/raid1/www/Hosts/bankrupt/TCR_Public/230528.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, May 28, 2023, Vol. 27, No. 147
Headlines
A&D MORTGAGE 2023-NQM2: DBRS Finalizes B(low) Rating on B-2 Certs
AIMCO CLO 17: Fitch Affirms BB-sf Rating on E Notes, Outlook Stable
APIDOS CLO XLV: Fitch Assigns Final 'BB' Rating on Class E Notes
ARES LXVI: Fitch Affirms 'BB-sf' Rating on E Notes, Outlook Stable
BAIN CAPITAL 2023-2: Fitch Gives 'BB-(EXP)sf' Rating on Cl. E Notes
BLACKROCK MT. HOOD X: S&P Assigns BB- (sf) Rating on Class E Notes
BMARK 2023-V2: Fitch Assigns 'B-sf' Rating on Cl. G-RR Certificates
BMO 2023-C5: Fitch Assigns 'B-(EXP)' Rating on Two Tranches
CARLYLE US 2022-3: Fitch Affirms 'BB-sf' Rating on Class E Notes
CARVANA AUTO 2023-N1: DBRS Finalizes BB(high) Rating on E Notes
CHNGE MORTGAGE 2023-2: Fitch Gives Final 'Bsf' Rating on B-2 Certs
CIFC FUNDING 2022-V: Fitch Affirms 'BB-' Rating on Class E Notes
CIM TRUST 2023-R4: DBRS Finalizes B Rating on Class B3 Notes
CITIGROUP 2023-SMRT: Moody's Assigns Ba3 Rating to Cl. HRR Certs
CPS AUTO 2023-B: DBRS Finalizes BB Rating on Class E Notes
CSMC TRUST 2017-PFHP: S&P Lowers Class F Notes Rating to 'CCC-'
EATON VANCE 2014-1R: Moody's Cuts $9.26MM F Notes Rating to Caa2
ELLINGTON CLO IV: Moody's Downgrades Rating on 2 Tranches to Caa1
EXETER AUTOMOBILE 2021-3: S&P Raises Class E Notes Rating to 'BB+'
EXETER AUTOMOBILE 2023-2: Fitch Gives Final BB Rating on E Notes
FANNIE MAE 2023-R04: S&P Assigns Prelim 'BB-' Rating on 1B-1 Notes
FLAGSHIP CREDIT 2023-2: DBRS Finalizes BB Rating on Class E Notes
FREDDIE MAC 2023-HQA1: Moody's Assigns Ba3 Rating to 16 Tranches
GS MORTGAGE 2023-PJ3: Fitch Gives B-(EXP) Rating on Cl. B-5 Certs
GSCG TRUST 2019-600C: DBRS Puts Class G Notes Under Review
HMH TRUST 2017-NSS: S&P Lowers Class D Certs Rating to 'CCC (sf)'
HOMES TRUST 2023-NQM2: Fitch Gives B-(EXP) Rating on Cl. B2 Certs
HOTWIRE FUNDING 2023-1: Fitch Assigns 'BBsf' Rating on Cl. C Notes
JP MORGAN 2012-WLDN: DBRS Confirms CCC Rating on Class C Certs
JP MORGAN 2019-FL12: S&P Lowers EYT3 Certs Rating to 'CCC (sf)'
JP MORGAN 2023-3: DBRS Gives Prov. B(low) Rating on Class B5 Certs
JP MORGAN 2023-4: Fitch Assigns 'B-(EXP)sf' Rating on Cl. B-5 Notes
MFA 2023-NQM2: DBRS Gives Prov. B(high) Rating on Class B-2 Certs
MORGAN STANLEY 2015-C20: DBRS Confirms CCC Rating on Class F Certs
MORGAN STANLEY 2023-19: Fitch Gives 'BB-(EXP)' Rating on E Notes
MOSAIC SOLAR 2023-3: Fitch Gives 'BB-(EXP)' Rating on Class D Notes
MSWF COMMERCIAL 2023-1: Fitch Gives 'B-sf' Rating on Cl. G-RR Certs
NEW RESIDENTIAL 2023-1: DBRS Gives Prov. B Rating on B-5 Notes
OBX TRUST 2023-NQM4: Fitch Gives Bsf Rating on B-2 Notes
OCTAGON 66: Fitch Affirms 'BB-sf' Rating on E Notes, Outlook Stable
OCTANE RECEIVABLES 2023-2: S&P Assigns BB (sf) Rating on E Notes
OHA CREDIT 15: S&P Assigns BB- (sf) Rating on $13MM Class E Notes
PAWNEE EQUIPMENT 2021-1: DBRS Hikes Rating on Class E to BB
SALUDA GRADE 2023-SEQ3: Fitch Gives 'B-(EXP)' Rating on B2 Notes
SANDSTONE PEAK II: S&P Assigns Prelim BB-(sf) Rating on E Notes
SLM STUDENT 2008-7: S&P Lowers Class B Notes Rating to CC (sf)
STRUCTURED ASSET 2004-11: Moody's Hikes Class M2 Debt Rating to Ba1
TEXAS DEBT 2023-II: Fitch Assigns 'BB-sf' Rating on Class E Notes
UBS-BARCLAYS 2013-C6: Moody's Lowers Rating on Cl. C Certs to B2
VELOCITY COMMERCIAL 2023-2: DBRS Gives Prov. B Rating on 3 Classes
WELLS FARGO 2016-C33: DBRS Confirms B Rating on Class X-F Certs
WELLS FARGO 2018-C44: DBRS Confirms BB Rating on Class F-RR Certs
WESTGATE RESORTS 2023-1: DBRS Gives BB(low) Rating on D Notes
WFRBS COMMERCIAL 2012-C10: DBRS Cuts Rating on 2 Classes to C
WIND RIVER 2022-2: Fitch Affirms Rating at 'BB-sf' on Cl. E Notes
ZAIS CLO 9: Moody's Hikes Rating on $32.3MM Class D Notes From Ba1
[*] Moody's Takes Action on $81.8MM of US RMBS Issued 2004-2007
[*] S&P Cuts Ratings on 14 Classes From 14 US RMBS Deals to 'D(sf)'
[*] S&P Takes Various Actions on 50 Classes from 13 U.S. RMBS Deals
[*] S&P Takes Various Actions on 87 Classes From 32 US RMBS Deals
*********
A&D MORTGAGE 2023-NQM2: DBRS Finalizes B(low) Rating on B-2 Certs
-----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
Mortgage Pass-Through Certificates, Series 2023-NQM2 (the
Certificates) issued by A&D Mortgage Trust 2023-NQM2 (the Trust):
-- $240.5 million Class A-1 at AAA (sf)
-- $44.5 million Class A-2 at AA (low) (sf)
-- $30.7 million Class A-3 at A (low) (sf)
-- $17.1 million Class M-1 at BBB (low) (sf)
-- $21.0 million Class B-1 at BB (low) (sf)
-- $14.2 million Class B-2 at B (low) (sf)
The AAA (sf) rating on the Class A-1 Certificates reflects 36.55%
of credit enhancement provided by subordinated Certificates. The AA
(low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B
(low) (sf) ratings reflect 24.80%, 16.70%, 12.20%, 6.65%, and 2.90%
of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This transaction is a securitization of a portfolio of fixed-rate
and adjustable-rate prime and nonprime first-lien residential
mortgages funded by the issuance of the Certificates. The
Certificates are backed by 985 loans with a total principal balance
of approximately $379,030,482 as of the Cut-Off Date (April 1,
2023).
The originators for the mortgage pool are A&D Mortgage LLC (ADM;
91.5%) and others (8.5%). ADM originated the mortgages under the
following five programs:
-- Super Prime
-- Prime
-- Debt Service Coverage Ratio (DSCR)
-- Foreign National – Full Doc
-- Foreign National – DSCR
ADM will act as the Sponsor and the Servicer for all loans.
Nationstar Mortgage LLC (Nationstar) will act as the Master
Servicer and Citibank, N.A. (rated AA (low) with a Stable trend by
DBRS Morningstar) will act as the Securities Administrator and
Certificate Registrar. Wilmington Trust, National Association
(rated AA (low) with a Stable trend by DBRS Morningstar) will serve
as the Custodian, and Wilmington Savings Fund Society, FSB will act
as the Trustee.
The pool is about three months seasoned on a weighted-average
basis, although seasoning may span from zero to 106 months.
In accordance with U.S. credit risk retention requirements, ADM as
the Sponsor, either directly or through a Majority-Owned Affiliate,
will retain an eligible horizontal residual interest consisting of
the Class X Certificates and a portion of the Class B-3
Certificates (together, the Risk Retained Certificates),
representing not less than 5% economic interest in the transaction,
to satisfy the requirements under Section 15G of the Securities and
Exchange Act of 1934 and the regulations promulgated thereunder.
Such retention aligns Sponsor and investor interest in the capital
structure.
Although the applicable mortgage loans were originated to satisfy
the Consumer Financial Protection Bureau (CFPB) ability-to-repay
(ATR) rules, they were made to borrowers who generally do not
qualify for the agency, government, or private-label nonagency
prime products for various reasons described above. In accordance
with the CFPB Qualified Mortgage (QM)/ATR rules, 46.9% of the loans
are designated as non-QM. Approximately 53.0% of the loans are made
to investors for business purposes and are thus not subject to the
QM/ATR rules. Also, two loans (0.1% of the pool) are a qualified
mortgage with a conclusive presumption of compliance with the ATR
rules and is designated as QM Safe Harbor.
The Servicer will generally fund advances of delinquent principal
and interest (P&I) on any mortgage until such loan becomes 90 days
delinquent under the Mortgage Bankers Association (MBA) method,
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. If the Servicer fails in its obligation to
make P&I advances, Nationstar, as the Master Servicer, will be
obligated to fund such advances. In addition, if the Master
Servicer fails in its obligation to make P&I advances, Citibank,
N.A., as the Securities Administrator, will be obligated to fund
such advances. The Master Servicer and Securities Administrator are
only responsible for P&I Advances; the Servicer is responsible for
P&I and advances with respect to taxes, insurance premiums, and
reasonable costs incurred in the course of servicing and disposing
of properties (Servicing Advances). If the Servicer fails to make
the Servicing Advances on a delinquent loan, the recovery amount
upon liquidation may be reduced.
