $0b class A-3-1 'AAAsf'; Outlook Stable;
-- $0bc class A-3-X1 'AAAsf'; Outlook Stable;
-- $0b class A-3-2 'AAAsf'; Outlook Stable;
-- $0bc class A-3-X2 'AAAsf'; Outlook Stable;
-- $575,830,000a class A-4 'AAAsf'; Outlook Stable;
-- $0b class A-4-1 'AAAsf'; Outlook Stable;
-- $0bc class A-4-X1 'AAAsf'; Outlook Stable;
-- $0b class A-4-2 'AAAsf'; Outlook Stable;
-- $0bc class A-4-X2 'AAAsf'; Outlook Stable;
-- $777,930,000c class X-A 'AAAsf'; Outlook Stable;
-- $173,645,000c class X-B 'AA-sf'; Outlook Stable;
-- $130,581,000 class A-S 'AAAsf'; Outlook Stable;
-- $0b class A-S-1 'AAAsf'; Outlook Stable;
-- $0bc class A-S-X1 'AAAsf'; Outlook Stable;
-- $0b class A-S-2 'AAAsf'; Outlook Stable;
-- $0bc class A-S-X2 'AAAsf'; Outlook Stable;
-- $43,064,000 class B 'AA-sf'; Outlook Stable;
-- $0b class B-1 'AA-sf'; Outlook Stable;
-- $0bc class B-X1 'AA-sf'; Outlook Stable;
-- $0b class B-2 'AA-sf'; Outlook Stable;
-- $0bc class B-X2 'AA-sf'; Outlook Stable;
-- $43,064,000 class C 'A-sf'; Outlook Stable;
-- $0b class C-1 'A-sf'; Outlook Stable;
-- $0bc class C-X1 'A-sf'; Outlook Stable;
-- $0b class C-2 'A-sf'; Outlook Stable;
-- $0bc class C-X2 'A-sf'; Outlook Stable;
-- $47,231,000cd class X-D 'BBB-sf'; Outlook Stable;
-- $22,227,000cd class X-F 'BB-sf'; Outlook Stable;
-- $11,113,000cd class X-G 'B-sf'; Outlook Stable;
-- $26,394,000d class D 'BBBsf'; Outlook Stable;
-- $20,837,000d class E 'BBB-sf'; Outlook Stable;
-- $22,227,000d class F 'BB-sf'; Outlook Stable;
-- $11,113,000d class G 'B-sf'; Outlook Stable.
Fitch is not expected to rate the following classes:
-- $36,118,611cd class X-H;
-- $36,118,611d class H;
-- $58,490,980e class RR Interest.
a. The initial certificate balances of class A-3 and A-4 are not
yet known but expected to be $745,830,000 in aggregate, subject to
a 5% variance. The certificate balances will be determined based on
the final pricing of those classes of certificates. The expected
class A-3 balance range is $0-$340,000,000, and the expected class
A-4 balance range is $405,830,000-$745,860,000. Balances of classes
A-3 and A-4 shown above are the hypothetical balance for A-3 if A-4
were sized at the midpoints of their ranges. In the event that
class A-4 certificates are issued with an initial certificate
balance of $745,860,000, class A-3 certificates will not be
issued.
b. Exchangeable Certificates. Class A-3, A-4, A-S, B and C
certificates are exchangeable certificates. Each class of
exchangeable certificates may be exchanged for the corresponding
classes of exchangeable certificates and vice versa. The dollar
denomination of each of the received classes of certificates must
be equal to the dollar denomination of each of the corresponding
classes of exchangeable certificates. Class A-3 may be surrendered
(or received) for the received (or surrendered) classes A-3-1 and
A-3-X1. Class A-3 may be surrendered (or received) for the received
(or surrendered) classes A-3-2 and A-3-X2. Class A-4 may be
surrendered (or received) for the received (or surrendered) classes
A-4-1 and A-4-X1. Class A-4 may be surrendered (or received) for
the received (or surrendered) classes A-4-2 and A-4-X2. Class A-S
may be surrendered (or received) for the received (or surrendered)
classes A-S-1 and A-S-X1. Class A-S may be surrendered (or
received) for the received (or surrendered) classes A-S-2 and
A-S-X2. Class B may be surrendered (or received) for the received
(or surrendered) classes B-1 and B-X1. Class B may be surrendered
(or received) for the received (or surrendered) classes B-2 and
B-X2. Class C may be surrendered (or received) for the received (or
surrendered) classes C-1 and C-X1. Class C may be surrendered (or
received) for the received (or surrendered) classes C-2 and C-X2.
c. Notional amount and interest only.
d. Privately placed and pursuant to Rule 144A.
e. Represents the "eligible vertical interest" comprising 5.0% of
the pool.
The expected ratings are based on information provided by the
issuer as of Apr. 14, 2022.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 69 loans secured by 141
commercial properties having an aggregate principal balance of
$1,169,819,591 as of the cut-off date. The loans were contributed
to the trust by Bank of America, National Association, Wells Fargo
Bank National Association, Morgan Stanley Mortgage Capital Holdings
LLC, and National Cooperative Bank, N.A. The Master Servicer is
expected to be Wells Fargo Bank, National Association and National
Cooperative Bank, N.A. The Special Servicer is expected to be
Rialto Capital Advisors, LLC and National Cooperative Bank, N.A.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 36.2% of the properties
by balance, cash flow analyses of 87.4% of the pool and asset
summary reviews on 100% of the pool.
KEY RATING DRIVERS
Lower Fitch Leverage than Recent Transactions: This transaction's
leverage is lower than that of other multiborrower transactions
recently rated by Fitch. The pool's Fitch debt service coverage
ratio (DSCR) of 1.72x is higher than the 2022 year to date (YTD)
and 2021 averages of 1.36x and 1.38x, respectively. Additionally,
the pool's Fitch loan to value (LTV) ratio of 94.1% is below the
2022 YTD and the 2021 averages of 101.3% and 103.3%, respectively.
Excluding the co-operative (co-op) and the credit opinion loans,
the pool's DSCR and LTV are 1.24x and 110.7%, respectively. The
2022 YTD and 2021 averages excluding credit opinions and co-op
loans are 1.28x/109.6% and 1.30x/110.5%, respectively.
Investment-Grade Credit Opinions and Co-Op Loans: The pool includes
four loans, representing 18.1% of the pool, that received
investment-grade credit opinions, which is in line with the 2022
YTD average of 17.6% and below the 2021 average of 13.3%.
Constitution Center (9.4% of the pool) received a credit opinion of
'A-sf', 601 Lexington Avenue (5.6% of the pool) received a credit
opinion of 'BBB-sf', Journal Squared Tower 2 (2.0% of the pool)
received a credit opinion of 'BBB-sf', and ILPT Logistics Portfolio
(1.0% of the pool) received a credit opinion of 'BBB-sf'.
The pool contains a total of 26 loans, representing 10.8% of the
pool, that are secured by residential co-ops and exhibit leverage
characteristics significantly lower than typical conduit loans. The
weighted average (WA) Fitch DSCR and LTV for the co-op loans are
5.54x and 29.9%, respectively.
Higher Pool Concentration: The pool's 10 largest loans represent
58.2% of its cutoff balance, which is above the 2022 YTD and 2021
averages of 53.1% and 51.2%, respectively. The pool's Loan
Concentration Index (LCI) is 422, higher than the 2022 YTD and 2021
averages of 397 and 381, respectively.
Limited Amortization: Based on the scheduled loan balances at
maturity, the pool is scheduled to pay down only 3.0%, which is
below the respective 2022 YTD and 2021 averages of 3.7% and 4.8%.
Thirty-nine loans representing 80.4% of the pool are full-term
interest only, and an additional four loans representing 8.6% of
the pool are partial interest only. The percentage of full-term
interest-only loans is significantly higher than the 2022 YTD and
2021 averages of 77.9% and 70.5%, respectively.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Similarly, declining cash flow decreases property value and
capacity to meet its debt service obligations. The table below
indicates the model implied rating sensitivity to changes to the
same one variable, Fitch NCF:
-- Original Rating: 'AAAsf'/'AA-sf'/'A-sf'/'BBBsf'/'BBB-sf'/'BB-
sf'/'B-sf'.
-- 10% NCF Decline: 'AA-sf'/'A-sf'/'BBBsf'/'BBB-
sf'/'BBsf'/'CCCsf'/ 'CCCsf'.
-- 20% NCF Decline: 'A-sf'/'BBBsf'/'BB+sf'/'B+sf'/'CCCsf
'/'CCCsf'/'CCCsf'.
-- 30% NCF Decline: 'BBBsf'/'BB+sf'/'B-
sf'/'CCCsf'/'CCCsf'/'CCCsf'/'CCCsf'.
Fitch has revised its global economic outlook forecasts as a result
of the war in Ukraine and related economic sanctions. Downside
risks have increased and, therefore, Fitch has published an
assessment of the potential rating and asset performance impact of
a plausible, albeit worse than expected, adverse stagflation
scenario on Fitch's major structured finance and covered bond
subsectors ("What a Stagflation Scenario Would Mean for Global
Structured Finance").
Fitch expects the North American CMBS sector in the assumed adverse
scenario to experience virtually no impact on ratings performance,
indicating very few rating or Outlook changes. Fitch expects the
asset performance impact of the adverse case scenario to be more
modest than the most stressful scenario shown above, which assumes
a further 30% decline from Fitch's NCF at issuance.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Improvement in cash flow increases property value and capacity to
meet its debt service obligations.
The list below indicates the model implied rating sensitivity to
changes in one variable, Fitch NCF:
-- Original Rating: 'AAAsf'/'AA-sf'/'A-sf'/'BBBsf'/'BBB-sf'/'BB-
sf'/'B-sf'.
-- 20% NCF Increase: 'AAAsf'/'AAAsf'/'AA+sf'/'A+sf'/'A-sf'/'BBB-
sf'/'BB+sf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Deloitte & Touche LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis and it did not
have an effect on Fitch's analysis or conclusions.
DATA ADEQUACY
Fitch received information in accordance with its published
criteria, available at www.fitchratings.com. Sufficient data,
including asset summaries, three years of property financials, when
available, and third-party reports on the properties were received
from the issuer. Ongoing performance monitoring, including data
provided, is described in the Surveillance section of the presale.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BANK OF AMERICA 2015-UBS7: Fitch Affirms CC Rating on Class F Debt
------------------------------------------------------------------
Fitch Ratings has affirmed 13 classes of Bank of America Merrill
Lynch Commercial Mortgage Trust 2015-UBS7. Additionally, Fitch has
revised the Rating Outlook for classes A-S, B and X-B to Stable
from Negative.
DEBT RATING PRIOR
---- ------ -----
BACM Trust 2015-UBS7
A-3 06054AAW9 LT AAAsf Affirmed AAAsf
A-4 06054AAX7 LT AAAsf Affirmed AAAsf
A-S 06054ABB4 LT AAAsf Affirmed AAAsf
A-SB 06054AAV1 LT AAAsf Affirmed AAAsf
B 06054ABC2 LT A-sf Affirmed A-sf
C 06054ABD0 LT BBBsf Affirmed BBBsf
D 06054ABE8 LT B-sf Affirmed B-sf
E 06054AAG4 LT CCCsf Affirmed CCCsf
F 06054AAJ8 LT CCsf Affirmed CCsf
X-A 06054AAY5 LT AAAsf Affirmed AAAsf
X-B 06054AAZ2 LT AAAsf Affirmed AAAsf
X-D 06054ABA6 LT B-sf Affirmed B-sf
X-E 06054AAA7 LT CCCsf Affirmed CCCsf
KEY RATING DRIVERS
Decreased Loss Expectations: Loss expectations decreased since the
last rating action, primarily due loans impacted by the coronavirus
pandemic, exhibiting signs of recovery or stabilizing. There are
seven Fitch Loans of Concern (FLOCs; 30% of the pool), including
two loans (3.6%) in special servicing.
Fitch's ratings assume a base case loss expectation of 8.1%. The
Negative Outlook on class C reflects the potential for future
downgrades should larger FLOCs, such as The Panoramic and The Mall
of New Hampshire, fail to stabilize or default.
The largest contributor to loss expectations is the REO WPC
Department Store Portfolio loan (2.6%), four (originally six)
single-tenant retail properties located in Wisconsin, Illinois, and
North Dakota. The locations were 100% leased and operated by
various brands of Bon-Ton, who declared bankruptcy and liquidated
in February 2018. The loan subsequently transferred to special
servicing in August 2018 and became REO in October 2019.
The Bay Park, WI property sold for $3.0 million in November 2020
and the Southridge, WI property sold for $3.3 million in July 2021,
with proceeds from both sales applied to outstanding servicer
advances. Fitch modeled a 100% loss due to the fully vacant nature
of the remaining four properties in the portfolio, negative retail
outlook and increasing loan exposure due to advances, fees and
expenses.
The second largest contributor to loss expectations, The Mall of
New Hampshire (8.4%), is a regional mall sponsored by Simon and
located in Manchester, NH. Sears, a non-collateral anchor, closed
in November 2018 and has re-leased a portion of the space to Dick's
Sporting Goods and Dave & Buster's. The loan transferred to special
servicing in May 2020 due to the pandemic, and the special servicer
agreed to a forbearance agreement that deferred payments between
May 2020 and December 2020. Beginning in January 2021, the borrower
began repaying the deferred amounts in 13 installments. The loan
was returned to the master servicer in April 2021.
As of Sept 2021, servicer reported occupancy and NOI debt service
coverage ratio (DSCR) were 83% and 1.82x, respectively, compared to
87% and 2.11x at YE 2019. Fitch applied a 15.0% cap rate and 5%
stress to the Sept 2021 NOI, which resulted in an expected loss of
approximately 26%.
The third largest contributor to loss expectations, The Panoramic
(7.6%), is secured by 400-bed student housing property located in
San Francisco, CA, in the SOMA neighborhood. The property was 100%
occupied primarily under master leases by two universities:
California College of Arts (exp July 31, 2025) and University of
the Pacific (exp June 30, 2023). Approximately 12% of the total
beds are direct leases. There is also approximately 3,000 sf of
ground floor retail, including a leasing office and a coffee shop,
leased through 2025. Fitch's analysis includes a 5% stress to 2021
NOI, which resulted in a modeled loss of approximately 11%.
Increasing Credit Enhancement: As of the March 2022 distribution
date, the pool's aggregate principal balance has been paid down
8.5% to $693.3 million from $757 million at issuance. There are
four defeased loans (1.6%); one newly defeased loan since last
rating action. There are 11 full term interest only loans (35.1%).
Fifteen loans (28.4%) were structured with partial interest only
periods; all have exited their initial IO period. The deal has
realized losses of slightly over $1,000 affecting the non-rated
class H. Non-rated class H is experiencing interest shortfalls. The
majority of the pool (99.2%) matures in 2025; one loan (0.8%)
matures in 2024.
Investment Grade Credit Opinion Loans: Two loans (14.3%) were given
investment grade credit opinions at issuance. Both Charles River
Plaza North (8.9%) and 651 Brannan Street (5.4%) received a credit
opinion of 'BBB-sf' at issuance and continue to perform in line
with issuance.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase in pool-level losses from underperforming or
specially serviced loans. Downgrades to classes A-3 through A-
S are not likely due to the position in the capital structure,
but may occur should interest shortfalls affect these classes.
Downgrades to classes B and C may occur should expected losses
for the pool increase substantially particularly on the FLOCs.
-- Downgrades to classes D and below would occur should overall
pool loss expectations increase from continued performance
decline of the FLOCs, additional loans default or transfer to
special servicing, higher losses incur on the specially
serviced loans than expected and/or increased loss
expectations on the Mall of New Hampshire.
-- Fitch has identified both a baseline and a worse-than-
expected, adverse stagflation scenario based on fallout from
the Russia-Ukraine war, whereby growth is sharply lower amid
higher inflation and interest rates; even if the adverse
scenario should play out, Fitch expects virtually no impact on
ratings performance, indicating very few rating or Outlook
changes. However, for some transactions with concentrations in
underperforming retail exposure, the ratings impact may be
mild to modest, indicating some changes on sub-investment
grade notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Stable to improved asset performance, particularly on the
FLOCs, coupled with additional paydown and/or defeasance.
Upgrades to classes B and C may occur with significant
improvement in CE and/or defeasance, and with the
stabilization of performance on the FLOCs, particularly 261
Fifth Avenue, The Panoramic and/or The Mall of New Hampshire.
-- Upgrades to classes D and below would also consider these
factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if there were
likelihood for interest shortfalls.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
ESG relevance score of '4' for Social Impacts was applied as a
result of exposure to a sustained structural shift in secular
preferences affecting consumer trends, occupancy trends, and more,
which, in combination with other factors, affects the ratings.
BEAR STEARNS 2004-PWR6: Moody's Hikes Rating on Cl. M Certs to B2
-----------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on two classes
and upgraded the ratings on two classes in Bear Stearns Commercial
Mortgage Securities Trust 2004-PWR6 as follows:
Cl. L, Upgraded to Aa2 (sf); previously on Jun 24, 2021 Upgraded to
A1 (sf)
Cl. M, Upgraded to B2 (sf); previously on Jun 24, 2021 Affirmed
Caa1 (sf)
Cl. N, Affirmed C (sf); previously on Jun 24, 2021 Affirmed C (sf)
Cl. X-1*, Affirmed Ca (sf); previously on Jun 24, 2021 Affirmed Ca
(sf)
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on two principal and interest (P&I) classes, Cl. L and
Cl. M, were upgraded primarily due to an increase in defeasance as
well as an increase in credit support due to paydowns from loan
amortization. Two loans, constituting 66% of the pool, have
defeased and the deal has paid down 32% since last review and 99%
since securitization. The rating on Cl. L was upgraded due to the
class being fully covered by defeasance, however, the class was
impacted by interest shortfalls in previous years. The remaining
loans are all fully amortizing and mature by November 2024.
The rating on Cl. N was affirmed because it has already experienced
a 28% realized loss as a result of previously liquidated loans.
The rating on the interest-only (IO) class, Cl. X-1, was affirmed
based on the credit quality of its 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.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, an increase in
the pool's share of defeasance or an improvement in pool
performance.
Factors that could lead to a downgrade of the ratings include a
decline in the performance of the pool, an increase in realized and
expected losses or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except the
interest-only classes was "Large Loan and Single Asset/Single
Borrower Commercial Mortgage-Backed Securitizations Methodology"
published in November 2021.
DEAL PERFORMANCE
As of the April 11, 2022 distribution date, the transaction's
aggregate certificate balance has decreased by 98.8% to $12.9
million from $1.1 billion at securitization. The certificates are
collateralized by five mortgage loans. Two loans, constituting
66.0% of the pool, have defeased and are secured by US government
securities.
Nine loans have been liquidated from the pool, contributing to an
aggregate realized loss of $14.5 million (for an average loss
severity of 46.0%). There are currently no loans in special
servicing.
The three remaining non-defeased loans represent 34.0% of the pool
balance. The largest non-defeased loan is the Castle Rock Portfolio
Loan ($2.0 million – 15.5% of the pool), which is secured by a
portfolio of six industrial properties and two parcels of land
located in Arizona (1) and Colorado (7). The portfolio is 100%
leased to Karcher North America, Inc. through June 2024, which is
five months prior to the loan maturity date in November 2024. The
loan fully amortizes over its loan term and has paid down 78% since
securitization. The loan is on the master servicer's watchlist due
to the annual inspection issue with one of the properties.
Portfolio's performance has been stable with the reported NOI DSCR
at 2.35X in December 2021. Moody's analysis incorporated a Lit/Dark
approach to account for the single-tenant exposure. Due to the
amortization and stable performance, Moody's stressed LTV is 15%.
The second largest loan is the Wolverine Brass Loan ($1.4 million -
10.5% of the pool), which is secured by two industrial properties
located in Concordville, Pennsylvania and Oceanside, California.
The properties are 100% leased to Plumbmaster, Inc. through January
2024, which is 10 months prior to the loan maturity date in
November 2024. The loan fully amortizes over its loan term and has
already paid down 78% since securitization. Moody's analysis
incorporated a Lit/Dark approach to account for the single-tenant
exposure. Due to the amortization and stable performance, Moody's
stressed LTV is 16%.
The third largest loan is the Covington Walgreens Center Loan ($1.0
million - 7.9% of the pool), which is secured by a retail property
located in Covington, Washington, approximately 26 miles SE of
Seattle. The largest tenant, Walgreens, accounts for 82% of NRA
with a lease expiration in February 2029, which is over four years
beyond the loan maturity date in November 2024. The loan is fully
amortizing overs its term and has already paid down 79% since
securitization. Due to the amortization and stable performance,
Moody's stressed LTV is 19%.
BLUEMOUNTAIN CLO XXXIV: S&P Assigns Prelim BB- Rating on E Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to BlueMountain
CLO XXXIV Ltd./BlueMountain CLO XXXIV LLC's floating- and
fixed-rate notes. The transaction is managed by Assured Investment
Management LLC.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term
loans.
The preliminary ratings are based on information as of April 19,
2022. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- S&P's view of the collateral pool's diversification;
-- The credit enhancement provided through subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
BlueMountain CLO XXXIV Ltd./BlueMountain CLO XXXIV LLC
Class A, $315.0 million: AAA (sf)
Class B-1, $47.0 million: AA (sf)
Class B-2, $18.0 million: AA (sf)
Class C (deferrable), $30.0 million: A (sf)
Class D (deferrable), $30.0 million: BBB- (sf)
Class E (deferrable), $20.0 million: BB- (sf)
Subordinated notes, $43.4 million: Not rated
BROOKSIDE MILL: Moody's Upgrades Rating on $3.15MM F Notes to B3
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Brookside Mill CLO Ltd.:
US$19,740,000 Class C-R Deferrable Mezzanine Floating Rate Notes
Due January 17, 2028, Upgraded to Aa1 (sf); previously on February
9, 2021 Upgraded to Aa3 (sf)
US$26,460,000 Class D-R Deferrable Mezzanine Floating Rate Notes
Due January 17, 2028, Upgraded to A1 (sf); previously on February
9, 2021 Upgraded to Baa2 (sf)
US$23,100,000 Class E-R Deferrable Mezzanine Floating Rate Notes
Due January 17, 2028, Upgraded to Ba3 (sf); previously on July 21,
2020 Downgraded to B1 (sf)
US$3,150,000 Class F Deferrable Mezzanine Floating Rate Notes Due
January 17, 2028, Upgraded to B3 (sf); previously on July 21, 2020
Downgraded to Caa1 (sf)
Brookside Mill CLO Ltd., issued in May 2013, and partially
refinanced in February 2018, is a managed cashflow CLO. The notes
are collateralized primarily by a portfolio of broadly syndicated
senior secured corporate loans. The transaction's reinvestment
period ended in January 2020.
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 March 2021. The Class A-R
notes have been paid down by approximately 76% or $154.6 million
since that time. Based on the trustee's March 2022 report[1], the
OC ratios for the Class A/B, Class C, Class D and Class E notes are
reported at 189.69%, 157.35%, 128.23% and 110.19%, respectively,
versus the March 2021 trustee report [2] levels of 132.86%,
123.16%, 112.18% and 104.08%, respectively. Moody's notes that the
trustee's March 2022 OC ratios do not reflect the additional $26.0
million principal payment to the Class A-R notes on the April
payment date.
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, weighted average
spread, and weighted average recovery rate, are based on its
published methodology and could differ from the trustee's reported
numbers. For modeling purposes, Moody's used the following
base-case assumptions:
Performing par and principal proceeds balance: $181,158,622
Defaulted par: $808,421
Diversity Score: 45
Weighted Average Rating Factor (WARF): 2832
Weighted Average Spread (WAS) (before accounting for LIBOR floors):
3.35%
Weighted Average Recovery Rate (WARR): 47.58%
Weighted Average Life (WAL): 3.24 years
In addition to base case analysis, Moody's considered additional
scenarios where outcomes could diverge from the base case. These
additional scenarios include deterioration in credit quality of the
underlying portfolio, decrease in overall WAS, and lower recoveries
on defaulted assets.
Methodology Used for the Rating Action
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
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.
BSST 2022-1700: DBRS Finalizes B(low) Rating on Class G Certs
-------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of Commercial Mortgage Pass-Through Certificates, Series
2022-1700 to be issued by BSST 2022-1700 Mortgage Trust (BSST
2022-1700):
-- Class A at AAA (sf)
-- Class X-CP at AAA (sf)
-- Class X-EXT at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The BSST 2022-1700 single-asset/single-borrower transaction is
collateralized by the borrower's fee-simple interest in a 32-story,
850 209-square-foot (sf) Class A office building, 1700 Market
Street, in the Market Street West submarket of Philadelphia,
situated two blocks from City Hall and Rittenhouse Square. The
subject was constructed in 1968 and most recently renovated from
2017 to 2019 for $16.7 million. The transaction sponsor,
Shorenstein Realty Investors Eleven L.P., acquired the collateral
in January 2016 for $195.0 million. DBRS Morningstar takes a
generally positive view on the credit characteristics of the
collateral based on the property's desirable location, recent
capital improvements, solid historical operating performance, and
strong transaction sponsorship.
The property is in the Market Street West submarket of Center City,
Philadelphia. It has good highway access to I-676, I-76, and I-95,
and is near Dilworth Park, which offers commuter and subway access
to Center City. The Market Street West submarket remains one of the
most desirable office submarkets in Philadelphia thanks to its
high-quality office buildings and increasing demand with limited
new supply. According to CBRE Econometric Advisors, the Market
Street West submarket vacancy rate is about 1.0% lower than the
Philadelphia downtown vacancy rate, and the submarket will
outperform the broader metropolitan area over the next several
years.
The sponsor spent more than $16.7 million in capital expenditures,
tenant improvements, and leasing commissions since 2016. These
improvements included upgrades to the lobby and elevator, and a new
tenant-only fitness center and conference center, built in 2019 at
a cost of $3.6 million.
Since acquiring the property, the sponsor has increased occupancy
to 87.7% from 81.6%. Furthermore, the sponsor backfilled the
property's anchor tenant, Independence Blue Cross, prior to its
lease expiration in 2019, by executing a 10-year lease with
Reliance Standard Life Insurance Company to completely fill the
former tenant's 150,000-sf space.
The largest tenant at the property, Reliance Standard Life
Insurance Company (17.9% of net rentable area (NRA); 19.4% of base
rent), is investment grade, and the second-largest tenant, Deloitte
(10.9% of NRA; 12.5% of base rent), is one of the Big Four
accounting firms. Together, these tenants account for 29% of the
NRA and 31.5% of the base rent. Moreover, the property benefits
from having a low lease rollover during the loan term. During the
five-year fully extended loan term, the property will have a
cumulative rollover of 24.6% of the NRA and 30.0% of the base
rent.
The ongoing Coronavirus Disease (COVID-19) pandemic continues to
pose challenges and risks to virtually all major commercial real
estate property types and has created uncertainty about future
demand for office space, even in gateway markets that have
historically been highly liquid. Despite the disruptions and
uncertainty, the collateral has been largely unaffected.
Collections have averaged greater than 99% at the property since
April 2020, including drawdowns of the Common Grounds letter of
credit. Regardless, leasing velocity at the property and in the
broader submarket has slowed significantly since the onset of the
pandemic.
The sponsor is using loan proceeds to refinance existing debt and
is withdrawing approximately $7.4 million in equity as a part of
this transaction. DBRS Morningstar typically views cash-out
refinancing transactions less favorably given the reduced alignment
of the sponsor's and certificate holder's incentives.
The loan has a DBRS Morningstar loan-to-value ratio of 108.5% on
the mortgage loan, which is higher than other recently analyzed
transactions collateralized by office properties in primary
markets. The high leverage nature of the transaction, combined with
the lack of amortization, could result in elevated refinance risk
and/or loss severities in an event of default.
The transaction is one of a series of issuances based on a novel
transaction structure whereby the issuer may periodically offer
commercial mortgage pass-through certificates in separate series
under one master transaction servicing agreement (TSA) and offering
circular. Each series will have an offering circular supplement and
a series supplement to the TSA. Further, each series will be rated
independently of the others, each will have its own priority of
payments, and there will be no pooling of risk.
The underlying mortgage loan for the transaction will pay a
floating rate indexed to the Term Secured Overnight Financing Rate
(SOFR). However, upon the sunsetting of Libor, if Term SOFR does
not survive in its current form, or if a different benchmark
replacement is chosen, the loan could be subject to potential
benchmark transition risk. Given that Term SOFR is a relatively new
rate, it might be more volatile in the near term than other
indexes. If Term SOFR is no longer available as a benchmark, it
will be replaced with the Prime Rate.
Notes: All figures are in U.S. dollars unless otherwise noted.
BX COMMERCIAL 2019-XL: DBRS Confirms B(low) Rating on J Certs
-------------------------------------------------------------
DBRS, Inc. confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2019-XL issued by BX Commercial
Mortgage Trust 2019-XL as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class D as A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (low) (sf)
-- Class J at B (low) (sf)
All trends are Stable. DBRS Morningstar discontinued the rating on
Class X-CP as the bond has exceeded its stated maturity date of
October 2020 and is no longer receiving interest payments.
The rating confirmations reflect the overall stable performance of
the transaction, which remains in line with DBRS Morningstar’s
expectations at issuance. At issuance, the collateral for the trust
was a $5.6 billion first-lien mortgage loan on 406 industrial
properties totaling more than 65 million square feet (sf) across 18
states. As of the January 2022 remittance, 337 properties remained
as the pool had been paid down by $880.5 million (15.7% of the
original balance) following the releases of 69 properties since
issuance. The proceeds were distributed pro rata through the
capital stack, reducing the total pool balance to $4.7 billion.
Original trust loan proceeds of $5.6 billion along with $1.0
billion of mezzanine financing, a $1.9 billion balance sheet loan,
$9.4 million of assumed debt, and $2.6 billion of borrower equity
were used to facilitate the acquisition of the portfolio for
approximately $11.1 billion. The underlying loan for the subject
transaction pays interest only (IO) with a two-year initial term,
and the borrower has exercised its first of three one-year
extension options. The portfolio is a part of Blackstone Real
Estate Partners' larger $18.7 billion acquisition of more than 170
million sf of U.S. industrial assets from Singapore-based GLP.
At issuance, the portfolio had a property Herfindahl score of over
200 by allocated loan amount, which is among the highest scores
DBRS Morningstar has seen for single-borrower industrial
portfolios. The properties are located across 18 U.S. states in
multiple regions, and the portfolio also exhibits substantial
tenant diversity and granularity. Of more than 2,000 unique
tenants, no tenant accounted for more than 2.3% of in-place base
rent at issuance, and no property accounted for more than 2.1% of
trailing 12-month (T-12) net operating income. As of Q3 2021, the
T-12 debt service coverage ratio (DSCR) was reported at 2.20 times
(x) with an occupancy rate of 94.1%, in line with the YE2020 DSCR
and occupancy rate of 1.63x and 92%, respectively. The increase in
the DSCR is largely the result of the favorable interest rate
environment on this floating-rate loan.
The loan is currently on the servicer's watchlist, with the
servicer commentary providing few details but citing a trigger code
for upcoming lease rollover. Although recent rent rolls were not
provided, DBRS Morningstar noted at issuance that leases
representing 17.8% of the portfolio's net rentable area had
expiration dates in 2022. However, given the granularity of the
tenant roster, favorable market locations, and demand for this type
of industrial product, the borrower is expected to be able to
backfill any tenants that vacate relatively quickly. Additionally,
DBRS Morningstar noted that the in-place rental rates for the
portfolio at issuance were on average 10% below market, suggesting
the potential for some upside as leases roll.
Notes: All figures are in U.S. dollars unless otherwise noted.
BX TRUST 2022-IND: Moody's Assigns B3 Rating to Cl. F Certs
-----------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to six
classes of CMBS securities, issued by BX Trust 2022-IND, Commercial
Mortgage Pass-Through Certificates, Series 2022-IND:
Cl. A, Definitive Rating Assigned Aaa (sf)
Cl. B, Definitive Rating Assigned Aa3 (sf)
Cl. C, Definitive Rating Assigned A3 (sf)
Cl. D, Definitive Rating Assigned Baa3 (sf)
Cl. E, Definitive Rating Assigned Ba3 (sf)
Cl. F, Definitive Rating Assigned B3 (sf)
Note: Moody's previously assigned a provisional rating to Class
X-CP of (P) Baa1 (sf), described in the prior press release, dated
April 5, 2022. Subsequent to the release of the provisional ratings
for this transaction, the structure was modified. Based on the
current structure, Moody's has withdrawn its provisional rating for
Class X-CP and will not rate these certificates.
RATINGS RATIONALE
The certificates are collateralized by the borrower's fee simple
interests in 115 and leasehold interest in 1 primarily industrial
properties located across 22 metropolitan statistical areas (MSAs)
in 16 states. Moody's ratings are based on the credit quality of
the loan and the strength of the securitization structure.
Moody's approach to rating this transaction involved the
application of Moody's Large Loan and Single Asset/Single Borrower
CMBS methodology. The rating approach for securities backed by a
single loan compares the credit risk inherent in the underlying
collateral with the credit protection offered by the structure. The
structure's credit enhancement is quantified by the maximum
deterioration in property value that the securities are able to
withstand under various stress scenarios without causing an
increase in the expected loss for various rating levels. In
assigning single borrower ratings, Moody's also consider a range of
qualitative issues as well as the transaction's structural and
legal aspects.
The Portfolio contains a total of 19,247,789 SF of rentable area
across the following 10 industrial and commercial uses: Bulk
Warehouse (30.6% of NRA, 25.5% of ALA); Manufacturing (22.8%,
24.7%); Warehouse (30.9%, 24.1%); Light Industrial (5.1%, 6.6%);
Cold Storage (3.5%, 6.1%); Ground Up Development (3.7%, 5.3%); Data
Center (1.2%, 4.5%); Truck Terminal (1.6%, 2.7%); Office (0.5%,
0.4%); and Covered Land (0.3%, 0.2%).
Construction dates for properties in the portfolio range between
1941 and 2022, with a weighted average year built of 1992. Property
sizes for assets range between 16,158 SF and 1,490,797 SF, with an
average size of approximately 165,929 SF. Maximum clear heights for
properties range between 11 feet and 80 feet, with a weighted
average maximum clear height for the portfolio of approximately 30
feet. As of March 16, 2022, the portfolio was approximately 95.0%
leased to 140 individual tenants.
The credit risk of loans is determined primarily by two factors: 1)
Moody's assessment of the probability of default, which is largely
driven by each loan's DSCR, and 2) Moody's assessment of the
severity of loss upon a default, which is largely driven by each
loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV.
As described in the CMBS methodology used to rate this transaction,
Moody's make various adjustments to the MLTV. Moody's adjust the
MLTV for each loan using a value that reflects capitalization (cap)
rates that are between Moody's sustainable cap rates and market cap
rates. Moody's also use an adjusted loan balance that reflects each
loan's amortization profile.
The Moody's first mortgage DSCR is 1.74x and Moody's first mortgage
stressed DSCR at a 9.25% constant is 0.61x. Moody's DSCR is based
on Moody's stabilized net cash flow.
Moody's LTV ratio for the first mortgage balance is 137.0% based on
Moody's Value. Adjusted Moody's LTV ratio for the first mortgage
balance is 118.5% based on Moody's Value using a cap rate adjusted
for the current interest rate environment. The property is also
encumbered with $890.0 million of mezzanine financing secured by a
pledge of the direct equity interests in the borrower. Inclusive of
the additional mezzanine debt, the total debt MLTV ratio is 206.2%
and the total debt Adjusted Moody's LTV ratio is 178.5%.
Moody's also grades properties on a scale of 0 to 5 (best to worst)
and considers those grades when assessing the likelihood of debt
payment. The factors considered include property age, quality of
construction, location, market, and tenancy. The pool's weighted
average property quality grade is 0.75.
Notable strengths of the transaction include: the proximity to
global gateway markets, infill locations, geographic diversity,
tenant granularity and diversity, strong occupancy, low percentage
of flex industrial and experienced sponsorship.
Notable concerns of the transaction include: the high Moody's LTV
ratio, tenant rollover, average property age,
floating-rate/interest-only mortgage loan profile and certain
credit negative legal features.
Moody's rating approach considers sequential pay in connection with
a collateral release as a credit neutral benchmark. Although the
loans' release premium mitigates the risk of a ratings downgrade
due to adverse selection, the pro rata payment structure limits
ratings upgrade potential as mezzanine classes are prevented from
building enhancement. The benefit received from pooling through
cross-collateralization is also reduced.
The principal methodology used in these ratings was "Large Loan and
Single Asset/Single Borrower Commercial Mortgage-Backed
Securitizations Methodology" published in November 2021.
Moody's approach for single borrower and large loan multi-borrower
transactions evaluates credit enhancement levels based on an
aggregation of adjusted loan level proceeds derived from Moody's
loan level LTV ratios. Major adjustments to determining proceeds
include leverage, loan structure, and property type. These
aggregated proceeds are then further adjusted for any pooling
benefits associated with loan level diversity, other concentrations
and correlations.
Factors that would lead to an upgrade or downgrade of the ratings:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously anticipated. Factors that may cause an
upgrade of the ratings include significant loan pay downs or
amortization, an increase in the pool's share of defeasance or
overall improved pool performance. Factors that may cause a
downgrade of the ratings include a decline in the overall
performance of the pool, loan concentration, increased expected
losses from specially serviced and troubled loans or interest
shortfalls.
CALI MORTGAGE 2019-101C: S&P Affirms B (sf) Rating on Cl. F Certs
-----------------------------------------------------------------
S&P Global Ratings lowered its rating on the class HRR commercial
mortgage pass-through certificates from CALI Mortgage Trust
2019-101C, a U.S. CMBS transaction. At the same time, S&P affirmed
its ratings on seven classes from the transaction.
This U.S. CMBS transaction is backed by a portion of a fixed-rate,
interest-only (IO) mortgage whole loan secured by an office
property in San Francisco.
Rating Actions
The downgrade of class HRR and the affirmations of classes A, B, C,
D, E, and F reflect S&P's reevaluation of the office property that
secures the sole loan in the transaction. Although the sponsor was
able to sign a new lease with a tenant that accounts for 15.5% of
the net rentable area (NRA), eight tenants (approximately 14.0% of
NRA) have indicated that they will vacate or downsize upon their
respective 2022 lease expiration dates. These tenants include the
current largest tenant, Merrill Lynch Pierce Fenner (121,986 sq.
ft.; 9.8% of NRA), which will vacate upon its October 2022 lease
expiration. The new tenant is expected to move into the property in
late 2022 through early 2023.
S&P said, "We believe it would require significant capital to
re-let the vacant space, which according to the master servicer,
Midland Loan Services (Midland), has no further leasing prospects
at this time. After reflecting the tenancy changes in our analysis,
we expect occupancy of approximately 78.3%, which is similar to the
Dec. 31, 2021, rent roll but below the historical and market
occupancy levels. The affirmations of classes A through F also
considered that the office property's operating performance could
eventually improve above our revised expectations, given recently
completed and ongoing renovations.
"Our property-level analysis also reflects the weakened office
submarket fundamentals due to lower demand and longer re-leasing
timeframes as more companies adopt a hybrid work arrangement or
relocate to lower cost areas or states. As a result, we revised and
lowered our sustainable net cash flow (NCF) 15.7% (from issuance)
to $46.9 million, using a 78.3% occupancy rate. Our net operating
income (NOI) is about 7.5% below the 2021 servicer-reported
figures. Using an S&P Global Ratings capitalization rate of 7.00%,
we arrived at an expected-case valuation of $671.8 million or $537
per sq. ft., which represents a decline of 16.1% from our issuance
value of $800.8 million. This yielded an S&P Global Ratings
loan-to-value (LTV) ratio of 112.4% on the whole loan balance.