The Sponsor (ADM) will have the option, but not the obligation, to
repurchase any mortgage loan that is 90 or more days delinquent
under the MBA method (or, in the case of any Coronavirus Disease
(COVID-19) forbearance loan, such mortgage loan becomes 90 or more
days delinquent under the MBA method after the related forbearance
period ends) at the Repurchase Price, provided that such
repurchases in aggregate do not exceed 7.5% of the total principal
balance as of the Cut-Off Date.
The Depositor (A&D Mortgage Depositor LLC) may, at its option, on
any date that is the later of (1) the two-year anniversary of the
Closing Date, and (2) the earlier of (A) the three-year anniversary
of the Closing Date and (B) the date on which the total loan
balance is less than or equal to 30% of the loan balance as of the
Cut-Off Date, purchase all outstanding certificates at a price
equal to the outstanding class balance plus accrued and unpaid
interest, including any cap carryover amounts (Optional
Redemption). An Optional Redemption will be followed by a qualified
liquidation, which requires a complete liquidation of assets within
the Trust and the distribution of proceeds to the appropriate
holders of regular or residual interests.
The transaction employs a sequential-pay cash flow structure with a
pro rata principal distribution among the senior tranches subject
to certain performance triggers related to cumulative losses or
delinquencies exceeding a specified threshold (Credit Event).
Principal proceeds can be used to cover interest shortfalls on the
Class A-1 and Class A-2 Certificates (IIPP) before being applied
sequentially to amortize the balances of the senior and
subordinated certificates. For the Class A-3 Certificates (only
after a Credit Event) and for the mezzanine and subordinate classes
of certificates (both before and after a Credit Event), principal
proceeds will be available to cover interest shortfalls only after
the more senior certificates have been paid off in full. Also, the
excess spread can be used to cover realized losses first before
being allocated to unpaid Cap Carryover Amounts due to Class A-1,
Class A-2, Class A-3, and Class M-1 Certificates.
Of note, the Class A-1, Class A-2, and Class A-3 Certificates'
coupon rates step up by 100 basis points on and after the payment
date in May 2027 (Step-Up Certificates). Also, the interest and
principal otherwise payable to the Class B-3 Certificates as
accrued and unpaid interest may be used to pay the Class A-1, Class
A-2, Class A-3, and Class M-1 Certificates' Cap Carryover Amounts
after the Class A coupons step up.
Notes: All figures are in U.S. dollars unless otherwise noted.
AIMCO CLO 17: Fitch Affirms BB-sf Rating on E Notes, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed the class A, B, C, D and E notes in
AIMCO CLO 17, Ltd. (AIMCO 17). The Rating Outlooks on all tranches
remain Stable.
Entity/Debt Rating Prior
----------- ------ -----
AIMCO CLO 17,
Ltd.
A 00889JAA2 LT AAAsf Affirmed AAAsf
B 00889JAC8 LT AAsf Affirmed AAsf
C 00889JAE4 LT Asf Affirmed Asf
D 00889JAG9 LT BBB-sf Affirmed BBB-sf
E 00889KAA9 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
AIMCO 17 is a broadly syndicated collateralized loan obligation
(CLO) managed by Allstate Investment Management Company. The
transaction closed in June 2022 and will exit its reinvestment
period in July 2027. The CLO is secured primarily by first lien,
senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are due to the portfolio's stable performance
since closing. The credit quality of the portfolio as of the April
2023 trustee report is at the 'B' rating level. The Fitch weighted
average rating factor of the portfolio increased to 23.7 from 23.2
of the indicative portfolio at closing. The portfolio consists of
226 obligors, and the largest 10 obligors represent 8.6% of the
portfolio (excluding cash). There were no reported defaults in the
portfolio, and exposure to issuers with a Negative Outlook and
Fitch's watchlist is 14.0% and 4.6%, respectively.
First lien loans, cash and eligible investments comprise 99.6% of
the portfolio. Fitch's weighted average recovery rate of the
portfolio was 77.1%, compared to 75.8% at closing.
All coverage tests, collateral quality tests (CQTs), and
concentration limitations are in compliance.
Cash Flow Analysis
Fitch conducted updated cash flow analysis based on newly run Fitch
Stressed Portfolio (FSP) since the transaction is still in its
reinvestment period. The FSP analysis stressed the current
portfolio from the latest trustee report to account for permissible
concentration and CQT limits. The FSP analysis assumed weighted
average life of 7.3 years and the weighted average spread was
modeled at the covenant level of 3.30%. Other FSP assumptions
include 7.5% non-senior secured assets, 5% fixed rate assets and
7.5% CCC assets.
The rating for the class A, D, and E notes are in line with the
model-implied rating (MIR). The class B and C notes were affirmed
one notch below their respective MIRs due to the limited levels of
cushions at their respective MIR, the remaining reinvestment
period, and anticipated macroeconomic recessionary environment.
The Stable Outlooks reflect Fitch's expectation that the notes have
sufficient level of credit protection to withstand potential
deterioration in the credit quality of the portfolios in stress
scenarios commensurate with each class' rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement do not compensate for the higher loss
expectation than initially assumed.
A 25% increase of the mean default rate across all ratings, along
with a 25% decrease of the recovery rate at all rating levels for
the current portfolio, would lead to downgrades of up to one notch
for the rated notes, based on MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Except for tranches already at the highest 'AAAsf' rating, upgrades
may occur in the event of better-than-expected portfolio credit
quality and transaction performance.
A 25% reduction of the mean default rate across all ratings, along
with a 25% increase of the recovery rate at all rating levels for
the current portfolio, would lead to upgrades of up to five notches
for the rated notes, based on MIRs.
APIDOS CLO XLV: Fitch Assigns Final 'BB' Rating on Class E Notes
----------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Apidos CLO XLV Ltd.
Entity/Debt Rating Prior
----------- ------ -----
Apidos CLO
XLV Ltd.
A-1 LT NRsf New Rating NR(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
B LT AAsf New Rating AA(EXP)sf
C LT Asf New Rating A(EXP)sf
D LT BBB-sf New Rating BBB-(EXP)sf
E LT BBsf New Rating BB(EXP)sf
F LT NRsf New Rating NR(EXP)sf
Surbodinated
Notes LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Apidos CLO XLV Ltd. (the issuer) is an arbitrage cash flow
collateralized loan obligation (CLO) that will be managed by CVC
Credit Partners, LLC. Net proceeds from the issuance of the secured
and subordinated notes will provide financing on a portfolio of
approximately $500 million of primarily first lien senior secured
leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality (Negative): The average credit quality of the
indicative portfolio is 'B'/'B-', which is in line with that of
recent CLOs. Issuers rated in the 'B' rating category denote a
highly speculative credit quality; however, the notes benefit from
appropriate credit enhancement and standard CLO structural
features.
Asset Security (Positive): The indicative portfolio consists of
97.25% first-lien senior secured loans and has a weighted average
recovery assumption of 74.86%.
Portfolio Composition (Positive): The largest three industries may
comprise up to 39% of the portfolio balance in aggregate while the
top five obligors can represent up to 12.5% of the portfolio
balance in aggregate. The level of diversity resulting from the
industry, obligor and geographic concentrations is in line with
other recent CLOs.
Portfolio Management (Neutral): The transaction has a 4.9-year
reinvestment period and reinvestment criteria similar to other
CLOs. Fitch analysis was based on a stressed portfolio created by
adjusting the indicative portfolio to reflect permissible
concentration limits and collateral quality test levels.
Cash Flow Analysis (Positive): Fitch used a customized proprietary
cash flow model to replicate the principal and interest waterfalls
and assess the effectiveness of various structural features of the
transaction. In Fitch's stress scenarios, the rated notes can
withstand default and recovery assumptions consistent with their
assigned ratings.
The weighted average life (WAL) used for the transaction stress
portfolio is 12 months less than the WAL covenant to account for
structural and reinvestment conditions after the reinvestment
period. In Fitch's opinion, these conditions would reduce the
effective risk horizon of the portfolio during stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
a metric. The results under these sensitivity scenarios are as
severe as between 'BBBsf' and 'AA+sf' for class A-2, between
'BB+sf' and 'A+sf' for class B, between 'Bsf' and 'BBB+sf' for
class C, between less than 'B-sf' and 'BB+sf' for class D; and
between less than 'B-sf' and 'B+sf' for class E.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrade scenarios are not applicable to the class A-2 notes as they
are already in the highest rating category of 'AAAsf'.
Variability in key model assumptions, such as increases in recovery
rates and decreases in default rates, could result in an upgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics; the minimum rating results under these sensitivity
scenarios are 'AAAsf' for class B, 'A+sf' for class C, 'Asf' for
class D; and 'BBB+sf' for class E.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, Fitch's assessment of the asset pool information relied
upon for its rating analysis, according to its applicable rating
methodologies, indicates that it is adequately reliable.
ARES LXVI: Fitch Affirms 'BB-sf' Rating on E Notes, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed the ratings for the class A-1, C-1, C-2
and D notes of Ares Loan Funding III, Ltd. (Ares LF III) and the
class B, C, D-1, D-2 and E notes of Ares LXVI CLO Ltd. (Ares LXVI).
The Rating Outlooks on all rated tranches remain Stable.
Entity/Debt Rating Prior
----------- ------ -----
Ares LXVI
CLO Ltd.
B 04019RAG6 LT AAsf Affirmed AAsf
C 04019RAL5 LT Asf Affirmed Asf
D-1 04019RAN1 LT BBB+sf Affirmed BBB+sf
D-2 04019RAS0 LT BBB-sf Affirmed BBB-sf
E 04019TAA5 LT BB-sf Affirmed BB-sf
Ares Loan
Funding III,
Ltd.
A-1 04009BAA6 LT AAAsf Affirmed AAAsf
C-1 04009BAG3 LT A+sf Affirmed A+sf
C-2 04009BAL2 LT Asf Affirmed Asf
D 04009BAJ7 LT BBB-sf Affirmed BBB-sf
TRANSACTION SUMMARY
Ares LF III and Ares LXVI are broadly syndicated collateralized
loan obligations (CLOs) managed by Ares CLO Management LLC. Ares LF
III closed in June 2022 and will exit its reinvestment period in
July 2027. Ares LXVI closed in August 2022 and will exit its
reinvestment period in August 2025. Both CLOs are secured primarily
by first-lien, senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are driven by the portfolios' stable performance
since the last rating actions. The credit quality of Ares LF III as
of May 2023 reporting represents a weighted average rating factor
(WARF) of 24.4 ('B' rating level), compared to 25.2 ('B/B-') at
closing. The credit quality of Ares LXVI as of April 2023 reporting
represents a WARF of 24.9 ('B/B-'), compared to 25.1 at closing.
The portfolio for Ares LF III consists of 265 obligors, and the
largest 10 obligors represent 10.3% of the portfolio. Ares LXVI has
245 obligors, with the largest 10 obligors comprising 11.6% of the
portfolio. There were no reported defaults in either of the
portfolios. The average exposure to issuers with a Negative Outlook
and Fitch's watchlist is 19.9% and 4.6%, respectively, of the
portfolios.
First lien loans, cash and eligible investments comprise 97.0% of
the portfolios on average. Fitch's weighted average recovery rate
(WARR) for Ares LF III and Ares LXVI portfolios were 75.8% and
73.5%, compared to 75.8% and 76.1% at closing.
Cash Flow Analysis
Fitch conducted updated cash flow analyses based on newly run Fitch
Stressed Portfolio (FSP) since both transactions are still in their
reinvestment periods. The FSP analysis stressed the current
portfolio from the latest trustee reports to account for
permissible concentration and collateral quality tests limits. The
FSP analysis assumed weighted average life of 7.25 years for Ares
LF III and 6.0 years for Ares LXVI. In Ares LXVI, weighted average
spread, WARR and WARF were stressed to the covenant Fitch test
matrix points reflected in transaction documents. In addition,
assumptions of both 0% and 5% fixed rate assets were tested as part
of the FSP's cash flow modelling for both transactions.
The ratings are in line with their respective model-implied rating
(MIR) as defined in Fitch's CLOs and Corporate CDOs Rating
Criteria, except for the class C-2 notes in Ares LF III. Fitch
affirmed the tranche one notch below its MIR due to the limited
break-even default rate cushion at its respective MIR amid
anticipated macroeconomic recessionary environment.
The Stable Outlooks reflect Fitch's expectation that the notes have
sufficient level of credit protection to withstand potential
deterioration in the credit quality of the portfolios in stress
scenarios commensurate with each class' rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement do not compensate for the higher loss
expectation than initially assumed;
- A 25% increase of the mean default rate across all ratings along
with a 25% decrease of the recovery rate at all rating levels for
the current portfolio would lead to no rating impact for the class
A-1, C-1 and C-2 notes in Ares LF III, downgrades of one notch for
the class D notes in Ares LF III and D-2 notes in Ares LXVI, two
notches for the class B and C notes in Ares LXVI, and three or more
notches for the class D-1 and E notes in Ares LXVI, based on the
MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Except for the tranches already at the highest 'AAAsf' rating,
upgrades may occur in the event of better-than-expected portfolio
credit quality and transaction performance;
- A 25% reduction of the mean default rate across all ratings along
with a 25% increase of the recovery rate at all rating levels for
the current portfolio would lead to upgrades of one notch for the
class C-1 notes in Ares LF III and class C notes in Ares LXVI, two
notches for the class C-2 notes in Ares LF III and class B notes in
Ares LXVI, three notches for the class D-1 notes in Ares LXVI and
five notches for the class D notes in Ares LF III and class D-2 and
E notes in Ares LXVI, based on the MIRs.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
BAIN CAPITAL 2023-2: Fitch Gives 'BB-(EXP)sf' Rating on Cl. E Notes
-------------------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
Bain Capital Credit CLO 2023-2, Limited.
Entity/Debt Rating
----------- ------
Bain Capital
Credit CLO
2023-2, Limited
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AAA(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-2 LT AA(EXP)sf Expected Rating
C-1 LT A(EXP)sf Expected Rating
C-2 LT A(EXP)sf Expected Rating
D LT BBB-(EXP)sf Expected Rating
E LT BB-(EXP)sf Expected Rating
Subordinated
Notes LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Bain Capital Credit CLO 2023-2, Limited (the issuer) is an
arbitrage cash flow collateralized loan obligation (CLO) that will
be managed by Bain Capital Credit U.S. CLO Manager II, L.P. Net
proceeds from the issuance of the secured and subordinated notes
will provide financing on a portfolio of approximately $500.0
million of primarily first lien senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality (Negative): The average credit quality of the
indicative portfolio is 'B'/'B-', which is in line with that of
recent CLOs. The weighted average rating factor of the indicative
portfolio is 24.91 versus a maximum covenant, in accordance with
the initial expected matrix point of 26.25. Issuers rated in the
'B' rating category denote a highly speculative credit quality;
however, the notes benefit from appropriate credit enhancement and
standard U.S. CLO structural features.
Asset Security (Positive): The indicative portfolio consists of
99.7% first lien senior secured loans. The weighted average
recovery rate of the indicative portfolio is 75.2% versus a minimum
covenant, in accordance with the initial expected matrix point of
73.5%.
Portfolio Composition (Positive): The largest three industries may
constitute up to 38% of the portfolio balance in aggregate, while
the top five obligors can represent up to 12.5% of the portfolio
balance in aggregate. The level of diversity required by industry,
obligor and geographic concentrations is in line with other recent
U.S. CLOs.
Portfolio Management (Neutral): The transaction has a 5.1-year
reinvestment period and reinvestment criteria similar to other U.S.
CLOs. Fitch Ratings' analysis was based on a stressed portfolio
created by adjusting the indicative portfolio to reflect
permissible concentration limits and collateral quality test
levels.
Cash Flow Analysis (Positive): Fitch used a customized proprietary
cash flow model to replicate the principal and interest waterfalls
and assess the effectiveness of various structural features of the
transaction. In Fitch's stress scenarios, the rated notes can
withstand default and recovery assumptions consistent with their
assigned ratings. The performance of the rated notes at the other
permitted matrix points will be analyzed as part of the final
rating analysis.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
a metric. The results under these sensitivity scenarios are as
severe as between 'BBB+sf' and 'AA+sf' for class A-1, between
'BBB+sf' and 'AA+sf' for class A-2, between 'BB+sf' and 'A+sf' for
class B-1 and B-2, between 'Bsf' and 'BBB+sf' for class C-1 and
C-2, between less than 'B-sf' and 'BB+sf' for class D; and between
less than 'B-sf' and 'B+sf' for class E.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrade scenarios are not applicable to the class A-1 and A-2
notes, as these notes are in the highest rating category of
'AAAsf'.
Variability in key model assumptions, such as increases in recovery
rates and decreases in default rates, could result in an upgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics; the minimum rating results under these sensitivity
scenarios are 'AAAsf' for class B-1 and B-2, 'A+sf' for class C-1
and C-2, 'Asf' for class D; and 'BBB+sf' for class E.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or Credit Opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, Fitch's assessment of the asset pool information relied
upon for its rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
BLACKROCK MT. HOOD X: S&P Assigns BB- (sf) Rating on Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to BlackRock Mt. Hood CLO X
LLC's delayed draw and fixed- and floating-rate debt. The
transaction is managed by BlackRock Capital Investment Advisors
LLC.
The debt issuance is a CLO securitization governed by investment
criteria and backed primarily by middle market speculative-grade
(rated 'BB+' or lower) senior secured term loans.
The 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 debt through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
BlackRock Mt. Hood CLO X LLC
Class X(i), $21.250 million: AAA (sf)
Class A-1, $158.250 million: AAA (sf)
Class A-2, $22.000 million: AAA (sf)
Class A-L1 loans, $30.000 million: AAA (sf)
Class A-L2 loans(ii), $30.000 million: AAA (sf)
Class B-1, $22.125 million: AA (sf)
Class B-2, $20.375 million: AA (sf)
Class C (deferrable), $42.500 million: A- (sf)
Class D (deferrable), $21.250 million: BBB- (sf)
Class E (deferrable)(iii), $29.000 million: BB- (sf)
Variable dividend notes, $57.000 million: Not rated
(i)The class X notes are expected to be paid down using interest
proceeds during the first 14 payment dates in equal installments of
$1.52 million.
(ii)The class A-L2 loans are delayed draw loans. The amount shown
represents the commitment amount. At closing, the issuer does not
expect to have drawn down on the loans, which can remain undrawn
for up to nine months after closing, at which point they will fully
fund if they haven't already.
(iii)The class E notes can be paid down before other more senior
classes of debt due to a turbo feature that allows for paydowns
with excess spread that would otherwise flow out to the variable
dividend notes. The excess spread used to de-lever the E notes is
made available below the transaction's coverage tests, as well as
capped subordinated expenses, in the payment waterfall.