"The downgrade of the class HRR certificates reflects our view
that, based on an S&P Global Ratings' LTV ratio of over 100%, this
class is more susceptible to reduced liquidity support, and the
risk of default and loss has increased due to current market
conditions."
Although the model-indicated ratings were lower than the classes'
current rating levels, S&P affirmed its ratings on classes A, B, C,
D, E, and F based on certain weighed qualitative considerations.
These include:
-- The property's desirable location in downtown San Francisco;
-- The potential that the office property's operating performance
could improve above our revised expectations because the sponsor
recently completed an $8.0 million elevator modernization project
in February 2022 and began a $70.0 million, two-year lobby and
plaza renovation in March 2022;
-- The relatively high appraised land value of $327.7 million in
2018;
-- The significant market value decline that would need to occur
before these classes experience principal losses;
-- The liquidity support provided in the form of servicer
advancing; and
-- The relative position of the classes in the payment waterfall.
The whole loan had a reported current payment status through its
April 2022 debt service payments, and the borrower did not request
COVID-19 relief. In addition, the sponsor provided a $17.6 million
letter of credit in connection with the Chime Financial Inc. lease
that will expire in September 2022 but automatically renews each
year, and a $10.0 million upfront reserve due to former tenant,
Cooley LLP (112,305 sq. ft.; 9.0% of NRA) vacating in December
2020.
The affirmation on the class X-A IO certificates reflects our
criteria for rating IO securities, in which the rating on the IO
securities would not be higher than that of the lowest-rated
reference class. The notional amount of the class X-A certificates
references classes A, B, and C.
S&P may take additional negative rating actions if the property's
performance does not improve or if there are reported negative
changes in the performance beyond what we have already considered.
Property-Level Analysis
S&P said, "Our property-level analysis considered that while the
sponsor was able to re-tenant the property by signing a new 10-year
lease with Chime Financial Inc. (193,548 sq. ft.; 15.5% of NRA) in
late 2021, we believe occupancy level will remain significantly
below our expectations because eight tenants (approximately 14.0%
of NRA), including the current largest tenant (Merrill Lynch; 9.8%
of NRA), have indicated that they will vacate or downsize upon
their respective 2022 lease expiration dates. Chime is expected to
gradually occupy the property in late 2022 through early 2023.
Overall, we expect an occupancy rate of approximately 78.3% by
year-end 2022, which is on par with the 76.2% occupancy rate in the
Dec. 31, 2021, rent roll, and below the assumed 90.0% occupancy
rate we derived at issuance."
S&P analysis at issuance considered some key factors:
-- The second-largest tenant, Cooley LLP, vacating upon its
December 2020 lease expiration;
-- The property's desirable location in the Financial District
office submarket;
-- The property's strong occupancy history (averaging
approximately 91.8% since 1985);
-- The below 9.0% submarket vacancy rate; and
-- The strong sponsorship from Hines Interests L.P., including its
$10.0 million upfront Cooley reserve.
As a result, S&P assumed a 90.0% occupancy rate (compared to a
97.0% reported in place occupancy rate), which resulted in an
expected-case value of $800.8 million or $640 per sq. ft.
According to the Dec. 31, 2021, rent roll, the five largest
tenants, excluding Merrill Lynch, are:
-- Chime Financial (15.5% of NRA; $54.67 per sq. ft. in place
rent, as calculated by S&P Global Ratings; October 2032 lease
expiration);
-- Deutsche Bank Securities Inc. (4.8%; $56.60 per sq. ft.;
December 2024);
-- Winston & Strawn LLP (4.2%; $53.00 per sq. ft.; August 2031);
Baker Botts LLP (4.2%; $75.64 per sq. ft.; October 2024); and
-- Morgan Stanley (4.1%; $64.47 per sq. ft.; March 2030).
The property also faces concentrated rollover in 2024 (15.4% of
NRA) and 2032 (17.2%). According to the sponsor, there are no
additional leasing prospects for the current vacant space. S&P's
revised expected-case assumptions and valuation of the property
reflect the following factors:
-- The weakened Financial District office submarket (where the
property is located) fundamentals, stemming from more companies
embracing flexible work arrangements due to the COVID-19 pandemic
or relocating to lower cost areas or states because of rising
business costs in the Bay Area.
-- Known upcoming tenant movements.
-- The Financial District office submarket has some of the city's
iconic buildings, which house many financial institutions. Due to
lower demand, market rent for 4- to 5-star properties in the
submarket declined 11.2% in 2020, 5.7% in 2021, and 1.4% as of
March 2022, according to CoStar. While CoStar projects a 2.3% and
5.6% rent growth in 2022 and 2023, respectively, continued above
average market vacancy rates could hurt rent rates. As of March
2022, asking rent, vacancy rate, and availability rate for 4- to
5-star properties in the submarket were $66.11 per sq. ft., 19.5%,
and 25.4%, respectively. CoStar projects average office submarket
vacancy rate of 20.6% and asking rent of $71.26 per sq. ft. in
2023.
S&P said, "As mentioned above, we assumed an occupancy rate of
78.3% after considering known tenancy movements (compared with a
76.2% occupancy rate as of the December 2021 rent roll) and an
in-place gross rent of $88.29 per sq. ft., which result in an S&P
Global Ratings NCF of $46.9 million. Using an S&P Global Ratings
capitalization rate of 7.00%, we derived an expected-case value of
$671.8 million or $537 per sq. ft."
Transaction Summary
This is a U.S. stand-alone (single-borrower) transaction backed by
a portion of a 10-year, fixed-rate, IO mortgage whole loan. The
loan is secured by the borrower's fee simple interest in a
48-story, 1.25 million-sq.-ft. LEED platinum class A high rise
office tower; a seven-story 200,000-sq.-ft. annex building; and a
two-story subterranean parking garage. The office tower was built
in 1983 and includes 23,000 sq. ft. of ground floor retail space.
The property is located at 101 California Street, in downtown San
Francisco, within the Financial District office submarket.
The IO mortgage whole loan had an initial and current balance of
$755.0 million, pays an annual fixed interest rate of 4.1815%, and
matures on March 6, 2029. The whole loan is split into nine senior
A and two subordinate B notes. The $515.0 million trust balance
(according to the April 12, 2022, trustee remittance report),
comprises the $245.3 million senior note A-1, $41.7 million senior
note A-2, $171.0 million subordinate note B-1, and $57.0 million
subordinate note B-2. The remaining seven senior A notes, which
total $240.0 million, are in four other U.S. CMBS transactions. The
senior A notes are pari passu to each other and senior to the B
notes.
The borrower is permitted to incur up to $130.0 million in
mezzanine debt, subject to certain conditions. Midland confirmed
there are no additional debt. To date, the trust has not incurred
any principal losses. Midland reported a debt service coverage of
1.77x and an occupancy rate of 76.0% as of year-end 2021--a decline
from 1.94x and 88.0%, respectively, as of year-end 2020.
The recent rapid spread of the omicron variant highlights the
inherent uncertainties of the pandemic as well as the importance
and benefits of vaccines. S&P said, "While the risk of new, more
severe variants displacing omicron and evading existing immunity
cannot be ruled out, our current base case assumes that existing
vaccines can continue to provide significant protection against
severe illness. Furthermore, many governments, businesses, and
households around the world are tailoring policies to limit the
adverse economic impact of recurring COVID-19 waves. Consequently,
we do not expect a repeat of the sharp global economic contraction
of second-quarter 2020. Meanwhile, we continue to assess how well
each issuer adapts to new waves in its geography or industry."
Rating Lowered
CALI Mortgage Trust 2019-101C
Class HRR to 'CCC (sf)' from 'B- (sf)'
Ratings Affirmed
CALI Mortgage Trust 2019-101C
Class A: AAA (sf)
Class B: AA- (sf)
Class C: A- (sf)
Class D: BBB- (sf)
Class E: BB- (sf)
Class F: B (sf)
Class X-A: A- (sf)
CHERRYWOOD SB 2016-1: DBRS Hikes Class B2 Certs Rating to BB
------------------------------------------------------------
DBRS Limited upgraded its ratings on five classes of the Commercial
Mortgage Pass-Through Certificates, Series 2016-1 (the
Certificates) issued by Cherrywood SB Commercial Mortgage Loan
Trust 2016-1 (the Trust) as follows:
-- Class M-2 to AAA (sf) from AA (high) (sf)
-- Class M-3 to AA (sf) from BBB (high) (sf)
-- Class M-4 to A (sf) from BBB (high) (sf)
-- Class B-1 to BBB (sf) from BB (sf)
-- Class B-2 to BB (sf) from B (sf)
All trends are Stable.
The rating upgrades reflect the significantly improved credit
support for the transaction as the transaction continues to factor
down and credit issues remain minimal. According to the January
2022 remittance, 42 of the 205 original loans remain in the trust
with an aggregate principal balance of $26.0 million, representing
a collateral reduction of 76.9% since issuance as a result of loan
repayments, scheduled amortization, and loan liquidations. As the
transaction continues to wind down, the trust has become more
concentrated, with the largest 15 loans representing 64.4% of the
trust balance, compared with the previous year’s concentration of
53.8% of the trust balance. All loans remaining in the pool are
amortizing, with an average loan size of approximately $619,000.
Since issuance, 13 loans have been liquidated from the trust, with
only three incurring a realized loss at payoff and a cumulative
loss of $0.5 million; only one of those loans had a loss severity
in excess of 20%. The trust benefits from a high concentration of
multifamily loans, representing 32.3% of the trust balance, and
also a lack of exposure to hotel property types, which are
generally more volatile and have been particularly stressed amid
the Coronavirus Disease (COVID-19) pandemic. There are noteworthy
risks for the pool in that the loan sponsors are generally less
sophisticated operators of commercial real estate with limited real
estate portfolios and experience. These risks are partially
mitigated by borrower or guarantor recourse, regardless of credit
history. DBRS Morningstar assigned a Bad (Litigious), Weak, or
Average sponsor strength to all loans in the pool to reflect the
relative inexperience of the loan sponsors.
As of the January 2022 remittance, there were eight loans,
representing 29.0% of the trust balance, with the special servicer.
Three of those loans, representing 13.2% of the trust balance, were
either in the foreclosure process or had plans to sell as part of
the workout strategy, while four of the loans, representing 13.4%
of the trust balance, were on active repayment plans to bring the
loans current. DBRS Morningstar applied a probability of default
penalty to the loans in the analysis for this review given their
delinquency, significantly increasing the expected loss for each.
DBRS Morningstar notes that ongoing property financials are not
provided as part of the surveillance reviews.
Notes: All figures are in U.S. dollars unless otherwise noted.
CHNGE MORTGAGE 2022-2: DBRS Finalizes B Rating on Class B2 Certs
----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Mortgage Pass-Through Certificates, Series 2022-2 (the
Certificates) issued by CHNGE Mortgage Trust 2022-2 (CHNGE 2022-2
or the Trust):
-- $275.5 million Class A-1 at A (sf)
-- $19.2 million Class M-1 at BBB (sf)
-- $18.3 million Class B-1 at BB (sf)
-- $15.4 million Class B-2 at B (sf)
The A (sf) rating on the Class A-1 Certificates reflects 20.20% of
credit enhancement provided by subordinated Certificates. The BBB
(sf), BB (sf), and B (sf) ratings reflect 14.65%, 9.35%, and 4.90%
of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This is a securitization of a portfolio of fixed- and
adjustable-rate expanded prime first-lien residential mortgages
funded by the issuance of the Certificates. The Certificates are
backed by 606 mortgage loans with a total principal balance of
$345,289,846 as of the Cut-Off Date (February 1, 2022).
CHNGE 2022-2 represents the second securitization issued by the
Sponsor, Change Lending, LLC (Change). All the loans in the pool
were originated by Change, which is certified by the U.S.
Department of the Treasury as a Community Development Financial
Institution (CDFI). As a CDFI, Change is required to lend at least
60% of its production to certain target markets, which include
low-income borrowers or other underserved communities.
While loans originated by a CDFI are not required to comply with
the Consumer Financial Protection Bureau's Qualified Mortgage and
Ability-to-Repay rules, the mortgages included in this pool were
made to generally creditworthy borrowers with near-prime credit
scores, low loan-to-value ratios (LTVs), and robust reserves.
The loans in the pool were underwritten through Change's Community
Mortgage (90.5%) and E-Z Prime (9.5%) programs, both of which are
considered weaker than other origination programs because income
documentation verification is not required. Generally, underwriting
practices of these programs focus on borrower credit, borrower
equity contribution, housing payment history, and liquid reserves
relative to monthly mortgage payments. Because post-2008 crisis
historical performance is limited on these products, DBRS
Morningstar applied additional assumptions to increase the expected
losses for the loans in its analysis.
On or after the earlier of (1) the distribution date occurring in
February 2025 and (2) the date on which the aggregate stated
principal balance of the loans falls to 30% or less of the Cut-Off
Date balance, at its option, the Depositor may redeem all of the
outstanding certificates at the redemption price (par plus
interest). Such optional redemption may be followed by a qualified
liquidation, which requires (1) a complete liquidation of assets
within the Trust and (2) proceeds to be distributed to the
appropriate holders of regular or residual interests.
The Sponsor will have the option, but not the obligation, to
repurchase any mortgage loan that becomes 90 or more days
delinquent (not related to a Coronavirus Disease (COVID-19)
forbearance) under the Mortgage Bankers Association method at par
plus interest, provided that such purchases in aggregate do not
exceed 7.5% of the total principal balance as of the Cut-Off Date.
Change serves as the Servicer for the transaction, and LoanCare,
LLC is the Subservicer. The Servicer will fund advances of
delinquent principal and interest (P&I) on any mortgage until such
loan becomes 90 days delinquent, contingent upon recoverability
determination. The Servicer is also obligated to make advances in
respect of taxes, insurance premiums, and reasonable costs incurred
in the course of servicing and disposing of properties.
This transaction employs a sequential-pay cash flow structure.
Principal proceeds can be used to cover interest shortfalls on
certificates, but such shortfalls on the Class M-1 Certificates and
more subordinate bonds will not be paid from principal proceeds
until the more senior classes are retired. Furthermore, excess
spread can be used to cover realized losses and prior period bond
writedown amounts first before being allocated to unpaid cap
carryover amounts to Class A-1 down to Class M-1.
Under the U.S. Risk Retention Rules, CDFI loans fall within the
definition of community-focused residential mortgages. A
securitization transaction containing only community-focused
residential mortgages is exempt under the U.S. Risk Retention Rules
and, accordingly, the Sponsor will not be required to retain any
credit risk under Section 15G of the Securities Exchange Act of
1934 and the regulations promulgated thereunder. Notwithstanding
the exemption, Change has elected to retain the Class B-3, A-IO-S,
and XS Certificates.
Coronavirus Pandemic Impact
The coronavirus pandemic and the resulting isolation measures have
caused an immediate economic contraction, leading to sharp
increases in unemployment rates and income reductions for many
consumers. Shortly after the onset of the pandemic, DBRS
Morningstar saw an increase in delinquencies for many residential
mortgage-backed securities (RMBS) asset classes.
Such mortgage delinquencies were mostly in the form of
forbearances, which are generally short-term periods of payment
relief that may perform very differently from traditional
delinquencies. At the onset of the pandemic, the option to forbear
mortgage payments was widely available, driving forbearances to an
elevated level. When the dust settled, loans with
coronavirus-induced forbearance in 2020 performed better than
expected, thanks to government aid, low LTVs, and acceptable
underwriting in the mortgage market in general. Across nearly all
RMBS asset classes, delinquencies have been gradually trending
downward, as forbearance periods come to an end for many
borrowers.
As of the Cut-Off Date, there are no loans that are subject to an
active coronavirus-related forbearance
plan with the Servicer or Subservicer.
Notes: All figures are in U.S. dollars unless otherwise noted.
CITIGROUP COMMERCIAL 2015-GC33: Fitch Affirms B- Rating on F Certs
------------------------------------------------------------------
Fitch Ratings has affirmed 12 classes of Citigroup Commercial
Mortgage Trust (CGCMT) 2015-GC33 commercial mortgage pass-through
certificates, and revised four Outlooks to Stable from Negative.
DEBT RATING PRIOR
---- ------ -----
CGCMT 2015-GC33
A-3 29425AAC7 LT AAAsf Affirmed AAAsf
A-4 29425AAD5 LT AAAsf Affirmed AAAsf
A-AB 29425AAE3 LT AAAsf Affirmed AAAsf
A-S 29425AAF0 LT AAAsf Affirmed AAAsf
B 29425AAG8 LT AA-sf Affirmed AA-sf
C 29425AAH6 LT A-sf Affirmed A-sf
D 29425AAJ2 LT BBB-sf Affirmed BBB-sf
E 29425AAP8 LT BB-sf Affirmed BB-sf
F 29425AAR4 LT B-sf Affirmed B-sf
PEZ 29425AAN3 LT A-sf Affirmed A-sf
X-A 29425AAK9 LT AAAsf Affirmed AAAsf
X-D 29425AAM5 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Improved Loss Expectations: Fitch's base case loss expectation has
declined since Fitch's prior rating action. Fitch's current ratings
incorporate a base case loss of 5.2%, in line with issuance
expectations. Fitch has identified 14 Fitch Loans of Concern
(FLOCs) (14.2% of the pool balance), including two (2.1%) specially
serviced loans.
Performance has stabilized for the majority of properties impacted
by the pandemic. FLOCs have declined from 19.9% of the pool at the
last rating action, and no additional sensitivity scenarios were
applied. The Outlook revisions to Stable from Negative reflect the
overall performance stabilization.
Largest Contributor to loss is the Illinois Center (11% of the
pool), which is secured by two adjoining 32-story office towers
located in the East Loop submarket of the Chicago CBD. 111 East
Wacker, which totals 1.02 million sf, was built in 1969 and last
renovated in 2014; and 233 North Michigan Avenue, which totals 1.07
million sf, was built in 1972 and last renovated in 2014.
Annualized September 2021 NOI DSCR was 1.24x, compared to 1.61x at
YE 2020 and 2.19x at YE 2019.
Per the YE 2021 rent roll, the property was 61% leased compared to
67% as of YE 2020, and 72.3% at issuance. Approximately 1.3% of the
NRA is scheduled to roll in 2022 and 20.9% in 2023. Fitch's
analysis included a 10% stress to the YE 2020 NOI to reflect the
drop in occupancy and upcoming rollover; the modeled loss was
8.1%.
The next largest contributor to loss is the specially serviced
Houston Hotel Portfolio (1.4%), which is secured by two limited
service hotels: The Holiday Inn Express West Road in Houston, TX
and The Hampton Inn in Port Arthur, TX. The loan transferred to
special servicing in July 2020 due to payment default. The property
NOI DSCR declined to -.15x compared to 1.14x at YE 2019 and 2.20x
at YE 2018. The collateral became REO in September 2021, and the
properties were expected to be included in a March 2022 auction.
Fitch's expected loss of 45% is based on a discount to the August
2021 appraisal and reflects a $55,000 value per key.
The third largest contributor to expected loss is The Decoration &
Design Building loan (7.3%), which is secured by the leasehold
interest in an office/design center property in Midtown Manhattan.
The loan became 60 days delinquent in June 2020, due to the
borrower experiencing pandemic-related hardships, but was brought
current by the sponsor in November 2020; the loan remains current.
The YE 2020 NOI declined 9.2% from YE 2019 due primarily to lower
rental revenue from the decline in occupancy. The property was
81.1% occupied as of September 2021, down from 82.6% at December
2020, 87% in December 2019 and 92.9% in December 2018. Based on the
September 2021 rent roll, lease rollover includes 9.3% in 2022,
11.3% in 2023, and 19.3% in 2024.
The property is also subject to a ground lease that expires in
December 2023, with two extension options for 25 and then 15 years.
The ground rent resets in January 2024 to the greater of the prior
year's payment or 6% of the unencumbered land value. Based on the
appraiser's estimate of unencumbered land value at issuance, the
ground lease payment is expected to increase to $13.8 million upon
reset from its current amount of $3.825 million. Fitch applied a
11.5% cap rate to YE 2020 NOI to reflect the upcoming round rent
reset, as well as to account for the recent occupancy decline and
upcoming lease rollover resulting in an approximate 8% loss.
Largest decline in loss since the prior review is the Hammons Hotel
Portfolio (10.5%), which is secured by fee and leasehold interests,
seven full service, limited service, and extended stay hotels
located in seven distinct markets in seven states. All the
properties contain either a Hilton or Marriott flag, consisting of
four Embassy Suites, a Courtyard by Marriott, a Residence Inn by
Marriott and a Renaissance Hotel. The loan was with the special
servicer at the previous review and transferred back to the master
servicer in August 2021.
The NOI DSCR has improved to 1.52x at YE 2021 from .72x at YE 2020,
but remains below YE 2019 at 2.09x and issuance level (1.94x).
Occupancy has increased to 56% at YE 2021 from 37% at YE 2020, but
below issuance occupancy of 75%.
Credit Enhancement Slightly Improved: As of the April 2022
distribution date, the pool's aggregate principal balance paid down
by 7.7% to $882.7 million from $958.5 million at issuance. Since
issuance, three loans prepaid early ($26.2 million combined at
issuance). Five loans (14.5%) are full-term interest only. Five
loans have defeased (7.1% of the pool). No loan is scheduled to
mature prior to 2025.
Diverse Property Types: The pool has a diverse mix of property
types, with office as the largest at 28.3%, followed by retail at
23.2%, hotel at 21.3%, and multifamily at 12.3%. Three of the top
four loans (25.1%) are office properties. Overall, the office
properties have a diverse mix of geographic locations, including
both CBD and suburban markets.
Pari Passu Loans: Four loans comprising 33% of the pool are part of
a pari passu loan combination: Illinois Center (11%), Hammons Hotel
Portfolio (10.5%), The Decoration & Design Building (7.3%), and
Somerset Park Apartments (4.1%).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades would occur with an increase in pool-level losses
from underperforming or specially serviced loans/assets.
Downgrades to classes A-1 through B and X-A are not likely due
to the high CE and continued amortization, but may occur
should interest shortfalls affect these classes or with a
significant deterioration in pool performance.
-- Downgrades to classes C, PEZ, D, and X-D are possible should
expected losses for the pool increase significantly.
Downgrades to classes E and F would occur if performance of
the FLOCs, or loans susceptible to the coronavirus pandemic,
do not stabilize and/or additional loans default and/or
transfer to special servicing.
-- Fitch has identified both a baseline and a worse-than-
expected, adverse stagflation scenario based on fallout from
the Russia-Ukraine war whereby growth is sharply lower amid
higher inflation and interest rates; even if the adverse
scenario should play out, Fitch expects virtually no impact on
ratings performance, indicating very few rating or Outlook
changes. However, for some transactions with concentrations in
underperforming retail exposure, the ratings impact may be
mild to modest, indicating some changes on sub-investment
grade notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades would occur with stable to improved asset
performance, particularly on the FLOCs, coupled with
additional paydown and/or defeasance. Upgrades to classes B,
C, and PEZ may occur with significant improvement in CE and/or
defeasance and with the stabilization of performance on the
FLOCs and/or the properties affected by the coronavirus
pandemic; however, adverse selection and increased
concentrations could cause this trend to reverse. Upgrades to
class D and X-D would also consider these factors, but would
be limited based on sensitivity to concentrations or the
potential for future concentration. Classes would not be
upgraded above 'Asf' if interest shortfalls are likely.
-- Upgrades to classes E and F are not likely until the later
years in the transaction and only if the performance of the
remaining pool is stable and/or properties vulnerable to the
coronavirus return to pre-pandemic levels, and there is
sufficient CE.
Deutsche Bank is the trustee for the transaction and also serves as
the backup advancing agent. Deutsche Bank's Issuer Default Rating
is 'BBB+'/Positive/'F2'. Fitch relies on the master servicer, Wells
Fargo & Company (A+/Negative/F1), which is currently the primary
advancing agent, as a direct counterparty.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
COLT 2022-4: Fitch Rates Class B-2 Certs 'Bsf'
----------------------------------------------
Fitch Ratings has assigned final ratings to the residential
mortgage-backed certificates to be issued by COLT 2022-4 Mortgage
Loan Trust (COLT 2022-4).
DEBT RATING PRIOR
---- ------ -----
COLT 2022-4
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAsf New Rating AA(EXP)sf
A-3 LT Asf New Rating A(EXP)sf
M-1 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT Bsf New Rating B(EXP)sf
B-3 LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
X LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The certificates are supported by 722 loans with a total balance of
approximately $335 million as of the cutoff date. Loans in the pool
were originated by multiple originators and aggregated by Hudson
Americas L.P. All loans, except one serviced by Northpointe, are
currently serviced by Select Portfolio Servicing, Inc. (SPS).
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, Fitch views the home price values
of this pool as 8.7% below a long-term sustainable level (versus
9.2% on a national level as of April 2022, down 1.4% since last
quarter). Underlying fundamentals are not keeping pace with the
growth in prices, resulting from a supply/demand imbalance driven
by low inventory, favorable mortgage rates, and new buyers entering
the market. These trends have led to significant home price
increases over the past year, with home prices rising 18.2% yoy
nationally as of December 2021.
Non-QM Credit Quality (Negative): The collateral consists of 722
loans, totaling $335 million and seasoned approximately five months
in aggregate (calculated as the difference between origination date
and cutoff date). The borrowers have a moderate credit profile with
a 727 model FICO and 44% model debt to income ratio (DTI) and
leverage of 77% sustainable loan to value ratio (sLTV) and 71.5%
combined LTV (cLTV). The pool consists of 45.9% of loans where the
borrower maintains a primary residence, while 49.6% comprise an
investor property. Additionally, 50.4% are non-qualified mortgages
(non-QM), and the QM rule does not apply to the remainder.
Fitch's expected loss in the 'AAAsf' stress is 26%. This is mostly
driven by the non-QM collateral and the significant investor cash
flow product concentration.
Loan Documentation (Negative): Approximately 87.8% of the loans in
the pool were underwritten to less than full documentation, and 39%
were underwritten to a 12- or 24-month bank statement program for
verifying income, which is not consistent with Appendix Q standards
and Fitch's view of a full documentation program. A key distinction
between this pool and legacy Alt-A loans is that these loans adhere
to underwriting and documentation standards required under the
Consumer Financial Protections Bureau's (CFPB) Ability to Repay
(ATR) Rule (ATR Rule, or the Rule), which reduces the risk of
borrower default arising from lack of affordability,
misrepresentation or other operational quality risks due to rigor
of the Rule's mandates with respect to the underwriting and
documentation of the borrower's ATR.
Fitch's treatment of alternative loan documentation increased the
'AAAsf' expected loss by 661bps relative to a fully documented
loan.
High Percentage of DSCR Loans (Negative): There are 497 DSCR
product loans in the pool (69% by loan count). These loans are
available to real estate investors that are qualified on a cash
flow basis, rather than DTI, and borrower income and employment are
not verified. For DSCR loans, Fitch converts the DSCR values to a
DTI and treats as low documentation.
Fitch's expected loss for these loans is 36% in the 'AAAsf' stress,
which is driving the higher pool expected losses due to the 46%
concentration.
Modified Sequential-Payment Structure with Limited Advancing
(Mixed): The structure distributes principal pro rata among the
senior certificates while shutting out the subordinate bonds from
principal until all senior classes are reduced to zero. If a
cumulative loss trigger event, delinquency trigger event or credit
enhancement (CE) trigger event occurs in a given period, principal
will be distributed sequentially to class A-1, A-2 and A-3
certificates until they are reduced to zero.
Advances of delinquent principal and interest (P&I) will be made on
the mortgage loans for the first 180 days of delinquency, to the
extent such advances are deemed recoverable. If the P&I advancing
party fails to make a required advance, the master servicer and
then the securities administrator will be obligated to make such
advance.
The limited advancing reduces loss severities, as a lower amount is
repaid to the servicer when a loan liquidates and liquidation
proceeds are prioritized to cover principal repayment over accrued
but unpaid interest. The additional stress on the structure is a
downside to this, as liquidity is limited in the event of large and
extended delinquencies.
COLT 2022-4 has a step-up coupon for class A-1. After April 2026,
class A-1 pays the lesser of a 100-bp increase to the fixed A-1
coupon or the net weighted average coupon (WAC) rate. Fitch expects
class A-1 to be capped by the net WAC. Additionally, after the
step-up date, the unrated class B-3 interest allocation goes toward
the class A-1 interest for as long as class A-1 is outstanding.
This increases the P&I allocation for the A-1 class. Due to the
limited difference between the A-1 coupon and the net WAC, Fitch
expects this to be an immaterial increase.
Excess Cash Flow (Neutral): The transaction benefits from limited
excess cash flow to benefit the rated certificates before being
paid out to class X certificates.
The excess is available to pay timely interest and protect against
realized losses. To the extent the collateral WAC and corresponding
excess are reduced through a rate modification, Fitch would view
the impact as credit-neutral, as the modification would reduce the
borrower's probability of default, resulting in a lower loss
expectation.
As a sensitivity to Fitch's rating stresses, Fitch took into
account a WAC deterioration that varied by rating stress. The WAC
cut was derived by assuming a 2.5% cut (based on the most common
historical modification rate) on 40% (historical Alt-A modification
percentage) of the performing loans. Although the WAC reduction
stress is based on historical modification rates, Fitch did not
include the WAC reduction stress in its testing of the delinquency
trigger.
Fitch viewed the WAC deterioration as more of a pre-emptive cut
given the ongoing macroeconomic and regulatory environment. A
portion of borrowers will likely be affected, but will not
ultimately default due to modifications and reduced P&I.
Furthermore, this approach had the largest impact on the
back-loaded benchmark scenario.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Fitch's incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. Sensitivity analysis was conducted at the
state and national level to assess the effect of higher MVDs for
the subject pool as well as lower MVDs, illustrated by a gain in
home prices.
The defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the
model projected 41.6% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Fitch's incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper MVDs than assumed at the MSA level.
Sensitivity analysis was conducted at the state and national level
to assess the effect of higher MVDs for the subject pool as well as
lower MVDs, illustrated by a gain in home prices.
The defined positive rating sensitivity analysis demonstrates how
the ratings would react to positive home price growth of 10% with
no assumed overvaluation. Excluding the senior class, which is
already rated 'AAAsf', the analysis indicates there is potential
positive rating migration for all of the rated classes.
Specifically, a 10% gain in home prices would result in a full
category upgrade for the rated class excluding those assigned
ratings of 'AAAsf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
SUMMARY OF FINANCIAL ADJUSTMENTS
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by AMC, Clayton, Consolidated Analytics, Edgemac, Evolve,
Infinity, Opus and Selene. The third-party due diligence described
in Form 15E focused on credit, compliance and property valuation
review. Fitch considered this information in its analysis and, as a
result, Fitch made the following adjustment to its analysis: a 5%
credit at the loan level for each loan where satisfactory due
diligence was completed. The adjustment resulted in a 41bps
reduction to the'AAAsf' expected loss.
DATA ADEQUACY
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. The loan-level
information Fitch received was provided in the American
Securitization Forum's data layout format.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
COMM 2013-CCRE10: DBRS Confirms B Rating on Class F Certs
---------------------------------------------------------
DBRS Limited confirmed the ratings on all classes of the Commercial
Mortgage Pass-Through Certificates, Series 2013-CCRE10 issued by
COMM 2013-CCRE10 Mortgage Trust as follows:
-- Class A-3 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
DBRS Morningstar changed the trend on Class D to Stable from
Negative. Classes E and F continue to carry Negative trends. All
other trends are Stable.
The rating confirmations reflect the overall stable performance of
the pool since issuance. According to the February 2022 remittance,
45 of the original 59 loans remain in the pool with a total trust
balance of $675.2 million, representing a collateral reduction of
33.2% since issuance. Since the last rating action, two loans, with
a cumulative original balance of $108.1 million, were repaid in
full. There are no loans in special servicing, and no loans are
delinquent. Sixteen loans are fully defeased, representing 43.0% of
the pool balance, including the largest loan in the pool, One
Wilshire (Prospectus ID#1, 14.8% of the pool balance), which
defeased with the February 2022 remittance. The increased credit
support as a result of collateral reduction from the last rating
action, and the recent defeasance of the largest loan supports the
trend change on Class D to Stable.
The Negative trends on Classes E and F remain in place because of
the ongoing concerns with loans on the servicer's watchlist. There
are 12 loans on the servicer's watchlist, representing 30.8% of the
pool balance. The largest loan on the servicer's watchlist is
Prince Kuhio Plaza (Prospectus ID#6, 5.5% of the pool). The loan is
secured by a regional mall in Hilo, Hawaii, on the northeast coast
of the Big Island. The collateral anchor tenant Sears (16.4% of the
net rentable area) vacated in April 2021, ahead of its December
2021 lease expiration. As a result, physical occupancy declined to
72.1%. Despite Sears' departure, cash management has not been
triggered as the debt service coverage ratio (DSCR) remains above
1.60 times (x). The DSCR for the trailing nine-month period ended
September 30, 2021, was 2.20x, and is expected to decline to 2.0x
when accounting for the loss of Sears. The borrower is actively
marketing the Sears space and has been able to backfill large
vacancies in the past. Given the decline in occupancy and increased
risk from issuance, DBRS Morningstar's analysis for this loan
includes an elevated probability of default (POD).
The General Motors Innovation Center loan (Prospectus ID#8, 4.4% of
the pool) is secured by an office property in Austin, Texas, and is
on the servicer's watchlist for a decline in occupancy. At
issuance, the property was occupied by a single tenant, General
Motors (GM), which consolidated its operations at a nearby property
and vacated the subject in 2020. In September 2021, GM took back
approximately 176,000 square feet of space at the subject on a
lease through December 2026, thereby increasing the occupancy rate
to 55.1%. Backfilling the remaining space may be challenging based
on increasing submarket vacancy in recent years; however, this is
mitigated by a letter of credit of $7.6 million that was posted in
lieu of a cash flow sweep tied to the departure of GM. To reflect
concerns with the property's vacancy, DBRS Morningstar's analysis
for this loan included a POD penalty.
Notes: All figures are in U.S. dollars unless otherwise noted.
COMM 2013-CCRE11: DBRS Confirms B Rating on Class F Certs
---------------------------------------------------------
DBRS Limited confirmed all ratings on the classes of the Commercial
Mortgage Pass-Through Certificates, Series 2013-CCRE11 issued by
COMM 2013-CCRE11 Mortgage Trust as follows:
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class X-C at B (high) (sf)
-- Class F at B (sf)
All trends are Stable.
Performance has generally been in line with DBRS Morningstar's
expectations at issuance, with the February 2022 remittance showing
one small loan in special servicing and collateral reduction of
14.1% since the transaction closed, supporting the rating
confirmations with this review. The pool also benefits from
significant defeasance, with 18 loans representing 44.1% of the
current pool balance, showing defeased as of the February 2022
remittance. DBRS Morningstar notes that one loan, One Wilshire
(Prospectus ID#6, 7.3% of the pool) has a pari passu loan piece
secured in the COMM 2013-CCRE10 transaction, which is also rated by
DBRS Morningstar. The February 2022 remittance for that transaction
showed the One Wilshire loan had been defeased. DBRS Morningstar
expects the piece in the subject transaction to reflect the same
with the March 2022 remittance. As the servicer has confirmed the
defeasance closed, and the companion loan was reported defeased,
DBRS Morningstar assumed a defeasance scenario for the loan in the
analysis for this review.
The Miracle Mile Shops (Prospectus ID#1, 12.6% of the pool) is the
largest loan in the pool and is secured by a super-regional mall in
Las Vegas. The loan is on the servicer's watchlist because of a
decline in net cash flow, with the trailing nine month ended
September 31, 2021, debt service coverage ratio (DSCR) reported at
1.09 times (x), compared with the DBRS Morningstar DSCR at issuance
of 1.15x. Cash flow disruptions have been attributed to rent
abatements granted during the Coronavirus Disease (COVID-19)
pandemic. The servicer previously approved a loan modification to
allow for a deferral of principal payments for a seven-month
period, which has since expired with all deferred amounts repaid in
full. The loan is cash managed, and the servicer reported a cash
reserve balance of $5.4 million as of January 2022.
The Oglethorpe Mall loan (Prospectus ID#5, 7.7% of the pool) is
secured by a 627,000-square foot (sf) portion of a 943,000 sf
regional mall in Savannah, Georgia. The loan has been on the DBRS
Morningstar hotlist since the departure of the noncollateral Sears
in 2018, and the loan is being monitored on the servicer's
watchlist for the same reason. The loan sponsor is Brookfield
Property Partners, and the mall is anchored by a noncollateral
Belk, a collateral Macy’s (21.5% of the net rentable area (NRA);
lease expires in February 2023), and JCPenney (13.7% of the NRA;
lease expires in July 2022). The servicer confirmed that Macy's
exercised its five-year extension option with a new lease
expiration of February 2028; the servicer reports the sponsor
expects a renewal for JCPenney, but nothing has been finalized to
date.
The dark Sears box is owned by Seritage Growth Properties
(Seritage), and the plan is to redevelop the space into a
multifamily complex. Seritage is working with the city to rezone
the site for residential development. A DBRS Morningstar analyst
visited the property in September 2021 and found the overall
condition to be Average, with the property's location within a
well-trafficked commercial corridor, which suggested an apartment
development would be attractive to potential renters living in the
area. The mall is a mix of inline- and external-entry stores and
restaurants and was relatively busy during the visit on a Friday
afternoon. This loan is scheduled to mature in July 2023, and
although there have been developments since issuance that suggest
increased risks for this loan on the departure of Sears and the
decline in general performance of all three department store
anchors that remain, DBRS Morningstar notes the subject property is
generally well positioned as the only regional mall within a
relatively large trade area. Prior to the pandemic, property
revenues were largely consistent with the figures at issuance,
suggesting any value decline since the loan's closing should be
moderate. Given the upcoming maturity and the dark anchor box, the
loan was analyzed with a probability of default penalty to increase
the expected loss for this review.
At issuance, the One Wilshire loan was shadow-rated investment
grade. With this review, the loan was analyzed with a defeasance
scenario that assumed a principal paydown equal to the loan balance
in accordance with the waterfall structure, as previously
discussed.
Notes: All figures are in U.S. dollars unless otherwise noted.
COMM 2014-CCRE19: Fitch Affirms BB Rating on Class E Debt
---------------------------------------------------------
Fitch Ratings has upgraded four and affirmed seven classes of COMM
2014-CCRE19 Mortgage Trust. The Rating Outlooks for two classes
have been revised to Positive, and one class has been revised to
Stable from Negative. All other classes remain Stable.
DEBT RATING PRIOR
---- ------ -----
COMM 2014-CCRE19
A-4 12592GBC6 LT AAAsf Affirmed AAAsf
A-5 12592GBD4 LT AAAsf Affirmed AAAsf
A-M 12592GBF9 LT AAAsf Affirmed AAAsf
A-SB 12592GBB8 LT AAAsf Affirmed AAAsf
B 12592GBG7 LT AAsf Upgrade AA-sf
C 12592GBJ1 LT Asf Upgrade A-sf
D 12592GAG8 LT BBB-sf Affirmed BBB-sf
E 12592GAJ2 LT BBsf Affirmed BBsf
PEZ 12592GBH5 LT Asf Upgrade A-sf
X-A 12592GBE2 LT AAAsf Affirmed AAAsf
X-B 12592GAA1 LT AAsf Upgrade AA-sf
KEY RATING DRIVERS
Improved Loss Expectations: Overall pool performance remains stable
and loss expectations have improved slightly from the prior review
and from issuance. Fitch has identified seven Fitch Loans of
Concerns (19.5% of the pool balance) which includes one loan (6.6%)
in special servicing.