BMARK 2023-V2: Fitch Assigns 'B-sf' Rating on Cl. G-RR Certificates
-------------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to BMARK
2023-V2 Mortgage Trust Commercial Mortgage Pass-Through
certificates series 2023-V2, as follows:
Entity/Debt Rating Prior
----------- ------ -----
BMARK 2023-V2
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
A-S LT AAAsf New Rating AAA(EXP)sf
B LT AA-sf New Rating AA-(EXP)sf
C LT A-sf New Rating A-(EXP)sf
D LT BBBsf New Rating BBB(EXP)sf
E-RR LT BBB-sf New Rating BBB-(EXP)sf
F-RR LT BB-sf New Rating BB-(EXP)sf
G-RR LT B-sf New Rating B-(EXP)sf
J-RR LT NRsf New Rating NR(EXP)sf
X-A LT AAAsf New Rating AAA(EXP)sf
X-B LT WDsf Withdrawn AA-(EXP)sf
X-D LT BBBsf New Rating BBB(EXP)sf
- $4,750,000 class A-1 'AAAsf'; Outlook Stable;
- $200,000,000 class A-2 'AAAsf'; Outlook Stable;
- $397,022,000 class A-3 'AAAsf'; Outlook Stable;
- $90,265,000 class A-S 'AAAsf'; Outlook Stable;
- $42,984,000 class B 'AA-sf'; Outlook Stable;
- $32,238,000 class C 'A-sf'; Outlook Stable;
- $19,343,000 class D 'BBBsf'; Outlook Stable;
- $8,596,000a,b class E-RR 'BBB-sf'; Outlook Stable;
- $18,268,000a,b class F-RR 'BB-sf'; Outlook Stable;
- $12,895,000a,b class G-RR 'B-sf'; Outlook Stable;
- $692,037,000b,c class X-A 'AAAsf'; Outlook Stable;
- $19,343,000b,c class X-D 'BBBsf'; Outlook Stable;
The following classes are not rated by Fitch:
- $33,313,341a,b class J-RR;
Notes:
(a) Privately placed and pursuant to Rule 144A.
(b) Classes E-RR, F-RR, G-RR and J-RR Interest comprises the
transaction's horizontal risk retention interest.
(c) Notional amount and interest only. CE - Credit enhancement. NR
- Not rated.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 27 loans secured by 66
commercial properties having an aggregate principal balance of
$859,674,341 as of the cut-off date. The loans were contributed to
the trust by Citi Real Estate Funding Inc., German American Capital
Corporation, 3650 Real Estate Investment Trust 2 LLC, Goldman Sachs
Mortgage Company, Bank of Montreal, Barclays Capital Real Estate
Inc., JPMorgan Chase Bank, National Association. The Master
Servicer is Midland Loan Services, A Division of PNC Bank, National
Association and the Special Servicer is 3650 REIT Loan Servicing
LLC.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 55.8% of the loans by
balance, cash flow analysis of 74.1% of the pool and asset summary
reviews on 100% of the pool.
Fitch has withdrawn the expected rating of 'AA-(EXP)sf' for class
X-B because the class was removed from the final deal structure.
The classes above reflect the final ratings and deal structure.
KEY RATING DRIVERS
Higher Leverage Compared to Recent Transactions: The pool has
higher leverage compared to recent multiborrower transactions rated
by Fitch. The pool's Fitch loan-to-value ratio (LTV) of 94.3% is
higher than the YTD 2023 average of 91.4%, but lower than the 2022
average of 99.3%. The Fitch net cash flow (NCF) and debt yield (DY)
of 10.0% is lower than the YTD 2023 of 10.3% and in line with the
2022 average of 9.9%. Excluding credit opinion loans, the pool's
Fitch LTV and DY are 98.7% and 9.7%, respectively, compared to the
equivalent conduit YTD 2023 LTV and DY averages of 95.2% and 10.1%,
respectively.
Below-Average Amortization: Based on scheduled balances at
maturity, the pool will pay down by only 0.8%, which is below the
YTD 2023 average of 2.6% and below the 2022 average of 3.3%. The
pool has 21 interest-only loans (84.2% of pool by balance), which
is higher than the 2023 YTD average of 71.0% and 2022 average of
77.5%.
Shorter Duration Loans: The pool is 100% comprised of loans with
five-year terms, whereas standard conduit transactions have
historically included mostly loans with 10-year terms. Fitch's
historical loan performance analysis shows that five-year loans
have a modestly lower probability of default than 10-year loans,
all else equal. This is mainly attributed to the shorter window of
exposure to potential adverse economic conditions. Fitch considered
its loan performance regression in its analysis of the pool.
Highly Concentrated Pool by Loan Size: The pool is highly
concentrated, with a Herfindahl score of 19.8. The top 10 loans
account for 66.0% of the pool. This represents a top 10 loan
concentration above the 2023 YTD and 2022 top 10 loan averages of
60.2% and 55.2%, respectively. The 2023 YTD and 2022 average
comparable Herfindahl scores are 19.6 and 23.7, 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 in one variable, Fitch
NCF:
- Original Rating: 'AAAsf' / 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' /
'BBB-sf' / 'BB-sf' / 'B-sf'
- 10% NCF Decline: 'AAAsf' / 'AAsf' / 'Asf' / 'BBBsf' / 'BB+sf' /
'BBsf' / 'B-sf' /less than 'CCCsf'
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Improvement in cash flow increases property value and capacity to
meet its debt service obligations. The table below indicates the
model-implied rating sensitivity to changes to in one variable,
Fitch NCF:
- Original Rating: 'AAAsf' / 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' /
'BBB-sf' / 'BB-sf' / 'B-sf'
- 10% NCF Increase: 'AAAsf' / 'AAAsf' / 'AAsf' / 'Asf' / 'BBB+sf' /
'BBBsf' / 'BBsf' / 'Bsf'
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.
BMO 2023-C5: Fitch Assigns 'B-(EXP)' Rating on Two Tranches
-----------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
BMO 2023-C5 Mortgage Trust commercial mortgage pass-through
certificates, series 2023-C5, as follows:
Entity/Debt Rating
----------- ------
BMO 2023-C5
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AAA(EXP)sf Expected Rating
A-4 LT AAA(EXP)sf Expected Rating
A-5 LT AAA(EXP)sf Expected Rating
A-S LT AAA(EXP)sf Expected Rating
A-SB LT AAA(EXP)sf Expected Rating
B LT AA-(EXP)sf Expected Rating
C LT A-(EXP)sf Expected Rating
D LT BBB(EXP)sf Expected Rating
E LT BBB-(EXP)sf Expected Rating
F-RR LT BB-(EXP)sf Expected Rating
G-RR LT B-(EXP)sf Expected Rating
J-RR LT NR(EXP)sf Expected Rating
RR-I LT NR(EXP)sf Expected Rating
X-A LT AAA(EXP)sf Expected Rating
X-B LT A-(EXP)sf Expected Rating
X-D LT BBB(EXP)sf Expected Rating
X-E LT BBB-(EXP)sf Expected Rating
X-FRR LT BB-(EXP)sf Expected Rating
X-GRR LT B-(EXP)sf Expected Rating
X-JRR LT NR(EXP)sf Expected Rating
- $12,893,000 class A-1 'AAAsf'; Outlook Stable;
- $111,092,000 class A-2 'AAAsf'; Outlook Stable;
- $13,883,000 class A-SB 'AAAsf'; Outlook Stable;
- $132,000,000a class A-4 'AAAsf'; Outlook Stable;
- $180,830,000a class A-5 'AAAsf'; Outlook Stable;
- $70,824,000 class A-S 'AAAsf'; Outlook Stable;
- $450,698,000b class X-A 'AAAsf'; Outlook Stable;
- $31,388,000 class B 'AA-sf'; Outlook Stable;
- $24,145,000 class C 'A-sf'; Outlook Stable;
- $126,357,000b class X-B 'A-sf'; Outlook Stable;
- $12,877,000c class D 'BBBsf'; Outlook Stable;
- $12,877,000bc class X-D 'BBBsf'; Outlook Stable;
- $6,438,000c class E 'BBB-sf'; Outlook Stable;
- $6,438,000cd class X-E 'BBB-sf'; Outlook Stable;
- $12,073,000cd class FRR 'BB-sf'; Outlook Stable;
- $12,073,000bcd class X-FRR 'BB-sf'; Outlook Stable;
- $8,048,000cd class GRR 'B-sf'; Outlook Stable;
- $8,048,000bcd class X-GRR 'B-sf'; Outlook Stable.
Fitch does not expect to rate the following class:
- $27,364,241cd class JRR;
- $27,364,241bcd class X-JRR.
- $13,743,821ce class RRI.
a) The initial certificate balances of classes A-4 and A-5 are not
yet known but are expected to be $312,830,000 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-4 balance range is $0 - $132,000, and the expected class
A-5 balance range is $180,830,000 to $312,830,000.
b) Notional amount and interest only (IO).
c) Privately placed and pursuant to Rule 144A.
d) Horizontal risk retention interest
e) Vertical risk retention interest
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which 34 are loans secured by 190
commercial properties having an aggregate principal balance of
about $657.6 million as of the cut-off date. The loans were
contributed to the trust by Bank of Montreal, Citi Real Estate
Funding Inc., KeyBank National Association, Zions Bancorporation,
N.A., BSPRT CMBS Finance, LLC, 3650 Real Estate Investment Trust 2
LLC, Starwood Mortgage Capital LLC, German American Capital
Corporation and UBS AG. The master servicer is expected to be
Midland Loan Services, a Division of PNC Bank, National
Association, and the special servicer is expected to be Rialto
Capital Advisors, LLC.
KEY RATING DRIVERS
Higher Leverage than Recent Transactions: The pool has higher
leverage than recent Fitch-rated transactions. The pool's Fitch
loan-to value ratio (LTV) of 94.5% is higher than the YTD 2023
average of 89.8% but lower than the 2022 average of 99.3%. However,
the pool's Fitch net cash flow (NCF) debt yield (DY) of 10.6% is
higher than both the YTD 2023 average of 10.5% and the 2022 average
of 9.9%. Excluding credit opinion loans, the pool's Fitch LTV and
DY are 98.0% and 10.2%, respectively, compared with the equivalent
conduit YTD 2023 LTV and DY averages of 76.9% and 10.1%,
respectively.
Lower Pool Concentration: The pool has lower pool concentration
than recently rated Fitch transactions. The top 10 loans in the
pool make up 56.4% of the pool, lower than the YTD 2023 average of
62.5% and in line with the 2022 average of 55.2%.
Property Type Concentration: Loans secured by industrial properties
represent 25.1% of the pool by balance, higher than the YTD 2023
and 2022 averages of 16.5% and 11.1%, respectively. Some CMBS
property types have a higher average likelihood of default than
others. Industrial property types are on the lower end of
likelihood to default under Fitch's "Exposure Draft: U.S. and
Canadian Multiborrower CMBS Rating Criteria."