Fitch's current ratings incorporate a base case loss of 3.6%. An
additional sensitivity was incorporated with losses that could
reach 6.4% when factoring in additional stresses for the
Bridgepoint Tower and the Cipriani Manhattan Portfolio loans to
reflect ongoing performance issues. The additional sensitivity
losses did not affect the overall stabilization of pool performance
and revision of Outlooks.
Fitch Loans of Concern: The largest loan, Bridgepoint Tower, which
is secured by a 273,764-sf LEED-certified office property located
in San Diego, CA, was flagged as a FLOC due to the single tenant
vacating the property. The loan has remained current for the life
of the loan. The December 2021 rent roll reflects pre-leases for
three tenants that would increase occupancy to 36.1% from 9% as of
June 2021.
The loan was structured with a rollover reserve at issuance, as
well as a cash flow sweep since the tenant did not exercise renewal
within 10 months of lease expiration. As of April 2022, the
rollover reserve had a balance of $2.6 million.
Fitch's analysis incorporates a 50% stress to YE 2019 NOI which is
in-line with a dark value analysis assuming a 12-month lease-up of
the building to market rental rates and vacancy with associated
carry and re-tenanting costs. Fitch also applied a potential
outsized loss of 15% as an additional sensitivity (implying a
stressed value of $214 psf) given the slow leasing velocity and
uncertain office sector environment.
The largest specially serviced loan, Cipriani Manhattan Portfolio
(6.4%), which is secured by two commercial condominium interests
located at 55 Wall Street (81,145 sf) and 110 East 42nd Street
(71,308 sf) in Manhattan, NY, transferred to special servicing in
July 2020 due to imminent default. Both banquet halls, which are
owner occupied and derive the majority of their income from hosting
banquets and events, have incurred significant loss of revenue due
to business restrictions and event cancellations through 2020 and
2021 as a result of the pandemic. According to the servicer, the
banquet halls have reopened and are operating. The special servicer
is pursuing a dual path strategy of pursuing foreclosure while
continuing discussions with the borrower. A possible note sale
strategy is also being evaluated.
The most recent servicer-provided opinions of value exceed the
outstanding loan amount. Fitch's analysis reflects minimal losses
to account for servicing fees. Fitch also performed an additional
sensitivity which applied a potential outsized loss of 25% given
concerns with the sponsor's ability to restart business operations
after the pandemic and specialized nature of the property.
Increasing Credit Enhancement (CE): CE has increased since issuance
due to amortization and loan repayments, with 31.95% of the
original pool balance repaid. The transaction has incurred $3.40
million in realized losses to date impacting the non-rated H class.
Additionally, 20.8% of the pool has been defeased. Interest
shortfalls are currently affecting the non-rated class H. Three
loans (9.5%) are full-term IO and the remaining 52 loans in the
pool (90.5%) are amortizing.
Alternative Loss Consideration: Fitch applied additional
sensitivity scenarios on the Bridgepoint Tower and Cipriani
Manhattan Portfolio loans to reflect challenges to stabilization
and potential for outsized losses. The additional sensitivity
losses did not affect the overall stabilization of pool performance
and revision of Outlooks.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Downgrades would occur with an increase in pool level losses from
underperforming or specially serviced loans. Downgrades to the
'AAsf' and 'AAAsf' categories are not likely due to the position in
the capital structure but may occur should interest shortfalls
affect the classes.
Downgrades to the 'BBB-sf' and Asf' category would occur should
overall pool losses increase significantly and/or one or more large
loans have an outsized loss, which would erode CE. Downgrades to
the 'BBsf' category would occur should loss expectations increase
and if performance of the FLOCs fail to stabilize or loans default
and/or transfer to the special servicer.
Fitch has identified both a baseline and a worse-than-expected,
adverse stagflation scenario based on fallout from the
Russia-Ukraine war whereby growth is sharply lower amid higher
inflation and interest rates; even if the adverse scenario should
play out, Fitch expects virtually no impact on ratings performance,
indicating very few rating or Outlook changes. However, for some
transactions with concentrations in underperforming retail
exposure, the ratings impact may be mild to modest, indicating some
changes on sub-investment grade notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Factors that could lead to upgrades would include stable to
improved asset performance coupled with pay down and/or defeasance.
Upgrades of the 'Asf' and 'AAsf' categories would likely occur with
significant improvement in CE and/or defeasance; however, adverse
selection, increased concentrations and further underperformance of
the FLOCs could cause this trend to reverse.
Upgrades to the 'BBB-sf' category would be limited based on
sensitivity to concentrations or the potential for future
concentration. Classes would not be upgraded above 'Asf' if there
is likelihood for interest shortfalls. Upgrades to 'BBsf' class are
not likely until the later years in a transaction and only if the
performance of the remaining pool is stable and there is sufficient
CE to the classes.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
COMM 2014-UBS3: DBRS Lowers Class G Certs Rating to C
-----------------------------------------------------
DBRS Limited downgraded its ratings on three classes of the
Commercial Mortgage Pass-Through Certificates, Series 2014-UBS3
issued by COMM 2014-UBS3 Mortgage Trust (the Trust) as follows:
-- Class E to BB (sf) from BB (high) (sf)
-- Class F to CCC (sf) from BB (sf)
-- Class G to C (sf) from B (low) (sf)
In addition, DBRS Morningstar confirmed its ratings on the
remaining classes as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class D at BBB (low) (sf)
DBRS Morningstar discontinued its ratings on Classes X-C and X-D as
they now reference CCC (sf) and C (sf) rated classes. The trend on
Class E was changed to Negative from Stable as a reflection of
continued concerns surrounding the largest loans in special
servicing and on the servicer's watchlist, as further described
below. All remaining classes carry a Stable trend with the
exception of Classes F and G, which now have ratings that do not
carry trends.
The rating downgrades and Negative trend reflect the decline in
performance for two large loans in the transaction since last
review. These loans, 1100 Superior Avenue (Prospectus ID#6, 5.6% of
the current pool) and Equitable Plaza (Prospectus ID#3, 10.8% of
the pool), are further discussed below.
As of the February 2022 remittance, 41 of the original 49 loans
remain in the trust, resulting in a collateral reduction of 19.9%
since issuance. Defeased loans represent 14.0% of the pool balance.
There have been two loans resolved with a loss since issuance, with
the combined $15.5 million loss contained to the unrated Class H
certificate, which had a remaining balance of $24.1 million as of
the February 2022 reporting period. Three loans, representing 6.7%
of the current pool balance, are in special servicing, and five
loans, representing 14.8% of the current pool balance, are on the
servicer's watchlist.
The largest loan in special servicing, 1100 Superior Avenue, is
secured by a 576,766-square-foot (sf) office property in Cleveland,
Ohio. The loan transferred to special servicing in June 2021 as a
result of imminent monetary default, and the servicer is currently
noting the workout strategy as foreclosure, with the borrower
reportedly requesting to turn the property over to the trust. Per
the servicer commentary, the borrower has advised they are unable
to fund the capital costs expected to be incurred over the
remaining loan term given the high concentration of scheduled lease
expiries for the property. At the time of the last DBRS Morningstar
rating action for this deal, in March 2021, the subject loan was
reported current and with the master servicer. The year-end (YE)
2019 and YE2020 debt service coverage ratio (DSCR) figures were
down from issuance, at 1.19 times (x) and 1.38x, respectively, but
occupancy was in line with issuance figures and the loan was not
showing any sign of distress at that time. Tenancy is fairly
granular, with the largest tenant in place for 17.5% of the net
rentable area (NRA) and on a lease that expires in 2025.
The loan was last paid in May 2021 and outstanding advances
exceeded $3.0 million as of February 2022. A receiver is in place
and the most recently reported financials, dated Q1 2021, showed
the DSCR at 1.27x. The most recent appraisal reported by the
servicer, dated August 2021, valued the property at $32.1 million,
down 54% from the appraised value of $70.0 million at issuance.
Based on the updated appraised value, DBRS Morningstar liquidated
this asset from the pool in the analysis for this review, with a
loss of approximately $28 million. That figure would take out the
remainder of the unrated Class H certificate and send losses into
the Class G certificate, supporting the downgrade to C (sf) for
that class.
The largest loan on the servicer's watchlist, Equitable Plaza, is
secured by a 688,291-sf office property in Los Angeles, California.
The loan was placed on the servicer's watchlist in October 2021 for
occupancy-related issues. At YE2019, occupancy was reported at 79%,
which increased slightly to 82% at YE2020 before falling once again
to 66.0% at June 2021. Occupancy has previously fluctuated since
2018, when the two largest tenants at issuance vacated. Although
the loan is current and there is no indication a default is
imminent, DBRS Morningstar believes the soft submarket conditions
and lack of meaningful cash management provisions significantly
increase the risks for this loan given the most recent developments
with the property's occupancy rate. A probability of default
penalty was applied to significantly increase the expected loss in
the analysis for this review.
Notes: All figures are in U.S. dollars unless otherwise noted.
COMM 2014-UBS4: DBRS Confirms B Rating on 2 Classes Certs
---------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2014-UBS4 issued by COMM
2014-UBS4 Mortgage Trust as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-M at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at B (high) (sf)
-- Class E at B (sf)
-- Class X-D at B (sf)
-- Class F at B (low) (sf)
Classes D, X-C, E, X-D, and F carry Negative trends. All other
trends remain Stable.
DBRS Morningstar's loss expectations remain in line with the prior
review, driven primarily by two loans of concern that continue to
show increased risk from issuance, as further detailed below. In
addition to factors at the loan level, these risks are mitigated by
increased credit support to the bonds as a result of scheduled
amortization and loan repayments.
At issuance, the transaction consisted of 91 fixed-rate loans
secured by 124 commercial and multifamily properties, with a trust
balance of $1.29 billion. As of the February 2022 remittance, 80
loans remain within the transaction with a trust balance of $1.03
billion, reflecting 20.0% collateral reduction since issuance.
There are currently 17 fully defeased loans, representing 9.7% of
the pool, up from 7.2% of the pool at the last review. In addition,
seven loans, representing 16.4% of the pool, are currently in
special servicing and 21 loans, representing 48.7% of the pool, are
on the servicer's watchlist.
The largest loan on the servicer's watchlist, State Farm Portfolio
(Prospectus ID#1; 12.4% of the pool), is secured by 14
cross-collateralized and cross-defaulted properties spread across
11 states. The portfolio properties were 100% occupied by State
Farm Mutual Automobile Insurance Company (State Farm) at issuance.
The loan was added to the servicer's watchlist in December 2021 for
failure to provide updated financial reporting. State Farm offices
in the United States have reportedly transitioned to a hybrid/flex
model, whereby the majority of the organization's workforce will be
expected to rotate between on-site and remote work. State Farm had
previously announced it would not be renewing leases for 12
operation facilities across various states, including but not
limited to Tennessee, Virginia, Nebraska, New York, Florida, and
Colorado.
Although State Farm has vacated the majority of properties serving
as collateral, DBRS Morningstar expects State Farm to honor the
terms of existing in-place leases, all but two of which extend to
2028. Given that the majority of lease expirations are four years
past the loan's scheduled 2024 maturity, refinance risk, rather
than term risk, is the primary concern, as long-term prospects for
the collateral properties remain precarious. State Farm has noted
that it will continue to sublease vacant space for the duration of
its lease agreements. State Farm's in-place lease agreements do not
provide for termination rights; however, property releases are
permitted under the loan documents, to the extent of 25% of the
original portfolio loan amount. As of the February 2022 remittance,
the loan remains current. DBRS Morningstar will continue to monitor
the loan for updates.
The largest specially serviced loan, 597 Fifth Avenue (Prospectus
ID#2; 10.2% of the pool), is secured by two adjacent mixed-use
properties in Manhattan's Midtown neighborhood. The property
consists of 80,032 square feet of Class B office and ground-floor
retail space. The loan transferred to special servicing in October
2020 because of imminent payment default. A new leasing and
management firm has been appointed, and a consent agreement was
approved allowing for the use of reserves to fund debt service
payments. The loan has since been brought current and discussions
regarding a proposed loan modification remain ongoing. A
discounted-payoff proposal made by the borrower was rejected, and
the special servicer is reportedly dual-tracking foreclosure.
Cash flows at the property have been in flux since Sephora vacated
the ground-floor retail space in 2017. The space was later taken by
Lululemon on a short-term basis; however, Lululemon's departure in
2020 (formerly 10.0% of net rentable area) caused significant cash
flow declines, given that 80% of the asset's total base rent has
historically been generated by the retail tenant. Club Monaco has
since taken over the space on a lease expiring in 2023, roughly one
year prior to loan maturity. As of September 2021, the property was
reportedly 70% occupied with a debt service coverage ratio of 0.09
times. There is a general concern related to the performance of
retail space along the Fifth Avenue corridor, which has been
affected by increasing vacancy rates. Moreover, the loan sponsor,
Joseph Sitt of Thor Equities, has a number of other properties in
various states of delinquency and/or foreclosure. For these
reasons, DBRS Morningstar's risk profile for this loan has
significantly increased from issuance.
Notes: All figures are in U.S. dollars unless otherwise noted.
CSAIL 2019-C15: DBRS Confirms B Rating on Class G-RR Certs
----------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2019-C15 issued by CSAIL 2019-C15
Commercial Mortgage Trust as follows:
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BB (sf)
-- Class G-RR at B (sf)
Classes E-RR, F-RR, and G-RR carry Negative trends. All other
trends remain Stable. The rating on Class A-1 was previously
discontinued as a result of a full repayment with the October 2021
remittance.
DBRS Morningstar's loss expectations remain in line with the prior
review. The Negative trends are primarily driven by select loans of
concern that continue to show increased risk from issuance, as
further detailed below. At issuance, the transaction consisted of
36 fixed-rate loans secured by 83 commercial and multifamily
properties, with a trust balance of $829.3 million. As of the
February 2022 remittance, 35 loans remain within the transaction
with a trust balance of $812.6 million, reflecting nominal
collateral reduction of 2.0% since issuance. Two loans,
representing 4.6% of the pool, are currently in special servicing
and 10 loans, representing 32.4% of the pool, are on the servicer's
watchlist.
The largest DBRS Morningstar Hotlist loan, Continental Portfolio
(Prospectus ID#13; 3.1% of the pool), is secured by a
910,171-square-foot Class A office building in Rolling Meadows,
Illinois, approximately 25 miles northwest of the Chicago central
business district. High vacancy rates in the subject's submarket
and consistent declines in the property's occupancy since issuance,
remain DBRS Morningstar's primary concerns. The property's
occupancy declined to 62% as of September 2021 from 73.3% at YE2020
and 89.1% at issuance. Despite this, the debt service coverage
ratio (DSCR) as of the Q3 2021 financial reporting was 2.58 times
(x), up from 2.38x at YE2020, primarily as a result of a higher
rental collection rate and lower operating expenses. Leases
representing 7.8% of the net rentable area are scheduled to roll by
YE2022. The sponsor made a substantial equity infusion of $53.6
million at acquisition in 2019, which is a mitigating factor worth
noting; however, the declining occupancy, upcoming tenant
rollovers, and added stress of the ongoing Coronavirus Disease
(COVID-19) pandemic on an already-challenged submarket are
indicative of increased term risks for this loan. As of the
February 2022 remittance, the loan remains current. DBRS
Morningstar will continue to monitor the loan for updates.
The largest specially serviced loan, Nebraska Crossing (Prospectus
ID#15; 2.9% of the pool), is secured by an outdoor mall in Gretna,
Nebraska, roughly 20 miles southwest of Omaha. The loan transferred
to special servicing in May 2020 at the borrower's request and a
consent agreement was subsequently executed. The special servicer
has approved the borrower's request for access to certain reserve
funds and is working with the borrower to implement cash management
provisions. The most recent appraisal in June 2021 valued the
property at $89.4 million, lower than the issuance value of $150.0
million but above the outstanding whole loan balance of $71.7
million. According to March 2021 reporting, the DSCR was 1.71x, an
improvement from the YE2020 DSCR of 1.62x. Recent occupancy has not
been reported; however, a review of the tenant roster on the mall
website indicates that the property is well occupied. Although the
value decline is suggestive of increased risks for this loan from
issuance, mitigating factors include a relatively granular rent
roll, strong historical performance, and a cooperative sponsor that
appears to be working with the servicer to cure the loan default.
As of the February 2022 remittance, the loan is current but remains
in special servicing.
The other specially serviced loan, Brooklyn Multifamily Portfolio
(Prospectus ID#23; 1.7% of the pool), is secured by a multifamily
portfolio of 22 units, spread across three properties in Brooklyn's
Bushwick (two properties) and Gowanus (one property)
neighbourhoods. The loan transferred to special servicing in
October 2020 for delinquency and is currently past due for the
August 2020 payment and all subsequent payments. The special
servicer's workout strategy is foreclosure, although this has been
delayed because of New York's foreclosure moratorium, which was
lifted on January 15, 2022. Additionally, the borrower has been
uncooperative with a court order granting the servicer's request to
appoint a receiver. At issuance, DBRS Morningstar noted that the
properties compared favorably with others within their respective
neighbourhoods. However, the lack of sponsor cooperation in curing
the default and failure to provide updated reporting suggests the
risk profile for this loan remains elevated from issuance. DBRS
Morningstar will continue to monitor the loan for updates in
performance and workout.
At issuance, DBRS Morningstar shadow-rated three loans—SITE JV
Portfolio (Prospectus ID#3; 6.2% of the pool), 787 Eleventh Avenue
(Prospectus ID#4; 5.5% of the pool), and 2 North 6th Street
(Prospectus ID#8; 4.1% of the pool)—investment grade, supported
by the loans' strong credit metrics, strong sponsorship strength,
and historically stable collateral performance. With this review,
DBRS Morningstar confirms that the characteristics of these loans
remain consistent with the investment-grade shadow-rating.
Notes: All figures are in U.S. dollars unless otherwise noted.
CSAIL 2019-C16: Fitch Affirms B-sf Rating on Class G-RR Certs
-------------------------------------------------------------
Fitch Ratings has affirmed 14 classes of CSAIL 2019-C16 Commercial
Mortgage Trust commercial mortgage pass-through certificates. Fitch
has also revised one Rating Outlook to Stable from Negative.
DEBT RATING PRIOR
--- ------ -----
CSAIL 2019-C16
A-1 12596WAA2 LT AAAsf Affirmed AAAsf
A-2 12596WAB0 LT AAAsf Affirmed AAAsf
A-3 12596WAC8 LT AAAsf Affirmed AAAsf
A-S 12596WAG9 LT AAAsf Affirmed AAAsf
A-SB 12596WAD6 LT AAAsf Affirmed AAAsf
B 12596WAH7 LT AA-sf Affirmed AA-sf
C 12596WAJ3 LT A-sf Affirmed A-sf
D 12596WAM6 LT BBB-sf Affirmed BBB-sf
E-RR 12596WAP9 LT BBB-sf Affirmed BBB-sf
F-RR 12596WAR5 LT BB-sf Affirmed BB-sf
G-RR 12596WAT1 LT B-sf Affirmed B-sf
X-A 12596WAE4 LT AAAsf Affirmed AAAsf
X-B 12596WAF1 LT A-sf Affirmed A-sf
X-D 12596WAK0 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Generally Stable Performance and Loss Expectations: Overall
performance and loss expectations for the pool have remained
relatively stable since issuance. There are 14 Fitch Loans of
Concern (FLOCs; 38.1% of pool), down from 16 (40.3%) at the prior
rating action. Three loans (7.4%) are specially serviced, down from
six (15.8%) at the prior rating action.
Fitch's current ratings incorporate a base case loss of 4.75%. The
Negative Outlooks reflect losses that could reach 6.90% when
factoring in additional coronavirus-related stresses and an
outsized loss of 20% to the Great Wolf Lodge Southern California
given concerns with potentially longer-term performance
volatility.
The largest contributor to overall loss expectations and largest
increase in loss since the prior rating action is the Santa Fe
Portfolio loan (4.4%), which is secured by a portfolio of 11
properties located in downtown Santa Fe, NM. The loan transferred
to special servicing for payment default in June 2020. The loan was
modified in June 2021, and the servicer is continuing to monitor
the loan for compliance with the agreement. Terms of the
modification included the retroactive deferral of debt service and
reserve payments between April and December 2020. The loan was
brought current in February 2022 after having been 60+ days
delinquent since its initial default.
Portfolio occupancy was 90% as of December 2021, compared to 89% at
YE 2020, 96% at YE 2019 and 95% at issuance. The portfolio has a
diverse rent roll with over 80 different tenants. However, almost
half of the portfolio NRA is derived from sponsor-related tenants.
At closing, all sponsor-affiliated tenants had executed new leases
at market rates with 15-year terms and a personal guaranty from
Gerald Peters. Major tenants include Gerald Peters Gallery (23.5%
NRA; October 2033 EXP), Santa Fe Properties (8.7% NRA; October 2033
EXP) and Hidden Mountain Brewing Company (3.9% NRA; October 2033
EXP). Fitch's loss expectation reflects a stressed value of
approximately $121 psf and is based on a discount to the
servicer-provided January 2022 appraisal for the portfolio.
The second largest contributor to loss expectations is the Embassy
Suites Seattle Bellevue loan (5.3%), which is secured by 240-room
full-service hotel in Bellevue, WA that has reported declining cash
flow since issuance. The hotel's YE 2020 NOI was negative as a
result of the pandemic, with YE 2019 NOI nearly 26% below the
issuer's underwritten NOI. A consent agreement was processed in
July 2020, with relief terms including the deferral of non-tax,
non-insurance reserves for three months and the ability to use
existing reserve funds for three months of debt service.
As of TTM June 2021, the hotel reported occupancy, ADR and RevPAR
of 35%, $109 and $38, respectively, compared to 27%, $131 and $36
at TTM December 2020, 77%, $181 and $140 at YE 2019 and 79%, $180
and $143 at issuance. Fitch's base case loss of 15% reflects a
total 10% haircut to YE 2019 NOI to reflect hotel performance
volatility.
Minimal Change to Credit Enhancement: As of the March 2022
distribution date, the pool's aggregate principal balance has paid
down by 1.1% to $778.5 million from $787.5 million at issuance. Two
loans (1.6%) are defeased. Seventeen loans (50.4% of pool) are
full-term, interest-only, and nine loans (18.9%) still have a
partial interest-only component during their remaining loan term,
compared with 15 loans (26.0%) at issuance. Two loans (5.0%) mature
in November and December of 2028, and the remainder of the pool (45
loans; 95.0%) matures from January to June of 2029.
Alternative Loss Considerations: Fitch performed an additional
sensitivity scenario that assumed a potential outsized loss of 20%
on the current balance of the Great Wolf Lodge Southern California
loan (3.9%) to reflect the unique asset type, operational risk and
high vulnerability of the property to the ongoing coronavirus
pandemic. This analysis contributed to the Negative Outlooks.
The loan is secured by a 603-key waterpark resort hotel located in
Garden Grove, CA, approximately three miles from Disneyland. The
loan returned to the master servicer in April 2021 after previously
transferring to special servicing in June 2020 due to imminent
monetary default. Forbearance was granted in July 2020 with terms
allowing for the use of existing reserves to pay debt service and
operating expenses, deferral of FF&E payments through 2020 and
exclusion of 2020 financials from debt yield test calculations.
In March 2021, the borrower was granted additional relief through a
second modification, providing for further deferral of the
seasonality reserve, the recovery of utilized reserves/escrows to
be further deferred, exclusion of 2021 financials when calculating
the debt yield tests and moving the April 1, 2022 debt yield test
to April 1, 2023.
The resort reopened in May 2021 and the YE 2021 NOI DSCR was up to
0.81x from -3.42x at YE 2020. In its base case analysis, Fitch
applied a 12% cap rate and a 20% haircut to YE 2019 NOI to reflect
the pandemic's continued impact on the property. If performance
reverts back to levels reported prior to the pandemic, issuance
assumptions may be relied upon.
Coronavirus Exposure: Loans secured by retail, hotel and
multifamily properties represent 30.4% (18 loans), 30.3% (12 loans)
and 8.2% (four loans) of the pool, respectively. Fitch applied an
additional stress to the pre-pandemic cash flows for five hotel
loans (16.4%) given significant pandemic-related 2020 NOI declines.
These additional stresses contributed to the Negative Outlooks.
Credit Opinion Loans: Two loans, representing 10.3% of the pool,
had investment-grade credit opinions at issuance. These include 3
Columbus Circle (6.4%) and 787 Eleventh Avenue (3.9%).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool-level losses from underperforming or specially serviced loans.
Downgrades to classes A-1, A-2, A-3, A-S, X-A and B are not likely
due to the position in the capital structure but may occur should
interest shortfalls affect these classes.
Downgrades to classes C, X-B, D and X-D may occur should expected
losses for the pool increase substantially, all of the loans
susceptible to the coronavirus pandemic suffer losses and/or the
Great Wolf Lodge Southern California loan incurs an outsized loss,
which would erode credit enhancement.
Downgrades to classes E-RR, F-RR and G-RR would occur should
overall pool loss expectations increase from continued performance
decline of the FLOCs, loans susceptible to the pandemic not
stabilize, additional loans default or transfer to special
servicing, higher losses incur on the specially serviced loans than
expected and/or the Great Wolf Lodge Southern California loan
experience an outsized loss.
Fitch has identified both a baseline and a worse-than-expected,
adverse stagflation scenario based on fallout from the
Russia-Ukraine war whereby growth is sharply lower amid higher
inflation and interest rates; even if the adverse scenario should
play out, Fitch expects virtually no impact on ratings performance,
indicating very few rating or Outlook changes. However, for some
transactions with concentrations in underperforming retail
exposure, the ratings impact may be mild to modest, indicating some
changes on sub-investment grade notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that could lead to upgrades would include
stable to improved asset performance, particularly on the FLOCs,
coupled with additional paydown and/or defeasance.
Upgrades to classes B, C and X-B may occur with significant
improvement in CE and/or defeasance, and with the stabilization of
performance on the FLOCs and/or the properties affected by the
coronavirus pandemic, including the Great Wolf Lodge Southern
California.
Upgrades to classes D, E-RR and X-D would also consider these
factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration. Classes
would not be upgraded above 'Asf' if there is likelihood for
interest shortfalls.
Upgrades to classes F-RR and G-RR are not likely unless resolution
of the specially serviced loans is better than expected and
performance of the remaining pool is stable, and/or properties
vulnerable to the pandemic return to pre-pandemic levels and there
is sufficient CE to the classes.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
ELLINGTON FINANCIAL 2022-2: Fitch Gives Final B Rating to B-2 Debt
------------------------------------------------------------------
Fitch Ratings has assigned final ratings to Ellington Financial
Mortgage Trust 2022-2.
DEBT RATING PRIOR
---- ------ -----
EFMT 2022-2
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAsf New Rating AA(EXP)sf
A-3 LT Asf New Rating A(EXP)sf
M-1 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT Bsf New Rating B(EXP)sf
B-3 LT NRsf New Rating NR(EXP)sf
A-IO-S LT NRsf New Rating NR(EXP)sf
XS LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Fitch rates the residential mortgage-backed certificates to be
issued by Ellington Financial Mortgage Trust 2022-2, Mortgage
Pass-Through Certificates, Series 2022-2 (EFMT 2022-2), as
indicated above. The certificates are supported by 998 loans with a
balance of $425.65 million as of the cutoff date. This will be the
fifth Ellington Financial Mortgage Trust transaction rated by
Fitch.
The certificates are secured mainly by non-qualified mortgages
(non-QM) as defined by the Ability to Repay (ATR) rule.
Approximately 85% of the loans were originated by LendSure Mortgage
Corporation, a joint venture between LendSure Financial Services,
Inc. (LFS) and Ellington Financial, Inc. (EFC). Approximately 13%
of the loans were originated by American Heritage Lending. The
remaining 3% of the loans were originated by third-party
originators.
Of the pool, 54% of the loans are designated as non-QM, and the
remaining 46% are investment properties not subject to ATR.
Rushmore Loan Management Services LLC will be the servicer and
Nationstar Mortgage LLC (Nationstar) will be the master servicer
for the transaction.
There is LIBOR exposure in this transaction. While the majority of
the loans in the collateral pool comprise fixed-rate mortgages,
0.36% of the pool comprises loans with an adjustable rate based on
one-year LIBOR. The offered certificates are fixed rate and capped
at the net weighted average coupon (WAC) or pay the net WAC.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, Fitch views the home price values
of this pool as 8.9% above a long-term sustainable level (versus
9.2% on a national level as of April 2022, down 1.4% since 1Q22).
Underlying fundamentals are not keeping pace with growth in prices,
resulting from a supply/demand imbalance driven by low inventory,
favorable mortgage rates and new buyers entering the market. These
trends have led to significant home price increases over the past
year, with home prices rising 18.2% yoy nationally as of December
2021.
Nonprime Credit Quality (Mixed): Collateral consists mainly of
30-year or 40-year fully amortizing loans, either fixed rate or
adjustable rate, and 24% of the loans have an interest-only (IO)
period. The pool is seasoned at about five months in aggregate, as
determined by Fitch. The borrowers in this pool have relatively
strong credit profiles with a 740 weighted average (WA) FICO score
and a 43.5% debt-to-income ratio, both as determined by Fitch, as
well as moderate leverage, with an original combined loan-to-value
ratio (LTV) of 71.2%, translating to a Fitch-calculated sustainable
LTV of 78.4%.
Fitch considered 47.6% of the pool to consist of loans where the
borrower maintains a primary residence, while 45.7% comprises
investor property and 6.7% represents second homes. Fitch considers
loans to nonpermanent residents and foreign nationals as investor
occupied, which explains why the investor property percentage is
higher than the transaction documentation percentage of 45.6% and
the second home percentage is lower than the transaction
documentation percentage of 6.8%.
In total, 89% of the loans were originated through a nonretail
channel. Additionally, 54% of the loans are designated as non-QM,
while the remaining 46% are exempt from QM status. The pool
contains 72 loans over $1.0 million, with the largest loan at $3.06
million.
Fitch determined that self-employed, non-debt service coverage
ratio (DSCR) borrowers make up 43.9% of the pool; salaried non-DSCR
borrowers make up 18.7%; and 37.5% comprises investor cash flow
DSCR loans. About 45.7% of the pool comprises loans on investor
properties (8.2% underwritten to borrowers' credit profiles and
37.5% comprising investor cash flow loans), and Fitch considered
two loans (0.1%) in the pool to be tied to foreign nationals, which
Fitch assumes as investor occupied. There are no second liens in
the pool, and one loan has subordinate financing.
Around 27% of the pool is concentrated in California with
relatively low MSA concentration. The largest MSA concentration is
in the Los Angeles MSA (10.3%), followed by the Miami MSA (5.2%)
and the San Francisco MSA (4.8%). The top three MSAs account for
20.3% of the pool. As a result, there was no adjustment for
geographic concentration.
All loans are current as of April 1, 2022. Overall, the pool
characteristics resemble nonprime collateral; therefore, the pool
was analyzed using Fitch's nonprime model.
Loan Documentation: Bank Statement, Asset Depletion, DSCR Loans
(Negative): About 86.9% of the pool was underwritten to less than
full documentation, and 40.1% was underwritten to a 12-month or
24-month bank statement program for verifying income, which is not
consistent with Appendix Q standards and Fitch's view of a full
documentation program.
A key distinction between this pool and legacy Alt-A loans is these
loans adhere to underwriting and documentation standards required
under the Consumer Financial Protection Bureau's ATR Rule. This
reduces the risk of borrower default arising from lack of
affordability, misrepresentation or other operational quality risks
due to the rigor of the rule's mandates with respect to
underwriting and documentation of the borrower's ATR. Additionally,
5.6% comprises an asset depletion product, 0.0% is a CPA or P&L
product and 37.5% is a DSCR product.
Limited Advancing (Mixed): The deal is structured to six months of
servicer advances for delinquent P&I. The limited advancing reduces
loss severities, as there is a lower amount repaid to the servicer
when a loan liquidates, and liquidation proceeds are prioritized to
cover principal repayment over accrued but unpaid interest. The
downside is additional stress on the structure side, as there is
limited liquidity in the event of large and extended
delinquencies.
Modified Sequential Payment Structure (Neutral): The structure
distributes collected principal pro rata among the class A notes
while excluding subordinate bonds from principal until classes A-1,
A-2 and A-3 are reduced to zero. To the extent that either a
cumulative loss trigger event or delinquency trigger event occurs
in a given period, principal will be distributed sequentially to
classes A-1, A-2 and A-3 until they are reduced to zero.
The transaction has excess spread that will be available to
reimburse the certificates for losses or interest shortfalls. The
excess spread may be reduced after April 2026, since class A-1 has
a step-up coupon feature that goes into effect after that date. To
mitigate the impact of the step-up feature, class B-2 will have a
stepdown coupon feature whereby the coupon will reduce to 0.0%
after April 2026.
After the presale published on April 11, 2022, the third party
review firm determined that 11 loans that were coded with a 'Not
Applicable' ATR status have an ATR status of 'Non-QM'. As a result,
Fitch re-ran the losses re-coding these 11 loans as 'Non-QM' loans
for the ATR status. Since this only impacted 11 loans, there were
no material changes to the losses, and Fitch maintained the same
expected losses as were disclosed in the published presale report.
In addition, this did not have an impact on the ratings that Fitch
assigned to the transactions, and as a result there were no changes
to the ratings from the expected ratings to the final ratings.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Fitch incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper market value declines
(MVDs) than assumed at the MSA level. Sensitivity analyses was
conducted at the state and national levels to assess the
effect of higher MVDs for the subject pool as well as lower
MVDs, illustrated by a gain in home prices.
-- This defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper MVDs at the national
level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in
addition to the model-projected 41.4% at 'AAA'. The analysis
indicates that there is some potential rating migration with
higher MVDs for all rated classes compared with the model
projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch incorporates a sensitivity analysis to demonstrate how
the ratings would react to steeper MVDs than assumed at the
MSA level. Sensitivity analyses was conducted at the state and
national levels to assess the effect of higher MVDs for the
subject pool as well as lower MVDs, illustrated by a gain in
home prices.
-- This defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Evolve and AMC. The third-party due diligence described
in Form 15E focused on three areas: compliance review, credit
review and valuation review. Fitch considered this information in
its analysis. Based on the results of the 100% due diligence
performed on the pool, Fitch reduced the overall 'AAAsf' expected
loss by 0.47%.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
generally consistent with Fitch's "U.S. RMBS Rating Criteria."
Evolve and AMC were engaged to perform the review. Loans reviewed
under this engagement were given compliance, credit and valuation
grades, and assigned initial grades for each subcategory. Minimal
exceptions and waivers were noted in the due diligence reports.
Refer to the Third-Party Due Diligence section for more detail.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. Fitch received
loan-level information based on the American Securitization Forum's
(ASF) data layout format, and the data are considered to be
comprehensive. The ASF data tape layout was established with input
from various industry participants, including rating agencies,
issuers, originators, investors and others to produce an industry
standard for the pool-level data in support of the U.S. RMBS
securitization market. The data contained in the ASF layout data
tape were reviewed by the due diligence companies, and no material
discrepancies were noted.
ESG CONSIDERATIONS
EFMT 2022-2 has an ESG Relevance Score of '4[+]' for Transaction
Parties & Operational Risk. Operational risk is well controlled for
in EFMT 2022-2, including strong transaction due diligence as well
as 'RPS1-' Fitch-rated servicer, which resulted in a reduction in
expected losses. This has a positive impact on the credit profile
and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
ELMWOOD CLO 16: S&P Assigns Prelim BB- (sf) Rating on Cl. E Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Elmwood CLO
16 Ltd.'s floating-rate notes.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term loans.
The transaction is managed by Elmwood Asset Management.
The preliminary ratings are based on information as of April 19,
2022. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The collateral pool's diversification;
-- The credit enhancement provided through subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
Elmwood CLO 16 Ltd./Elmwood CLO 16 LLC
Class A, $480.00 million: AAA (sf)
Class B, $90.00 million: AA (sf)
Class C (deferrable), $45.00 million: A+ (sf)
Class D (deferrable), $45.00 million: BBB- (sf)
Class E (deferrable), $28.88 million: BB- (sf)
Subordinated notes, $61.15 million: Not rated
EXETER AUTOMOBILE 2022-1: DBRS Finalizes BB Rating on E Notes
-------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by Exeter Automobile Receivables Trust
2022-1 (EART 2022-1 or the Issuer):
-- $98,000,000 Class A-1 Notes at R-1 (high) (sf)
-- $202,320,000 Class A-2 Notes at AAA (sf)
-- $110,290,000 Class A-3 Notes at AAA (sf)
-- $127,290,000 Class B Notes at AA (sf)
-- $117,690,000 Class C Notes at A (sf)
-- $114,210,000 Class D Notes at BBB (sf)
-- $80,200,000 Class E Notes at BB (sf)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization,
subordination, a fully funded reserve fund, and excess spread.
Credit enhancement levels are sufficient to support the DBRS
Morningstar-projected cumulative net loss (CNL) assumption under
various stress scenarios.
(2) The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms in which
they have invested. For this transaction, the ratings address the
payment of timely interest on a monthly basis and principal by the
legal final maturity date.
(3) The DBRS Morningstar CNL assumption is 18.30% based on the
cut-off date pool composition.
-- The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary Baseline Macroeconomic Scenarios For
Rated Sovereigns December 2021 Update, published on December 9,
2021. These baseline macroeconomic scenarios replace DBRS
Morningstar's moderate and adverse COVID-19 pandemic scenarios,
which were first published in April 2020. The baseline
macroeconomic scenarios reflect the view that recent COVID-19
developments, particularly the new Omicron variant with subsequent
restrictions, combined with rising inflation pressures in some
regions, may dampen near-term growth expectations in coming months.
However, DBRS Morningstar expects the baseline projections will
continue to point to an ongoing, gradual recovery.
(4) The transaction parties' capabilities with regard to
originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Exeter and
considers the entity to be an acceptable originator and servicer of
subprime automobile loan contracts with an acceptable backup
servicer.
-- The Exeter senior management team has considerable experience
and a successful track record within the auto finance industry.
(5) The credit quality of the collateral and performance of
Exeter's auto loan portfolio.
-- As of the Cut-off Date (January 23, 2022), the collateral has a
weighted-average (WA) seasoning of approximately two months and
contains Exeter originations from Q2 2015 through Q1 2022, with
approximately 96.8% consisting of loans originated since the fourth
quarter of 2021. The average remaining term of the collateral pool
is approximately 70 months. The WA non-zero FICO score of the pool
is 584.
(6) The legal structure and presence of legal opinions, which
address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Exeter, that
the trust has a valid first-priority security interest in the
assets, and consistency with the DBRS Morningstar "Legal Criteria
for U.S. Structured Finance."
The rating on the Class A Notes reflects 53.90% of initial hard
credit enhancement provided by subordinated notes in the pool
(50.40%) and the reserve account (1.00%). The ratings on the Class
B, C, D, and E Notes reflect 39.30%, 25.80%, 12.70%, and 3.50% of
initial hard credit enhancement, respectively.
Notes: All figures are in U.S. dollars unless otherwise noted.
EXETER AUTOMOBILE 2022-2: S&P Assigns BB (sf) Rating on E Notes
---------------------------------------------------------------
S&P Global Ratings assigned ratings to Exeter Automobile
Receivables Trust 2022-2's automobile receivables-backed notes.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The ratings assigned to Exeter Automobile Receivables Trust
2022-2's automobile receivables-backed notes reflect:
-- The availability of approximately 57.57%, 49.82%, 40.89%,
31.91%, and 26.75% credit support for the class A (classes A-1,
A-2, and A-3), B, C, D, and E notes, respectively, based on
stressed cash flow scenarios (including excess spread). This credit
support provides coverage of approximately 3.05x, 2.60x, 2.10x,
1.60x, and 1.30x S&P's 18.25%-19.25% expected cumulative net loss
range. These break-even scenarios withstand cumulative gross losses
of approximately 88.58%, 76.65%, 65.42%, 51.06%, and 42.80%,
respectively.
-- S&P's expectation for timely interest and principal payments on
the notes, based on stressed cash flow modeling scenarios, which,
in its view, are appropriate for the assigned ratings.
-- S&P's expectation that under a moderate ('BBB') stress scenario
(1.60x its expected loss level), all else being equal, its ratings
will be within the credit stability limits specified by section A.4
of the Appendix in "S&P Global Ratings Definitions," published Nov.
9, 2021.
-- The collateral characteristics of the subprime automobile loans
securitized in this transaction.
-- The transaction's payment, credit enhancement, and legal
structures.
Ratings Assigned
Exeter Automobile Receivables Trust 2022-2
Class A-1, $120.50 million: A-1+ (sf)
Class A-2, $234.00 million: AAA (sf)
Class A-3, $201.74 million: AAA (sf)
Class B, $159.68 million: AA (sf)
Class C, $148.56 million: A (sf)
Class D, $144.47 million: BBB (sf)
Class E, $108.21 million: BB (sf)
FINANCE OF AMERICA 2022-HB1: DBRS Finalizes B Rating on M5 Notes
----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Asset-Backed Notes issued by Finance of America HECM Buyout
2022-HB1:
-- $439.6 million Class A at AAA (sf)
-- $59.0 million Class M1 at AA (low) (sf)
-- $41.9 million Class M2 at A (low) (sf)
-- $34.3 million Class M3 at BBB (low) (sf)
-- $30.7 million Class M4 at BB (low) (sf)
-- $20.5 million Class M5 at B (sf)
The AAA (sf) rating reflects 31.3% of credit enhancement. The AA
(low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf)
ratings reflect 22.1%, 15.5%, 10.2%, 5.4%, and 2.2% of credit
enhancement, respectively.
Other than the specified classes above, DBRS Morningstar did not
rate any other classes in this transaction.
Lenders typically offer reverse mortgage loans to people who are at
least 62 years old. Through reverse mortgage loans, borrowers have
access to home equity through a lump sum amount or a stream of
payments without periodically repaying principal or interest,
allowing the loan balance to accumulate over a period of time until
a maturity event occurs. Loan repayment is required (1) if the
borrower dies, (2) if the borrower sells the related residence, (3)
if the borrower no longer occupies the related residence for a
period (usually a year), (4) if it is no longer the borrower's
primary residence, (5) if a tax or insurance default occurs, or (6)
if the borrower fails to properly maintain the related residence.
In addition, borrowers must be current on any homeowners
association dues if applicable. Reverse mortgages are typically
nonrecourse; borrowers do not have to provide additional assets in
cases where the outstanding loan amount exceeds the property's
value (the crossover point). As a result, liquidation proceeds will
fall below the loan amount in cases where the outstanding balance
reaches the crossover point, contributing to higher loss severities
for these loans.
As of the November 30, 2021, Statistical Cut-Off Date, the
collateral had approximately $667.4 million in unpaid principal
balance (UPB) from 2,892 performing and nonperforming home equity
conversion mortgage reverse mortgage loans secured by first liens
typically on single-family residential properties, condominiums,
multifamily (two- to four-family) properties, manufactured homes,
and planned unit developments. Of the total loans, 1,576 have
fixed-rate interest (58.8% of the balance) with a weighted-average
coupon (WAC) of 5.03%. The remaining 1,316 loans have floating-rate
interest (41.2% of the balance) with a WAC of 2.75%, bringing the
entire collateral pool to a WAC of 4.09%.
As of the Statistical Cut-Off Date, the loans in this transaction
are both performing and nonperforming (i.e., inactive). There are
618 performing loans comprising 24.7% of the total UPB. As for the
2,274 nonperforming loans, 1,378 loans are referred for foreclosure
(47.4% of the balance), 83 are in bankruptcy status (2.9%), 269 are
called due following recent maturity (9.1%), 142 are real estate
owned (4.3%), one is referred (
FLAGSHIP CREDIT 2022-1: DBRS Finalizes BB Rating on Class E Notes
-----------------------------------------------------------------
DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on
the following classes of notes issued by Flagship Credit Auto Trust
2022-1 (the Issuer):
-- $243,130,000 Class A Notes at AAA (sf)
-- $27,770,000 Class B Notes at AA (sf)
-- $37,090,000 Class C Notes at A (sf)
-- $26,720,000 Class D Notes at BBB (sf)
-- $15,120,000 Class E Notes at BB (sf)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization
(OC), subordination, amounts held in the reserve account, and
excess spread. Credit enhancement levels are sufficient to support
the DBRS Morningstar-projected cumulative net loss (CNL) assumption
under various stress scenarios.
(2) The DBRS Morningstar CNL assumption is 10.75% based on the
expected Cut-Off Date pool composition.
-- DBRS Morningstar was conservative in the loss forecast analysis
performed on the static pool data.
(3) The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary Baseline Macroeconomic Scenarios For
Rated Sovereigns December 2021 Update, published on December 9,
2021. These baseline macroeconomic scenarios replace DBRS
Morningstar's moderate and adverse COVID-19 pandemic scenarios,
which were first published in April 2020. The baseline
macroeconomic scenarios reflect the view that recent COVID-19
developments, particularly the new Omicron variant with subsequent
restrictions, combined with rising inflation pressures in some
regions, may dampen near-term growth expectations in coming months.
However, DBRS Morningstar expects the baseline projections will
continue to point to an ongoing, gradual recovery.
(4) The consistent operational history of Flagship Credit
Acceptance, LLC (Flagship or the Company) and the strength of the
overall Company and its management team.
-- The Flagship senior management team has considerable experience
and a successful track record within the auto finance industry.
(5) The capabilities of Flagship with regard to originations,
underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Flagship
and considers the entity an acceptable originator and servicer of
subprime automobile loan contracts with an acceptable backup
servicer.
(6) The Company indicated that it may be subject to various
consumer claims and litigation seeking damages and statutory
penalties. Some litigation against Flagship could take the form of
class-action complaints by consumers; however, the Company
indicated that there is no material pending or threatened
litigation.
(7) The legal structure and presence of legal opinions that will
address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Flagship, that
the trust has a valid first-priority security interest in the
assets, and the consistency with the DBRS Morningstar "Legal
Criteria for U.S. Structured Finance."
Flagship is an independent, full-service automotive financing and
servicing company that provides (1) financing to borrowers who do
not typically have access to prime credit-lending terms to purchase
late-model vehicles and (2) refinancing of existing automotive
financing.
The rating on the Class A Notes reflects 32.70% of initial hard
credit enhancement provided by subordinated notes in the pool
(30.35%), the reserve account (1.85%), and OC (0.50%). The ratings
on the Class B, C, D, and E Notes reflect 24.80%, 14.25%, 6.65%,
and 2.35% of initial hard credit enhancement, respectively.
Additional credit support may be provided from excess spread
available in the structure.
Notes: All figures are in in U.S. dollars unless otherwise noted.
FREDDIE MAC 2022-DNA3: S&P Assigns B+ (sf) Rating on B-1I Notes
---------------------------------------------------------------
S&P Global Ratings assigned to Freddie Mac STACR REMIC Trust
2022-DNA3's notes.
The note issuance is an RMBS transaction backed by fully
amortizing, first-lien, fixed-rate residential mortgage loans
secured by one- to four-family residences, planned-unit
developments, condominiums, cooperatives, and manufactured housing
to mostly prime borrowers.
The ratings reflect:
-- The credit enhancement provided by the subordinated reference
tranches, as well as the associated structural deal mechanics;
-- The real estate mortgage investment conduit (REMIC) structure
that reduces the counterparty exposure to Freddie Mac for periodic
principal and interest payments, but, at the same time, pledges the
support of Freddie Mac (a highly rated counterparty) to cover
shortfalls, if any, on interest payments and to make up for any
investment losses;
-- The issuer's aggregation experience and the alignment of
interests between the issuer and noteholders in the transaction's
performance, which, in S&P's view, enhances the notes' strength;
-- The enhanced credit risk management and quality control
processes Freddie Mac uses in conjunction with the underlying
representations and warranties framework; and
-- The further impact that the COVID-19 pandemic is likely to have
on the U.S. economy and the U.S. housing market, as well as the
additional structural provisions included to address corresponding
forbearance and subsequent defaults.
Ratings Assigned
Freddie Mac STACR REMIC Trust 2022-DNA3
Class A-H, $40,634,832,371: Not rated
Class M-1A, $672,000,000: A (sf)
Class M-1AH(i), $35,625,049: Not rated
Class M-1B, $651,000,000: BBB (sf)
Class M-1BH(i), $35,181,866: Not rated
Class M-2, $305,000,000: BB (sf)
Class M-2A, $152,500,000: BB+ (sf)
Class M-2AH(i), $8,323,874: Not rated
Class M-2B, $152,500,000: BB (sf)
Class M-2BH(i), $8,323,874: Not rated
Class M-2R, $305,000,000: BB (sf)
Class M-2S, $305,000,000: BB (sf)
Class M-2T, $305,000,000: BB (sf)
Class M-2U, $305,000,000: BB (sf)
Class M-2I, $305,000,000: BB (sf)
Class M-2AR, $152,500,000: BB+ (sf)
Class M-2AS, $152,500,000: BB+ (sf)
Class M-2AT, $152,500,000: BB+ (sf)
Class M-2AU, $152,500,000: BB+ (sf)
Class M-2AI, $152,500,000: BB+ (sf)
Class M-2BR, $152,500,000: BB (sf)
Class M-2BS, $152,500,000: BB (sf)
Class M-2BT, $152,500,000: BB (sf)
Class M-2BU, $152,500,000: BB (sf)
Class M-2BI, $152,500,000: BB (sf)
Class M-2RB, $152,500,000: BB (sf)
Class M-2SB, $152,500,000: BB (sf)
Class M-2TB, $152,500,000: BB (sf)
Class M-2UB, $152,500,000: BB (sf)
Class B-1, $107,000,000: B+ (sf)
Class B-1A, $53,500,000: B+ (sf)
Class B-1AR, $53,500,000: B+ (sf)
Class B-1AI, $53,500,000: B+ (sf)
Class B-1AH(i), $53,715,917: Not rated
Class B-1B, $53,500,000: B+ (sf)
Class B-1BH(i), $53,715,917: Not rated
Class B-1R, $107,000,000: B+ (sf)
Class B-1S, $107,000,000: B+ (sf)
Class B-1T, $107,000,000: B+ (sf)
Class B-1U, $107,000,000: B+ (sf)
Class B-1I, $107,000,000: B+ (sf)
Class B-2, $107,000,000: Not rated
Class B-2A, $53,500,000: Not rated
Class B-2AR, $53,500,000: Not rated
Class B-2AI, $53,500,000: Not rated
Class B-2AH(i), $53,715,917: Not rated
Class B-2B, $53,500,000: Not rated
Class B-2BH(i), $53,715,917: Not rated
Class B-2R, $107,000,000: Not rated
Class B-2S, $107,000,000: Not rated
Class B-2T, $107,000,000: Not rated
Class B-2U, $107,000,000: Not rated
Class B-2I, $107,000,000: Not rated
Class B-3H(i), $107,215,917: Not rated
(i)Reference tranche only and will not have corresponding notes.
Freddie Mac retains the risk of these tranches.
GOLUB CAPITAL 60(B): Moody's Assigns (P)Ba3 Rating to Cl. E Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned ratings to two classes of
notes issued and two classes of loans incurred by Golub Capital
Partners CLO 60(B), Ltd. (the "Issuer" or "Golub Capital Partners
CLO 60(B)").
Moody's rating action is as follows:
US$130,000,000 Class A-L1 Loans maturing 2034 (the "Class A-L1
Loans"), Assigned Aaa (sf)
US$118,000,000 Class A-L2 Loans maturing 2034 (the "Class A-L2
Loans"), Assigned Aaa (sf)
Up to US$130,000,000 Class A Senior Secured Floating Rate Notes due
2034 (the "Class A Notes"), Assigned Aaa (sf)
US$17,800,000 Class E Secured Deferrable Floating Rate Notes due
2034 (the "Class E Notes"), Assigned Ba3 (sf)
The loans and the notes listed are referred to herein,
collectively, as the "Rated Debt."
On the closing date, the Class A-L1 Loans and the Class A Notes
have a principal balance of $130,000,000 and $0, respectively. At
any time, the Class A-L1 Loans may be converted in whole or in part
to the Class A Notes, thereby decreasing the principal balance of
the Class A-L1 Loans and increasing, by the corresponding amount,
the principal balance of the Class A Notes. The aggregate principal
balance of the Class A-L1 Loans and the Class A Notes will not
exceed $130,000,000, less the amount of any principal repayments.
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
Golub Capital Partners CLO 60(B) is a managed cash flow CLO. The
issued debt and will be collateralized primarily by broadly
syndicated senior secured corporate loans. At least 92.5% of the
portfolio must consist of senior secured loans, cash, and eligible
investments, up to 7.5% of the portfolio may consist of second lien
loans and senior unsecured loans, and up to 5% of the portfolio may
consist of bonds and senior secured notes. The portfolio is
approximately 98% ramped as of the closing date.
OPAL BSL LLC (the "Manager") will direct the selection, acquisition
and disposition of the assets on behalf of the Issuer and may
engage in trading activity, including discretionary trading, during
the transaction's four year reinvestment period. Thereafter,
subject to certain restrictions, the Manager may reinvest
unscheduled principal payments and proceeds from sales of credit
risk assets.
In addition to the Rated Debt, the Issuer issued three other
classes of secured notes and one class of subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the debt in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $400,000,000
Diversity Score: 70
Weighted Average Rating Factor (WARF): 3020
Weighted Average Spread (WAS): 3.40%
Weighted Average Coupon (WAC): 5.75%
Weighted Average Recovery Rate (WARR): 48.0%
Weighted Average Life (WAL): 7.5 years
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Debt is subject to uncertainty. The
performance of the Rated Debt is sensitive to the performance of
the underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the Rated Debt.
GRACIE POINT 2022-1: DBRS Gives Prov. BB Rating on Class E Notes
----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes (the Notes) to be issued by Gracie Point International
Funding 2022-1 (the Issuer):
-- $211,877,000 Class A Notes at AA (sf)
-- $54,055,000 Class B Notes at AA (low) (sf)
-- $19,237,000 Class C Notes at A (sf)
-- $15,442,000 Class D Notes at BBB (low) (sf)
-- $4,187,000 Class E Notes at BB (sf)
The provisional ratings are based on DBRS Morningstar's review of
the following analytical considerations:
-- The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary "Baseline Macroeconomic Scenarios For
Rated Sovereigns December 2021 Update," published on December 9,
2021. These baseline macroeconomic scenarios replace DBRS
Morningstar's moderate and adverse COVID-19 pandemic scenarios,
which were first published in April 2020. The baseline
macroeconomic scenarios reflect the view that recent COVID-19
developments, particularly the new omicron variant with subsequent
restrictions, combined with rising inflation pressures in some
regions, may dampen near-term growth expectations in coming months.
However, DBRS Morningstar expects the baseline projections will
continue to point to an ongoing, gradual recovery.
-- While the ongoing coronavirus pandemic has had an adverse
effect on the U.S. borrower in general, DBRS Morningstar expects
the performance of the underlying loans in the transaction to
remain resilient because the life insurance premium loans are fully
collateralized by the cash surrender value from highly rated life
insurance companies and other acceptable collateral that is mostly
either cash or letters of credit from highly-rated banking
institutions. Therefore, the payment sources for the Notes will be
either the life insurance companies or cash held at a trust account
or at an Eligible Account Bank/Eligible Account Firm. DBRS
Morningstar does not expect the economic stress caused by the
pandemic to adversely affect an insurance company's ability to pay
in the short to medium term.
-- Excess spread, a fully funded Reserve Account, and
subordination provide credit enhancement levels that are
commensurate with the ratings of the Offered Notes. Credit
enhancement levels are sufficient to support DBRS
Morningstar-projected expected cumulative loss assumptions under
various stress scenarios.
-- DBRS Morningstar deems Gracie Point, LLC (Gracie Point) an
acceptable originator and servicer of life insurance premium
finance receivables. However, Gracie Point has incurred operating
losses and may continue to incur net losses as it grows its
business. If Gracie Point is unable to fulfill its duties because
of an Administrative Agent Replacement Event or a Loan
Administration Agent Default, repayment of the Notes would rely on
the ability of Vervent Inc. (Vervent) as the Backup Agent, to
fulfill the duties of Administrative Agent and Loan Administration
Agent under the Transaction Documents. DBRS Morningstar deems
Vervent as an acceptable backup agent.
-- The payment sources of the loans underlying the Participations
are life insurance companies that issue the pledged life insurance
policy contracts securing the loans. A potential insolvency of such
life insurance company can adversely impact the collectability of
the cash surrender value or death benefits payable by the life
insurance company. The transaction limits that only Eligible Life
Insurance Companies may issue life insurance policies to be
included in the collateral securing the underlying loans. A portion
of the underlying collateral can be cash collateral that is held at
depository institutions, and the transaction requires them to be
either an Eligible Account Bank or Eligible Account Firm with
minimum required ratings.
-- The collateral pool at closing is expected to have 29 life
insurance companies, with the top five insurance companies
representing approximately 59.61% of the collateral pool. To
account for potential losses from exposure to the largest insurance
companies in the collateral pool, DBRS Morningstar simulated the
default of the five largest insurance companies with rating
equivalents lower than the targeted rating for a tranche.
-- During the Replacement Period, the Issuer may purchase
additional Participations using cash surrender proceeds from
defaulted loans or proceeds from prepaid loans or retained
collections. Therefore, the credit quality of the underlying loans
could change during the Replacement Period. The transaction,
however, only allows a new Participation in a loan that meets the
Replacement Criteria to maintain a similar collateral pool mix as
the closing pool and ensure the related life insurance company or
depository institution of the replacement loan are highly rated.
-- The transaction is exposed to basis risk that will stem from
the mismatch in the rate benchmark between the loans and the Notes
until December 31, 2022. After December 31, 2022, the transaction
will be exposed to the basis risk due to the loans and the Notes
having different payment frequencies.
-- Gracie Point was established in 2010 and issued its first loan
in June 2013, so the Company does not have significant historical
performance data of the loans originated through its platform. Each
underlying loan in the collateral pool, however, is fully
collateralized by a minimum cash surrender value, a letter of
credit, and/or cash collateral, which, coupled with the highly
rated insurance companies and depository institutions, partially
mitigate uncertainty regarding the underlying loans' future
performance.
-- Most of the life insurance premium loans have longer maturity
dates than the Scheduled Maturity Date of the Notes. Therefore, if
the Issuer is not able to refinance or liquidate its
Participations, it may not be able to repay such Notes on the
Scheduled Maturity Date. Under each Designated Finance Loan
Agreement, however, the Finance Lender will have the right to call
a loan as fully due and payable upon the occurrence of a Maturity
Acceleration Event, which will ensure ultimate payments of
principal to the Notes by the Scheduled Maturity Date.
-- The legal structure and expected legal opinions that will
address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Gracie Point,
LLC, the trustee will have a valid first-priority security interest
in the assets, and are consistent with DBRS Morningstar's "Legal
Criteria for U.S. Structured Finance."
Notes: All figures are in U.S. dollars unless otherwise noted.
GS MORTGAGE 2022-PJ4: Fitch to Rate Class B-5 Certs 'B+(EXP)'
-------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by GS Mortgage-Backed Securities Trust 2022-PJ4
(GSMBS 2022-PJ4).
DEBT RATING
---- ------
GSMBS 2022-PJ4
A-1 LT AA+(EXP)sf Expected Rating
A-1-X LT AA+(EXP)sf Expected Rating
A-10 LT AAA(EXP)sf Expected Rating
A-10-X LT AAA(EXP)sf Expected Rating
A-11 LT AAA(EXP)sf Expected Rating
A-12 LT AAA(EXP)sf Expected Rating
A-13 LT AAA(EXP)sf Expected Rating
A-13-X LT AAA(EXP)sf Expected Rating
A-14 LT AAA(EXP)sf Expected Rating
A-15 LT AAA(EXP)sf Expected Rating
A-16 LT AAA(EXP)sf Expected Rating
A-16-X LT AAA(EXP)sf Expected Rating
A-17 LT AAA(EXP)sf Expected Rating
A-18 LT AAA(EXP)sf Expected Rating
A-19 LT AAA(EXP)sf Expected Rating
A-19-X LT AAA(EXP)sf Expected Rating
A-2 LT AA+(EXP)sf Expected Rating
A-20 LT AAA(EXP)sf Expected Rating
A-21 LT AAA(EXP)sf Expected Rating
A-22 LT AAA(EXP)sf Expected Rating
A-22-X LT AAA(EXP)sf Expected Rating
A-23 LT AAA(EXP)sf Expected Rating
A-24 LT AAA(EXP)sf Expected Rating
A-25 LT AAA(EXP)sf Expected Rating
A-25-X LT AAA(EXP)sf Expected Rating
A-26 LT AAA(EXP)sf Expected Rating
A-27 LT AAA(EXP)sf Expected Rating
A-28 LT AAA(EXP)sf Expected Rating
A-28-X LT AAA(EXP)sf Expected Rating
A-29 LT AAA(EXP)sf Expected Rating
A-3 LT AA+(EXP)sf Expected Rating
A-30 LT AAA(EXP)sf Expected Rating
A-31 LT AAA(EXP)sf Expected Rating
A-31-X LT AAA(EXP)sf Expected Rating
A-32 LT AAA(EXP)sf Expected Rating
A-33 LT AAA(EXP)sf Expected Rating
A-34 LT AA+(EXP)sf Expected Rating
A-34-X LT AA+(EXP)sf Expected Rating
A-35 LT AA+(EXP)sf Expected Rating
A-36 LT AA+(EXP)sf Expected Rating
A-4 LT AAA(EXP)sf Expected Rating
A-4-X LT AAA(EXP)sf Expected Rating
A-4A LT AAA(EXP)sf Expected Rating
A-5 LT AAA(EXP)sf Expected Rating
A-6 LT AAA(EXP)sf Expected Rating
A-6A LT AAA(EXP)sf Expected Rating
A-7 LT AAA(EXP)sf Expected Rating
A-7-X LT AAA(EXP)sf Expected Rating
A-8 LT AAA(EXP)sf Expected Rating
A-9 LT AAA(EXP)sf Expected Rating
A-IO-S LT NR(EXP)sf Expected Rating
A-X LT AA+(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-2 LT A(EXP)sf Expected Rating
B-3 LT BBB(EXP)sf Expected Rating
B-4 LT BB+(EXP)sf Expected Rating
B-5 LT B+(EXP)sf Expected Rating
B-6 LT NR(EXP)sf Expected Rating
PT LT AA+(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 544 prime-jumbo and agency
conforming loans with a total balance of approximately $605
million, as of the cut-off date. The transaction is expected to
close on April 29, 2022.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, Fitch views the home price values
of this pool as 9.9% above a long-term sustainable level (versus
9.2% on a national level as of April 2022, down 1.4% since last
quarter). Compared with last quarter, the updated sustainable home
prices resulted in an 80-bp reduction to 'AAAsf' expected losses.
Underlying fundamentals are not keeping pace with growth in prices,
which is a result of a supply/demand imbalance driven by low
inventory, low mortgage rates and new buyers entering the market.
These trends have led to significant home price increases over the
past year, with home prices rising 19.2% yoy nationally as of
January 2022.
High Quality Mortgage Pool (Positive): The collateral consists of
mostly 30-year, fixed-rate mortgage (FRM) fully amortizing loans
seasoned approximately five months in aggregate.
The collateral comprises primarily prime-jumbo and less than 1%
agency conforming loans. The borrowers in this pool have strong
credit profiles (a 762 model FICO) and moderate leverage (a 76.1%
sustainable loan-to-value ratio [sLTV] and a 68.4% mark-to-market
[MTM] combined loan-to-value ratio [CLTV]). Fitch treated 94.3% of
the loans as full documentation collateral, while almost 100% of
the loans are safe-harbor qualified mortgages (SHQMs). Of the pool,
92.5% are loans for which the borrower maintains a primary
residence, while 7.5% are for second homes. Additionally, 40.4% of
the loans were originated through a retail channel or a
correspondent's retail channel.
Shifting-Interest Deal Structure (Mixed): The mortgage cash flow
and loss allocation are based on a senior subordinate,
shifting-interest structure whereby the subordinate classes receive
only scheduled principal and are locked out from receiving
unscheduled principal or prepayments for five years. The lockout
feature helps to maintain subordination for a longer period should
losses occur later in the life of the deal. The applicable credit
support percentage feature redirects subordinate principal to
classes of higher seniority if specified credit enhancement (CE)
levels are not maintained. Due to the leakage to the subordinate
bonds, the shifting-interest structure requires more CE. While
there is only minimal leakage to the subordinate bonds early in the
life of the transaction, the structure is more vulnerable to
defaults occurring at a later stage compared to a sequential or
modified-sequential structure.
Subordination Floors (Positive): To help mitigate tail risk, which
arises as the pool seasons and fewer loans are outstanding, a
subordination floor of 1.30% of the original balance will be
maintained for the senior certificates, and a subordination floor
of 1.10% of the original balance will be maintained for the
subordinate certificates.
Servicer Advances (Mixed): Shellpoint Servicing and United
Wholesale Mortgage (UWM) will provide full advancing for the life
of the transaction. The master servicer will serve as the ultimate
advancing backstop. While this helps the liquidity of the
structure, it also increases the expected loss due to unpaid
servicer advances.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The defined negative rating sensitivity analysis demonstrates
how the ratings would react to steeper market value declines
(MVDs) at the national level. The analysis assumes MVDs of
10.0%, 20.0% and 30.0%, in addition to the model projected
41.5% at 'AAA'. The analysis indicates that there is some
potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a
10% additional decline in home prices would lower all rated
classes by one full category.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The defined positive rating sensitivity analysis demonstrates
how the ratings would react to positive home price growth of
10% with no assumed overvaluation. Excluding the senior class,
which is already rated 'AAAsf', the analysis indicates there
is potential positive rating migration for all of the rated
classes. Specifically, a 10% gain in home prices would result
in a full category upgrade for the rated class excluding those
being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up- and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by AMC Diligence LLC, Opus Capital Market Consultants, and
Consolidated Analytics Inc. The third-party due diligence described
in Form 15E focused on a review of credit, regulatory compliance
and property valuation for each loan and is consistent with Fitch
criteria for RMBS loans. Fitch considered this information in its
analysis and, as a result, Fitch made the following adjustment to
its analysis: a 5% reduction to each loan's probability of default.
This adjustment resulted in a 25bps reduction to the 'AAAsf'
expected loss.
DATA ADEQUACY
Fitch relied in its analysis on an independent third-party due
diligence review performed on 100% of the pool. The third-party due
diligence was consistent with Fitch's "U.S. RMBS Rating Criteria."
AMC Diligence LLC, Opus Capital Market Consultants, and
Consolidated Analytics Inc. were engaged to perform the review.
Loans reviewed under this engagement were given compliance, credit
and valuation grades and assigned initial grades for each
subcategory. Minimal exceptions and waivers were noted in the due
diligence reports.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
GS MORTGAGE 2022-PJ4: Moody's Gives (P)B3 Rating to Cl. B-5 Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 57
classes of residential mortgage-backed securities (RMBS) issued by
GS Mortgage-Backed Securities Trust 2022-PJ4, and sponsored by
Goldman Sachs Mortgage Company (GSMC).
The securities are backed by a pool of prime jumbo (99% by balance)
and GSE-eligible (1% by balance) residential mortgages aggregated
by GSMC (99% by balance) and MCLP Asset Company, Inc. (1% by
balance), originated by multiple entities and serviced by Newrez
LLC d/b/a Shellpoint Mortgage Servicing (85% by balance) and United
Wholesale Mortgage, LLC (15% by balance).
The complete rating actions are as follows:
Issuer: GS Mortgage-Backed Securities Trust 2022-PJ4
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-1-X*, Assigned (P)Aa1 (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (sf)
Cl. A-4A, Assigned (P)Aaa (sf)
Cl. A-4-X*, Assigned (P)Aaa (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-6A, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-7-X*, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-10, Assigned (P)Aaa (sf)
Cl. A-10-X*, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-13-X*, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aaa (sf)
Cl. A-15, Assigned (P)Aaa (sf)
Cl. A-16, Assigned (P)Aaa (sf)
Cl. A-16-X*, Assigned (P)Aaa (sf)
Cl. A-17, Assigned (P)Aaa (sf)
Cl. A-18, Assigned (P)Aaa (sf)
Cl. A-19, Assigned (P)Aaa (sf)
Cl. A-19-X*, Assigned (P)Aaa (sf)
Cl. A-20, Assigned (P)Aaa (sf)
Cl. A-21, Assigned (P)Aaa (sf)
Cl. A-22, Assigned (P)Aaa (sf)
Cl. A-22-X*, Assigned (P)Aaa (sf)
Cl. A-23, Assigned (P)Aaa (sf)
Cl. A-24, Assigned (P)Aaa (sf)
Cl. A-25, Assigned (P)Aaa (sf)
Cl. A-25-X*, Assigned (P)Aaa (sf)
Cl. A-26, Assigned (P)Aaa (sf)
Cl. A-27, Assigned (P)Aaa (sf)
Cl. A-28, Assigned (P)Aaa (sf)
Cl. A-28-X*, Assigned (P)Aaa (sf)
Cl. A-29, Assigned (P)Aaa (sf)
Cl. A-30, Assigned (P)Aaa (sf)
Cl. A-31, Assigned (P)Aaa (sf)
Cl. A-31-X*, Assigned (P)Aaa (sf)
Cl. A-32, Assigned (P)Aaa (sf)
Cl. A-33, Assigned (P)Aaa (sf)
Cl. A-34, Assigned (P)Aa1 (sf)
Cl. A-34-X*, Assigned (P)Aa1 (sf)
Cl. A-35, Assigned (P)Aa1 (sf)
Cl. A-36, Assigned (P)Aa1 (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa3 (sf)
Cl. B-4, Assigned (P)Ba2 (sf)
Cl. B-5, Assigned (P)B3 (sf)
Cl. PT, Assigned (P)Aaa (sf)
Cl. A-X*, Assigned (P)Aa1 (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
The ratings are based on the credit quality of the mortgage loans,
the structural features of the transaction, the origination quality
and the servicing arrangement, the third-party review, and the
representations and warranties framework.
Moody's expected loss for this pool in a baseline scenario-mean is
0.56%, in a baseline scenario-median is 0.36% and reaches 4.20% at
a stress level consistent with Moody's Aaa ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in February 2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions. In addition, improvements in
reporting formats and data availability across deals and trustees
may provide better insight into certain performance metrics such as
the level of collateral modifications.
IMPACT FUNDING 2014-1: DBRS Confirms B Rating on Class F Certs
--------------------------------------------------------------
DBRS Limited confirmed the ratings of the following classes of
Affordable Multifamily Commercial Mortgage Pass-Through
Certificates, Series 2014-1 issued by Impact Funding Affordable
Multifamily Housing Mortgage Loan Trust 2014-1:
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-FX1 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class X-B at B (high) (sf)
-- Class X-FX2 at B (high) (sf)
-- Class F at B (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which closed in November 2014 with 124 fixed-rate
loans secured by 118 multifamily properties. As of the January 2022
remittance report, there was a collateral reduction of 12.3% since
issuance, with 121 loans remaining in the pool. The collateral
properties are low-income housing tax credit (LIHTC) developments
that are generally lowly levered, as reflected in the
weighted-average (WA) debt yield and loan-to-value of 20.3% and
42.9%, respectively, based on the most recent cash flows and
January 2022 balances. Based on the January 2022 reporting, the WA
debt service coverage ratio (DSCR) for the pool was 2.08 times (x),
up from the WA DBRS Morningstar Term DSCR figure derived at
issuance of 1.41x.
As of the January 2022 remittance, there are seven loans on the
servicer's watchlist, representing 4.2% of the current pool
balance. All of these loans are being monitored for cash flow
declines caused by an increase in expenses, with coverage ratios
ranging between 0.38x and 1.08x for the Q3 2021 reporting period.
None of these loans are reporting any significant decline in
occupancy rates. Although these cash flow declines present
additional risk for the respective loans within the transaction,
there are mitigating factors in the value of the tax credits sold
as part of the LIHTC program, which provide significant incentive
for the tax credit investors to fund any cash flow shortfalls (as
necessary) at the collateral properties to avoid a credit recapture
in the event the borrower defaults on the loan.
The largest loan on the watchlist, Brookland Artspace Lofts
(Prospectus ID#7, representing 1.1% of the pool balance) is secured
by a 41-unit multifamily complex in Washington, D.C. According to
the servicer, the loan is being monitored for a low DSCR, driven by
expense increases related to utility costs, insurance premiums, and
repair and maintenance costs. The loan reported a Q3 2021 DSCR
figure of 0.86x compared with the DBRS Morningstar DSCR derived at
issuance of 1.27x. Despite the increase in expenses, the loan has
historically remained current and has reported an occupancy rate of
above 92.0% since 2017.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2018-PTC: S&P Lowers Cl. HRR Certs Rating to 'B-(sf)'
---------------------------------------------------------------
S&P Global Ratings lowered its ratings on seven classes of
commercial mortgage pass-through certificates from J.P. Morgan
Chase Commercial Mortgage Securities Trust 2018-PTC, a U.S. CMBS
transaction.
This U.S. CMBS transaction is backed by a portion of a
floating-rate interest-only (IO) mortgage whole loan, secured by
the borrowers' fee and leasehold interests in Peachtree Center, a
2.5 million sq. ft. office and retail complex in Downtown Atlanta.
Rating Actions
S&P said, "The downgrades of classes A, B, C, D, E, and HRR reflect
our reevaluation of the six class B office towers and retail center
that secure the sole loan in the transaction. Our analysis
considers that the sponsors have not made any progress on improving
the portfolio's occupancy rate to historical or market levels since
the largest tenant, Truist Bank (formerly SunTrust Bank; comprising
326,066 sq. ft. or 13.1% of portfolio net rentable area [NRA]),
vacated upon its April 2021 lease expiration date. In addition, we
assess that two significant tenants, Rogers & Hardin LLP (47,764
sq. ft.; 1.9% of portfolio NRA) and Rödl Management Inc. (35,655
sq. ft.; 1.4%), along with a few smaller tenants, will vacate upon
their respective lease expirations. After reflecting the tenancy
changes in our analysis, we expect occupancy to fall to
approximately 53.9%. The borrowers have not indicated that there
are any substantial leasing prospects at this time. Our rating
actions today also reflect that the loan was recently transferred
to special servicing (Situs Companies LLC) on March 22, 2022, due
to imminent monetary default according to the master servicer,
Wells Fargo Bank N.A.
"Our property-level analysis also reflects the softened office
submarket fundamentals from lower demand and longer re-leasing time
frames as more companies adopt a hybrid work arrangement, as well
as the elevated tenant rollover in 2022 and 2023, when 13.1% of NRA
expires. As a result, we revised and lowered our sustainable net
cash flow (NCF) by 46.0% from issuance to $8.4 million, utilizing a
53.9% occupancy rate, compared with 70.0% at issuance. Our net
operating income (NOI) is 14.6% and 21.3% below the
servicer-reported figures for the annualized nine months ended
September 2021 and year-end 2020, respectively. Using an S&P Global
Ratings capitalization rate of 8.00% (unchanged from issuance), we
arrived at an expected-case valuation of $120.8 million, or $49 per
sq. ft.--a decline of 38.2% from our issuance value of $195.5
million ($79 per sq. ft.). This yielded an S&P Global Ratings
loan-to-value ratio of 116.2% on the whole loan balance."
Although the model-indicated ratings were lower than the classes'
revised rating levels, S&P tempered its downgrades on classes A, B,
C, D, E, and HRR because S&P weighed certain qualitative
considerations, including:
-- The portfolio properties' value-oriented positioning and
strategic location in Downtown Atlanta, with access to major
arterial roadways and public transportation;
-- The potential that the property's operating performance could
improve above our revised expectations;
-- The significant market value decline that would be needed
before these classes experience principal losses;
-- The liquidity support provided in the form of servicer
advancing; and
-- The relative position of the classes (particularly for classes
A through E) in the payment waterfall.
The whole loan balance had a reported current payment status
through its March 2022 debt service payments. In addition, there is
approximately $7.5 million in various reserve accounts. As
previously mentioned, the loan transferred to special servicing in
March 2022, due to imminent monetary default. S&P said, "While this
is not yet confirmed, we believe that the default is related to the
loan's April 9, 2022, maturity date, and the potential that the
borrowers were not able to exercise their remaining extension
option because it did not meet the debt yield of no less than 14.7%
test. Wells Fargo reported a debt service coverage of 2.10x and
1.94x as of the nine months ended September 2021 and year-end 2020,
respectively."
S&P said, "We lowered our rating on the class X-EXT IO certificate
based on our criteria for rating IO securities, which states that
the rating on the IO securities would not be higher than that of
the lowest-rated reference class. The notional amount of the class
X-EXT certificate references classes A, B, C, and D.
"We may take additional negative rating actions if the portfolio's
performance does not improve or if there are reported negative
changes in the performance beyond what we have already
considered."
Property-Level Analysis
The portfolio comprises six class B office high rise towers
totaling 2.36 million sq. ft. and a 119,007-sq.-ft. underground
retail center, constructed between 1969 and 1988. The property is
located at the intersection of Peachtree Street and Andrew Young
Boulevard, situated above the Peachtree Center MARTA light rail
station, with the office buildings connected to three conference
hotels by a series of skywalks. The sponsors, Banyan Street Capital
and Balandis Real Estate AG, spent approximately $18.7 million
($7.55 per sq. ft.) between 2010 and 2017 to renovate the façade,
elevators, lobbies, lighting, and common areas of the properties.
At issuance, the sponsors planned to invest an additional $49.3
million ($19.88 per sq. ft.) to redevelop the retail center and
renovate, among other items, the common areas, amenities, facades,
roofs, and elevators of the office towers. Approximately $5.7
million of this amount was spent prior to origination, with the
remaining amount funded by an $18.3 million upfront capital
improvement reserve and a $25.0 million future advance. The
servicer did not provide an update of the status of the recent
renovations; however, at issuance, the sponsors anticipated the
retail redevelopment to be completed by spring 2019 and the office
upgrades to be completed by 2021.
S&P said, "Our property-level analysis considered that while the
sponsors made recent capital improvements to the properties, they
still struggled and were unsuccessful in re-tenanting the vacant
spaces in a timely manner. As of the Dec. 31, 2021, rent roll, the
portfolio was 57.3% leased and we expect the portfolio occupancy
rate to decline to approximately 53.9% after adjusting for known
tenant movements. This compares to the in-place occupancy rate of
70.1% for the portfolio at issuance.