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 in one variable, Fitch
net cash flow (NCF):
- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf'
/ 'BB-sf' / 'B-sf';
- 10% NCF Decline: 'AAsf' / 'A-sf' / 'BBB-sf' / 'BB+sf' / 'BB-sf' /
'B-sf' / 'CCCsf'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Improvement in cash flow increases property value and capacity to
meet its debt service obligations. The table below indicates the
model-implied rating sensitivity to changes to in one variable,
Fitch NCF:
- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf'
/ 'BB-sf' / 'B-sf';
- 10% NCF Increase: 'AAAsf' / 'AA+sf' / 'Asf' / 'BBB+sf' / 'BBBsf'
/ 'BB+sf' / 'B+sf'.
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.
CARLYLE US 2022-3: Fitch Affirms 'BB-sf' Rating on Class E Notes
----------------------------------------------------------------
Fitch Ratings has affirmed the ratings on the class B, C-1, C-2, D
and E notes of Carlyle US CLO 2022-3, Ltd. (Carlyle 2022-3). The
Rating Outlooks on all rated tranches remain Stable.
Entity/Debt Rating Prior
----------- ------ -----
Carlyle US CLO
2022-3, Ltd.
B 143111AC6 LT AAsf Affirmed AAsf
C-1 143111AE2 LT A+sf Affirmed A+sf
C-2 143111AJ1 LT Asf Affirmed Asf
D 143111AG7 LT BBB-sf Affirmed BBB-sf
E 14317AAA4 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
Carlyle 2022-3 is a broadly syndicated collateralized loan
obligation (CLO) managed by Carlyle CLO Management L.L.C. The
transaction closed in July 2022 and will exit its reinvestment
period in July 2025. The CLO is secured primarily by first lien,
senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are due to the stable performance of the portfolio
since closing. The credit quality of the portfolio as of April 2023
reporting is at the 'B'/'B-' rating level. The Fitch weighted
average rating factor (WARF) of the portfolio increased to 25.4
from 24.5 of the indicative portfolio at closing. The portfolio
consists of 287 obligors, and the largest 10 obligors represent
7.8% of the portfolio (excluding cash). There were no reported
defaults in the portfolio. Exposure to issuers with a Negative
Outlook and Fitch's watchlist is 15.3% and 4.4%, respectively.
First lien loans, cash and eligible investments comprise 97.5% of
the portfolio. Fitch's weighted average recovery rate of the
portfolio was 74.4%, compared with 75.5% at closing.
All coverage tests, collateral quality tests (CQTs), and
concentration limitations are in compliance.
Cash Flow Analysis
Fitch conducted updated cash flow analysis based on newly run Fitch
Stressed Portfolio (FSP) since the transaction is still in its
reinvestment period. The FSP analysis stressed the current
portfolio from the latest trustee report to account for permissible
concentration and CQT limits. The FSP analysis assumed weighted
average life of 6.27 years and the weighted average spread (WAS)
was modeled at the covenant level of 3.50%. Other FSP assumptions
include 6.75% non-senior secured assets, 5% fixed rate assets and
7.5% CCC assets.
The ratings are in line with their respective model-implied rating
(MIR), as defined in Fitch's CLOs and Corporate CDOs Rating
Criteria. The Stable Outlooks reflect Fitch's expectation that the
notes have sufficient level of credit protection to withstand
potential deterioration in the credit quality of the portfolios in
stress scenarios commensurate with each class' rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement does not compensate for the higher loss
expectation than initially assumed;
- A 25% increase of the mean default rate across all ratings, along
with a 25% decrease of the recovery rate at all rating levels for
the current portfolio, would lead to downgrades of two notches for
the class B and C-2 notes, three notches for the class C-1 and E
notes, and one notch for the class D notes based on the MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Upgrades may occur in the event of better-than-expected portfolio
credit quality and transaction performance;
- A 25% reduction of the mean default rate across all ratings,
along with a 25% increase of the recovery rate at all rating levels
for the current portfolio, would lead to upgrades of two notches
for the class B notes, one notch for the class C-2 notes, and five
notches for the class D and E notes, based on the MIRs. There would
be no rating impact on the class C-1 notes, based on MIRs.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
CARVANA AUTO 2023-N1: DBRS Finalizes BB(high) Rating on E Notes
---------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by Carvana Auto Receivables Trust 2023-N1
(the Issuer or CRVNA 2023-N1):
-- $245,850,000 Class A Notes at AAA (sf)
-- $59,980,000 Class B Notes at AA (high) (sf)
-- $55,580,000 Class C Notes at A (high) (sf)
-- $60,750,000 Class D Notes at BBB (high) (sf)
-- $56,630,000 Class E Notes at BB (high) (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 transaction parties' capabilities with regard to
originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Carvana,
LLC (Carvana) and Bridgecrest Credit Company, LLC and considers the
entities to be an acceptable originator and servicer, respectively,
of auto loans.
(4) The operational history of Carvana and the strength of the
overall company and its management team.
-- Company management has considerable experience in the consumer
lending business.
-- Carvana has a technology-driven platform that focuses on
providing the customer with high-level experience, selection, and
value. Its website and smartphone app provide the consumer with
vehicle search and discovery (currently showing more than 60,000
vehicles online); the ability to trade or sell vehicles almost
instantaneously; and real-time, personalized financing. Carvana has
developed underwriting policies and procedures for use across the
lending platform that leverages technology where appropriate to
validate customer identity, income, employment, residency,
creditworthiness, and proper insurance coverage.
-- Carvana has developed multiple proprietary risk models to
support various aspects of its vertically integrated automotive
lending business. All proprietary risk models used in Carvana's
lending business are regularly monitored and tested. The risk
models are updated from time to time to adjust for new performance
data, changes in customer and economic trends, and additional
sources of third-party data.
(5) The credit quality of the collateral, which includes
Carvana-originated loans with Deal Scores of 49 or lower.
-- As of the April 15, 2023 cut-off date, the collateral pool for
the transaction is primarily composed of receivables due from
nonprime obligors with a weighted-average (WA) FICO score of 578,
WA annual percentage rate of 20.92%, and WA loan-to-value ratio of
100.77%. Approximately 47.77%, 30.50%, and 21.72% of the pool
include loans with Carvana Deal Scores greater than or equal to 30,
between 10 and 29, and between 0 and 9, respectively. Additionally,
1.10% of the collateral balance is composed of obligors with FICO
scores greater than 750, 35.26% consists of FICO scores between 601
to 750, and 63.64% is from obligors with FICO scores less than or
equal to 600 or with no FICO score.
-- DBRS Morningstar analyzed the performance of Carvana's auto
loan and retail installment contract originations and static pool
vintage loss data broken down by Deal Score to determine a
projected CNL expectation for the CRVNA 2023-N1 pool.
(6) The DBRS Morningstar CNL assumption is 15.00% 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: April 2023 Update," published on April 28, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse Coronavirus Disease (COVID-19) pandemic
scenarios, which were first published in April 2020.
(7) Carvana's financial condition as reported in its annual report
on Form 10-K filed as of February 23, 2023.
(8) The legal structure and presence of legal opinions that address
the true sale of the assets to the Issuer, the nonconsolidation of
the special-purpose vehicle with Carvana, that the trust has a
valid first-priority security interest in the assets, and
consistency with the DBRS Morningstar "Legal Criteria for U.S.
Structured Finance."
The rating on the Class A Notes reflects 53.70% of initial hard
credit enhancement provided by subordinated notes in the pool
(45.05%), overcollateralization (7.40%) and the reserve account
(1.25%). The ratings on the Class B, C, D, and E Notes reflect
42.10%, 31.35%, 19.60%, and 8.65% of initial hard credit
enhancement, respectively.
Notes: All figures are in U.S. dollars unless otherwise noted.
CHNGE MORTGAGE 2023-2: Fitch Gives Final 'Bsf' Rating on B-2 Certs
------------------------------------------------------------------
Fitch Ratings has assigned final ratings to the residential
mortgage-backed certificates to be issued by CHNGE Mortgage Trust
2023-2 (CHNGE 2023-2).
Entity/Debt Rating Prior
----------- ------ -----
CHNGE 2023-2
A-1 LT NRsf New Rating NR(EXP)sf
A-2 LT NRsf New Rating NR(EXP)sf
A-3 LT Asf New Rating A(EXP)sf
A-4 LT Asf New Rating A(EXP)sf
M-1 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT Bsf New Rating B(EXP)sf
B-3 LT NRsf New Rating NR(EXP)sf
AIOS LT NRsf New Rating NR(EXP)sf
XS LT NRsf New Rating NR(EXP)sf
COLLAT LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The certificates are supported by 616 non-prime loans with a total
balance of approximately $307 million as of the cut-off date. Loans
in the pool were originated by Change Lending. Loans are currently
serviced by Shellpoint Mortgage Servicing and LoanCare.
CHNGE 2023-2 is the eighth securitization issued by the Sponsor,
Change Lending, LLC (Change) but the first rated by Fitch. Change
is an independent Community Development Financial Institution
(CDFI) lender certified by the U.S. Department of the Treasury. In
order to maintain its CDFI designation, a CDFI is expected to
originate at least 60% of its volumes (by count and balance) to its
CDFI Target Markets - which generally focus on certain underserved
or low-income communities and individuals.
Since the publication of expected ratings, the issuer re-sized the
capital structure resulting in more subordination to rated classes.
The coupons of the bonds increased, including the M-1 paying the
NWAC rather than a fixed coupon. This change resulted in less
excess spread. The issuer increased the subordination to account
for the coupon change, and there was no impact to the expected
ratings.
KEY RATING DRIVERS
Change Community Mortgage Product (Negative): Change has multiple
lending programs but the majority of this pool is its Community
Mortgage product (99.5%). The Community Mortgage product is
underwritten to borrower assets, borrower credit history, FICO and
loan-to-value (LTV). The Community Mortgage product does not
require income, employment, or debt-to-income (DTI) documentation.