"Based on our review of the servicer-provided November 2021 leasing
report detailing historical and in-progress negotiations, we
assessed that the sponsors had not attracted any significant
prospects to fill the vacant space in recent years. Per the
December 2021 rent roll, we also noted that the 119,007-sq.-ft.
retail facility (The Hub) lacked diversity, with tenants
concentrated in the restaurant and food service industry. Of the
six office towers, the smallest building, North Tower (12.8% of
total office NRA) had an occupancy rate (71.3% by building NRA)
above the portfolio-level occupancy level at issuance (70.1%). In
addition, each building faces low-occupancy issues, concentrated
rollover risk, and/or known tenant movements, which we detailed
below."
South Tower (306,904 sq. ft.)
After adjusting the December 2021, rent roll for known tenant
movements, such as the largest tenant, Rodl Management Inc. (35,655
sq. ft.; May 2022 lease expiration), which had already relocated to
the Truist Plaza building (adjacent to the subject portfolio
property), the building was only 20.8% (or 63,890 sq. ft.)
occupied, including 1,299 sq. ft. leased to management. The
borrowers assessed that two tenants, The Jarman Firm PC and
GSA--Federal Trade Commission, totaling 9,841 sq. ft., with leases
expiring in April 2022 and May 2023, respectively, are likely to
move out.
No new leases were signed last year as of November 2021, while
in-place leases comprising approximately 47,267 sq. ft. expired and
the tenants either left or relocated to other buildings within the
portfolio.
Marquis II (466,010 sq. ft.)
After adjusting the December 2021 rent roll, the building was only
34.3% (or 159,850 sq. ft.) occupied, including 10,862 sq. ft.
leased to management.
The largest- and second-largest tenants, Truist Bank (253,678 sq.
ft.) and GSA--Census Bureau (35,951 sq. ft.), vacated upon their
lease expirations in April 2021 and September 2021, respectively.
The sponsors only signed 23,353 sq. ft. of new and renewing leases
last year as of November 2021, including some tenants moving
between buildings in the portfolio.
Harris Tower (395,027 sq. ft.)
After adjusting the December 2021 rent roll, the building was only
54.4% (or 215,045 sq. ft.) occupied, including 2,036 sq. ft. leased
to management.
The largest and second-largest tenants, GSA--Dept. of Labor (33,274
sq. ft.) and City of Atlanta (32,452 sq. ft.) vacated upon their
lease expirations in August 2021 and March 2020, respectively.
The borrowers opined that two tenants, Midtown Lanier Parking Inc.
and Georgia Environmental Finance Authority, totaling 47,549 sq.
ft., are likely to vacate, with the former exercising its lease
termination option in February 2022 and the latter temporarily in
holdover after its lease expired in June 2021.
After adjusting the December 2021 rent roll, approximately 156,357
sq. ft. (51.6% of building NRA) rolls in 2022, 2023, or 2024,
including the largest and second-largest tenants, Emory Healthcare
(56,484 sq. ft.) and Fulton County, Ga. (37,853 sq. ft.).
Only one lease for 3,394 sq. ft. was renewed last year as of
November 2021, versus 8,788 sq. ft. of leases having expired.
International Tower (426,434 sq. ft.)
The second largest tenant, Rogers & Hardin LLP (47,764 sq. ft.)
vacated in January 2022.
After adjusting the December 2021 rent roll, approximately 102,452
sq. ft. (24.0% of building NRA) rolls in 2022, 2023, or 2024.
Marquis I (465,694 sq. ft.)
The second largest tenant, Truist Bank (54,637 sq. ft.) vacated in
April 2021.
After adjusting the December 2021 rent roll, approximately 143,975
sq. ft. (30.9% of building NRA) rolls in 2022, 2023, or 2024.
S&P's current analysis considered the aforementioned developments,
lower office demand as companies embraces hybrid and remote work, a
flight to higher-quality office space with amenities, and current
market data and conditions. According to CoStar, the Downtown
Atlanta office submarket has experienced an increase in vacancy
rates to 12.3% from approximately 9.3% pre-COVID as of March 2022,
and lower market rents in recent years relative to its neighboring
central business districts, Midtown and Buckhead. As reported by
CoStar, as of March 2022, for the Downtown Atlanta office
submarket, the 2- to 4-star properties asking rent is $26.64 per
sq. ft., with projections to increase by 9.0% to $29.04 per sq. ft.
by year-end 2023, although tepid growth could continue. This
compares to the office submarkets of Buckhead and Midtown, which
reported asking rents of $34.98 per sq. ft. and $36.21 per sq. ft.,
respectively.
The vacancy rate in the 2- to 4-star Downtown Atlanta office
submarket was 12.3% as of March 2022 and projected to increase to
13.0% by year-end 2023, lower than Buckhead's 23.8% and Midtown's
19.4% current vacancy rates. According to the December 2021 rent
roll and adjusting for known tenant movements, the subject
portfolio's occupancy rate and gross rent were 53.9% and $26.05 per
sq. ft., respectively, as calculated by S&P Global Ratings. S&P
said, "As a result, in our current analysis, we assumed a 53.9%
occupancy rate and in-place gross rent, arriving at an S&P Global
Ratings NCF of $8.4 million. Using a S&P Global Ratings
capitalization rate of 8.0%, we derived a $120.8 million
expected-case value, or $49 per sq. ft. Our expected-case value
includes using a floor land value for the Marquis II fee interest
property and attributing no value for the South Tower leasehold
interest property due to their depressed in-place occupancy
levels."
Transaction Summary
This is a U.S. stand-alone (single borrower) transaction backed by
a portion of a floating-rate IO mortgage whole loan. The loan is
secured by the borrowers' fee and leasehold interests in Peachtree
Center, an approximately 2.5 million sq. ft. office and retail
complex in Downtown Atlanta.
The mortgage whole loan has a maximum initial and current balance
of $140.3 million, is IO, and pays an annual floating interest rate
indexed to one-month LIBOR plus 3.59%. The whole loan has an
initial two-year term, with three one-year extension options. The
final extended maturity date is April 9, 2023. The loan's current
maturity date is April 9, 2022, with one one-year extension option
remaining. The extension option is subject to the borrower
obtaining a replacement interest rate cap agreement and a debt
yield of no less than 14.7%.
The whole loan is split into two pari passu notes, comprising the
$115.3 million trust balance (according to the March 15, 2022,
trustee remittance report) and a nontrust $25.0 million future
advance note, which, according to the servicer, was fully funded by
JPMorgan Chase Bank. In addition to the first-mortgage whole loan,
the borrowers obtained an IO mezzanine loan totaling $38.7 million
from JPMorgan Chase Bank. The mezzanine loan pays a floating
interest rate indexed to LIBOR plus 8.40% and matures on April 9,
2022, with one one-year extension option remaining.
The future advance amount of $25.0 million was earmarked for
capital improvements after upfront reserves of $18.3 million were
exhausted.
To date, the trust has not incurred any principal losses. Class HRR
has a reported $3,402 in accumulated interest shortfalls due to
expenses associated with LIBOR transition initiatives. Given the
nature of the shortfalls, S&P views these amounts as non-credit
related and, as such, they had no rating impact.
The recent rapid spread of the omicron variant highlights the
inherent uncertainties of the pandemic, as well as the importance
and benefits of vaccines. S&P said, "While the risk of new, more
severe variants displacing omicron and evading existing immunity
cannot be ruled out, our current base case assumes that existing
vaccines can continue to provide significant protection against
severe illness. Furthermore, many governments, businesses, and
households around the world are tailoring policies to limit the
adverse economic impact of recurring COVID-19 waves. Consequently,
we do not expect a repeat of the sharp global economic contraction
of second-quarter 2020. Meanwhile, we continue to assess how well
each issuer adapts to new waves in its geography or industry."
Ratings Lowered
J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-PTC
-- Class A to 'AA (sf)' from 'AAA (sf)'
-- Class B to 'A- (sf)' from 'AA- (sf)'
-- Class C to 'BBB- (sf)' from 'A- (sf)'
-- Class D to 'BB- (sf)' from 'BBB- (sf)'
-- Class E to 'B (sf)' from 'BB (sf)'
-- Class HRR to 'B- (sf)' from 'BB- (sf)'
-- Class X-EXT to 'BB- (sf)' from 'BBB- (sf)'
JPMBB COMMERCIAL 2015-C32: DBRS Confirms C Rating on 4 Classes
--------------------------------------------------------------
DBRS Limited confirmed the ratings on all classes of Commercial
Mortgage Pass-Through Certificates, Series 2015-C32 issued by JPMBB
Commercial Mortgage Securities Trust 2015-C32 as follows:
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (low) (sf)
-- Class B at A (high) (sf)
-- Class C at CCC (sf)
-- Class EC at CCC (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
The trends on Classes B and X-B remain Negative. Classes C, EC, D,
E, F, and G have ratings that do not carry a trend, and all
remaining Classes have Stable trends. DBRS Morningstar maintained
its Interest in Arrears designation on Classes D, E, F, and G.
The rating confirmations and Negative trends are reflective of the
overall performance of the transaction and DBRS Morningstar's
ongoing concerns regarding the loans in special servicing, which
represent 34.6% of the pool balance and include four loans in the
top 10. According to the February 2022 remittance, 77 of the
original 89 loans remain in the pool, representing a collateral
reduction of 26.4% since issuance. Three loans are fully defeased,
representing 34.6% of the pool, and 15 loans are on the servicer's
watchlist, representing 15.4% of the pool.
The largest loan in the pool, Civic Opera Building (Prospectus
ID#2, 8.4% of the pool), is secured by an office property in
Chicago's West Loop District and is pari passu with a loan in the
JPMBB 2015-C31 transaction, which is also rated by DBRS
Morningstar. The loan transferred to special servicing in June 2020
because of imminent monetary default as a result of the Coronavirus
Disease (COVID-19) pandemic and was last paid through May 2021. The
servicer reports that it is pursuing multiple workout strategies
including ongoing forbearance negotiations with the borrower.
According to the servicer's commentary, a consensual receivership
was also awarded by the courts. The most recent appraisal reported
by the servicer, dated February 2021, valued the property at $165.0
million, down 25% from the appraised value of $220.0 million at
issuance, equating to a current whole-loan loan-to-value ratio of
94.0%. As of March 2021, the property reported an occupancy rate of
75.0% and a debt service coverage ratio (DSCR) of 0.73 times (x),
compared with the YE2020 figures of 75.0% and 0.80x, respectively.
The cash flow declines have been the result of lower occupancy
rates in the last few years, as well as significant increases in
payroll and real estate tax expenses. Given the sustained low
DSCRs, value decline, and the leasing challenges given that the
subject was constructed in 1929 and the general format of the
suites is small, the loan exhibits elevated credit risk. As such,
for this review, DBRS Morningstar analyzed the loan with a
liquidation scenario, which resulted in a loss severity in excess
of 35.0%.
The second-largest loan, Hilton Suites Chicago Magnificent Mile
(Prospectus ID#1, 8.2% of the pool), is secured by a full-service
hotel in downtown Chicago. The loan is in special servicing and was
last paid through September 2020. Prior to the pandemic, the loan
performance had declined from issuance expectations and the risk
was compounded because the hospitality industry was significantly
affected by the pandemic. The lender and the borrower are working
on documenting a deed in lieu of foreclosure as the workout. Based
on the May 2021 appraisal, the property was valued at $57.1
million, which is a 49.2% decline from the issuance value of $112.4
million and is below the outstanding loan balance of $69.4 million.
With this review, DBRS Morningstar analyzed this loan with a
liquidation scenario, which resulted in a loss severity in excess
of 50.0%.
The third-largest loan, Palmer House Retail Shops (Prospectus ID#3,
6.9% of the pool), is secured by a mixed-use retail and office
property in downtown Chicago. The loan transferred to special
servicing in July 2020 for payment default and the loan was last
paid through April 2020. A foreclosure complaint was filed in
December 2020 and a receiver was appointed in February 2021. Based
on the July 2021 appraisal, the property was valued at $39.9
million, a 56.9% decline from the issuance value of $92.6 million
and below the outstanding loan balance of $58.9 million. With this
review, DBRS Morningstar analyzed this loan with a liquidation
scenario, which resulted in a loss severity in excess of 60.0%.
The Outlet Shoppes at Gettysburg (Prospectus ID#8, 4.2% of the
pool) is secured by a retail outlet center in Gettysburg,
Pennsylvania. The loan transferred to special servicing in April
2021 because of imminent default and the guarantor's filing for
Chapter 11 bankruptcy in November 2020, which triggered a recourse
provision. As of the February 2022 remittance, the loan is current
and the servicer is in discussions with the borrower regarding a
loan modification while dual-tracking foreclosure. Based on the
June 2021 appraisal, the property was valued at $18.4 million,
which is a 71.6% decline from the issuance value of $64.8 million
and well below the outstanding loan balance of $35.7 million. As of
December 2021, the property was 73.1% occupied as several small
tenants vacated upon their lease expirations. The loan reported a
YE2020 DSCR of 0.98x, compared with the YE2019 DSCR of 1.04x. The
sponsors are CBL & Associates (CBL) and Horizon Group Properties.
CBL recently emerged from Chapter 11 bankruptcy in November 2021,
having reduced its corporate debt by $1.7 billion. Considering the
loan is current and the possibility of a loan modification as the
resolution strategy, DBRS Morningstar analyzed this loan with a
significant probability of default penalty to increase the expected
loss.
At issuance, DBRS Morningstar shadow-rated the U-Haul Portfolio
loan (Prospectus ID#5, 2.5% of the pool) as investment grade. With
this review, DBRS Morningstar confirmed that the performance of
this loan remains consistent with investment-grade loan
characteristics.
Notes: All figures are in U.S. dollars unless otherwise noted.
KKR CLO 38: Moody's Assigns Ba3 Rating to $16MM Class E Notes
-------------------------------------------------------------
Moody's Investors Service has assigned ratings to three classes of
notes issued by KKR CLO 38 Ltd. (the "Issuer" or "KKR 38").
Moody's rating action is as follows:
US$241,000,000 Class A-1 Senior Secured Floating Rate Notes due
2033, Definitive Rating Assigned Aaa (sf)
US$15,000,000 Class A-2 Senior Secured Fixed Rate Notes due 2033,
Definitive Rating Assigned Aaa (sf)
US$16,000,000 Class E Senior Secured Deferrable Floating Rate Notes
due 2033, Definitive Rating Assigned Ba3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
KKR 38 is a managed cash flow CLO. The issued notes will be
collateralized primarily by broadly syndicated senior secured
corporate loans. At least 92.5% of the portfolio must consist of
first lien senior secured loans, cash, and eligible investments,
and up to 7.5% of the portfolio may consist of second lien loans,
unsecured loans and permitted non-loan assets. The portfolio is
approximately 98% ramped as of the closing date.
KKR Financial Advisors II, LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's three year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Notes, the Issuer issued three other
classes of secured notes and one class of subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $400,000,000
Diversity Score: 65
Weighted Average Rating Factor (WARF): 2969
Weighted Average Spread (WAS): 3mS + 3.60%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 46.5%
Weighted Average Life (WAL): 7.0 years
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
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.
LJV I MM: Moody's Assigns Ba3 Rating to $21.5MM Class E Notes
-------------------------------------------------------------
Moody's Investors Service has assigned ratings to seven classes of
notes issued by LJV I MM CLO LLC (the "Issuer" or "LJV I MM").
Moody's rating action is as follows:
US$111,000,000 Class A-1 Senior Secured Floating Rate Notes due
2034, Assigned Aaa (sf)
US$63,000,000 Class A-2 Senior Secured Fixed Rate Notes due 2034,
Assigned Aaa (sf)
US$24,500,000 Class B Senior Secured Floating Rate Notes due 2034,
Assigned Aa2 (sf)
US$10,500,000 Class C-1 Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned A2 (sf)
US$10,000,000 Class C-2 Mezzanine Secured Deferrable Fixed Rate
Notes due 2034, Assigned A2 (sf)
US$23,500,000 Class D Mezzanine Secured Deferrable Floating Rate
Notes due 2034, Assigned Baa3 (sf)
US$21,500,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2034, Assigned Ba3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
LJV I MM is a managed cash flow CLO. The issued notes will be
collateralized primarily by middle market loans. At least 95% of
the portfolio must consist of senior secured loans and eligible
investments, and up to 5% of the portfolio may consist of
collateral obligations other than senior secured loans and eligible
investments. The portfolio is approximately 85% ramped as of the
closing date.
First Eagle Alternative Credit, LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's three year
reinvestment period. Thereafter, the Servicer may not reinvest and
all proceeds received will be used to amortize the notes in
sequential order.
In addition to the Rated Notes, the Issuer issued subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $300,000,000
Diversity Score: 40
Weighted Average Rating Factor (WARF): 3902
Weighted Average Spread (WAS): 4.50%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 45.0%
Weighted Average Life (WAL): 6.0 years
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
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.
LOANCORE 2022-CRE7: DBRS Finalizes B(low) Rating on Class G Notes
-----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by LoanCore 2022-CRE7 Issuer Ltd. (the
Issuer):
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The initial collateral consists of 29 floating-rate mortgages
secured by 29 mostly transitional properties with a cut-off balance
of $1.25 billion, excluding approximately $65.4 million of future
funding participations and $194.7 million of funded companion
participations. In addition, there is a two-year reinvestment
period during which the Issuer may use principal proceeds to
acquire additional eligible loans, subject to the eligibility
criteria. During the reinvestment period, the Issuer may acquire
future funding commitments, funded companion participations, and
additional eligible loans subject to the eligibility criteria. The
transaction stipulates a no downgrade confirmation from DBRS
Morningstar for all companion participations if there is already a
participation of the underlying loan in the trust.
The loans are secured by currently cash flowing assets, many of
which are in a period of transition with plans to stabilize and
improve the asset value. In total, 18 loans, representing 58.9% of
the trust balance, have remaining future funding participations
totaling $65.4 million, which the Issuer may acquire in the
future.
For the floating-rate loans, DBRS Morningstar used the one-month
Libor index, which is based on the lower of a DBRS Morningstar
stressed rate that corresponded to the remaining fully extended
term of the loans or the strike price of the interest rate cap with
the respective contractual loan spread added to determine a
stressed interest rate over the loan term. When the cut-off
balances were measured against the DBRS Morningstar as-is net cash
flow (NCF), 22 loans, representing 81.1% of the initial pool, had a
DBRS Morningstar as-is debt service coverage ratio (DSCR) below
1.00 times (x), a threshold indicative of default risk.
Additionally, the DBRS Morningstar Stabilized DSCRs for 20 loans,
representing 71.1% of the initial pool balance, are below 1.00x.
The properties are often transitioning with potential upside in
cash flow; however, DBRS Morningstar does not give full credit to
the stabilization if there are no holdbacks or if other loan
structural features in place are insufficient to support such
treatment. Furthermore, even with the structure provided, DBRS
Morningstar generally does not assume the assets to stabilize above
market levels. The transaction has a sequential-pay structure.
The transaction's sponsor is LCC REIT, which is managed by LoanCore
Capital Credit Advisor LLC, a wholly owned subsidiary of LoanCore
Capital (LoanCore). LoanCore 2022-CRE7 Issuer Ltd. and LoanCore
2022-CRE7 Co-Issuer LLC are each newly formed special-purchase
vehicles (collectively, the Co-Issuers) and indirect wholly owned
subsidiaries of the Sponsor. LoanCore is a commercial real estate
investor and lender with a credit-focused alternative asset
management platform that manages LLC REIT and LoanCore Capital
Markets (LCM). As of December 31, 2021, LoanCore had $15.6 billion
in assets under management between LCC REIT and LCM. This
transaction represents LoanCore's eighth commercial real estate
collateralized loan obligation (CRE CLO) since 2013, and there have
been no realized losses to date in any of its issued CRE CLOs on
approximately $8.1 billion of mortgage assets contributed including
reinvestments. An affiliate of LCC REIT, an indirect wholly owned
subsidiary of the Sponsor (as the retention holder), has acquired
the Class F Notes, the Class G Notes, and the Preferred Shares
(Retained Securities), representing the most subordinate 17.2% of
the transaction by principal balance.
Twenty-seven of the 29 loans, representing 94.1% of the mortgage
asset cut-off date balance, are for acquisition financing, where
the borrowers contributed material cash equity in conjunction with
the mortgage loan. Cash equity infusions from a sponsor typically
result in the lender and borrower having a greater alignment of
interests, especially compared with a refinancing scenario where
the sponsor may be withdrawing equity from the transaction.
The transaction's initial collateral composition consists mostly of
multifamily properties, which benefit from staggered lease rollover
and generally low expense ratios compared with other property
types. While revenue is quick to decline in a downturn because of
the short-term nature of the leases, it is also quick to respond
when the market improves. The subject pool includes garden-style
communities and mid-rise buildings. After closing, as part of the
ramp-up and reinvestment period, the collateral manager may only
acquire loans secured by multifamily properties. The prior LNCR
2021-CRE5 and LNCR 2021-CRE6 transactions allowed the collateral
manager to acquire office, industrial, retail, hotel, mixed-use,
self-storage, manufactured housing, and student housing property
types.
Based on the initial pool balances, the overall DBRS Morningstar
weighted-average (WA) as-is DSCR of 0.85x and WA as-is
loan-to-value (LTV) of 76.2% generally reflect high-leverage
financing. Most of the assets are generally well positioned to
stabilize, and any realized cash flow growth would help to offset a
rise in interest rates and improve the loans' overall debt yield.
DBRS Morningstar associates its loss severity given default (LGD)
based on the assets' DBRS Morningstar As-Is LTV, which does not
assume that the stabilization plan and cash flow growth will ever
materialize. The DBRS Morningstar As-Is DSCR for each loan at
issuance does not consider the sponsor's business plan, as the DBRS
Morningstar As-Is NCF is generally based on the most recent
annualized period. The sponsor's business plan could have an
immediate impact on the underlying asset performance that the DBRS
Morningstar As-Is NCF is not accounting for. The DBRS Morningstar
As-Is LTV of 76.2% is lower than previous LNCR transactions, and
less than 10.0% of the pool has DBRS Morningstar As-Is LTVs greater
than 85.0%, a lower share than in prior LNCR transactions.
There are no loans in the current pool secured by properties in
areas with a DBRS Morningstar Market Rank of 7 or 8, which are more
densely populated and urban in nature. Loans secured by properties
in such areas have historically benefited from increased liquidity
and consistently strong investor demand, even during times of
economic distress. Consequently, loans in these dense, urban
locations often exhibit lower expected losses, and the lack of
collateral in these areas can be a negative credit characteristic.
Conversely, 24 loans, representing 80.9% of the current portfolio
balance, are secured by properties in markets with a DBRS
Morningstar Market Rank of 3 or 4, which are more suburban in
nature. Loans secured by properties in such areas have historically
exhibited elevated probabilities of default (PODs) and often have
higher expected losses in the DBRS Morningstar approach. The DBRS
Morningstar WA Market Rank of 3.5 for this pool is generally
indicative of a higher concentration of properties in less densely
populated suburban areas. This WA market rank is lower than all
three LoanCore deals DBRS Morningstar rated in 2021. DBRS
Morningstar concluded higher PODs and LGDs in this transaction than
in similar pools with more exposure to urban markets.
The transaction is managed and includes a reinvestment period,
which could result in negative credit migration and/or an increased
concentration profile over the life of the transaction. The risk of
negative migration is partially offset by eligibility criteria
(detailed in the transaction documents) that outline DSCR, LTV,
Herfindahl score minimum, property type, and loan size limitations
for reinvestment assets. DBRS Morningstar has rating agency
confirmation for all new reinvestment loans and companion
participations. DBRS Morningstar may analyze these loans for
potential impacts on ratings. Deal reporting includes standard
monthly Commercial Real Estate Finance Council reporting and
quarterly updates. DBRS Morningstar will monitor this transaction
on a regular basis.
DBRS Morningstar has analyzed the loans to reflect an as-stabilized
cash flow that is, in some instances, above the in-place cash flow.
It is possible that the sponsors will not successfully execute
their business plans and that the higher stabilized cash flow will
not materialize during the loan term, particularly with the ongoing
Coronavirus Disease (COVID-19) pandemic and its impact on the
overall economy. A sponsor’s failure to execute the business plan
could result in a term default or the inability to refinance the
fully funded loan balance. The DBRS Morningstar analysis does not
express a view on whether the loan sponsor will extend or modify
loans that do not meet extension tests or successfully refinance.
DBRS Morningstar sampled a large portion of the loans, representing
71.6% of the mortgage asset cut-off date balance. The transaction's
DBRS Morningstar WA Business Plan Score of 1.83 is generally in the
range of recent CRE CLO transactions rated by DBRS Morningstar.
DBRS Morningstar made relatively conservative stabilization
assumptions and, in each instance, considered the business plan to
be rational and the loan structure to be sufficient to execute such
plans. In addition, DBRS Morningstar analyzes LGD based on the
as-is credit metrics, assuming the loan is fully funded with no NCF
or value upside. Affiliates of LLC REIT will hold future funding
companion participations and have the obligation to make future
advances. LLC REIT agrees to indemnify the Issuer against losses
arising out of the failure to make future advances when required
under the related participated loan. Furthermore, LLC REIT will be
required to meet certain liquidity requirements on a quarterly
basis.
Notes: All figures are in U.S. dollars unless otherwise noted.
MARINER FINANCE 2021-B: S&P Affirms BB- (sf) Rating on Cl. E Notes
------------------------------------------------------------------
S&P Global Ratings affirmed its ratings on 18 classes from Mariner
Finance Issuance Trust (MFIT) 2019-A, 2020-A, 2021-A, and 2021-B.
S&P said, "The rating actions reflect collateral performance to
date, our expectations regarding future collateral performance, and
each transaction's structure and credit enhancement. Our analysis
also incorporated secondary credit factors, including credit
stability, payment priorities under various scenarios, and sector-
and issuer-specific analyses. We also reviewed the transactions'
operational, legal, and counterparty risks as part of this
analysis. Considering all of these factors, we believe the
creditworthiness of the notes is consistent with the affirmed
rating levels.
"The affirmations reflect our view that the total credit support as
a percentage of the transactions' pool balances, compared with our
expected default levels, are commensurate with the affirmed
ratings. All of the MFIT transactions reviewed remain in their
revolving periods. Our original cash flow modelling assumed each
pool would revolve to the worst-case composition permitted by the
transaction documents. However, the actual pool compositions are
better than the assumed worst-case composition, so the pools' loss
performance has been lower than what we assumed at the outset of
the transactions.
"We will continue to monitor the performance of all the
transactions to ensure that the credit enhancement remains
sufficient, in our view, to cover our default expectations under
our stress scenarios for each of the rated classes."
Ratings Affirmed
Mariner Finance Issuance Trust 2019-A
Class A: AA (sf)
Class B: A (sf)
Class C: BBB (sf)
Class D: BB (sf)
Mariner Finance Issuance Trust 2020-A
Class A: AA- (sf)
Class B: A (sf)
Class C: BBB- (sf)
Class D: BB- (sf)
Mariner Finance Issuance Trust 2021-A
Class A: AAA (sf)
Class B: AA- (sf)
Class C: A- (sf)
Class D: BBB- (sf)
Class E: BB- (sf)
Mariner Finance Issuance Trust 2021-B
Class A: AAA (sf)
Class B: AA- (sf)
Class C: A- (sf)
Class D: BBB- (sf)
Class E: BB- (sf)
MFA TRUST 2022-CHM1: DBRS Gives Prov. B Rating on Class B-2 Certs
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following Mortgage
Pass-Through Certificates, Series 2022-CHM1 (the Certificates) to
be issued by MFA 2022-CHM1 Trust (MFA 2022-CHM1 or the Trust):
-- $194.1 million Class A-1 at A (sf)
-- $10.2 million Class M-1 at BBB (sf)
-- $12.6 million Class B-1 at BB (sf)
-- $8.2 million Class B-2 at B (sf)
The A (sf) rating on the Class A-1 certificates reflects 18.15% of
credit enhancement provided by subordinated certificates. The BBB
(sf), BB (sf), and B (sf) ratings reflect 13.85%, 8.55%, and 5.10%
of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This is a securitization of a portfolio of fixed- and
adjustable-rate expanded prime first-lien residential mortgages
funded by the issuance of the Certificates. The Certificates are
backed by 322 mortgage loans with a total principal balance of
$237,127,941 as of the Cut-Off Date (January 31, 2022).
MFA 2022-CHM1 represents the first securitization issued by the
Sponsor, MFA Financial, Inc. (MFA) where 100% of the loans in the
pool were originated by Change Lending, LLC (Change). Change is
certified by the U.S. Department of the Treasury as a Community
Development Financial Institution (CDFI). As a CDFI, Change is
required to lend at least 60% of its production to certain target
markets, which include low-income borrowers or other underserved
communities.
While loans originated by a CDFI are not required to comply with
the Consumer Financial Protection Bureau's Qualified Mortgage and
Ability-to-Repay rules, the mortgages included in this pool were
made to generally creditworthy borrowers with near-prime credit
scores, low loan-to-value ratios (LTVs), and robust reserves.
The loans in the pool were underwritten through Change's Community
Mortgage (100%), which is considered weaker than other origination
programs because income documentation verification is not required.
Generally, underwriting practices of this program focus on borrower
credit, borrower equity contribution, housing payment history, and
liquid reserves relative to monthly mortgage payments. Because
post-2008 crisis historical performance is limited on these
products, DBRS Morningstar applied additional assumptions to
increase the expected losses for the loans in its analysis.
On or after the earlier of (1) the distribution date occurring in
February 2024 and (2) the date on which the aggregate stated
principal balance of the loans falls to 30% or less of the Cut-Off
Date balance, at its option, the Depositor may redeem all of the
outstanding certificates at a price equal to the class balances of
the related Certificates plus accrued and unpaid interest,
including any Cap Carryover Amounts and any deferred amounts due to
modifications after the Closing Date. Such optional redemption may
be followed by a qualified liquidation, which requires (1) a
complete liquidation of assets within the Trust and (2) proceeds to
be distributed to the appropriate holders of regular or residual
interests.
Planet Home Lending, LLC is the Servicer for the transaction. For
this transaction, the Servicer will not fund advances of delinquent
principal and interest (P&I) on any mortgage. However, the Servicer
is obligated to make advances in respect of taxes, insurance
premiums, and reasonable costs incurred in the course of servicing
and disposing of properties.
This transaction employs a sequential-pay cash flow structure.
Principal proceeds can be used to cover interest shortfalls on
certificates, but such shortfalls on the Class M-1 certificates and
more subordinate bonds will not be paid from principal proceeds
until the more senior classes are retired. Furthermore, excess
spread can be used to cover realized losses and prior period bond
writedown amounts first before being allocated to unpaid cap
carryover amounts to Class A-1 down to M-1.
Under the U.S. Risk Retention Rules, CDFI loans fall within the
definition of "community-focused residential mortgages." A
securitization transaction containing only community-focused
residential mortgages is exempt under the U.S. Risk Retention Rules
and accordingly, the Sponsor will not be required to retain any
credit risk under Section 15G of the Securities Exchange Act of
1934 and the regulations promulgated thereunder. Notwithstanding
the exemption, the Depositor has elected to retain the Class B-2,
B-3, A-IO-S, and XS certificates.
Coronavirus Disease (COVID-19) Pandemic Impact
The coronavirus pandemic and the resulting isolation measures have
caused an immediate economic contraction, leading to sharp
increases in unemployment rates and income reductions for many
consumers. Shortly after the onset of the pandemic, DBRS
Morningstar saw an increase in delinquencies for many residential
mortgage-backed securities (RMBS) asset classes.
Such mortgage delinquencies were mostly in the form of
forbearances, which are generally short-term periods of payment
relief that may perform very differently from traditional
delinquencies. At the onset of the pandemic, the option to forbear
mortgage payments was widely available, driving forbearances to an
elevated level. When the dust settled, loans with
coronavirus-induced forbearance in 2020 performed better than
expected, thanks to government aid, low LTVs, and acceptable
underwriting in the mortgage market in general. Across nearly all
RMBS asset classes, delinquencies have been gradually trending
downward, as forbearance periods come to an end for many
borrowers.
As of the Cut-Off Date, there are no loans that are subject to an
active coronavirus-related forbearance plan with the Servicer.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2013-C7: DBRS Confirms C Rating on 3 Tranches
------------------------------------------------------------
DBRS, Inc. confirmed the classes of Commercial Mortgage
Pass-Through Certificates, Series 2013-C7 issued by Morgan Stanley
Bank of America Merrill Lynch Trust 2013-C7 as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
The trends for Classes C, X-B, and PST were changed to Negative
from Stable. Classes A-3, A-4, A-AB, A-S, B, and X-A have Stable
trends. Classes D, E, F, and G do not carry trends given their
respective ratings.
The Negative trends are driven by increased maturity risk for
select loans of concern, which are described below. The rating
confirmations reflect sufficient credit support relative to DBRS
Morningstar's overall recovery expectations for the pool's
remaining loans. There are 43 loans, representing 97.5% of the
trust balance, scheduled to mature in the next 12 months. DBRS
Morningstar's ratings reflect ongoing concerns with adverse
selection as the majority of performing loans, which have a
weighted-average debt service coverage ratio and debt yield of 9.7%
and 1.87 times, respectively, will repay at maturity, leaving
junior bonds exposed to those currently in special servicing or
considered likely to default at maturity.
At issuance, the trust comprised 64 fixed-rate loans secured by 123
commercial properties with a trust balance of $1.39 billion. As of
the February 2022 remittance, 50 loans secured by 61 commercial
properties remain in the pool with a trust balance of $948.4
million, representing a 32.0% collateral reduction since issuance.
Twelve loans, totaling 13.5% of the trust balance, are fully
defeased. The pool is concentrated by loans secured by retail
properties, which represents 46.0% of the trust balance, including
four of the largest 10 loans. The two largest specially serviced
loans, totaling 13.8% of the trust balance, are secured by
distressed regional malls.
The Solomon Pond Mall loan (Prospectus ID#2; 9.4% of the trust
balance) is secured by the fee-simple interest in a regional mall
in Marlborough, Massachusetts, approximately 30 miles west of
downtown Boston. The loan, sponsored by Simon Property Group (SPG),
transferred to special servicing in May 2020 due to imminent
monetary default and a receiver was appointed in September 2021.
The subject lost its noncollateral Sears anchor in Q2 2021 and
property's physical occupancy has declined to 69% as of September
2021 from 89% at YE2019 and leases representing 15% of the net
rentable area (NRA) are considered temporary tenants. In total,
leases representing 42.4% of the NRA are scheduled to roll in the
next year, including the largest collateral tenant Regal Cinemas
(16.8% of the NRA). The special servicer is dual-tracking various
workout strategies while executing a stabilization plan. Should the
special servicer foreclose on the property, which was recently
deemed by SPG to be a noncore asset, DBRS Morningstar anticipates
the full loan amount will not be recovered.
The Valley West Mall loan (Prospectus ID#7; 4.3% of the trust
balance) is secured by a regional mall in West Des Moines, Iowa,
and is owned by Watson Investments (Watson), which originally
developed the mall in 1975. The collateral includes the in-line
space and all three anchor pads. The loan transferred to special
servicing in August 2019 although loan payments remain current.
According to a February 2021 news article in the Des Moines
Register, the property was being included in a $278 million
proposed redevelopment plan that was reported to include an equity
contribution of $262 million from Watson and a $30 million grant
from the state through the Iowa Reinvestment Act. The special
servicer noted the redevelopment plan with the City of West Des
Moines has stalled and the borrower continues to seek additional
capital for the project. The special servicer is considering the
appointment of a receiver in the near term. The project, as well as
the loan's refinance prospect, is considered highly speculative and
DBRS Morningstar anticipates significant losses to the loan should
the special servicer foreclose on the asset.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2015-C23: DBRS Confirms B Rating on X-FG Certs
-------------------------------------------------------------
DBRS, Inc. confirmed the following ratings of the Commercial
Mortgage Pass-Through Certificates, Series 2015-C23 issued by
Morgan Stanley Bank of America Merrill Lynch Trust 2015-C23:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class PST at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at BB (low) (sf)
-- Class X-FG at B (sf)
-- Class G at B (low) (sf)
The rating confirmations reflect the steady performance of the
majority of the underlying collateral. Classes F, G, and X-FG
continue to carry Negative trends, reflecting the uncertainty of
resolution for the pool's five specially serviced loans. All other
trends are Stable.
Five loans, representing 9.2% of the current pool balance, are in
special servicing. In addition to two hotels that were in special
servicing at the time of the last review, two multifamily
properties—Aviare Place Apartments (Prospectus ID#16, 2.3% of the
pool) and Hawthorne House Apartments (Prospectus ID#24, 1.4% of the
pool)—and one unanchored retail property—Country Corners
Shopping Center (Prospectus ID#52, 0.5% of the pool) —transferred
to special servicing since the prior review. Nine loans,
representing 15.4% of the current trust balance, are on the
servicer's watchlist and are being monitored for a variety of
reasons, including low debt service coverage ratios (DSCR), low
occupancy, and declining performance due to the Coronavirus Disease
(COVID-19) pandemic.
As of the February 2022 remittance, 67 of the original 75 loans
remain in the trust, with an aggregate trust balance of $874.7
million, representing a collateral reduction of approximately 18.5%
since issuance due to loan amortizations and repayments. Eight
loans, representing 4.6% of the current pool balance, are fully
defeased. There have been no losses incurred to date and the
generally stable performance of the underlying loans supports the
rating confirmations.
The largest specially serviced loan is secured by Hilton Garden Inn
W 54th Street (Prospectus ID#7, 4.6% of the pool). The property was
closed in the spring and summer of 2020 due to New York's
coronavirus restrictions and the loan transferred to special
servicing in June 2020. Despite the hotel's reopening in September
2020, the loan remains in special servicing. As of January 2022,
the loan was brought current and, while all parties continue to
negotiate reinstatement terms, no agreement has been reached to
date, and a foreclosure option is being tracked should those
negotiations deteriorate. DBRS Morningstar believes an updated
appraisal would likely show a value decline from issuance. However,
there is some cushion provided given the 61.8% loan-to-value ratio
based on the issuance appraisal of $251.0 million and the senior
debt. Despite the loan's long spell in special servicing, traffic
has begun to rebound based on the metrics reported by the December
2021 STR report, which could incentivize the sponsor to continue
negotiating with the special servicer and keep the loan current.
The Country Corners Shopping Center transferred to special
servicing in March 2021 due to imminent monetary default, as a
result of poor performance and occupancy. The loan is secured by a
69,927-square-foot unanchored retail property in Howell, Michigan.
According to the April 2021 appraisal, the property was valued at
$4.3 million, down 40.0% from the issuance figure of $7.2 million.
This loan was liquidated from the pool with a 30% loss severity as
part of the analysis.
The other two loans that transferred in 2021 are secured by
multifamily properties that are located near the Permian Basin in
Midland, Texas. The Aviare Place Apartments and Hawthorne House
Apartments loans were transferred to special servicing in December
2021 due to delinquency. The borrower has noted coronavirus as the
reason for performance decline, specifically high loss to lease,
vacancy, and concessions. Additionally, the property is in the
Permian Basin and performance is therefore also subject to
fluctuations in oil prices/production. These loans were analyzed
with increased probabilities of default.
The remaining loan in special servicing, Holiday Inn Express &
Suites Plainview (Prospectus ID#61, 0.4% of the pool), was recently
modified and is pending a return to the master servicer.
At issuance, DBRS Morningstar assigned investment-grade shadow
ratings to 32 Old Slip Fee loan (Prospectus ID#2; 7.1% of the
pool). With this review, DBRS Morningstar confirmed that the
performance of this loan remains consistent with investment-grade
loan characteristics.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2019-H6: Fitch Affirms B- Rating on Class J-RR Certs
-------------------------------------------------------------------
Fitch Ratings has affirmed all 17 classes of Morgan Stanley Capital
I Trust 2019-H6 commercial mortgage pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
MSC 2019-H6
A-1 61769JAW1 LT AAAsf Affirmed AAAsf
A-2 61769JAX9 LT AAAsf Affirmed AAAsf
A-3 61769JAZ4 LT AAAsf Affirmed AAAsf
A-4 61769JBA8 LT AAAsf Affirmed AAAsf
A-S 61769JBD2 LT AAAsf Affirmed AAAsf
A-SB 61769JAY7 LT AAAsf Affirmed AAAsf
B 61769JBE0 LT AA-sf Affirmed AA-sf
C 61769JBF7 LT A-sf Affirmed A-sf
D 61769JAC5 LT BBBsf Affirmed BBBsf
E-RR 61769JAE1 LT BBB-sf Affirmed BBB-sf
F-RR 61769JAG6 LT BBB-sf Affirmed BBB-sf
G-RR 61769JAJ0 LT BB+sf Affirmed BB+sf
H-RR 61769JAL5 LT BB-sf Affirmed BB-sf
J-RR 61769JAN1 LT B-sf Affirmed B-sf
X-A 61769JBB6 LT AAAsf Affirmed AAAsf
X-B 61769JBC4 LT A-sf Affirmed A-sf
X-D 61769JAA9 LT BBBsf Affirmed BBBsf
KEY RATING DRIVERS
Increased Loss Expectations: Loss expectations have increased since
issuance, primarily driven with the continued impact of the
pandemic on performance. Six loans are Fitch Loans of Concern
(FLOCs) (15.8% of pool), including one specially serviced loan
(0.9%) and two loans within the top 15 (11.3%).
Fitch's current ratings incorporate a base case loss of 4.5%. The
Negative Rating Outlook on class J-RR reflects the potential for
downgrades due to concerns surrounding lodging assets impacted by
the pandemic (21.5%) two of which are in the top 15: Marriott San
Diego Mission Valley and AC Marriott San Jose. Both assets'
performance has yet to stabilize.
The largest contributor to loss expectations and third largest loan
in the pool, Marriott San Diego Mission Valley (9.1%), is secured
by a 353-key full-service hotel located in Mission Valley
neighborhood of San Diego. The property has been significantly
impacted by the coronavirus pandemic and is currently being cash
managed due to failing a debt service coverage ratio (DSCR)
trigger. Servicer reported NOI DSCR was below 1.0x as of TTM
September 2021 from 1.59x at YE 2019. Fitch's analysis included a
26% stress YE 2019 NOI, which resulted in a 20% expected loss
severity.
The second largest contributor to loss expectations and 11th
largest loan in the pool, The Block Northway (2.8%), is secured by
a 354,400-sf anchored retail center located in Pittsburgh, PA. The
sponsor recently completed a $96.7 million redevelopment. The
property has a granular rent roll with no tenant occupying more
than 11.4% of the NRA.
Top tenants are: Nordstrom Rack (11.4%; exp 8/31/2026), Dave &
Buster's (11.3%; exp 2/28/2034) and Saks Off 5th (10.2%; exp
10/31/2026). Occupancy has slightly declined over the past several
years: 92.7% (YE 2019); 90% (YE 2020); 88.2% (YE 2021). Servicer
reported NOI DSCR was 1.44x at YE 2021 compared to 1.73x at YE
2020. Fitch's analysis included a 5% stress to the YE 2021; the
modeled loss was 10%.
The third largest contributor to loss expectations and fourteenth
largest loan in the pool, AC by Marriott San Jose (2.2%), is
secured by a seven-story, 210-key select service hotel located in
San Jose, CA. The property is situated in downtown San Jose,
located near large corporations such as Paypal, eBay, Amazon and
Google. Annualized September 2021 NOI DSCR was -.47x, and YE 2020
NOI DSCR was -.09x, compared to 2.28x at YE 2019. Fitch's analysis
included a 20% stress to the YE 2019 NOI to reflect pandemic
impacts on performance; the modeled loss was 9%.
Minimal Increase in Credit Enhancement: As of the March 2022
distribution date, the pool's aggregate balance has been reduced by
1.2% to $681.7 million from $678.5 million at issuance. No loans
have paid off or defeased. At issuance, based on the scheduled
balance at maturity, the pool was expected to pay down by 6.9%
prior to maturity, which is higher than the average for
transactions of a similar vintage. Nineteen loans (57.6%) are
full-term interest-only (IO) and 16 loans (19.6%) are structured
with partial IO periods; seven (6.9%) have begun amortizing.
Credit Opinion Loans: Four loans received an investment grade
credit opinion at issuance. ILPT Hawaii Portfolio received a
'BBBsf', Tower 28 received a 'BBB-sf', 65 Broadway received a
'BBB-sf' and 3 Columbus Circle received a 'BBB-sf'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in
pool-level losses from underperforming or specially serviced
loans/assets. Downgrades to classes A-1 through A-S and the
interest-only classes X-A are not likely due to high credit
enhancement (CE), but may occur should interest shortfalls occur.
Downgrades to classes B, C, D, E-RR, F-RR, G-RR, H-RR, X-B and X-D
and are possible should performance of the FLOCs continue to
decline; should loans susceptible to the coronavirus pandemic not
stabilize; and/or should further loans transfer to special
servicing.
Class J-RR could be downgraded should the specially serviced loan
not return to the master servicer and/or as there is more certainty
of loss expectations from other FLOCs. The Outlooks on this class
may be revised back to Stable if performance of the FLOCs improves
and/or properties vulnerable to the coronavirus stabilize once the
pandemic is over.
Fitch has identified both a baseline and a worse-than-expected,
adverse stagflation scenario based on fallout from the
Russia-Ukraine war whereby growth is sharply lower amid higher
inflation and interest rates; even if the adverse scenario should
play out, Fitch expects virtually no impact on ratings performance,
indicating very few rating or Outlook changes. However, for some
transactions with concentrations in underperforming retail
exposure, the ratings impact may be mild to modest, indicating some
changes on sub-investment grade notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sensitivity factors that could lead to upgrades would include
stable to improved asset performance, coupled with additional
paydown and/or defeasance. Upgrades to the 'A-sf' and 'AA-sf' rated
classes are not expected but would likely occur with significant
improvement in CE and/or defeasance and/or the stabilization to the
properties impacted from the coronavirus pandemic.
Upgrade of the 'BBB-sf' and 'BBBsf' classes are considered unlikely
and would be limited based on the sensitivity to concentrations or
the potential for future concentrations. Classes would not be
upgraded above 'Asf' if there is a likelihood of interest
shortfalls. An upgrade to the 'B-sf', 'BB-sf' and 'BB+sf'-rated
classes is not likely unless the performance of the remaining pool
stabilizes and the senior classes pay off.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
MORTIMER BTL 2022-1: S&P Assigns Prelim B- (sf) Rating on X Notes
-----------------------------------------------------------------
S&P Global Ratings has assigned preliminary credit ratings to
Mortimer BTL 2022-1 PLC's (Mortimer 2022-1) class A notes and class
B-Dfrd to X-Dfrd interest deferrable notes.
Mortimer 2022-1 is a static RMBS transaction that a portfolio of
BTL mortgage loans secured on properties in the U.K. LendInvest
originated the loans in the pool between June 2020 and March 2022.
At closing, the issuer will use the issuance proceeds to purchase
the full beneficial interest in the mortgage loans from the seller.
The issuer will grant security over all of its assets in favor of
the security trustee.
Credit enhancement for the rated notes will consist of
subordination from the closing date and overcollateralization
following the step-up date, which will result from the release of
the excess amount from the liquidity reserve fund to the principal
priority of payments.
The transaction will feature a liquidity reserve fund to provide
liquidity in the transaction.
There are no rating constraints in the transaction under S&P's
counterparty, operational risk, or structured finance sovereign
risk criteria. S&P considers the issuer to be bankruptcy remote.
Ratings List
CLASS PRELIM. RATING* CLASS SIZE (% OF COLLATERAL)
A AAA (sf) 87.00
B-Dfrd AA- (sf) 6.00
C-Dfrd A (sf) 3.50
D-Dfrd BBB (sf) 1.50
E-Dfrd BB (sf) 2.00
X-Dfrd B- (sf) 1.75
Certificates NR N/A
*NR--Not rated.
N/A--Not applicable.
NATIXIS COMMERCIAL 2022-RRI: S&P Assigns B-(sf) Rating on F Certs
-----------------------------------------------------------------
S&P Global Ratings assigned its ratings to Natixis Commercial
Mortgage Securities Trust 2022-RRI's commercial mortgage
pass-through certificates.
The certificate issuance is a U.S. CMBS securitization backed by a
commercial mortgage loan secured by the borrowers' fee simple and
leasehold interests in 38 limited-service Red Roof Inn or Red Roof
Plus flagged hotels totaling 4,825 guestrooms across 19 U.S.
states.
The ratings reflect S&P's view of the collateral's historical and
projected performance, the experience of the sponsors and the
manager, the trustee-provided liquidity, the mortgage loan terms,
and the transaction's structure.
The recent rapid spread of the Omicron variant highlights the
inherent uncertainties of the pandemic, as well as the importance
and benefits of vaccines. While the risk of new, more severe
variants displacing Omicron and evading existing immunity cannot be
ruled out, S&P's current base case assumes that existing vaccines
can continue to provide significant protection against severe
illness. Furthermore, many governments, businesses, and households
around the world are tailoring policies to limit the adverse
economic impact of recurring COVID-19 waves. Consequently, S&P does
not expect a repeat of the sharp global economic contraction of
second-quarter 2020. Meanwhile, it continues to assess how well
each issuer adapts to new waves in its geography or industry.
Ratings Assigned
Natixis Commercial Mortgage Securities Trust 2022-RRI(i)
Class A, $71,190,000: AAA (sf)
Class X-CP, $53,392,500(ii): AAA (sf)
Class X-NCP, $71,190,000(ii): AAA (sf)
Class B, $22,990,000: AA- (sf)
Class C, $17,090,000: A- (sf)
Class D, $22,580,000: BBB- (sf)
Class E, $35,600,000: BB- (sf)
Class F, $31,530,000: B- (sf)
Class G, $40,270,000: Not rated
(i)The issuer will issue the certificates to qualified
institutional buyers in line with Rule 144A of the Securities Act
of 1933.
(ii)Notional amount. The notional amount of the class X-CP
certificates will be equal to the portion balance of the A-2
portion. The notional amount of the class X-NCP certificates will
be equal to the certificate balance of the class A certificates.
NEW ORLEANS HOTEL 2019-HNLA: S&P Cuts Cl. F Certs Rating to 'CCC-'
------------------------------------------------------------------
S&P Global Ratings lowered its ratings on the class B, C, D, E and
F commercial mortgage pass-through certificates from New Orleans
Hotel Trust 2019-HNLA, a U.S. CMBS transaction. At the same time,
S&P affirmed its rating on the class A certificates from the same
transaction.
This transaction is backed by a floating-rate, interest-only (IO)
mortgage loan secured by the borrower's leasehold interest in the
Hyatt Regency New Orleans, a 1,193-guestroom, full-service
convention hotel in New Orleans.
Rating Actions
S&P said, "The ratings downgrades on classes B, C, D, E, and F
reflect our reevaluation of the lodging property that secures the
sole loan in the transaction. Our analysis included a review of the
most recent financial performance data provided by the servicer and
special servicer, the updated appraisal values, the March 2022 loan
modifications (see details below) and our assessment that both
meeting and group and corporate transient demand at the property
and in New Orleans overall has been severely impacted since the
outset of the pandemic. Occupancy for the New Orleans lodging
market was 40.9% in 2020 and 52.2% in 2021, compared to the
pre-pandemic level of 69.3% in 2019. As of year-end 2021, revenue
per available room (RevPAR) for New Orleans was 33.9% below 2019
levels, compared to 16.8% for the U.S. overall and 32.7% for the
top 25 markets, according to STR . Due to its heavy reliance on
corporate and group demand, New Orleans RevPAR overall is not
expected to return to pre-pandemic levels until approximately 2024,
according to Costar, compared to 2023 for the U.S. lodging sector
overall based on most industry estimates. Specifically, our rating
actions today reflect our concern that the hotel will continue to
exhibit stressed net cash flow (NCF) performance due to low demand
from the sectors it is most reliant on. The property's underlying
NCF was insufficient to cover debt service in the last two years,
and we believe that the return to pre-pandemic meeting and group
and corporate transient demand levels at the property will take
longer to recover given its market mix.
"While our expected-case value of $251.1 million, or $210,443 per
guestroom is unchanged from our last review in July 2020 (see
"Various Rating Actions Taken On New Orleans Hotel Trust 2019-HNLA"
published July 22, 2020), it is down 10.0% since issuance. The most
recent reported appraiser's 'as is' valuation of $370.0 million
($310,142 per guestroom) as of December 2021 is 6.6% below the
$396.0 million appraised value at issuance. In our last review, we
increased our capitalization rate by 125 basis points to 10.5% from
issuance to account for the adverse impact of COVID-19 on the
property. This yielded an S&P Global Ratings loan-to-value ratio of
129.5%, versus 116.4% at issuance and this is unchanged from the
last review. Our long-term sustainable value estimate is 32.1%
lower than the appraiser's as-is December 2021 valuation."
S&P affirmed its rating on class A even though the model-indicated
rating was lower than the class's current rating level. The
affirmation is based on certain qualitative considerations,
including:
-- The quality of the underlying collateral, as evidenced by two
updated appraisals, which show modest market value declines from
the initial March 2019 appraised value of $396.0 million;
-- The potential that the operating performance of the lodging
property could improve above our expectations;
-- The significant market value decline based on the most recent
revised appraisal value that would be needed before class A
experiences losses;
-- The liquidity support provided in the form of servicer
advancing; and
-- The senior most position of the class in the waterfall.
The loan transferred to special servicing on July 23, 2020, for
payment default. The servicer has made the necessary advances to
service the rated certificates since May 2020. The loan was
recently modified, and the borrower is expected to repay the
advances, including accrued interest totaling $17.4 million.
S&P said, "We lowered our rating to 'CCC- (sf)' on class F because,
based on an S&P Global Ratings' LTV ratio greater than 100%, we
believe the class is more susceptible to reduced liquidity support
and that the risk of default and loss has increased based on
current market conditions.
"We will continue to closely monitor the performance of the
collateral property, the actions taken by the sponsor to support
the loan including its timely repayment of outstanding advances, as
well as the lodging sector overall."
Property-Level Analysis
The Hyatt Regency New Orleans is a 1,193-guestroom, 32-story,
full-service hotel in New Orleans. The hotel offers various
amenities, including about 200,000 sq. ft. of meeting space, an
outdoor swimming pool, nine food and beverage outlets, a fitness
center, and a business center. The property is in the heart of the
central business district and is adjacent to the Caesars Superdome
and Smoothie King Center. The French Quarter neighborhood is also
within walking distance of the property. The property is managed by
Hyatt Louisiana LLC, a subsidiary of Hyatt Hotels Corp.
(BB+/Negative), under a management agreement through December 2031,
with two, 10-year extension options. The base management fee is
3.5% of total revenue, and there is an incentive fee equal to 20%
of the adjusted profit in excess of $17.6 million, less any amounts
already paid in respect of the base management fee.
As part of a payment in lieu of taxes (PILOT) agreement, the fee
simple interest in the subject was transferred to the Industrial
Development Board of the City of New Orleans, Louisiana Inc., and
simultaneously leased back to the property owner in 2011. The
ground rent payment is fixed at $370,000. The PILOT program ends in
2025, at which point the borrower will repurchase the fee simple
interest in the property for a de miminus amount. S&P's property
cash flow analysis reflects the estimated unabated taxes amount of
$3.1 million.
After being closed for six years between August 2005 and October
2011 as a result of damages sustained from Hurricane Katrina, the
hotel benefited from a $270.9 million ($227,049 per guestroom)
extensive renovation in 2010/2011. While an additional $13.0
million ($10,887 per guestroom) has been invested since then, there
has not been a property-wide replacement of the guestroom soft/hard
goods since 2011. At issuance, it was noted that the borrower
planned to spend approximately $30.0 million ($25,147 per
guestroom) to upgrade the guestrooms, lobby area, and meeting/event
spaces, and complete major building and mechanical projects.
Servicer reports indicate that the borrower has spent approximately
$8.0 million thus far. At issuance, S&P noted that the guestrooms
were in need of upgrades, and it believes that a lack of a near
term guestroom renovation may further stress the hotel's
valuation.
S&P said, "Our property-level analysis included a reevaluation of
the lodging loan securitized in the pool using servicer-provided
operating statements through 2021. We also utilized the most recent
STR report through January 2022 and the borrower's 2022 budget and
2022 booking/catering pace report to supplement our analysis."
The pandemic's negative effects have been particularly severe on
the Hyatt Regency New Orleans's performance given the significant
decline in corporate and group demand. The property remained opened
through the COVID-19 pandemic, but portions of the facility closed
and certain guest services were limited. The drop in corporate and
group demand during this period caused the NCF to drop from $32.3
million in 2019, to $5.3 million in 2020, and $1.3 million in 2021,
according to the borrower's financial statements. The hotel also
suspended operations for a few days in late August 2021 due to
power outages during and after Hurricane Ida.
The borrower's budget for 2022, supported by the group catering
pace reports, shows an expected NCF of $18.5 million in 2022, based
on a 49.6% occupancy rate, $181.61 average daily rate (ADR), and
$90.70 revenue per available room (RevPAR). The NCAA Final Four
that took place at the adjacent Caesars Superdome in March and
April 2022 likely had a significant positive impact on the hotel's
NCF. While the full-year 2022 booking pace report as of March 2022
shows an improvement in definite group rooms revenue compared to
2020 and 2021, it remains 20.6% below the levels achieved in 2019.
Catering revenue on the books for 2022 is 33.0% below the 2019
levels. The STR report as of the trailing three-month period ended
January 2022 revealed a hotel occupancy rate of 38.4%, an
improvement from the same prior year period where occupancy was
16.8%, but still below the 70.4% achieved in late 2019/early 2020
during this same period. The competitive set, which includes six
other hotels in New Orleans, achieved a higher occupancy level of
43.9% during this same trailing three-month period. Although the
New Orleans market's performance is trending up again with the
return of leisure travelers, the convention and conference segment
is recovering at a slower pace.
S&P said, "Our sustainable NCF at issuance and currently is $26.5
million, which is based on a 70.0% occupancy rate, a $172.75 ADR,
and $120.93 RevPAR. Our NCF is 18.0% below the 2019
servicer-reported NCF of $32.3 million, the hotel's most recent
stabilized year prior to the pandemic, but remains 43.0% above the
$18.5 million budgeted NCF for 2022." According to the December
2021 appraisal report, a return to the NCF levels achieved in 2019
is not expected until 2024. The market and the property will likely
benefit from Super Bowl LIX, which is scheduled to be played on
Feb. 9, 2025, at Caesars Superdome.
Transaction Summary
This is a stand-alone (single borrower) transaction backed by a
floating-rate, IO $325.0 million mortgage loan secured by the
borrower's leasehold interest in the Hyatt Regency New Orleans. The
IO loan pays a per annum floating interest rate of LIBOR plus a
weighted average spread of 2.65%.
The borrower made its last interest payment in April 2020. After
finalizing a short-term forbearance on July 21, 2020 (which
included a six-month forbearance of interest payments until October
2020), the loan transferred to special servicing on July 23, 2020,
for payment default. The borrower has requested additional relief.
The servicer has made the necessary advances to service the
certificates since May 2020. According to the April 15, 2022,
trustee remittance report, $17.4 million of interest advances have
been made by the servicer to date and about $1.1 million of
cumulative interest shortfalls, due to appraisal subordinate
entitlement reduction amounts, affected the class HRR certificates
(not rated by S&P Global Ratings) as a result of an appraisal
reduction amount of $10.9 million (based on the December 2021
appraisal value of $370.0 million).
The issuer's representatives reported that a loan modification
agreement was executed on March 29, 2022. Key terms included
extending the term of the loan to April 2026, deferring the May
2020 through April 2021 debt service payments (12 months), and the
borrower paying the delinquent May 2021 through April 2022 debt
service amounts at closing. The borrower will commence current debt
service payments in May 2022. The deferred May 2020 through April
2021 debt service amounts will be repaid from a cash sweep account
and must be repaid by April 2024.
The recent rapid spread of the omicron variant highlights the
inherent uncertainties of the pandemic as well as the importance
and benefits of vaccines. S&P said, "While the risk of new, more
severe variants displacing omicron and evading existing immunity
cannot be ruled out, our current base case assumes that existing
vaccines can continue to provide significant protection against
severe illness. Furthermore, many governments, businesses and
households around the world are tailoring policies to limit the
adverse economic impact of recurring COVID-19 waves. Consequently,
we do not expect a repeat of the sharp global economic contraction
of second-quarter 2020. Meanwhile, we continue to assess how well
each issuer adapts to new waves in its geography or industry.
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety.
Ratings Lowered
New Orleans Hotel Trust 2019-HNLA
Commercial mortgage pass-through certificates
Class B: to A (sf) from AA- (sf)
Class C: to BBB- (sf) from A- (sf)
Class D: to BB (sf) from BBB- (sf)
Class E: to B (sf) from B+ (sf)
Class F: to CCC- (sf) from CCC+ (sf)
Rating Affirmed
New Orleans Hotel Trust 2019-HNLA
Commercial mortgage pass-through certificates
Class A: AAA (sf)
OAKTREE CLO 2022-1: S&P Assigns Prelim 'BB-' Rating on Cl. E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Oaktree CLO
2022-1 Ltd./Oaktree CLO 2022-1 LLC's floating- and fixed-rate
notes. The transaction is managed by Oaktree Capital Management
L.P.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term
loans.
The preliminary ratings are based on information as of April 20,
2022. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- S&P's view of the collateral pool's diversification;
-- The credit enhancement provided through subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
Oaktree CLO 2022-1 Ltd./Oaktree CLO 2022-1 LLC
Class A1-A, $248.500 million: AAA (sf)
Class A1-B, $30.500 million: AAA (sf)
Class A2, $4.500 million: AAA (sf)
Class B, $58.500 million: AA (sf)
Class C (deferrable), $22.500 million: A+ (sf)
Class D (deferrable), $31.500 million: BBB- (sf)
Class E (deferrable), $16.875 million: BB- (sf)
Subordinated notes, $40.500 million: Not rated
OCTANE 2022-1: S&P Assigns Prelim ' BB(sf)' Rating on Cl. E Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Octane
Receivables Trust 2022-1's asset-backed notes.
The note issuance is an ABS transaction backed by consumer
powersport receivables.
The preliminary ratings are based on information as of April 20,
2022. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The availability of approximately 31.32%, 24.07%, 17.97%,
12.21%, and 10.03% in credit support, including excess spread, for
the class A-2, B, C, D, and E notes respectively, based on stressed
cash flow scenarios. These credit support levels provide 5.52x,
4.24x, 3.24x, 2.25x, and 1.90x coverage of S&P's stressed net loss
levels for the class A-2, B, C, D, and E notes, respectively.
-- The timely payment of interest and principal by the designated
legal final maturity dates under S&P's stressed cash flow modeling
scenarios, which it believes are appropriate for the assigned
preliminary ratings.
-- The expectation that under a moderate ('BBB') stress scenario
(2.00x S&P's expected loss level), all else being equal, its
ratings will be within the credit stability limits specified by
section A.4 of the Appendix contained in "S&P Global Ratings
Definitions," published Nov. 9, 2021.
-- The collateral characteristics of the consumer powersport
amortizing receivables securitized, including a weighted average
nonzero FICO score of approximately 698 and an average monthly
payment of approximately $269.
-- The transaction's credit enhancement in the form of
subordination, overcollateralization that builds to a target level
of 2.75% of the initial receivables balance, a nonamortizing
reserve account, and excess spread.
-- The transaction's sequential-pay structure, which builds credit
enhancement (on a percentage-of-receivables basis) as the pool
amortizes.
-- The transaction's payment and legal structure.
Preliminary Ratings Assigned(i)
Octane Receivables Trust 2022-1
Class A-1, $31.00 million: Not rated
Class A-2, $174.94 million: AA (sf)
Class B, $23.16 million: AA- (sf)
Class C, $18.42 million: A (sf)
Class D, $19.25 million: BBB (sf)
Class E, $8.23 million: BB (sf)
(i)The actual size of these tranches will be determined on the
pricing date.
RCKT MORTGAGE 2022-3: Moody's Gives (P)B3 Rating to Cl. B-5 Certs
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 47
classes of residential mortgage-backed securities (RMBS) issued by
RCKT Mortgage Trust 2022-3, and sponsored by Woodward Capital
Management LLC.
The securities are backed by a pool of prime jumbo residential
mortgages originated and serviced by Rocket Mortgage, LLC (long
term corporate family rating, Ba1).
The complete rating actions are as follows:
Issuer: RCKT Mortgage Trust 2022-3
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-10, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aaa (sf)
Cl. A-14, Assigned (P)Aaa (sf)
Cl. A-15, Assigned (P)Aaa (sf)
Cl. A-16, Assigned (P)Aaa (sf)
Cl. A-17, Assigned (P)Aaa (sf)
Cl. A-18, Assigned (P)Aaa (sf)
Cl. A-19, Assigned (P)Aaa (sf)
Cl. A-20, Assigned (P)Aaa (sf)
Cl. A-21, Assigned (P)Aa1 (sf)
Cl. A-22, Assigned (P)Aa1 (sf)
Cl. A-23, Assigned (P)Aa1 (sf)
Cl. A-24, Assigned (P)Aa1 (sf)
Cl. A-1A Loans, Assigned (P)Aaa (sf)
Cl. A-X-1*, Assigned (P)Aa1 (sf)
Cl. A-X-2*, Assigned (P)Aaa (sf)
Cl. A-X-3*, Assigned (P)Aaa (sf)
Cl. A-X-4*, Assigned (P)Aaa (sf)
Cl. A-X-5*, Assigned (P)Aaa (sf)
Cl. A-X-6*, Assigned (P)Aaa (sf)
Cl. A-X-7*, Assigned (P)Aaa (sf)
Cl. A-X-8*, Assigned (P)Aaa (sf)
Cl. A-X-9*, Assigned (P)Aaa (sf)
Cl. A-X-10*, Assigned (P)Aaa (sf)
Cl. A-X-11*, Assigned (P)Aaa (sf)
Cl. A-X-12*, Assigned (P)Aa1 (sf)
Cl. A-X-13*, Assigned (P)Aa1 (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-1A, Assigned (P)Aa3 (sf)
Cl. B-X-1*, Assigned (P)Aa3 (sf)
Cl. B-2, Assigned (P)A3 (sf)
Cl. B-2A, Assigned (P)A3 (sf)
Cl. B-X-2*, Assigned (P)A3 (sf)
Cl. B-3, Assigned (P)Baa3 (sf)
Cl. B-4, Assigned (P)Ba3 (sf)
Cl. B-5, Assigned (P)B3 (sf)
*Reflects Interest Only Classes
RATINGS RATIONALE
The ratings are based on the credit quality of the mortgage loans,
the structural features of the transaction, the origination quality
and the servicing arrangement, the third-party review, and the
representations and warranties framework.
Moody's expected loss for this pool in a baseline scenario-mean is
0.69%, in a baseline scenario-median is 0.47% and reaches 4.86% at
a stress level consistent with Moody's Aaa ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in February 2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions. In addition, improvements in
reporting formats and data availability across deals and trustees
may provide better insight into certain performance metrics such as
the level of collateral modifications.
READY CAPITAL 2022-FL8: DBRS Gives Prov. B(low) Rating on G Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Ready Capital Mortgage Financing 2022-FL8,
LLC (the Issuer):
-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (low) (sf)
-- Class G Notes at B (low) (sf)
All trends are Stable.
The initial collateral consists of 67 short-term, floating-rate
mortgage assets with an aggregate cut-off date balance of $1.22
billion secured by 89 mortgaged properties. The aggregate unfunded
future funding commitment of the future funding participations as
of the cut-off date is approximately $137.8 million. The holder of
the future funding companion participations, Ready Capital
Subsidiary REIT I, LLC, has full responsibility to fund the future
funding companion participations. The collateral pool for the
transaction is static with no ramp-up period or reinvestment
period. However, the Issuer has the right to use principal proceeds
to acquire fully funded future funding participations subject to
stated criteria during the Permitted Funded Companion Participation
Acquisition Period, which begins on the closing date and ends on
the payment date. Acquisitions of future funding participations of
$1.0 million or greater will require rating agency confirmation.
Interest can be deferred for the Class F Notes and Class G Notes,
and interest deferral will not result in an event of default. The
transaction will have a sequential-pay structure.
Of the 89 properties, 76 are multifamily assets (92.7% of the
mortgage asset cut-off date balance). The remaining loans are
secured by 13 industrial properties (7.3% of the pool). Two loans,
Tierra Santa (#2) and Sierra Grande (#18), representing a combined
6.4% of the total pool balance, were modeled as a portfolio titled
Arizona Portfolio. The loans share the same sponsor and are located
in close proximity to one another.
The loans are mostly secured by cash flowing assets, most of which
are in a period of transition with plans to stabilize and improve
the asset value. Six loans, representing 7.4% of the total pool
balance, are whole loans, and the other 61 loans (92.6% of the
mortgage asset cut-off date balance) are participations with
companion participations that have remaining future funding
commitments totaling $137.8 million. The future funding for each
loan is generally to be used for capital expenditures to renovate
the property or build out space for new tenants. All of the loans
in the pool have floating interest rates initially indexed to
Libor. There are 15 loans (31.4% of the pool) that are full-term
interest only (IO) through the fully extended loan term. The
remaining 52 loans are all IO through the initial loan term with a
mix of IO extension options and amortization. As such, to determine
a stressed interest rate over the loan term, DBRS Morningstar used
the one-month Libor index, which was the lower of DBRS
Morningstar's stressed rates that corresponded to the remaining
fully extended term of the loans and the strike price of the
interest rate cap with the respective contractual loan spread
added. The properties are often transitioning with potential upside
in cash flow; however, DBRS Morningstar does not give full credit
to the stabilization if there are no holdbacks or if the other loan
structural features are insufficient to support such treatment.
Furthermore, even if the structure is acceptable, DBRS Morningstar
generally does not assume the assets will stabilize above market
levels.
The transaction is sponsored by Ready Capital Corporation, a
publicly traded mortgage real estate investment trust, externally
managed by Waterfall Asset Management, LLC, a New York-based
investment advisor registered with the Securities and Exchange
Commission. The sponsor has strong origination practices and
substantial experience in originating loans and managing commercial
real estate (CRE) properties, with an emphasis on small business
lending. The sponsor has provided approximately $11.0 billion in
capital across all of its CRE lending programs through February 11,
2022 ($606 million year-to-date), and generally lends from $2.0
million to $45 million for CRE loans.
The Depositor, Ready Capital Mortgage Depositor VI, LLC, which is a
majority-owned affiliate and subsidiary of the sponsor, expects to
retain the Class F, G, and H Notes, collectively representing the
most subordinate 18.75% of the transaction by principal balance.
The pool is mostly composed of multifamily assets (92.7% of the
mortgage asset cut-off date balance). Historically, multifamily
properties have defaulted at much lower rates than other property
types in the overall commercial mortgage-backed securities (CMBS)
universe.
All loans were originated in 2021–22 and take into consideration
any impacts from the Coronavirus Disease (COVID-19) pandemic. The
weighted-average (WA) remaining fully extended term is 59 months,
which gives the Sponsor enough time to execute its business plans
without risk of imminent maturity. In addition, the appraisal and
financial data provided for all loans reflect the conditions after
the onset of the pandemic.
There are 64 loans, 97.4% of the pool balance, that represent
acquisition financing. Acquisition financing generally requires the
respective sponsor(s) to contribute material cash equity as a
source of funding in conjunction with the mortgage loan, resulting
in a higher sponsor cost basis in the underlying collateral, and
aligns the financial interests between the sponsor and the lender.
DBRS Morningstar has analyzed the loans to a stabilized cash flow
that is, in some instances, above the in-place cash flow. It is
possible that a related loan sponsor will not successfully execute
its business plans and that the higher stabilized cash flow will
not materialize during the loan term, particularly with the ongoing
coronavirus pandemic and its impact on the overall economy. The
loan sponsor's failure to execute the business plans could result
in a term default or the inability to refinance the fully funded
loan balance.
DBRS Morningstar made relatively conservative stabilization
assumptions and, in each instance, considered the business plans to
be rational and the loan structure to be sufficient to
substantially implement such plans. In addition, DBRS Morningstar
analyzes loss severity given default (LGD) based on the as-is
credit metrics, assuming the loan is fully funded with no net cash
flow or value upside.
Future funding companion participations will be held by affiliates
of Ready Capital Subsidiary REIT I, LLC and have the obligation to
make future advances. Ready Capital Subsidiary REIT I, LLC agrees
to indemnify the Issuer against losses arising out of the failure
to make future advances when required under the related
participated loan. Furthermore, Ready Capital Subsidiary REIT I,
LLC will be required to meet certain liquidity requirements on a
quarterly basis.
There are 27 loans, comprising 51.2% of the trust balance, in DBRS
Morningstar Metropolitan Statistical Area (MSA) Group 1.
Historically, loans in this MSA Group have demonstrated higher
probabilities of default (PODs) and LGDs, resulting in higher
individual loan-level expected losses than the WA pool expected
loss. Six of these 27 loans (9.3% of the pool) are in DBRS
Morningstar Market Rank 5 or higher. Additionally, these loans
represent a WA occupancy of 90.7%.
There are 23 loans, representing 38.4% of the trust balance, that
have DBRS Morningstar as-is loan-to-value ratios (LTVs) (fully
funded loan amount) equal to or greater than 85.0%, representing
significantly high leverage. Five of those loans, 19.9% of the
trust balance, are among the 10 largest loans in the pool. All 23
loans were originated in 2021 and have sufficient time to reach
stabilization. Additionally, all the loans, except one, have DBRS
Morningstar Stabilized LTVs of 75.9% or less, indicating
improvements to value based on the related sponsors’ business
plans.
All 67 loans have floating interest rates, and all loans are IO
during their original terms of 24 months to 48 months, creating
interest rate risk. Fifty-two loans (68.6% of the mortgage asset
cut-off date balance) amortize during extension options. All loans
are short-term loans and, even with extension options, they have a
fully extended maximum loan term of five years. For the
floating-rate loans, DBRS Morningstar adjusted the one-month Libor
index, based on the lower of a DBRS Morningstar stressed rate that
corresponded to the remaining fully extended term of the loans or
the strike price of the interest rate cap with the respective
contractual loan spread added to determine a stressed interest rate
over the loan term. The borrowers of 55 floating-rate loans, 95.0%
of the initial pool balance, have purchased Libor rate caps with
strike prices that range from 0.50% to 2.75% to protect against
rising interest rates through the duration of the loan term. In
addition to the fulfillment of certain minimum performance
requirements, exercising any extension options would also require
the repurchase of interest rate cap protection through the duration
of the respectively exercised option.
DBRS Morningstar did not conduct any site inspections because of
health and safety constraints associated with the ongoing
coronavirus pandemic. As a result, DBRS Morningstar relied more
heavily on third-party reports, online data sources, and
information provided by the Issuer to determine the overall DBRS
Morningstar property quality assigned to each loan. Recent
third-party reports were provided for all loans and contained
property quality commentary and photos.
Five loans, representing 12.1% of the initial cut-off pool balance,
were deemed to have Weak sponsorship strength. Loans with Weak
sponsorship treatment were modeled with increased PODs.
Notes: All figures are in U.S. dollars unless otherwise noted.
REGIONAL MANAGEMENT 2022-1: DBRS Finalizes BB Rating on D Notes
---------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following notes
issued by Regional Management Issuance Trust 2022-1 (Regional):
-- $170,630,000 Class A at AAA (sf)
-- $37,040,000 Class B at A (sf)
-- $21,160,000 Class C at BBB (sf)
-- $21,170,000 Class D at BB (sf)
The ratings are based on DBRS Morningstar's review of the following
analytical considerations:
-- DBRS Morningstar's projected losses include the assessment of
the impact of the Coronavirus Disease (COVID-19). While
considerable uncertainty remains with respect to the intensity and
duration of the shock, the DBRS Morningstar-projected cumulative
net loss (CNL) includes an assessment of the expected impact on
consumer behavior. The DBRS Morningstar CNL assumption is 11.15%.
-- The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary Baseline Macroeconomic Scenarios For
Rated Sovereigns December 2021 Update, published on December 9,
2021. These baseline macroeconomic scenarios replace DBRS
Morningstar's moderate and adverse coronavirus pandemic scenarios,
which were first published in April 2020. The baseline
macroeconomic scenarios reflect the view that recent coronavirus
developments, particularly the new omicron variant with subsequent
restrictions, combined with rising inflation pressures in some
regions, may dampen near-term growth expectations in coming months.
However, DBRS Morningstar expects the baseline projections will
continue to point to an ongoing, gradual recovery.
-- Transaction capital structure and form and sufficiency of
available credit enhancement.
-- Credit enhancement is in the form of overcollateralization,
subordination, amounts held in the reserve fund, and excess spread.
Credit enhancement levels are sufficient to support DBRS
Morningstar's stressed projected finance yield, principal payment
rate, and charge-off assumptions under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms under which
they have invested. For this transaction, the ratings address the
timely payment of interest on a monthly basis and principal by the
legal final maturity date.
-- Regional's capabilities with regard to originations,
underwriting, and servicing.
-- DBRS Morningstar has performed an onsite operational review of
Regional and, as a result, considers the entity to be an acceptable
originator and servicer of unsecured personal loans with an
acceptable backup servicer.
-- Regional's senior management team has considerable experience
and a successful track record within the consumer loan industry.
-- Regional has remained consistently profitable since 2007.
-- In February 2018, Regional completed a system migration to
Nortridge, allowing for the implementation of custom scorecards for
all branches, which led to the ability to implement a hybrid
servicing model.
-- The credit quality of the collateral and performance of
Regional's consumer loan portfolio. DBRS Morningstar has used a
hybrid approach in analyzing the Regional portfolio that
incorporates elements of static pool analysis employed for assets,
such as consumer loans, and revolving asset analysis, employed for
assets such as credit card master trusts.
-- The weighted-average (WA) remaining term of the collateral pool
is approximately 38 months.
-- The WA coupon (WAC) of the pool is 30.00% and the transaction
includes a reinvestment criteria event that the WAC is less than
25.00%.
-- The DBRS Morningstar base-case assumption for the finance yield
is 25.00%.
-- DBRS Morningstar applied a finance yield haircut of 10.00% for
Class A, 6.00% for Class B, 4.00% for Class C, and 2.00% for Class
D. While these haircuts are lower than the range described in the
DBRS Morningstar "Rating U.S. Credit Card Asset-Backed Securities"
methodology, the fixed-rate nature of the underlying loans, lack of
interchange fees, and historical yield consistency support these
stressed assumptions.
-- Principal payment rates for Regional's portfolio, as estimated
by DBRS Morningstar, have generally averaged between 3.0% and 8.0%
over the past several years.