Although this program is compliant with applicable law and aligned
to the CDFI's mandate to serve low income individuals, low income
communities, African Americans and Hispanics, Fitch considers it a
no-ratio and low documentation product and, thus, carries higher
risk.
As a CDFI, all loans originated by Change are CDFI loans and are
exempt from certain sections of Reg Z, including the Consumer
Financial Protection Bureau's qualified mortgage (QM) and
ability-to-repay (ATR) rules. This allows Change to originate
no-ratio consumer mortgage loans without income or DTI
documentation.
While the loans in this pool were originated to creditworthy
borrowers based on their FICO, equity contributions, and assets,
the lack of income and employment documentation required to align
these mortgages' underwriting standards post-GFC is a concern.
Additionally, with the CDFI ATR exemption, the lack of underwriting
using a DTI is a greater risk. Given this, Fitch capped the highest
possible initial rating at 'Asf'.
Non-Prime Credit Quality (Negative): The collateral consists of 616
loans, totaling $307 million and seasoned approximately three
months in aggregate. The borrowers have a moderate credit profile
of a 740 model FICO and leverage with a 75.5% sustainable LTV ratio
(sLTV) and 71.1% combined current LTV (cLTV).
Of the pool, 96% consists of loans where the borrower maintains a
primary residence, 4% are loans for second homes, and there are no
investor property loans; 0% are QM, as the QM rule does not apply
to loans in this transaction due to the CDFI exemption.
Fitch's expected loss in the 'Asf' stress is 13%. This is mainly
because most are low doc/no-ratio loans with compensating factors,
including borrower equity, strong FICOs, and large reserves.
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 5.9% above a long-term sustainable level compared
with 7.8% on a national level, as of March 2023, down 2.7% since
last quarter. The rapid gain in home prices through the pandemic
has begun to moderate, with declines in the second half of 2022.
Driven by the strong gains in 1H22, home prices rose 2.0% yoy
nationally as of February 2023.
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 or delinquency trigger event occurs
in a given period, principal will be distributed sequentially to
the 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 90 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 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 downside to this is the additional stress
on the structure, as there is limited liquidity in the event of
large and extended delinquencies.
CHNGE 2023-2 has a step-up coupon for the senior classes (A-1, A-2
and A-3). After four years, the senior classes pay the lesser of a
100-bp increase to the fixed coupon or the net weighted average
coupon (WAC) rate. The unrated class B-3 interest allocation goes
toward the senior cap carryover amount (classes A-1, A-2 and A-3)
for as long as any unpaid cap carryover is outstanding. This
increases the P&I allocation for the senior classes.
As a sensitivity to its 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 impaired 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.
ESG - Exposure to Governance: The Community Mortgage product is
underwritten to borrower assets, borrower credit history, FICO and
LTV. The Community Mortgage product does not require income,
employment, or debt-to-income (DTI) documentation
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper market value declines (MVDs) than
assumed at the MSA level. Sensitivity analysis was conducted at the
state and national level to assess the effect of higher MVDs for
the subject pool 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 29.5% at 'A'. The analysis indicates that there is
some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. 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
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 'Asf', the analysis indicates there is potential
positive rating migration for all of the rated classes. A 10% gain
in home prices would result in a full category upgrade for the
rated class excluding those assigned 'Asf' ratings.
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
CHNGE 2023-2 has an ESG Relevance Score of '4' for Exposure to
Social due to human rights, community relations and access &
affordability, which has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
CHNGE 2023-2 has an ESG Relevance Score of '5' for Exposure to
Governance due to transaction parties and operational risk, which
has a negative impact on the credit profile.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
CIFC FUNDING 2022-V: Fitch Affirms 'BB-' Rating on Class E Notes
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Fitch Ratings has affirmed the class A-2, B-1, B-2, C, D, and E
notes in CIFC Funding 2022-V, Ltd. (CIFC 2022-V). The Rating
Outlooks on all tranches remain Stable.
Entity/Debt Rating Prior
----------- ------ -----
CIFC Funding
2022-V, Ltd.
A-2 12572GAJ6 LT AAAsf Affirmed AAAsf
B-1 12572GAC1 LT AAsf Affirmed AAsf
B-2 12572GAL1 LT AAsf Affirmed AAsf
C 12572GAE7 LT A+sf Affirmed A+sf
D 12572GAG2 LT BBBsf Affirmed BBBsf
E 12574CAC8 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
CIFC 2022-V is a broadly syndicated collateralized loan obligation
(CLO) managed by CIFC Asset Management LLC. The transaction closed
in July 2022 and will exit its reinvestment period in July 2025.
The CLO is secured primarily by first lien, senior secured
leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are due to the portfolio's stable performance
since closing. The credit quality of the portfolio as of the April
2023 trustee report remains at the 'B'/'B-' rating level. The Fitch
weighted average rating factor (WARF) of the portfolio increased
slightly to 24.9 from 24.7 at closing.
The portfolio consists of 265 obligors, and the largest 10 obligors
represent 9.8% of the portfolio (excluding cash). There were no
reported defaults in the portfolio, and exposure to issuers with a
Negative Outlook and Fitch's watchlist are 16.3% and 1.9%,
respectively.
First lien loans, cash and eligible investments comprise 97.7% of
the portfolio. Fitch's weighted average recovery rate of the
portfolio was 76.7%, compared with 76.5% at closing.
All coverage tests, collateral quality tests (CQTs) and
concentration limitations are in compliance.
Cash Flow Analysis
Fitch conducted updated cash flow analysis based on newly run Fitch
Stressed Portfolio (FSP) since the transaction is still in its
reinvestment period. The FSP analysis stressed the current
portfolio from the latest trustee report to account for permissible
concentration and CQT limits. The FSP analysis was conducted at
weighted average life of 6.0 years and the weighted average spread
(WAS) was modeled at the covenant level of 3.30%. Other FSP
assumptions include 7.5% non-senior secured assets, 5.0% fixed rate
assets and 7.5% CCC assets.
The rating for the class A-2, B-1, B-2 and C notes are in line with
the model-implied rating (MIR). The class D, and E notes were
affirmed one notch below their respective MIRs due to the limited
levels of cushions at their respective MIR, the remaining
reinvestment period, and anticipated recessionary environment.
The Stable Outlooks reflect Fitch's sufficient modelling cushions
at stress levels commensurate with each class' rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement do not compensate for the higher loss
expectation than initially assumed.
-- A 25% increase of the mean default rate across all ratings,
along with a 25% decrease of the recovery rate at all rating levels
for the current portfolio, would lead to downgrades of up to three
notches for the notes, based on MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
-- Except for the tranches already at the highest 'AAAsf' rating,
upgrades may occur in the event of better-than-expected portfolio
credit quality and transaction performance.
-- A 25% reduction of the mean default rate across all ratings,
along with a 25% increase of the recovery rate at all rating levels
for the current portfolio, would lead to upgrades of up to six
notches for the rated notes, based on the MIR.
CIM TRUST 2023-R4: DBRS Finalizes B Rating on Class B3 Notes
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DBRS, Inc. finalized its provisional ratings on the Mortgage-Backed
Notes, Series 2023-R4 (the Notes) issued by CIM Trust 2023-R4 (CIM
2023-R4 or the Trust):
-- $297.3 million Class A1 at AAA (sf)
-- $26.2 million Class A2 at AAA (sf)
-- $19.9 million Class M1 at A (high) (sf)
-- $16.0 million Class M2 at BBB (high) (sf)
-- $8.3 million Class B1 at BB (high) (sf)
-- $6.1 million Class B2 at BB (sf)
-- $7.3 million Class B3 at B (sf)
The AAA (sf) rating on the Notes reflects 17.90% of credit
enhancement provided by subordinated notes in the transaction. The
A (high) (sf), BBB (high) (sf), BB (high) (sf), BB (sf), and B (sf)
ratings reflect 12.85%, 8.80%, 6.70%, 5.15%, and 3.30% of credit
enhancement, respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
This transaction is a securitization of a portfolio of primarily
seasoned performing and reperforming first-lien residential
mortgages and funded by the issuance of mortgage-backed notes (the
Notes). The Notes are backed by 3,744 loans with a total principal
balance of $393,996,728 as of the Cut-Off Date (March 31, 2023).
The loans are approximately 158 months seasoned on average. As of
the Cut-Off Date, 95.8% of the pool is current, 3.6% is 30 days
delinquent under the Mortgage Bankers Association (MBA) delinquency
method, and 0.6% is in bankruptcy (all except two of the bankruptcy
loans are performing). Approximately 77.8% and 42.9% of the
mortgage loans have been zero times (x) 30 days delinquent for the
past 12 months and 24 months, respectively, under the MBA
delinquency method.
In the portfolio, 60.4% of the loans are modified. The
modifications happened more than two years ago for 64.1% of the
modified loans. Within the pool, 1,586 mortgages have
non-interest-bearing deferred amounts, which equates to 4.6% of the
total principal balance. Unless specified otherwise, all statistics
on the mortgage loans in the related report are based on the
current balance, including the applicable non-interest-bearing
deferred amounts.
The majority of the pool (79.5%) is exempt from the Consumer
Financial Protection Bureau (CFPB) Ability-to-Repay (ATR)/Qualified
Mortgage (QM) rules. The loans subject to the ATR rules are
designated as QM Safe Harbor (14.0%), Non-QM (6.3%) and QM
Rebuttable (0.2%) by UPB.
Fifth Avenue Trust (the Seller) acquired the mortgage loans prior
to the Cut-Off Date and, through a wholly owned subsidiary, Funding
Depositor LLC (the Depositor), will contribute the loans to the
Trust. As the Sponsor, Chimera Investment Corporation (Chimera) or
one of its majority-owned affiliates will acquire and retain a 5%
eligible horizontal residual interest in the Notes, consisting of a
portion of the Class B1 Notes and all of the Class B2, B3, B4, and
C Notes, in the aggregate, to satisfy the credit risk retention
requirements. Various entities originated and previously serviced
the loans through purchases in the secondary market.