-- The DBRS Morningstar base-case assumption for the principal
payment rate is 3.13%. The Regional transaction has a higher
principal payment rate assumption compared with prior DBRS
Morningstar rated Regional transactions due to the inclusion of the
Small Loan and Convenience Check products in the transaction. These
two products tend to have higher prepayment speeds then the Large
Loan product.
-- DBRS Morningstar applied a payment rate haircut of 45.00% for
Class A, 35.00% for Class B, 30.00% for Class C, and 20.00% for
Class D.
-- Charge-off rates on the Regional portfolio have generally
ranged between 2.00% and 12.00% over the past several years.
-- The DBRS Morningstar base-case assumption for the default rate
is 11.15%.
-- Regional offers insurance products to customers that could
mitigate credit losses under certain circumstances; however, DBRS
Morningstar does not give recovery credit for this.
-- DBRS Morningstar has slightly decreased the base-case
charge-off assumption rate to 11.15% for the Regional
2022-1transaction, which contrasts with the charge-off rate of
11.50% for the Regional 2021-2 transaction.
-- The legal structure and presence of legal opinions that address
the true sale of the assets from the Seller to the Depositor, the
nonconsolidation of the special-purpose vehicle with the Seller,
that the Indenture Trustee has a valid first-priority security
interest in the assets, and the consistency with the DBRS
Morningstar "Legal Criteria for U.S. Structured Finance"
methodology.
Notes: All figures are in U.S. dollars unless otherwise noted.
RR 20: S&P Assigns Prelim BB- (sf) Rating on Class D Notes
----------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to RR 20 Ltd.'s
floating-rate notes.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term loans.
The transaction is managed by Redding Ridge Asset Management LLC.
The preliminary ratings are based on information as of April 19,
2022. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The collateral pool's diversification;
-- The credit enhancement provided through subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
RR 20 Ltd./RR 20 LLC
Class A-1, $240.00 million: AAA (sf)
Class A-2, $56.00 million: AA (sf)
Class B (deferrable), $32.00 million: A (sf)
Class C (deferrable), $24.00 million: BBB- (sf)
Class D (deferrable), $13.40 million: BB- (sf)
Subordinated notes, $39.00 million: Not rated
SARANAC CLO III: Moody's Ups Rating on $24MM Class E-R Notes to B3
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Moody's Investors Service has upgraded the ratings on the following
notes issued by Saranac CLO III Limited:
US$45,000,000 Class B-R Senior Secured Floating Rate Notes due 2030
(the "Class B-R Notes"), Upgraded to Aa1 (sf); previously on July
14, 2021 Upgraded to Aa2 (sf)
US$24,500,000 Class C-R Secured Deferrable Floating Rate Notes due
2030 (the "Class C-R Notes"), Upgraded to A2 (sf); previously on
July 14, 2021 Upgraded to A3 (sf)
US$24,000,000 Class D-R Secured Deferrable Floating Rate Notes due
2030 (the "Class D-R Notes"), Upgraded to Ba1 (sf); previously on
January 15, 2021 Confirmed at Ba2 (sf)
US$24,000,000 Class E-R Secured Deferrable Floating Rate Notes due
2030 (the "Class E-R Notes"), Upgraded to B3 (sf); previously on
July 14, 2021 Upgraded to Caa1 (sf)
Saranac CLO III Limited, originally issued in August 2014 and
refinanced in May 2018, is a managed cashflow CLO. The notes are
collateralized primarily by a portfolio of broadly syndicated
senior secured corporate loans. The transaction's reinvestment
period will end in May 2022.
RATINGS RATIONALE
These rating actions reflect the benefit of the short period of
time remaining before the end of the deal's reinvestment period in
May 2022. In light of the reinvestment restrictions during the
amortization period which limit the ability of the manager to
effect significant changes to the current collateral pool, Moody's
analyzed the deal assuming a higher likelihood that the collateral
pool characteristics will continue to satisfy certain covenant
requirements. In particular, Moody's assumed that the deal will
benefit from lower weighted average rating factor (WARF) compared
to the level from the last review. Moody's modeled a WARF of 3220
compared to a WARF level of 3447 in July 2021.
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, weighted average
spread, and weighted average recovery rate, are based on its
published methodology and could differ from the trustee's reported
numbers. For modeling purposes, Moody's used the following
base-case assumptions:
Performing par and principal proceeds balance: $380,404,286
Defaulted par: $1,084,168
Diversity Score: 69
Weighted Average Rating Factor (WARF): 3220
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.77%
Weighted Average Coupon (WAC): 5.0%
Weighted Average Recovery Rate (WARR): 48.74%
Weighted Average Life (WAL): 4.0 years
In addition to base case analysis, Moody's considered additional
scenarios where outcomes could diverge from the base case. These
additional scenarios include, among others, near term defaults by
companies facing liquidity pressure, deterioration in credit
quality of the underlying portfolio, and lower recoveries on
defaulted assets.
Methodology Used for the Rating Action
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
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.
SEVEN AUSTIN 2019-FAIR: S&P Affirms CCC (sf) Rating on F Certs
--------------------------------------------------------------
S&P Global Ratings affirmed its ratings on seven classes of
commercial mortgage pass-through certificates from Austin Fairmont
Hotel Trust 2019-FAIR, a U.S. CMBS transaction.
This transaction is backed by a floating rate, interest-only (IO)
mortgage loan that is secured by the borrower's leasehold interest
in the Fairmont Austin, a 1,048-guestroom, full-service luxury
hotel in Austin, Tex.
Rating Actions
S&P said, "The affirmations of classes A, B, C, D, E, and F reflect
our reevaluation of the lodging property that secures the sole loan
in the transaction. Our analysis included a review of the most
recent financial performance data provided by the servicer and, in
particular, considered the improvement in the borrower's reported
net operating income (NOI) of $18.3 million for the trailing 12
months (TTM) ending March 31, 2022, compared to negative $7.5
million in 2020 and positive $8.2 million in 2021. In addition, the
borrower's 2022 budget projects a substantial increase in
occupancy, NOI, and net cash flow (NCF) compared with 2020 and
2021, when the hotel and the Austin lodging market were severely
impacted by a drop in demand during the COVID-19 pandemic. Due to
strong leisure demand that supplemented the lower corporate and
meeting and group demand, the property generated positive NCF in
2021. As both corporate and meeting and group demand strengthen, we
expect that the property's NCF will continue to steadily rebound.
"As a result, our expected-case value has remained unchanged at
$269.4 million ($257,052 per guestroom), since our last review in
July 2020, but is down 12.8% since issuance. The strong
year-to-date (YTD) and TTM periods ending March 31, 2022, financial
performance as well as the projected performance recovery in the
borrower's 2022 budget support our rationale for maintaining our
value currently. In our last review, we increased our
capitalization rate by 125 basis points to 10.25% from issuance to
account for the adverse effect of COVID-19 on the property's
operating performance. This yielded an S&P Global Ratings
loan-to-value ratio of 111.4%, compared with 97.1% at issuance and
unchanged from our last review."
Although the model-indicated ratings were lower than the classes'
current rating levels, S&P affirmed its ratings on classes A, B, C,
and D because S&P weighed certain qualitative considerations,
including:
-- The quality of the underlying collateral--built in 2018 for
$416.0 million ($396,947 per guestroom);
-- The property's desirable location across from the Rainy Street
District, which features numerous restaurants, shops, galleries,
and live entertainment venues, and its proximity to the Austin
Convention Center;
-- The potential that the operating performance of the lodging
property could improve above S&P's revised expectations;
-- The significant market value decline that would be needed
before these classes experience principal losses;
-- The liquidity support provided in the form of servicer
advancing; and
-- The relative positioning of the classes in the payment
waterfall.
The loan had a reported current payment status through its April
2022 debt service payment date. The loan transferred to special
servicing on May 15, 2020, due to imminent monetary default and
returned to the master servicer, Wells Fargo Bank N.A., on Oct. 29,
2021, as a corrected mortgage loan. The borrower requested COVID-19
forbearance relief. While in special servicing, the borrower
continued to make debt service payments despite the hotel's
temporary closure at that time. The loan was modified as of May
2021 and the modification terms included:
-- Temporarily suspending cash management until 90 days of
positive cash flow are achieved at the property;
-- The borrower paying legal fees, special servicing fees, and
other fees associated with the loan transfer to special servicing;
-- Extending the loan's maturity to Sept. 5, 2022; and
-- The lender providing consent for the borrower to use $3.4
million in PIP reserve to fund payroll expenses at the property.
S&P said, "We affirmed our 'CCC (sf)' rating on class F because,
based on an S&P Global Ratings' LTV ratio greater than 100%, our
view is that the class is more susceptible to reduced liquidity
support and that the risk of default and losses has increased under
today's market conditions.
"We affirmed our rating on the class X-EXT IO certificates based on
our criteria for rating IO securities, in which the rating on the
IO securities would not be higher than that of the lowest-rated
reference class. The notional amount of the class X-EXT
certificates references classes B, C, and D."
Property-Level Analysis
Fairmont Austin is a 37-story, 1,048-guestroom, luxury convention
hotel located in the Austin central business district. The property
offers approximately 140,000 sq. ft. of indoor and outdoor meeting
space, including four ballrooms, a outdoor meeting space on the
seventh floor, and 23 smaller meeting rooms. Other amenities
include five food and beverage outlets, a rooftop terrace, a
full-service spa, a fitness center, and an outdoor swimming pool.
The hotel is located across from the Rainy Street District and is
also across the street and connected via a skywalk to the Austin
Convention Center, a demand driver for the hotel. In addition, the
property is one mile from the State Capitol complex and about two
miles from the University of Texas at Austin. Given its recent
construction and opening in March 2018, the hotel is in excellent
condition.
The property is affiliated with the Fairmont Hotel & Resorts brand
and is managed by the brand owner, Accor Hotels & Resorts
(BB+/Negative/B), under a long-term management agreement through
Dec. 31, 2039, with a base management fee equal to 3.0% of the
hotel's total revenue. The management agreement includes an
incentive fee equal to 15% of the amount by which the hotel's NCF
exceeds the owner's priority return, which is equal to 12% of total
capital invested.
The property is subject to a 99-year ground lease with a
third-party lessor, Waller Creek Eleven Ltd., that was executed on
June 3, 2011, and expires May 31, 2110. Under the ground lease, the
ground lessee is required to pay annual rent in an amount equal to
the greater of $1.2 million ($100,000 per month), or 5.0% of the
property's adjusted gross income. The ground rent expense
represented approximately 1.0%, 2.7%, and 1.6% of total revenue in
2019, 2020, and 2021, respectively. S&P assumed a ground rent
expense of $1.5 million or 1.2% of total revenue in its analysis.
At issuance, the borrower and the loan guarantor, Manchester Texas
Financial Group LLC (MFG), were in an arbitration proceeding
resulting from a dispute with the hotel's general contractor, Hunt
Construction Co. Inc. (Hunt) during the hotel's construction. MFG
filed a claim seeking reimbursement of out-of-pocket losses
exceeding $50.0 million related to correcting construction defects,
including inadequate protection of the foundation from water
penetration and faulty plumbing and ductwork. Hunt filed a
counterclaim against MFG seeking approximately $20.5 million for
unpaid fees, extra work, and accelerated damages. MFG funded and
already remedied the construction issues. According to a recent
update provided to S&P from the sponsor (a joint venture between
MFG and Colony Capital), the arbitration hearing will be concluding
in a few weeks and a final ruling by the three-person arbitration
panel is expected in June 2022. The sponsor also mentioned that it
has reached a settlement with Hunt and its insurance company on the
roof deficiencies totaling $4.8 million but does not expect this
settlement to affect the overall lawsuit award. Nevertheless, S&P
accounted for the potential that judgment is against the sponsor in
the Hunt counterclaim by deducting $16.0 million from its valuation
of the property.
At issuance, the Fairmont Austin generated approximately 60% of its
occupied room nights from the meeting and group sector, with the
remaining 40% stemming from a mix of leisure and corporate
transient demand. The hotel accommodates mainly in-house groups,
while convention-related groups stemming from the Austin Convention
Center are a secondary demand source. In May 2019, the Austin City
Council revealed a $1.2 billion plan to expand the convention
center, which included enlarging the convention center to the west
and demolishing and rebuilding a portion of the facility within its
existing footprint. To date, the expansion work has not started.
According to recent news articles, the Downtown Commission has
questioned the need to expand the Austin Convention Center given
the negative effect of COVID-19 on group events and is expected to
ask the city council to delay the expansion plans for two years to
study the effects of the COVID-19 pandemic on the convention
industry.
S&P said, "Our property-level analysis included a reevaluation of
the lodging loan securitized in the trust using servicer-provided
operating statements from 2018 through YTD March 2022. We also
utilized the most recent STR report through February 2022 and the
borrower's 2022 budget to supplement our analysis."
Prior to the COVID-19 outbreak, the hotel's revenue per available
room (RevPAR) and NOI improved from issuance as the hotel continued
to stabilize after its 2018 opening. The property's RevPAR was
$193.28 in 2019, up 52.2% from $127.02 in 2018. The 2019 NOI
increased to $31.6 million from $15.4 million in 2018 due to the
increase in RevPAR and food and beverage revenue as the hotel
continued to stabilize.
The hotel closed in March 2020 due to the COVID-19 pandemic and
reopened in June 2020. Due to the significant reduction in group
meetings and events, the property's occupancy declined sharply to
29.3% in 2020 from 74.1% in 2019 and 71.7% in 2018. As a result,
the reported NOI was negative $7.5 million in 2020. In 2021,
occupancy rebounded to 54.5% with a reported positive $8.2 million
NOI, fueled by strong leisure demand following the rollout of the
COVID-19 vaccine and the resumption of citywide events, such as the
Formula 1 Grand Prix and Austin City Limits in the latter part of
2021. According to the Austin Convention Center's website, it
reportedly has 79 definite and prospective events scheduled in 2022
(including the South by Southwest Conference and Festivals that
took place March 11-20, 2022, the Formula 1 Grand Prix in October
2022, and the AfroTech Conference in November 2022) compared with
99 events hosted in 2019. According to CoStar, Austin lodging
performance improved significantly in 2021 as RevPAR increased by
80.5% to $79.62, after falling 57.6% in 2020 to $44.11. RevPAR
remained about 23.5% below 2019 levels at year-end 2021, but
according to CoStar, RevPAR is projected to reach 2019 levels in
2023.
The city's robust economic growth over the last decade has been
coupled with very high levels of hotel supply growth. Austin's
average annual supply growth rate from 2015-2020 was 6.2%. While
construction completions slowed in 2020, about 2,600 new guestrooms
within 20 hotels were delivered in Austin in the past year. The
largest new hotel is the 619-room Austin Marriot Downtown with
60,000 sq. ft. of meeting space, which opened in June 2020 and is
across the street from the Austin Convention Center. CoStar noted
that 26 hotels totaling 3,050 rooms are under construction in
Austin, of which more than half are scheduled to open in 2022.
However, the majority of rooms under construction are limited
service, and therefore will compete secondarily with the subject
hotel.
Prior to the pandemic, transient demand from leisure and corporate
travel comprised approximately two-thirds of Austin's occupied
hotel rooms, while group demand accounted for the remaining
one-third. Many large technology and finance companies have a
presence in Austin, including Facebook, Google, Amazon, IBM, Dell
(headquartered) and Apple (second-largest campus with about 6,200
employees). Oracle and Tesla relocated to Austin in December 2020
and December 2021, respectively, and CoStar expects that business
travel will steadily rebound and shift the mix of demand toward
transient for the next few years.
S&P said, "Our sustainable NCF at issuance and currently is $29.3
million, which is based on a 71.7% occupancy rate, $254.25 average
daily rate (ADR), and $182.30 RevPAR. Our NCF is about 7.4% below
the 2019 servicer reported NCF. The borrower's 2022 budget projects
68.4% occupancy, $234.06 ADR, and $160.16 RevPAR, resulting in a
budgeted NCF of $15.9 million for the year." Favorably, the YTD
through March 2022 actual property performance appears to be in
line with the budgeted performance. According to the hotel's STR
report, the Fairmont Austin achieved an occupancy rate of 48.6% as
of the trailing three-month period ended February 2022, compared to
28.2% in the same period in 2021, but still down from 62.0%
achieved pre-pandemic in early 2020. ADR also increased
significantly but remains about 11.0% below early 2020 levels. The
competitive set, which includes five other upscale branded hotels
in Austin, achieved similar occupancy and ADR improvements,
indicating the potential for a near-term improvement in the overall
market's performance. Although the 2022 budget and most recent
reported NCFs remain below our expected-case NCF of $29.3 million,
the TTM ending March 2022 NCF is currently sufficient to cover debt
service at over 1.50x debt service coverage, as calculated by S&P
Global Ratings, while the property gradually returns to normalized
levels.
Transaction Summary
This is a U.S. stand-alone (single borrower) transaction backed by
a floating rate, IO mortgage loan, secured by the borrower's
leasehold interest in the Fairmont Austin hotel. According to the
April 18, 2022, trustee remittance report, the loan has a trust and
whole loan balance of $300.0 million, the same as at issuance and
the last review. The loan has an initial term of two years, with
three one-year extension options. The final extended maturity date
is Sept. 9, 2024. The loan pays a per annum floating rate equal to
one month LIBOR plus 2.11% and currently matures on Sept. 9, 2022,
with two one-year extension options remaining. As noted above, in
conjunction with the loan modification, the loan's maturity date
was extended to its current maturity date. The extension options
are subject to, among others, the borrower obtaining a replacement
interest rate cap agreement. In addition, there are two mezzanine
loans totaling $125.0 million that mature conterminously with the
mortgage loan.
The recent rapid spread of the omicron variant highlights the
inherent uncertainties of the pandemic as well as the importance
and benefits of vaccines. S&P said, "While the risk of new, more
severe variants displacing omicron and evading existing immunity
cannot be ruled out, our current base case assumes that existing
vaccines can continue to provide significant protection against
severe illness. Furthermore, many governments, businesses, and
households around the world are tailoring policies to limit the
adverse economic impact of recurring COVID-19 waves. Consequently,
we do not expect a repeat of the sharp global economic contraction
of second-quarter 2020. Meanwhile, we continue to assess how well
each issuer adapts to new waves in its geography or industry."
Ratings Affirmed
Austin Fairmont Hotel Trust 2019-FAIR
Class A: AAA (sf)
Class B: AA- (sf)
Class C: A- (sf)
Class D: BBB- (sf)
Class E: B (sf)
Class F: CCC (sf)
Class X-EXT: BBB- (sf)
SLC STUDENT 2004-1: S&P Affirms 'B' Rating on Classes A-7/B Notes
-----------------------------------------------------------------
S&P Global Ratings affirmed its 'B (sf)' ratings on SLC Student
Loan Trust 2004-1's class A-7 and B notes. The transaction is
backed by a pool of student loans originated through the U.S.
Department of Education's (ED's) Federal Family Education Loan
Program (FFELP).
S&P said, "Our review primarily considered the transaction's note
payment rate relative to each class' legal final maturity date,
expected future collateral performance, payment priority, and
current credit enhancement levels. Additionally, we considered
secondary credit factors, such as credit stability, peer
comparisons, and issuer-specific analyses. Credit enhancement for
the notes includes overcollateralization (parity), subordination
for the class A-7 notes, and excess spread."
Rating Action Rationale
S&P said, "Our loss expectations remain low because generally, the
loans are backed by a guarantee of at least 97% of a defaulted
loan's principal and interest from ED. The collateral is expected
to amortize to less than 10% of the original balance (the "clean-up
call") prior to the maturity date of the notes. The clean-up call
provisions allow the collateral to be purchased and the notes
repaid from the proceeds. Given the guarantee on the loans and the
expected overcollateralization at the time of the clean-up call, we
expect, in a 'B' scenario, that the optional call will be executed
and the notes will be repaid. Based on the past years' bond
principal payments, the transaction is expected to reach the call
date around February 2025, approximately two-to-three years before
the class A-7 maturity date of Nov. 15, 2027."
Payment Structure
The transaction utilizes a payment mechanism that defines a
principal distribution amount as the change in the adjusted pool
balance from the previous quarter to the current quarter. This
principal distribution amount is allocated pro-rata to the class
A-7 and B notes. Generally, remaining available funds can be
released to the trust after the payment of senior fees, note
interest, and the class A-7 and B notes' principal distribution
amount. The transaction releases certain amounts until its
respective clean-up call date. After the call date, releases are no
longer permitted.
A failure to pay principal on the class A-7 notes by its legal
final maturity date of Nov. 15, 2027, would trigger an event of
default. After an event of default, the trustee and/or noteholders
have several possible courses of action, which may affect the
amount and timing of payments that are expected to be received by
the class B notes due to their subordinated position. For example,
the parties may allocate payments per the pre-event of default
waterfall or they could vote to accelerate and payments could be
allocated per the post-event of default waterfall. Additionally,
the parties could decide to sell the trust estate. As such, S&P's
rating on the class B notes is not higher than the lowest-rated
senior note to reflect the uncertainty the class B notes face if an
event of default occurs on the class A-7 notes.
Credit enhancement includes overcollateralization (parity),
subordination (for class A-7), the reserve account, and excess
spread. Given the payment structure of the transaction and the
principal distribution amount allocated pro-rata quarterly, parity
levels are expected to show small increases overtime. The reserve
account may be used to make payment on a note's legal final
maturity date. The reserve account, measured as the greater of
0.25% of the pool balance and a non-amortizing fixed amount, grows
as the notes amortize.
Liquidity
S&P's liquidity analysis calculates a principal payment haircut
that takes into consideration a class' maturity date relative to
its average note principal payments. The higher the principal
payment haircut, the greater likelihood the note will be repaid by
its legal final maturity date. The current principal payment
haircut for the class A-7, which matures within seven years, has
remained weak.
S&P will continue to monitor the performance of the student loan
receivables backing the transactions relative to its ratings and
the available credit enhancement and liquidity for the classes.
Ratings Affirmed
SLC Student Loan Trust 2004-1
Class A-7: B (sf)
Class B: B (sf)
STARWOOD MORTGAGE 2022-3: Fitch Gives 'B-(EXP)' Rating to B-2 Debt
------------------------------------------------------------------
Fitch Ratings has assigned expected ratings to Starwood Mortgage
Residential Trust 2022-3.
STAR 2022-3
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AA(EXP)sf Expected Rating
A-3 LT A(EXP)sf Expected Rating
M-1 LT BBB(EXP)sf Expected Rating
B-1 LT BB-(EXP)sf Expected Rating
B-2 LT B-(EXP)sf Expected Rating
B-3 LT NR(EXP)sf Expected Rating
A-IO-S LT NR(EXP)sf Expected Rating
XS LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch expects to rate the residential mortgage-backed certificates
to be issued by Starwood Mortgage Residential Trust 2022-3, series
2022-3 (STAR 2022-3), as indicated above. The certificates are
supported by 793 loans with a balance of approximately $470.5
million as of the cutoff date. This is the third Fitch-rated STAR
transaction in 2022 and the ninth STAR transaction Fitch has rated
since 2020.
The certificates are secured primarily by mortgage loans originated
by third-party originators, with Luxury Mortgage Corporation,
HomeBridge Financial Services, Inc. and CrossCountry Mortgage LLC
sourcing 88.1% of the pool. The remaining 11.9% of the mortgage
loans were originated by various originators that contributed less
than 7% each to the pool.
Of the loans in the pool, 45.3% are designated as non-qualified
mortgages (non-QMs, or NQMs), and 54.7% are not subject to the
Consumer Finance Protection Bureau's (CFPB) Ability to Repay Rule
(ATR Rule, or the rule).
There is no Libor exposure in this transaction. The collateral
consists of 31 adjustable-rate loans that reference one-month SOFR
(Secured Overnight Financing Rate). The certificates are fixed rate
and capped at the net weighted average coupon (WAC) or are based
off of the net WAC.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, Fitch views the home price values
of this pool as 9.5% above a long-term sustainable level (vs. 9.2%
on a national level as of April 2022, down 1.4% since last
quarter). Underlying fundamentals are not keeping pace with the
growth in prices, resulting from a supply/demand imbalance driven
by low inventory, favorable mortgage rates, and new buyers entering
the market. These trends have led to significant home price
increases over the past year, with home prices rising 18.2% YoY
nationally as of December 2021.
Nonprime Credit Quality (Mixed): The collateral consists mainly of
30-year, fixed-rate fully amortizing loans (72.5%), 20.4%
fixed-rate loans with an initial interest-only (IO) term, 4.6% 7/1
adjustable-rate mortgages (ARMs) with an initial IO term and 1.2%
fully amortizing 7/1 ARMs. The pool is seasoned at approximately
five months in aggregate, as determined by Fitch.
Borrowers in this pool have relatively strong credit profiles, with
a 737 weighted average (WA) FICO score and a 46% debt to income
(DTI) ratio, as determined by Fitch, and relatively high leverage
with an original combined loan to value (CLTV) ratio of 71.9% that
translates to a Fitch-calculated sustainable loan to value (sLTV)
ratio of 78.6%.
The Fitch DTI is higher than the DTI in the transaction documents
(DTI of 28.4% in the transaction documents) due to Fitch assuming a
55% DTI for asset depletion loans and converting the debt service
coverage ratio (DSCR) to a DTI for the DSCR loans.
Of the pool, 41.6% consist of loans where the borrower maintains a
primary residence, while 58.4% comprise an investor property or
second home; 48.1% of the loans were originated through a retail
channel. Additionally, 45.3% are designated as non-QM and 54.7% are
exempt from QM.
The pool contains 100 loans over $1 million, with the largest being
$4.0 million. 41.1% of the pool was underwritten to a 12- or
24-month bank statement program for verifying income, while 3.4%
are asset depletion loans and 46.8% are investor cash flow DSCR
loans.
Approximately 55% of the pool comprise loans on investor properties
(8% underwritten to the borrowers' credit profile and 47%
comprising investor cash flow loans). A 0.1% portion of the loans
has subordinate financing, and there are no second lien loans.
Two loans in the pool were underwritten to foreign nationals. Fitch
treated these loans as being investor occupied and having no
documentation for income and employment. Fitch assumed a FICO score
of 650 for foreign nationals without a credit score.
Although the credit quality of the borrowers is higher than in
prior NQM transactions, the pool characteristics resemble nonprime
collateral; therefore, the pool was analyzed using Fitch's nonprime
model.
Geographic Concentration (Negative): Approximately 44.9% of the
pool are concentrated in California. The largest MSA concentration
is in the Los Angeles-Long Beach-Santa Ana, CA MSA (21.9%),
followed by the New York-Northern New Jersey-Long Island, NY-NJ-PA
MSA (17.1%) and the Miami-Fort Lauderdale-Miami Beach, FL MSA
(6.0%). The top three MSAs account for 45.0% of the pool. As a
result, there was a 1.06x probability of default (PD) penalty for
geographic concentration, which increased the 'AAA' loss by 0.59%.
Loan Documentation (Negative): Approximately 92.8% of the pool were
underwritten to less than full documentation, and 41.1% were
underwritten to a 12- or 24-month bank statement program for
verifying income, which is not consistent with Appendix Q standards
and Fitch's view of a full documentation program. A key distinction
between this pool and legacy Alt-A loans is that these loans adhere
to underwriting and documentation standards required under the
CFPB's ATR Rule, which reduces the risk of borrower default arising
from lack of affordability, misrepresentation or other operational
quality risks due to the rigor of the rule's mandates with respect
to the underwriting and documentation of the borrower's ability to
repay. Additionally, 3.4% of loans in the pool are an asset
depletion product, 0.0% are a CPA or PnL product, and 46.8% are a
DSCR product.
Limited Advancing (Mixed): The deal is structured to six months of
servicer advances for delinquent principal and interest (P&I). The
limited advancing reduces loss severities, as there is a lower
amount repaid to the servicer when a loan liquidates and
liquidation proceeds are prioritized to cover principal repayment
over accrued but unpaid interest. The downside is the additional
stress on the structure side, as there is limited liquidity in the
event of large and extended delinquencies.
Modified Sequential Payment Structure (Positive): The structure
distributes collected principal pro rata among the class A notes
while excluding the subordinate bonds from principal until all
three class A notes are reduced to zero. To the extent that either
a cumulative loss trigger event or delinquency trigger event occurs
in a given period, principal will be distributed sequentially to
class A-1, A-2 and A-3 bonds until they are reduced to zero.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. Sensitivity analyses were conducted at
the state and national levels to assess the effect of higher MVDs
for the subject pool as well as lower MVDs, illustrated by a gain
in home prices.
This defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0%, in addition to the
model-projected 41.2%, at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper MVDs than assumed at the MSA level.
Sensitivity analyses were conducted at the state and national
levels to assess the effect of higher MVDs for the subject pool as
well as lower MVDs, illustrated by a gain in home prices.
This defined positive rating sensitivity analysis demonstrates how
the ratings would react to positive home price growth of 10% with
no assumed overvaluation. Excluding the senior class, which is
already rated 'AAAsf', the analysis indicates there is potential
positive rating migration for all of the rated classes.
Specifically, a 10% gain in home prices would result in a full
category upgrade for the rated class excluding those being assigned
ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by SitusAMC and Recovco Mortgage Management, LLC. The
third-party due diligence described in Form 15E focused on
compliance review, credit review and valuation review. Fitch
considered this information in its analysis and, as a result, Fitch
did not make any adjustments to its analysis due to the due
diligence findings. Based on the results of the 100% due diligence
performed on the pool, the overall expected loss was reduced by
0.45%.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the loans. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria." The sponsor,
Starwood Non-Agency Lending, LLC, engaged SitusAMC and Recovco
Mortgage Management, LLC to perform the review. Loans reviewed
under these engagements were given compliance, credit, and
valuation grades and assigned initial grades for each subcategory.
An exception and waiver report was provided to Fitch, indicating
the pool of reviewed loans has a number of exceptions and waivers.
Fitch determined that the exceptions and waivers do not materially
affect the overall credit risk of the loans due to the presence of
compensating factors such as having liquid reserves or FICO above
guideline requirements or LTV or DTI lower than guideline
requirement. Therefore, no adjustments were needed to compensate
for these occurrences.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. The loan-level
information Fitch received was provided in the American
Securitization Forum's (ASF) data layout format. The ASF data tape
layout was established with input from various industry
participants, including rating agencies, issuers, originators,
investors and others, to produce an industry standard for the
pool-level data in support of the U.S. RMBS securitization market.
The data contained in the data tape layout was populated by the due
diligence company and no material discrepancies were noted.
ESG CONSIDERATIONS
STAR 2022-2 has an ESG Relevance Score of '4' [+] for Transaction
Parties & Operational Risk due to operational risk being well
controlled for in STAR 2022-2, strong transaction due diligence as
well as a 'RPS1-' Fitch-rated servicer, which has a positive impact
on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
VENTURE 45 CLO: Moody's Assigns (P)Ba3 Rating to $20MM Cl. E Notes
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to eight
classes of notes to be issued by Venture 45 CLO, Limited (the
"Issuer" or "Venture 45").
Moody's rating action is as follows:
US$5,000,000 Class X Senior Secured Floating Rate Notes due 2035,
Assigned (P)Aaa (sf)
US$300,000,000 Class A-1 Senior Secured Floating Rate Notes due
2035, Assigned (P)Aaa (sf)
US$25,000,000 Class A-2 Senior Secured Floating Rate Notes due
2035, Assigned (P)Aaa (sf)
US$55,000,000 Class B Senior Secured Floating Rate Notes due 2035,
Assigned (P)Aa2 (sf)
US$30,000,000 Class C Mezzanine Secured Deferrable Floating Rate
Notes due 2035, Assigned (P)A2 (sf)
US$25,000,000 Class D1 Mezzanine Secured Deferrable Floating Rate
Notes due 2035, Assigned (P)Baa3 (sf)
US$5,000,000 Class DF Mezzanine Secured Deferrable Fixed Rate Notes
due 2035, Assigned (P)Baa3 (sf)
US$20,000,000 Class E Junior Secured Deferrable Floating Rate Notes
due 2035, Assigned (P)Ba3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
Venture 45 is a managed cash flow CLO. The issued notes will be
collateralized primarily by broadly syndicated senior secured
corporate loans. At least 92.5% of the portfolio must consist of
senior secured loans, cash, and eligible investments, and up to
7.5% of the portfolio may consist of second lien loans, unsecured
loans, and permitted debt securities, provided no more than 5.0% of
the portfolio may consist of permitted debt securities. Moody's
expect the portfolio to be approximately 90% ramped as of the
closing date.
MJX Asset Management LLC (the "Manager") will direct the selection,
acquisition and disposition of the assets on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's five year reinvestment period.
Thereafter, subject to certain restrictions, the Manager may
reinvest unscheduled principal payments and proceeds from sales of
credit risk assets.
In addition to the Rated Notes, the Issuer will issue subordinated
notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 83
Weighted Average Rating Factor (WARF): 2625
Weighted Average Spread (WAS): 3mS + 3.80%
Weighted Average Coupon (WAC): 6.0%
Weighted Average Recovery Rate (WARR): 47.0%
Weighted Average Life (WAL): 8.17 years
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
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.
WAIKIKI BEACH 2019-WBM: S&P Affirms CCC (sf) Rating on F Certs
--------------------------------------------------------------
S&P Global Ratings affirmed its ratings on six classes of
commercial mortgage pass-through certificates from Waikiki Beach
Hotel Trust 2019-WBM, a U.S. stand-alone, single borrower CMBS
transaction.
This transaction is backed by a floating-rate, interest-only (IO)
mortgage loan secured by the borrower's leasehold interest in the
Waikiki Beach Marriott Resort & Spa, a 1,310-guestroom full-service
hotel property in Honolulu.
Rating Actions
S&P said, "The affirmations of the ratings on classes A, B, C, D,
E, and F reflect our reevaluation of the lodging property that
secures the sole loan in the transaction. Our analysis included a
review of the most recent financial performance data provided by
the servicer and considered the sponsor's capital contribution made
via the recently completed property renovations totaling $94.3
million ($72,012 per guestroom). Additionally, the borrower's 2022
budget projects a significant improvement in occupancy and net cash
flow (NCF) compared to 2020 and 2021, when the hotel and the Oahu
lodging market were severely impacted by the drop in demand during
the COVID-19 pandemic. As restrictions on travel to Hawaii ease and
domestic air travel to Hawaii strengthens, we expect that the
property's cash flow will steadily rebound. Although it will likely
take longer for international travel, especially from Asia, to
return to pre-pandemic levels, we expect that strong domestic
travel in the near term will sustain the property's performance
until international demand improves.
"As a result, our expected-case value has remained unchanged since
our last review in November 2020 but is down 11.00% since issuance.
The performance recovery projected in the borrower's 2022 budget,
an improvement in market-wide occupancy levels over the last three
months, strong domestic leisure demand, and relaxed domestic travel
restrictions to Hawaii are the rationale for maintaining our value
at this time. Using the S&P Global Ratings' sustainable NCF of
$26.3 million (unchanged from the last review and issuance) and
applying a 9.25% capitalization rate (which is consistent with the
last review) and adding $5.0 million to the value to account for
the net present value of the ground rent obligations, we derived an
S&P Global Ratings expected-case value of $289.5 million, or
$220,960 per guestroom. This yielded an S&P Global Ratings
loan-to-value ratio of 116.3%, versus 103.5% at issuance and
unchanged from the last review."
S&P affirmed its ratings on classes A, B, C, and D even though the
model-indicated ratings were lower than the classes' current rating
levels. These affirmations are based on certain qualitative
considerations, including:
-- The quality of the underlying collateral;
-- The hotel's strong location across the street from Waikiki
Beach;
-- The significant market value decline that would be needed
before these classes experience losses;
-- The upside potential to NCF given the recently renovated
guestrooms and the increase in air travel since the outset of the
COVID-19 pandemic;
-- The liquidity support provided in the form of servicer
advancing; and
-- The relative positioning of the classes in the waterfall.
The borrower, an entity controlled by the loan sponsor, Atrium
Hospitality, is current on its debt service payments based on the
March 2022 trustee remittance report. However, the loan is on the
master servicer's watchlist due to a low reported debt service
coverage and a decline in net operating income in 2020 and 2021.
The master servicer, Wells Fargo Bank N.A., indicated that the
borrower requested relief during the COVID-19 pandemic but that the
request was not granted and the loan had not transferred to special
servicing. In addition, the borrower applied for and received $8.6
million in Paycheck Protection Program loans.
The property's performance had been affected by rooms taken out of
service during the renovations between January 2019 and August
2021, but S&P attributes the majority of the decline to weakness in
domestic and international demand stemming from the COVID-19
pandemic.
Property-Level Analysis
Waikiki Beach Marriott Resort & Spa is a 1,310-guestroom hotel
located across the street from Waikiki Beach on the island of Oahu
in Hawaii. The hotel has two connected towers with frontage along
Kalakaua Avenue, a major commercial thoroughfare in downtown
Honolulu. The hotel is within walking distance of Waikiki's major
retail, dining, and entertainment venues and is a block from the
Honolulu Zoo and Waikiki Aquarium. All of the guestrooms have
balconies, and the hotel features five food and beverage outlets,
about 23,000 sq. ft. of indoor meeting space, and about 55,000 sq.
ft. of retail space. There is also a fitness center, two swimming
pools, and a spa.
The hotel's retail space includes approximately 50 shops and at
issuance included two ABC convenience stores, two Starbucks,
several small local retailers, and Japanese bridal shops. Portions
of the retail space offer street level access (Kalakaua and Ohua
Avenues) to pedestrians and tourists in the area, while other
leased spaces are interior spaces with no street exposure and are
more dependent on hotel guests. The retail portion accounted for
about $8.8 million, or 7.1%, of total revenue in 2017 and was about
98.0% leased. S&P said, "At the time of our last review in October
2020, the retail vacancy rate had increased to 10.9%. We were not
provided with a current rent roll to ascertain the current status
of the retail spaces. However, the 2022 budget projects a total of
$29.8 million for "other income" (which includes retail, parking,
resort fees, and other), which is slightly higher than the levels
of "other income" achieved in 2017 and 2018."
In January 2019, the sponsor commenced a major $73.7 million
($56,317 per guestroom) renovation of the guestrooms. Renovation
work included the replacement of all soft goods and case goods, as
well as the full renovation of guestroom bathrooms and corridors.
The sponsor also spent approximately $20.6 million to redevelop the
third-floor rooftop deck where the primary pool and dining venues
are located. The loan provided for an upfront reserve of $43.1
million for the renovations and a monthly renovation reserve
totaling $9.0 million, which was expected to be funded during the
first year of the loan term with excess cash flow. The renovations
to the guestrooms and pool deck are complete. The property is
managed by Marriott International Inc. under a long-term agreement
through December 2027 with five 10-year renewal options.
The property is subject to three ground leases: the hotel parcel
lease, which terminates in December 2080, the Bolte parcel lease,
which terminates in December 2050, and the parking parcel ground
lease, which expires in 2028. The hotel parcel lease includes an
option for the parking parcel to be added to the hotel parcel lease
upon its termination. The ground rent under the hotel parcel (which
is about 80% of the total ground rent expense) includes a base and
percentage rent component; the base rent is adjusted based on the
Consumer Price Index every five years and was last reset in 2019.
There is a fair market value reset in 2045. Rent on the Bolte
parcel includes a base and percentage rent; the base rent was reset
to $1.2 million in 2018 through Jan. 1, 2028, and will be
renegotiated again in 2028, 2038, and 2048. The parking parcel
ground rent was $785,000 in 2018 and has since been reset, but the
reset amount was not available. The total ground rent expense was
$10.1 million in 2020 and reflects the resets. S&P assumed a ground
rent expense of $11.7 million in its analysis to account for future
rent steps.
Transient leisure demand drives the Honolulu market, and about 85%
of the hotel's demand is derived from leisure travelers, with the
remainder derived from meeting and group demand. At issuance, about
25% of the occupied room nights were generated by Asian visitors,
primarily from Japan. The hotel suspended operations from March
2020 through November 2020 due to a lack of domestic and
international demand during the COVID-19 pandemic. As a result,
based on the sponsor-provided financials, the property reported a
cash flow of negative $16.0 million in 2020 and negative $236,929
in 2021.
S&P said, "Our property-level analysis included a reevaluation of
the lodging loan securitized in the pool using servicer-provided
operating statements from 2018 through 2021. We also utilized the
most recent STR report through February 2022 and the borrower's
2022 budget to supplement our analysis."
The hotel's RevPAR was $185.03 in 2017, $192.99 in 2018, and
declined 12.6% to $168.58 in 2019 at the outset of the renovation
program. The property's NCF was stable at $31.3 million in 2017 and
$32.0 million in 2018 and then dropped to $18.1 million in 2019 as
the renovations began. As noted, in 2020 and 2021, the hotel's
occupancy declined to 38.8% and 43.4%, respectively, as demand came
to a halt during the COVID-19 pandemic. The hotel was closed for
approximately nine months in 2020, and NCF was negative $16.0
million in 2020 and negative $236,929 in 2021.
S&P said, "Our sustainable NCF at issuance and currently is $26.3
million, which is based on an 87.8% occupancy rate, a $211.50
average daily rate (ADR), and $185.59 in revenue per available room
(RevPAR). Our NCF is about 17.8% below the 2018 servicer-reported
NCF, the hotel's most recent stabilized year prior to the
renovation. Favorably, the property manager's budget for 2022
projects an 81.7% occupancy rate, $259.84 ADR, and $212.31 RevPAR,
resulting in a budgeted NCF of $34.1 million for the year, which is
above our $26.3 million estimate of stabilized NCF." The STR report
as of the trailing three-month period ended February 2022 revealed
a hotel occupancy rate of 71.8%, a significant improvement from the
same period last year where occupancy was 17.3%. The hotel's
occupancy appears to be on an upward trajectory, as the hotel
reached 72.2% in December, 64.3% in January, and 79.7% in February.
The competitive set, which includes seven other large resort hotels
in Waikiki, achieved similar occupancy levels, indicating the
potential for a near-term improvement in the overall market's
performance. The market also benefits from limited planned new
supply due to Oahu's high barriers to entry and lack of land
availability.
As of March 2022, domestic travelers are no longer required to
provide proof of vaccination to enter Hawaii. However, there are
still significant restrictions on international travelers, who must
show proof of a negative COVID-19 test one day prior to departure
and be fully vaccinated to enter the U.S. In addition, Japan
currently has border control measures in place, resulting in an
inbound cap of overseas arrivals limited to 10,000 people per day.
Based on data provided by the Hawaii Tourism Authority, the number
of visitors to Hawaii from the U.S. was 6.87 million in 2019, which
declined to 1.98 million in 2020 and then rebounded to 6.5 million
in 2021. The 2022 domestic visitor arrival projection for 2022 is
7.7 million, about 12% higher than 2019 levels. Japan, the largest
source of international visitors to Hawaii, recorded 1.6 million
arrivals in 2019, which dropped to 289,137 in 2020 and 24,232 in
2021. The 2022 projected visitor count remains depressed at
521,380. Despite the limited Japanese demand expected in 2022,
strong domestic leisure demand plus the forecasted Japanese
arrivals are expected to reach 8.2 million in 2022, only slightly
below the 8.5 million U.S. plus Japanese visitors who came to
Hawaii in 2019.
Transaction Summary
This is a stand-alone (single-borrower) transaction backed by a
floating-rate, IO mortgage loan secured by the borrower's leasehold
interest in the Waikiki Beach Marriott Resort & Spa hotel.
According to the March 15, 2022, trustee remittance report, the
loan has a trust and whole loan balance of $336.5 million, the same
as at issuance and the last review. The loan has an initial term of
two years, with five one-year extension options. The final extended
maturity date is Dec. 9, 2025. The loan is IO for its entire term
with an interest rate equal to LIBOR plus 2.05%, increasing to
LIBOR + 2.30% during the fourth and fifth extension terms. The
borrower recently exercised its second extension option, and the
current maturity date is Dec. 9, 2022, with three one-year
extension options remaining. The extension options are subject to
the borrower obtaining a replacement interest rate cap. To exercise
the fourth and fifth extension options, the debt yield must be no
less than 8.0% and 8.5%, respectively.
The recent rapid spread of the omicron variant highlights the
inherent uncertainties of the pandemic as well as the importance
and benefits of vaccines. While the risk of new, more severe
variants displacing omicron and evading existing immunity cannot be
ruled out, S&P's current base case assumes that existing vaccines
can continue to provide significant protection against severe
illness. Furthermore, many governments, businesses, and households
around the world are tailoring policies to limit the adverse
economic impact of recurring COVID-19 waves. Consequently, S&P does
not expect a repeat of the sharp global economic contraction of
second-quarter 2020. Meanwhile, S&P continues to assess how well
each issuer adapts to new waves in its geography or industry.
Ratings Affirmed
Waikiki Beach Hotel Trust 2019-WBM
Class A: AAA (sf)
Class B: AA- (sf)
Class C: A- (sf)
Class D: BBB- (sf)
Class E: B (sf)
Class F: CCC (sf)
WELLS FARGO 2014-LC16: DBRS Lowers Class C Certs Rating to C
------------------------------------------------------------
DBRS, Inc. downgraded its ratings of the Commercial Mortgage
Pass-Through Certificates, Series 2014-LC16 issued by Wells Fargo
Commercial Mortgage Trust 2014-LC16 as follows:
-- Class B to BBB (sf) from A (low) (sf)
-- Class C to C (sf) from CCC (sf)
DBRS Morningstar confirmed its ratings on the remaining classes as
follows:
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
Class B continues to carry a Negative trend, and Classes C, D, E,
and F, have ratings that do not carry trends. All other trends are
Stable. Interest shortfalls remain outstanding for Classes C, D, E,
and F, which continue to carry the Interest in Arrears
designation.
The downgrades and Negative trend reflect a variety of factors,
including increased loss expectations driven primarily by specially
serviced loans and deteriorating credit support following the
liquidation of one loan in 2021 that resulted in a $25.6 million
loss to the trust.
Since issuance, there has been collateral reduction of 28.6%, with
69 of the original 82 loans remaining in the pool as of the
February 2022 remittance. There are currently 13 loans,
representing 13.7% of the current pool balance, which have been
fully defeased. An additional 13 loans, representing 12.0% of the
current pool balance, are on the servicer's watchlist, and six
loans, representing 25.1% of the pool, are in special servicing,
including three top 15 loans that combine for 22.0% of the current
pool balance.
The largest specially serviced loan is Woodbridge Center
(Prospectus ID#1, 15.9% of the pool), secured by the fee interest
in a 1.1 million-square-foot portion of a 1.7 million-sf
super-regional mall in Woodbridge, New Jersey. DBRS Morningstar has
been monitoring the loan for the last few years amid cash flow
declines and the closure of two anchor stores in December 2019 and
April 2020. The loan transferred to the special servicer in June
2020 for imminent monetary default, and, in October 2021, a
foreclosure complaint was filed and a receiver was appointed.
Occupancy has declined to 70.9% as of July 2021 from 98.1% at
issuance and the most recent appraisal, dated September 2021,
indicated a property value of $90.0 million, which is well below
the $366.0 million appraised value at issuance and suggests a
loan-to-value ratio of more than 257% on the outstanding principal
balance. Based on these factors, DBRS Morningstar anticipates a
significant loss will be incurred at liquidation, with a loss
severity approaching 80%.
The third-largest specially serviced loan is the Oak Court Mall
(Prospectus ID#18, 2.0% of the pool). This loan is a pari passu
participation in a whole loan secured by portion of a
super-regional mall in Memphis, Tennessee. The loan transferred to
special servicing in May 2020 for imminent monetary default related
to the Coronavirus Disease (COVID-19) pandemic, and failed to repay
ahead of its scheduled April 2021 maturity. The loan’s sponsor,
Washington Prime Group (WPG), later indicated its desire to
transfer title to the trust via a deed in lieu of foreclosure and
the special servicer anticipates obtaining title in the near term.
The collateral was reappraised in April 2021 for a value of $15.5
million, down from the $61.0 million appraised value at issuance.
Given the property's declining performance and value, market
positioning, nearby competition, and general lack of liquidity for
this property type, DBRS Morningstar expects a loss severity in
excess of 75% could be realized at resolution.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2019-C50: Fitch Cuts Ratings on 2 Tranches to 'CCC'
---------------------------------------------------------------
Fitch Ratings has downgraded four classes and affirmed 13 classes
of Wells Fargo Commercial Mortgage (WFCM) Trust 2019-C50 commercial
mortgage pass-through certificates.
DEBT RATING PRIOR
---- ------ -----
WFCM 2019-C50
A-2 95001XAX4 LT AAAsf Affirmed AAAsf
A-3 95001XAY2 LT AAAsf Affirmed AAAsf
A-4 95001XBA3 LT AAAsf Affirmed AAAsf
A-5 95001XBB1 LT AAAsf Affirmed AAAsf
A-S 95001XBC9 LT AAAsf Affirmed AAAsf
A-SB 95001XAZ9 LT AAAsf Affirmed AAAsf
B 95001XBD7 LT AA-sf Affirmed AA-sf
C 95001XBE5 LT A-sf Affirmed A-sf
D 95001XAJ5 LT BBBsf Affirmed BBBsf
E 95001XAL0 LT BBB-sf Affirmed BBB-sf
F 95001XAN6 LT Bsf Downgrade BB-sf
G 95001XAQ9 LT CCCsf Downgrade B-sf
X-A 95001XBF2 LT AAAsf Affirmed AAAsf
X-B 95001XBG0 LT A-sf Affirmed A-sf
X-D 95001XAA4 LT BBB-sf Affirmed BBB-sf
X-F 95001XAC0 LT Bsf Downgrade BB-sf
X-G 95001XAE6 LT CCCsf Downgrade B-sf
KEY RATING DRIVERS
Higher Certainty of Loss: Fitch's overall loss expectations for the
pool have remained relatively stable since the prior rating action;
however, the downgrades are driven by higher losses on some of the
specially serviced loans, primarily the 839 Broadway loan (2.7% of
pool) and 24 Commerce Street (1.7%). There are 15 Fitch Loans of
Concern (FLOCs) (28.8%), which includes six specially serviced
loans (13%), all of which were in special servicing at the prior
review.
Fitch's current ratings incorporate a base case loss of 5.0%. The
Negative Rating Outlook on classes F and X-F reflects losses that
could reach 5.8% when factoring in an outsized loss of 20% to the
Great Wolf Lodge Southern California given concerns with
potentially longer-term performance volatility.
The largest contributor to loss and specially serviced loan, 839
Broadway (2.7%), is secured by a 46,228- sf mixed use office/retail
property located on the corner of Broadway and Park Street, in the
western part of the Bushwick neighborhood of Brooklyn, NY. The loan
transferred to the special servicer in March 2021 for imminent
monetary default at the borrower's request as a result of the
pandemic. The office portion of the property is 100% leased to Bond
Collective (86.3% NRA), which executed a new 15-year NNN lease that
began in early 2019.
Bond Collective provides luxury shared office space services and
has 11 other locations located in Los Angeles, CA, Chicago, IL,
Philadelphia, PA, Austin, TX, Washington D.C., and five in New York
City with three in Manhattan and two others located in Brooklyn.
The tenant's lease at the property is guaranteed by Bond Collective
and the owners Baruch Singer and Elie Deitsch (additionally
sponsors on the loans) for the entire 15-year lease term.
The June 2020 NOI debt service coverage ratio (DSCR) was 1.51x with
100% occupancy and YE 2019 DSCR was 0.83x. Fitch's loss expectation
of 30% reflects a stress to a recent appraisal. This value is
in-line with a dark value analysis performed by Fitch at issuance
of $17.7 million in the event that Bond Collective vacates the
entire property.
The second largest contributor to loss and specially serviced loan,
24 Commerce Street (1.7%), is secured by a 171,892-sf office
building located in downtown Newark, NJ. The loan transferred to
the special servicer a second time in May 2020 for imminent
monetary default after being returned to the master servicer in
October 2019.The special servicer has appointed a receiver and is
proceeding with foreclosure. Fitch's base case loss of
approximately 35% is based on a recent appraisal which reflects a
value psf of $75.
Credit Enhancement Slightly Improved: As of the March 2022
distribution date, the pool's aggregate principal balance has been
reduced by 7.1% to $871.7 million from $938 million at issuance.
Since issuance, two loans have prepaid early ($46 million combined
balance at issuance) and one loan was liquidated with a $2.7
million loss. Thirteen loans (25%) are full-term interest-only (IO)
while nine loans (17.8%) remain in their partial IO period. No
loans have defeased. Only two loans (4.8%, 2024) are scheduled to
mature prior to 2025.
Alternative Loss Considerations: Fitch performed an additional
sensitivity scenario which assumed a potential outsized loss of 20%
on the current balance of the Great Wolf Lodge Southern California
loan to reflect the unique asset type, operational risk and high
vulnerability of the property to the ongoing coronavirus pandemic;
this analysis contributed to the Negative Outlook on classes F and
X-F.
The loan is secured by a 603-key waterpark resort hotel located in
Garden Grove, CA, approximately three miles from Disneyland. The
loan, which had transferred to special servicing in June 2020 after
being impacted by COVID- 19 related business restrictions, has
returned to the master servicer following the April 2021 payment.
Forbearance was granted in July 2020 with terms allowing for the
use of existing reserves to pay debt service and operating
expenses, deferral of FF&E payments through 2020 and exclusion of
2020 financials from debt yield test calculations.
In March 2021, the borrower was granted additional relief through a
second modification, providing for further deferral of the
seasonality reserve, the recovery of utilized reserves/escrows to
be further deferred, exclusion of 2021 financials when calculating
the debt yield tests and moving the April 1, 2022 debt yield test
to April 1, 2023.
The resort reopened in May 22, 2021 and the loan transferred back
to the master servicer following the April 2021 payment. As of YE
2021 NOI DSCR was up to .81x from -3.42x at YE 2020. In its
analysis, Fitch applied a 12% cap rate (up from 11.25% at issuance)
and a 20% haircut to YE 2019 NOI to reflect the coronavirus
pandemic's continuing impact on the property. If performance
reverts back to levels reported prior to the pandemic, issuance
assumptions may be relied upon.
Loan Concentration: The largest 10 loans comprise 37% of the pool.
Twenty-three loans (32.4%) are secured by retail properties while
mixed-use properties with a retail component comprise an additional
three loans (6.3% of the pool). Twelve loans (19.5%) are secured by
office properties, and 10 loans (18.7%) are secured by hotel
properties.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades would occur with an increase in pool-level losses
from underperforming or specially serviced loans/assets.
Downgrades to senior classes are not likely given the high
credit enhancement (CE) and scheduled amortization but are
possible if a significant proportion of the pool defaults or
should interest shortfalls affect these classes.
-- Downgrades to classes C, D and X-B are possible should
expected losses for the pool increase significantly and/or the
Great Wolf Lodge Southern California loan incur an outsized
loss, which would erode CE. Downgrades to classes E, F, G, X-D
X-F and X-G would occur if performance of the FLOCs or loans
susceptible to the coronavirus pandemic, including Great Wolf
Lodge Southern California, do not stabilize and/or additional
loans default and/or transfer to special servicing.
-- Fitch has identified both a baseline and a worse-than-
expected, adverse stagflation scenario based on fallout from
the Russia-Ukraine war whereby growth is sharply lower amid
higher inflation and interest rates; even if the adverse
scenario should play out, Fitch expects virtually no impact on
ratings performance, indicating very few rating or Outlook
changes. However, for some transactions with concentrations in
underperforming retail exposure, the ratings impact may be
mild to modest, indicating some changes on sub-investment
grade notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Upgrades would occur with stable to improved asset
performance, particularly on the FLOCs, coupled with
additional paydown and/or defeasance. Upgrades to classes B, C
and X-B would occur with significant improvement in CE and/or
defeasance and with the stabilization of performance on the
FLOCs and/or the properties affected by the coronavirus
pandemic; however, adverse selection and increased
concentrations could cause this trend to reverse.
-- Upgrades to classes D, E and X-D would also consider these
factors, but would be limited based on sensitivity to
concentrations or the potential for future concentration.
Classes would not be upgraded above 'Asf' if interest
shortfalls are likely. Upgrades to classes F, X-F, G, and X-G
are not likely until the later years in the transaction and
only if the performance of the remaining pool is stable and/or
properties vulnerable to the coronavirus return to pre-
pandemic levels, and there is sufficient CE.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
WELLS FARGO 2022-C62: Fitch Gives Final 'B-' Rating to G-RR Certs
-----------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Wells Fargo Commercial Mortgage Trust 2022-C62, commercial mortgage
pass-through certificates, Series 2022-C62.
WFCM 2022-C62
-- $6,056,000 Class A-1 'AAAsf'; Outlook Stable;
-- $38,861,000 Class A-2 'AAAsf'; Outlook Stable;
-- $11,189,000 Class A-SB 'AAAsf'; Outlook Stable;
-- $316,224,000a Class A-4 'AAAsf'; Outlook Stable;
-- $0b Class A-4-1 'AAAsf'; Outlook Stable;
-- $0bc Class A-4-X1 'AAAsf'; Outlook Stable;
-- $0b Class A-4-2 'AAAsf'; Outlook Stable;
-- $0bc Class A-4-X2 'AAAsf'; Outlook Stable;
-- $372,330,000b Class X-A 'AAAsf'; Outlook Stable;
-- $95,078,000b Class X-B 'AAAsf'; Outlook Stable;
-- $46,542,000 Class A-S 'AAAsf'; Outlook Stable;
-- $0b Class A-S-1 'AAAsf'; Outlook Stable;
-- $0bc Class A-S-X1 'AAAsf'; Outlook Stable;
-- $0b Class A-S-2 'AAAsf'; Outlook Stable;
-- $0bc Class A-S-X2 'AAAsf'; Outlook Stable;
-- $24,600,000 Class B 'AA-sf'; Outlook Stable;
-- $0b Class B-1 'AA-sf'; Outlook Stable;
-- $0bc Class B-X1 'AA-sf'; Outlook Stable;
-- $0b Class B-2 'AA-sf'; Outlook Stable;
-- $0bc Class B-X2 'AA-sf'; Outlook Stable;
-- $23,936,000 Class C 'A-sf'; Outlook Stable;
-- $0b Class C-1 'A-sf'; Outlook Stable;
-- $0bc Class C-X1 'A-sf'; Outlook Stable;
-- $0b Class C-2 'A-sf'; Outlook Stable;
-- $0bc Class C-X2 'A-sf'; Outlook Stable;
-- $24,600,000bc Class X-D 'BBB-sf'; Outlook Stable;
-- $15,292,000c Class D 'BBBsf'; Outlook Stable;
-- $9,308,000c Class E 'BBB-sf'; Outlook Stable;
-- $15,292,000c Class F 'BB-sf'; Outlook Stable;
-- $15,292,000bc Class X-F 'BB-sf'; Outlook Stable;
-- $5,319,000cd Class G-RR 'B-sf'; Outlook Stable.
The following class is not expected to be rated by Fitch:
-- $19,282,216cd H-RR 'NRsf'.
(a) Exchangeable Certificates. The class A-4, A-S, B and C
certificates are exchangeable certificates. Each class of
exchangeable certificates may be exchanged for the corresponding
classes of exchangeable certificates and vice versa. The dollar
denomination of each of the received classes of certificates must
be equal to the dollar denomination of each of the corresponding
classes of exchangeable certificates. Class A-4 may be surrendered
(or received) for the received (or surrendered) classes A-4-1 and
A-4-X1. Class A-4 may be surrendered (or received) for the received
(or surrendered) classes A-4-2 and A-4-X2. Class A-S may be
surrendered (or received) for the received (or surrendered) classes
A-S-1 and A-S-X1. Class A-S may be surrendered (or received) for
the received (or surrendered) classes A-S-2 and A-S-X2. Class B may
be surrendered (or received) for the received (or surrendered)
classes B-1 and B-X1. Class B may be surrendered (or received) for
the received (or surrendered) classes B-2 and B-X2. Class C may be
surrendered (or received) for the received (or surrendered) classes
C-1 and C-X1. Class C may be surrendered (or received) for the
received (or surrendered) classes C-2 and C-X2.
(b) Notional amount and interest only.
(c) Privately placed and pursuant to Rule 144A.
(d) Horizontal risk retention.
Since Fitch published its expected ratings on March 28, 2022, the
balances for Class A-3 and A-4 have been finalized. At the time the
expected ratings were published, the initial certificate balances
of classes A-3 and A-4 were expected to be $316,224,000 in
aggregate, subject to a 5% variance. The final class balance for
class A-4 is $316,224,000 and class A-3 was removed. Fitch has
withdrawn the expected ratings for classes A-3, A-3-1, A-3-2,
A-3-X1, and A-3-X2 because the classes were removed from the final
deal structure. The classes above reflect the final ratings and
deal structure.
Additionally, at the time the presale was issued, class X-B (which
is tied to the classes A-S, B, and C) was rated 'A-sf', reflecting
class C, the lowest rated tranche. Since Fitch published its
expected ratings, both, the class C and class B pass-through rates
were finalized and will be variable rate (WAC) equal to the
weighted average of the net mortgage interest rates on the mortgage
loan, and therefore their payable interest will not have an impact
on the IO payments for class X-B. Fitch updated class X-B to
'AAAsf' (from 'A-sf' at the time of the presale) reflecting the
lowest tranche (class A-S) whose payable interest has an impact on
the IO payments. This is consistent with Appendix 4 of Global
Structured Finance Rating Criteria.
The ratings are based on information provided by the issuer as of
April 18, 2021.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 46 loans secured by 82
commercial properties having an aggregate principal balance of
$531,901,217 as of the cut-off date. The loans were contributed to
the trust by LMF Commercial, LLC, Argentic Real Estate Finance LLC,
BSPRT CMBS Finance, LLC, UBS AG, New York Branch and Wells Fargo
Bank, National Association. The master servicer is expected to be
Wells Fargo Bank, National Association and the special servicer is
expected to be Argentic Services Company LP.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 8.4% of the properties by
balance, cash flow analyses of 87.2% of the pool, and asset summary
reviews on 100% of the pool.
The final class balances for classes A-3 and A-4 were combined into
one class, class A-4, which has a balance of $316,224,000.
KEY RATING DRIVERS
Leverage Exceeds that of Recent Transactions: This transaction's
leverage is higher than that of other multiborrower transactions
recently rated by Fitch. The pool's Fitch debt service coverage
ratio (DSCR) of 1.26x is lower than the 2021 and 2020 averages of
1.38x and 1.32x, respectively. Additionally, the pool's Fitch loan
to value (LTV) ratio of 105.4% is higher than the 2021 and 2020
averages of 103.3% and 99.6%, respectively.
Investment-Grade Credit Opinion Loans: One loan, ILPT Logistics
Portfolio, representing 2.8% of the pool, is the only loan in the
pool that received an investment-grade credit opinion. ILPT
Logistics Portfolio received a standalone credit rating of
'BBB-sf'.
Above-Average Pool Diversification: The pool's 10 largest loans
comprise 48.6% of the pool's cutoff balance, which is a lower
concentration than the 2021 and 2020 averages of 51.2% and 56.8%,
respectively. The Loan Concentration Index (LCI) of 365 is lower
than the 2021 and 2020 averages of 381 and 440, respectively. The
Sponsor Concentration Index (SCI) of 377 is also lower than the
2021 and 2020 averages of 407 and 474, respectively, and indicates
there is little sponsor concentration.
Below-Average Amortization: The pool is scheduled to amortize by
3.5% of the initial pool balance prior to maturity, which is below
the 2021 and 2020 averages of 4.8% and 5.3%, respectively.
Thirty-four loans (76.8%) are full interest-only loans, which is
above the 2021 and 2020 averages of 70.5% and 67.7%, respectively.
Three loans (9.7%) are partial interest-only loans, which is below
the 2021 and 2020 averages of 16.8% and 20.0%, respectively.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Declining cash flow decreases property value and capacity to meet
its debt service obligations. The table below indicates the model
implied rating sensitivity to changes to the same one variable,
Fitch NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB-sf'/ 'B-sf';
-- 10% NCF Decline: 'A+sf' / 'BBB+sf' / 'BBB-sf' / 'BB+sf' /'BB-
sf' / 'CCCsf'/ 'CCCsf';
-- 20% NCF Decline: 'BBB+sf' / 'BBB-sf' / 'BBsf' / 'B-sf' /
'CCCsf' / 'CCCsf'/ 'CCCsf';
-- 30% NCF Decline: 'BBB-sf' / 'BB-sf' / 'CCCsf' / 'CCCsf' /
'CCCsf' / 'CCCsf'/ 'CCCsf'.
Fitch has revised its global economic outlook forecasts as a result
of the war in Ukraine and related economic sanctions. Downside
risks have increased and, therefore, Fitch has published an
assessment of the potential rating and asset performance impact of
a plausible, albeit worse than expected, adverse stagflation
scenario on Fitch's major structured finance and covered bond
subsectors ("What a Stagflation Scenario Would Mean for Global
Structured Finance").
Fitch expects the North American CMBS sector in the assumed adverse
scenario to experience virtually no impact on ratings performance,
indicating very few rating or Outlook changes. Fitch expects the
asset performance impact of the adverse case scenario to be more
modest than the most stressful scenario shown above, which assumes
a further 30% decline from Fitch's NCF at issuance.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Improvement in cash flow increases property value and capacity to
meet its debt service obligations.
The table below indicates the model implied rating sensitivity to
changes in one variable, Fitch NCF:
-- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-
sf' / 'BB-sf'/ 'B-sf';
-- 20% NCF Increase: 'AAAsf' / 'AAAsf' / 'AA+sf' / 'A+sf' / 'A-
sf' / 'BBBsf'/ 'BBB-sf'.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Deloitte & Touche LLP. The third-party due diligence
described in Form 15E focused on a comparison and re-computation of
certain characteristics with respect to each of the mortgage loans.
Fitch considered this information in its analysis and it did not
have an effect on Fitch's analysis or conclusions.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
WFRBS COMMERCIAL 2011-C2: Moody's Cuts Rating on Cl. F Certs to Ca
------------------------------------------------------------------
Moody's Investors Service has affirmed the rating on one class and
downgraded the ratings on two classes in WF-RBS Commercial Mortgage
Trust 2011-C2, Commercial Mortgage Pass-Through Certificates,
Series 2011-C2, as follows:
Cl. E, Downgraded to Caa1 (sf); previously on Feb 10, 2021
Downgraded to B2 (sf)
Cl. F, Downgraded to Ca (sf); previously on Feb 10, 2021 Downgraded
to Caa3 (sf)
Cl. X-B*, Affirmed C (sf); previously on Feb 10, 2021 Downgraded to
C (sf)
* Reflects Interest Only Classes
RATINGS RATIONALE
The ratings on two P&I classes were downgraded due to anticipated
losses and interest shortfall risk from the pool's significant
exposure to two specially serviced loans (100% of the pool) secured
by poorly performing regional malls. The two specially serviced
loans are Port Charlotte Town Center Loan (63% of the pool) and
Aviation Mall (37% of the pool), both of which were exhibiting
declining performance prior to 2020. Both loans have now passed
their original loan maturity dates and the Port Charlotte Town
Center Loan has recently become REO. As a result of the exposure to
these loans, the remaining classes are at increased risk of ongoing
interest shortfalls and the potential for higher expected losses if
performance continues to deteriorate.
The rating on the IO class, Cl. X-B, was affirmed based on the
credit quality of its referenced classes.
The action has considered how the coronavirus pandemic has reshaped
the US economic environment and the way its aftershocks will
continue to reverberate and influence the performance of commercial
real estate. Moody's expect the public health situation to improve
as vaccinations against COVID-19 increase and societies continue to
adapt to new protocols. Still, the exit from the pandemic will
likely be bumpy and unpredictable and economic prospects will
vary.
Moody's regard the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety.
Moody's rating action reflects a base expected loss of 77.3% of the
current pooled balance, compared to 69.0% at Moody's last review.
Moody's base expected loss plus realized losses is now 3.3% of the
original pooled balance, compared to 2.9% at the last review.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range can
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a
significant amount of loan paydowns or amortization, or a
significant improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a
significant decline in the performance of the remaining loans or an
increase in realized and expected losses from specially serviced
and troubled loans.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except the
interest-only class was "Large Loan and Single Asset/Single
Borrower Commercial Mortgage-Backed Securitizations Methodology"
published November 2021.
Moody's analysis incorporated a loss and recovery approach in
rating the P&I classes in this deal since 100% of the pool is in
special servicing. In this approach, Moody's determines a
probability of default for each specially serviced and troubled
loan that it expects will generate a loss and estimates a loss
given default based on a review of broker's opinions of value (if
available), other information from the special servicer, available
market data and Moody's internal data. The loss given default for
each loan also takes into consideration repayment of servicer
advances to date, estimated future advances and closing costs.
Translating the probability of default and loss given default into
an expected loss estimate, Moody's then applies the aggregate loss
from the specially serviced loans to the most junior classes and
the recovery as a pay down of principal to the most senior
classes.
DEAL PERFORMANCE
As of the March 2022 distribution date, the transaction's aggregate
certificate balance has decreased by 96% to $52.3 million from $1.3
billion at securitization. The certificates are collateralized by
two mortgage loans, both of which are in special servicing (100% of
the pool). Both loans have been previously been deemed
non-recoverable by the master servicer. During February 2021, the
servicer recovered advances on the Aviation Mall Loan, resulting in
a realized loss of $1.9 million to the trust.
The largest specially serviced loan is the Port Charlotte Town
Center Loan ($33.1 million -- 63.2% of the pool), which is secured
by an approximately 490,000 square feet (SF) portion of a 774,000
SF super regional mall in Port Charlotte, Florida. The property is
also encumbered by a $7.0 million B-note. The mall is anchored by
JC Penney and a 16-screen Regal Cinemas, which are part of the
collateral. Additionally, Dillard's and Beall's are anchors at the
property but not part of the collateral. Macy's, a former
non-collateral anchor, closed this location in the spring of 2021
and Sears, a former collateral tenant, vacated in 2019. The
collateral portion of the property was approximately 71% leased as
of December 2021. The loan transferred to special servicing in
January 2020 and the borrower subsequently consented to a
consensual foreclosure with the loan becoming REO in February 2022.
A management and leasing firm has been engaged and a business plan
is being developed. The loan is last paid through its April 2020
payment date and has been deemed non-recoverable by the master
servicer. Moody's anticipates a significant loss on this loan.
The other specially serviced loan is the Aviation Mall Loan ($19.2
million -- 36.8% of the pool), which is secured by a regional mall
located in Queensbury, New York, approximately 50 miles north of
Albany. Major tenants at the property include J.C. Penney, Dick's
Sporting Goods, Ollies Bargain Outlet and Regal Aviation Mall 7.
Two former anchor tenants, Sears (94,273SF) and Bon-Ton (67,700
SF), vacated in 2018, however, Ollies Bargain Outlet backfilled
approximately 30,000 SF of the former Bon-Ton space and opened for
business in August 2019. Property performance has declined since
2016 as a result of lower rental revenues. As of December 2021,
inline occupancy declined to approximately 30% from 45% in
September 2020, while total mall occupancy declined to
approximately 58% from 72% over the same period. The loan
transferred to special servicing in April 2020 and the loan was
subsequently modified at the end of 2021, extending the maturity
date to November 2023 and bringing debt service payments current
through the March 2022 payment date. As of the March 2022
remittance statement, the master servicer had recognized an $11.3
million appraisal reduction due to its August 2021 appraised value
of $10.2 million. The loan had previously been deemed
non-recoverable; however, the loan was recently brough current as a
part of the modification which allowed interest distribution to the
P&I classes in the March 2022 remittance statement.
As of the March 2022 remittance statement cumulative interest
shortfalls were $2.6 million. Interest shortfalls were higher in
previous months; however, the Aviation Mall Loan was recently
brought current causing interest shortfall paybacks to the two P&I
classes. Moody's anticipates interest shortfalls will continue
because of the exposure to specially serviced loans and/or modified
loans. Interest shortfalls are caused by special servicing fees,
including workout and liquidation fees, appraisal entitlement
reductions (ASERs), loan modifications and extraordinary trust
expenses.
WP GLIMCHER 2015-WPG: DBRS Confirms B(low) Rating on SQ-3 Certs
---------------------------------------------------------------
DBRS, Inc. confirmed the ratings on the following classes of
Commercial Mortgage Pass-Through Certificates, Series 2015-WPG
issued by WP Glimcher Mall Trust 2015-WPG and removed them from
Under Review with Negative Implications:
-- Class PR-1 at BBB (low) (sf)
-- Class SQ-1 at BBB (low) (sf)
-- Class PR-2 at BB (sf)
-- Class SQ-2 at BB (low) (sf)
-- Class SQ-3 at B (low) (sf)
These classes are collateralized by subordinate debt on the two
retail assets in this transaction, Scottsdale Quarter (the SQ
classes) and Pearlridge Center (the PR classes). All five classes
now carry Negative trends.
In addition, DBRS Morningstar confirmed the ratings on the
following pooled classes:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X at A (sf)
-- Class C at A (low) (sf)
The trend on Class A remains Stable. The trends on Classes B, X,
and C remain Negative because of the performance challenges to the
underlying collateral associated with the lingering effects of the
Coronavirus Disease (COVID-19) pandemic. DBRS Morningstar notes
that the servicer reported better-than-expected cash flow figures
for both collateral assets in 2020, supporting the Stable trend on
Class A.
The Negative trends are reflective of DBRS Morningstar's concerns
not only with the challenges facing regional malls in general, but
also with one of the sponsors of the underlying loans, Washington
Prime Group (WPG), which has been reporting revenue declines for
several years and owns a portfolio of retail properties primarily
located in secondary markets. On June 13, 2021, WPG announced a
Chapter 11 bankruptcy filing and cited challenges faced during the
coronavirus pandemic as contributing to the filing. The company
emerged from bankruptcy in October 2021 and WPG's indirect 51%
interest in the borrower is now owned by a newly-formed Delaware
limited liability company named Washington Prime Group LLC
("Reorganized WPG"), of which approximately 70% of equity interests
will be owned by affiliates of Strategic Value Partners, LLC.
This transaction is backed by portions of the senior debt and all
of the subordinate debt secured by the fee-simple interest in
Scottsdale Quarter, a 541,386-square-foot (sf) mixed-use retail
center in Scottsdale, Arizona, and a $105.0 million loan on a
portion of the fee and leasehold interest in Pearlridge Center, a
1.14 million-sf super-regional mall in Aiea, Hawaii, the state's
largest enclosed shopping center. The sponsor for both loans is
WPG, which is the successor sponsor to Glimcher Realty Trust, and
O'Connor Capital Partners. Both properties are managed by WPG.
The individual whole loans on each asset are not
cross-collateralized or cross-defaulted. Of the $165.0 million
whole loan secured by Scottsdale Quarter, $95.0 million is senior A
note debt, with a total of $13.0 million in subordinate B note debt
and $57.0 million in subordinate C note debt. Of the senior A note
debt for Scottsdale Quarter, $25.0 million in pari passu proceeds
were contributed to this trust, with the remaining A note debt
split pari passu across two conduit transactions in JPMBB
Commercial Mortgage Securities Trust 2015-C30 and COMM 2015-CCRE25
Mortgage Trust, the latter of which is not rated by DBRS
Morningstar. The $25.0 million in pari passu A note debt and the
$13.0 million B note back the pooled classes, and the $57.0 million
in C note debt backs the rake SQ classes in the subject
transaction. Of the senior A note debt for Pearlridge Center, $10.4
million in pari passu proceeds were contributed to this trust, with
the remaining A note debt split pari passu across the same two
conduit transactions mentioned above. The $10.4 million in pari
passu A note debt and the $48.6 million B note back the pooled
classes, and the $46.0 million in C note debt backs the rake PR
classes in the subject transaction.
The Pearlridge Center loan served to refinance existing debt,
return $47.0 million of equity to the sponsor, and create a new
joint venture, with Glimcher Realty Trust (now WPG) having a 51%
share and O'Connor Capital Partners acquiring a 49% share. The
subject property is on Oahu, approximately nine miles northwest of
Honolulu. The December 2020 rent roll showed that the collateral
was 91.5% occupied. The property is anchored by Macy's (18.4% of
net rentable area (NRA); lease expiration in February 2027) and
formerly by Sears, which closed its doors in April 2021. Other
large tenants include Bed Bath & Beyond (7.3% of NRA; lease
expiration in January 2021, which appears to have renewed) and
Pearlridge Mall Theatres (4.5% of NRA; lease expiration in December
2022), which reopened in August 2020 after being forced to close
amid the pandemic. The property benefits from its customer base,
comprising mainly the local populace rather than the tourists that
drive traffic to other malls in Hawaii. The property has maintained
a stable performance to date; as of the most recent financial
reporting, the loan reported a YE2020 whole-loan debt service
coverage ratio (DSCR) of 2.44 times (x), down slightly from YE2019
and YE2018 whole-loan DSCRs of 2.82x and 2.72x, respectively. The
loan was previously monitored on the servicer's watchlist in May
2020 after the borrower requested coronavirus-related relief but
was quickly removed after the special servicer denied the request
based on the property's strong cash position for the past several
years.
The Scottsdale Quarter loan served to refinance existing debt and
recapitalized a joint venture with WP Glimcher and O'Connor Capital
Partners. Additionally, the sponsor invested $16.6 million of cash
equity with the recapitalization. The property is a Class A,
mixed-use, open-air lifestyle center with office space, 17 miles
northeast of Phoenix in the affluent Kierland neighborhood of north
Scottsdale. The subject property is in a secondary market but has a
lifestyle center format and a better mix of retailers compared with
others in WPG's portfolio.
Scottsdale Quarter is secured by a 541,386 sf Class A, mixed-use,
retail and office center in Scottsdale, Arizona. The loan has been
returned to the master servicer as a corrected mortgage after being
transferred to special servicing in May 2021 when WPG filed for
bankruptcy and several tenants vacated at the end of their lease
terms, which brought occupancy down to 74.4% as of September 2021.
There is additional near-term rollover risk as the second-largest
retail tenant, Pottery Barn (2.9% of NRA), had a lease expiration
in January 2022 (although it remains listed on the mall's
directory) and the second-largest office tenant, Maracay Homes
(3.5% of NRA), has a lease expiration in June 2022. In December
2021, Landmark Theaters backfilled the space of former tenant IPIC
(8.2% of NRA), increasing occupancy to 82.6%. According to Reis,
retail properties in the North Scottsdale/Paradise Valley submarket
reported Q4 2021 average rental and vacancy rates of $22 per sf and
10.6%, respectively, while office properties in the Scottsdale
submarket reported average rental and vacancy rates of $24 and
19.4%, respectively. Despite the challenges faced by the property,
the loan reported a YE2020 DSCR of 2.04x on net cash flow that was
11% below the issuance level.
Notes: All figures are in U.S. dollars unless otherwise noted.
*********
Monday's edition of the TCR delivers a list of indicative prices
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