Prior to CIM 2023-R4, Chimera had issued 51 seasoned
securitizations under the CIM shelf since 2014, all of which were
backed by subprime, reperforming, or nonperforming loans. DBRS
Morningstar has rated 11 of the previously issued CIM reperforming
loan (RPL) deals. Similar to the CIM 2023-R2 deal, this transaction
exhibits much stronger credit characteristics than previously
issued transactions under the CIM shelf. DBRS Morningstar reviewed
the historical performance of both the rated and unrated
transactions issued under the CIM shelf, particularly with respect
to the reperforming transactions, which may not have collateral
attributes similar to CIM 2023-R4. The reperforming CIM
transactions generally have delinquencies and losses in line with
expectations for previously distressed assets.
The loans will all be serviced by Fay Servicing, LLC (Fay). There
will not be any advancing of delinquent principal or interest on
any mortgages by the Servicer or any other party to the
transaction; however, the related Servicer is obligated to make
advances in respect of homeowner's association fees, taxes, and
insurance as well as reasonable costs and expenses incurred in the
course of servicing and disposing of properties.
On the earlier of the Payment Date occurring in April 2028, or
after the Payment Date when the aggregate note amount of the
offered Notes is reduced to 10% of the Closing Date note amount,
the Call Option Holder (the Depositor or any successor or assignee)
has the option to purchase all of the mortgage loans and any real
estate owned (REO) properties at a certain purchase price equal to
the unpaid principal balance of the mortgage loans, plus the fair
market value of the REO properties and any unpaid expenses and
reimbursement amounts.
The transaction employs a sequential-pay cash flow structure.
Principal proceeds can be used to cover interest shortfalls on the
Notes, but such shortfalls on Class M1 and more subordinate bonds
will not be paid from principal proceeds until the Class A1 and A2
Notes are retired.
Notes: All figures are in U.S. dollars unless otherwise noted.
CITIGROUP 2023-SMRT: Moody's Assigns Ba3 Rating to Cl. HRR Certs
----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to seven
classes of CMBS securities, issued by Citigroup Commercial Mortgage
Trust 2023-SMRT, Commercial Mortgage Pass-Through Certificates,
Series 2023-SMRT:
Cl. A, Definitive Rating Assigned Aaa (sf)
Cl. B, Definitive Rating Assigned Aa3 (sf)
Cl. C, Definitive Rating Assigned A3 (sf)
Cl. D, Definitive Rating Assigned Baa3 (sf)
Cl. E, Definitive Rating Assigned Ba2 (sf)
Cl. HRR, Definitive Rating Assigned Ba3 (sf)
Cl. X*, Definitive Rating Assigned Aaa (sf)
*Reflects interest-only classes
RATINGS RATIONALE
The certificates are collateralized by the borrower's fee simple or
fee simple/leasehold interests in 136 self-storage properties
located across 19 states. Moody's ratings are based on the credit
quality of the loans and the strength of the securitization
structure.
Moody's approach to rating this transaction involved the
application of Moody's Large Loan and Single Asset/Single Borrower
Commercial Mortgage-Backed Securitization methodology and Moody's
IO Rating Methodology. The rating approach for securities backed by
a single loan compares the credit risk inherent in the underlying
collateral with the credit protection offered by the structure. The
structure's credit enhancement is quantified by the maximum
deterioration in property value that the securities are able to
withstand under various stress scenarios without causing an
increase in the expected loss for various rating levels. In
assigning single borrower ratings, Moody's also consider a range of
qualitative issues as well as the transaction's structural and
legal aspects.
The portfolio contains 78,198 self-storage units offering
approximately 10.1 million SF of combined rentable area. The
portfolio is geographically diverse as the properties are located
across 19 states and 34 markets. As of April 23, 2023, the
portfolio net rentable area was approximately 87.8% occupied. The
top five states by net cash flow are Missouri (22.2%), Kansas
(10.0%), Florida (9.1%), Iowa (8.2%), and Illinois (7.2%). Trade
areas for the respective property markets are generally dense and
affluent as the weighted average population and median household
income are approximately 96,315 people and $82,960, respectively,
within a three-mile radius.
The portfolio is also granular at the property level, with no
individual property accounting for more than 2.5% of the
portfolio's net cash flow.
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 actual DSCR is 1.41X and Moody's first
mortgage actual stressed DSCR is 0.90X. Moody's DSCR is based on
Moody's stabilized net cash flow.
Moody's LTV ratio for the first mortgage balance is 111.6% based on
Moody's Value. Adjusted Moody's LTV ratio for the first mortgage
balance is 98.2% based on Moody's Value using a cap rate adjusted
for the current interest rate environment.
Moody's also grades properties on a scale of 0 to 5 (best to worst)
and considers those grades when assessing the likelihood of debt
payment. The factors considered include property age, quality of
construction, location, market, and tenancy. The property's quality
grade is 2.25.
Notable strengths of the transaction include the portfolio's strong
historical operating performance, geographic diversity, demographic
profile, and experienced sponsorship.
Notable concerns of the transaction include the portfolio's
property age, low climate-control profile, high Moody's loan to
value ratio, cash-out refinancing, and credit negative legal
features.
The principal methodology used in rating all classes except
interest-only classes was "Large Loan and Single Asset/Single
Borrower Commercial Mortgage-Backed Securitizations Methodology"
published in July 2022.
Moody's approach for single borrower and large loan multi-borrower
transactions evaluates credit enhancement levels based on an
aggregation of adjusted loan level proceeds derived from Moody's
loan level LTV ratios. Major adjustments to determining proceeds
include leverage, loan structure, and property type. These
aggregated proceeds are then further adjusted for any pooling
benefits associated with loan level diversity, other concentrations
and correlations.
Moody's analysis considers the following inputs to calculate the
proposed IO rating based on the published methodology: original and
current bond ratings and credit estimates; original and current
bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and IO type corresponding to
an IO type as defined in the published methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously anticipated. Factors that may cause an
upgrade of the ratings include significant loan pay downs or
amortization, an increase in the pool's share of defeasance or
overall improved pool performance. Factors that may cause a
downgrade of the ratings include a decline in the overall
performance of the pool, loan concentration, increased expected
losses from specially serviced and troubled loans or interest
shortfalls.
CPS AUTO 2023-B: DBRS Finalizes BB Rating on Class E Notes
----------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the classes of
notes issued by CPS Auto Receivables Trust 2023-B as follows:
-- $198,251,000 Class A Notes at AAA (sf)
-- $25,150,000 Class B Notes at AA (sf)
-- $46,606,000 Class C Notes at A (sf)
-- $25,891,000 Class D Notes at BBB(high) (sf)
-- $36,987,000 Class E Notes at BB (sf)
The provisional ratings are based on DBRS Morningstar's review of
the following analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization
(OC), subordination, amounts held in the reserve fund, and excess
spread. Credit enhancement levels are sufficient to support the
DBRS Morningstar-projected cumulative net loss (CNL) assumption
under various stress scenarios.
-- The DBRS Morningstar CNL assumption is 15.80% based on the
expected 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 2022 Update," published on December 21,
2022. These baseline macroeconomic scenarios replace DBRS
Morningstar's moderate and adverse Coronavirus Disease (COVID-19)
pandemic scenarios, which were first published in April 2020.
(2) 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 the payment of
principal by the legal final maturity date.
(3) The consistent operational history of Consumer Portfolio
Services, Inc. (CPS or the Company) and the strength of the overall
Company and its management team.
-- The CPS senior management team has considerable experience and
a successful track record within the auto finance industry.
(4) The capabilities of CPS with regard to originations,
underwriting, and servicing.
-- DBRS Morningstar performed an operational review of CPS and
considers the Company to be an acceptable originator and servicer
of subprime automobile loan contracts with an acceptable backup
servicer.
(5) DBRS Morningstar exclusively used the static pool approach
because CPS has enough data to generate a sufficient amount of
static pool projected losses.
-- DBRS Morningstar was conservative in the loss forecast analysis
that it performed on the static pool data.
(6) The Company indicated that there is no material pending or
threatened litigation.
(7) The legal structure and presence of legal opinions that address
the true sale of the assets to the Issuer, the nonconsolidation of
the special-purpose vehicle with CPS, that the trust has a valid
first-priority security interest in the assets, and the consistency
with DBRS Morningstar's "Legal Criteria for U.S. Structured
Finance."
CPS 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 for the
purchase of late-model vehicles and (2) refinancing of existing
automotive financing.
The rating on the Class A Notes reflects 47.40% of initial hard
credit enhancement provided by the subordinated notes in the pool
(36.40%), the reserve account (1.00%), and OC (10.00%). The ratings
on the Class B, C, D, and E Notes reflect 40.60%, 28.00%, 21.00%,
and 11.00% of initial hard credit enhancement, respectively.
Additional credit support may be provided from excess spread
available in the structure.
Notes: All figures are in U.S. dollars unless otherwise noted.
CSMC TRUST 2017-PFHP: S&P Lowers Class F Notes Rating to 'CCC-'
---------------------------------------------------------------
S&P Global Ratings lowered its ratings on five classes of
commercial mortgage pass-through certificates from CSMC Trust
2017-PFHP, a U.S. CMBS transaction. At the same time, S&P affirmed
its 'AAA (sf)' ratings on two classes from the transaction.
This U.S. stand-alone (single-borrower) CMBS transaction is backed
by a floating-rate, interest-only (IO) mortgage loan secured by the
borrowers' fee simple interest and operating leasehold interests in
a portfolio of 20 limited service, full-service, and extended-stay
hotels totaling 2,464 guestrooms in six U.S. states.
Rationale
S&P said, "The downgrades on classes B, C, D, E, and F reflect our
revised valuation, which is lower than the valuation we derived in
our last review in November 2022. Our concerns extend to the
increase in trust exposure, which would reduce liquidity and
recovery to the bondholders. The sponsor, a joint venture between
an affiliate of PIMCO Bravo Fund II L.P. and FH Heartland LLC, has
stopped making its debt service payments after the mortgage loan
matured in December 2022. To date, the servicer has advanced $8.6
million for debt service and other expenses. The downgrades also
consider the lower December 2022 portfolio appraisal values and
that the loan is currently with the special servicer. According to
the May 2023 asset status report provided by the special servicer,
Trimont Real Estate Advisors LLC (Trimont), they are in discussions
on alternative resolution options, including a potential
deed-in-lieu of foreclosure, after negotiations with the borrowers
toward a possible loan modification and extension were
unsuccessful. Our affirmation on class A considers the relatively
low debt per guestroom ($28,463 per guestroom, inclusive of
servicer advances to date) and its senior position in the payment
waterfall, among other factors (see below).
"We noted in our last review in November 2022 that the portfolio's
servicer-reported net cash flow (NCF) had shown steady improvement
with strengthening corporate transient demand since the onset of
the pandemic (see "Ratings Affirmed On Seven Classes From CSMC
Trust 2017-PFHP," published Nov. 10, 2022). Since then, according
to the year-ended Dec. 31, 2022, operating statements provided by
Trimont, NCF has rebounded back to pre-COVID levels at $20.5
million compared with $20.7 million in 2019. Our current NCF of
$19.1 million is unchanged from our last review and at issuance.
However, our current expected-case value, using an S&P Global
Ratings' capitalization rate of 11.25%, the same as our last review
and up 126 basis points from issuance, of $145.3 million ($58,957
per guestroom) is 13.5% lower than our last review value of $168.0
million ($68,190 per guestroom) and 23.3% lower than our issuance
value of $189.5 million ($76,892 per guestroom) because we deducted
from our current value ($24.6 million; $10,000 per guestroom) for
property improvement plan (PIP) expenses. According to the December
2022 appraisal reports, the appraisers assessed that PIPs totaling
approximately $83.2 million ($33,772 per guestroom) would likely be
required when there is a change in ownership. The Dec. 1, 2022,
appraisal value on a portfolio basis was $272.8 million ($110,714
per guestroom), down 16.3% from the 'as is' appraised value on a
portfolio basis of $326.0 million ($132,305 per guestroom) at
issuance. Our current expected-case value yielded an S&P Global
Ratings' loan-to-value ratio of 165.2%, up from 142.8% in our last
review and 126.7% at issuance.
"Specifically, the downgrade on class F to 'CCC- (sf)' from 'CCC
(sf)' reflects our view that the susceptibility to liquidity
interruption and risk of default and loss continue to remain
elevated based on our revised lower expected-case value, the
increase in loan exposure because the servicer is currently
advancing the full monthly debt service payments, and current
market conditions.
"Although the model-indicated ratings were lower than the classes'
current or revised ratings, we affirmed our rating on class A and
tempered our downgrades on classes B, C, D, and E because we
weighed certain qualitative considerations." These included:
-- The steadily improving performance of the portfolio properties
and the potential that the portfolio's performance would continue
to improve beyond our expectations;
-- The moderate to significant market value decline based on the
revised December 2022 appraisal values that would be needed before
these classes experience principal losses;
-- The liquidity support in the form of servicer advancing; and
-- The relative position of the classes in the payment waterfall.
The loan has a foreclosure in progress payment status. It was
transferred to the special servicer on July 21, 2022, due to
imminent maturity default. The borrowers requested a three-year
extension of the loan's maturity date to Dec. 9, 2025, to allow
time for the portfolio performance and debt markets to stabilize.
As part of the extension discussion, the special servicer requested
the borrowers to contribute equity and paydown the mortgage loan,
which the borrowers declined. The borrowers are currently
delinquent on their debt service payments this year. Since January
2023, the servicer has been advancing the monthly interest amounts
to the trust bondholders. According to Trimont, the borrowers have,
however, been cooperative in providing the necessary information
toward negotiations of a resolution, including a potential
deed-in-lieu of foreclosure, the timing of which is expected by
second-quarter 2023.
S&P said, "We will continue to monitor for further developments,
including the eventual resolution of the specially serviced loan.
If there are negative changes in performance or trust exposure
beyond what we have already considered, we may revisit our analysis
and adjust our ratings as necessary.
"Our affirmation on the class X-EXT IO certificates reflects our
criteria for rating IO securities, in which the ratings on the IO
securities would not be higher than that of the lowest-rated
reference class. The class X-EXT notional amount references the A-2
portion of the class A certificates."
Portfolio-Level Analysis
The loan collateral consists of a portfolio of 20 limited-service,
full-service, and extended-stay hotels totaling 2,464 guestrooms
with an average age of 23 years. The properties are located in six
U.S. states: Michigan (four hotels; 25.7% of the allocated loan
amount [ALA]), Indiana (four; 17.9%), Florida (three; 16.0%),
Illinois (three; 15.8%), Texas (four; 14.2%), and Colorado (two;
10.4%). The portfolio is located in various markets, as defined by
S&P Global Ratings:
-- Four hotels (20.7% of ALA) are located in primary markets
(Chicago and Dallas);
-- Twelve hotels (64.0%) are in secondary markets (Detroit; Tampa,
Fla.; Indianapolis; Austin, Tex.; San Antonio, Tex.; and Gary,
Ind.); and
-- Four hotels (15.3%) are in tertiary markets (Grand Junction,
Colo. and Grand Rapids, Mich.).
The hotels all operate under franchise agreements with Hilton,
Marriott, and Intercontinental that were extended in 2015 and
expire between 2027 and 2035. The fees vary by brand, but they all
consist of monthly royalty, franchise, or license fees equal to
5.0%-6.0% of gross room revenue and/or 3.0% of gross food and
beverage sales; monthly reservation services fees determined by
each franchisor; and monthly marketing service fees equal to
1.0%-4.0% of gross room revenue. The portfolio consists of eight
brands: Residence Inn (27.1% of ALA), Courtyard (25.8%), Marriott
(12.5%), Springhill Suites (10.7%), Fairfield Inn & Suites (9.2%),
Homewood Suites (8.0%), Holiday Inn (4.7%), and Hampton Inn (2.0%).
The hotel portfolio was managed by White Lodging Services Corp. at
issuance. However, in 2018, White Lodging Services Corp. conveyed
its management agreements to Interstate Hotels & Resorts, which
merged with the current manager of the portfolio, Aimbridge
Hospitality, in 2019. The manager receives a base management fee of
3.5% of gross revenues and an incentive management fee of 15.0% of
any amount exceeding operating profit.
The borrowers' sponsor acquired the portfolio in February 2015 from
affiliates of RLJ Lodging Trust for approximately $230.3 million
($93,580 per guestroom) and invested approximately $42.2 million
($17,144 per guestroom) on PIPs and capital improvements between
2015 and September 2017. The sponsor did not provide additional
information regarding ongoing or future capital expenditures during
S&P's current review, except for the Homewood Suites Brandon
property located in Tampa, which has not completed its $1.9 million
brand-mandated PIP. As S&P previously discussed, the current
appraisers concluded that significant PIPs would be required for
the hotels to maintain their flags upon a change in ownership.
S&P said, "Since our last review in November 2022, the portfolio's
reported occupancy, average daily rate (ADR), revenue per available
room (RevPAR), and NCF continued to improve to 66.6%, $119.77,
$79.74, and $20.5 million, respectively, as of the year ended Dec.
31, 2022, from 64.2%, $100.38, $64.43, and $15.4 million,
respectively, as of the year ended Dec. 31, 2021. Additionally, the
borrowers project the portfolio's occupancy, ADR, and NCF to reach
71.0%, $122.55, $86.97, and $21.6 million, respectively, in 2023,
exceeding pre-pandemic levels of 74.2%, $110.92, $82.29, and $20.7
million, respectively, in 2019. This compares with our assumed
72.5% occupancy rate, $106.00 ADR, $76.85 RevPAR, and $19.1 million
NCF."
According to the December 2022 STR reports, seven properties (35.2%
of ALA) have a RevPAR penetration rate (which measures the RevPAR
of the hotel relative to its competitors, with 100% indicating
parity with competitors) of over 100%. Eight hotels (41.4%) have a
RevPAR penetration rate between 91.0% and 98.1%, while the
remaining five (23.4%) have a RevPAR penetration rate of 77.9% to
85.8%.
Transaction Summary
The IO mortgage loan had an initial and current balance of $240.0
million (as of the May 15, 2023, trustee remittance report), pays
an annual floating interest rate indexed to one month LIBOR plus an
initial spread of 3.45%, which stepped up 0.25% to 3.70% commencing
with the loan's third and final extension option. The loan had an
initial term of two years, with three one-year extension options.
It matured on Dec. 9, 2022, with no extension options remaining.
The servicer confirmed there is no interest rate cap agreement
currently in place. To date, the trust has not incurred any
principal losses.
The loan was initially transferred to special servicing on June 12,
2020, due to payment default. The borrowers were delinquent on
their May, June, and July 2020 debt service payments and requested
COVID-19 forbearance relief. The special servicer, Trimont,
approved the borrowers' request for forbearance of the May 2020
through October 2020 debt service payments. Among other things, the
forbearance agreement also required the borrowers to make an
initial $1.0 million reserve deposit and ongoing deposits into the
tax and insurance escrows. However, furniture, fixtures, and
equipment deposits were waived through December 2020, and unpaid
interest is due at loan maturity. The loan was returned to the
master servicer, Wells Fargo Bank N.A., on Oct. 8, 2021.
The loan was transferred back to special servicing on July 21,
2022, due to imminent maturity default. As mentioned above,
negotiations on a potential resolution are ongoing.
Ratings Lowered
CSMC Trust 2017-PFHP
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)'
Ratings Affirmed
CSMC Trust 2017-PFHP
Class A: AAA (sf)
Class X-EXT: AAA (sf)
EATON VANCE 2014-1R: Moody's Cuts $9.26MM F Notes Rating to Caa2
----------------------------------------------------------------
Moody's Investors Service has upgraded the rating on the following
notes issued by Eaton Vance CLO 2014-1R, Ltd.:
US$36,550,000 Class B Senior Secured Floating Rate Notes due 2030
(the "Class B Notes"), Upgraded to Aa1 (sf); previously on August
23, 2018 Definitive Rating Assigned Aa2 (sf)
Moody's has also downgraded the rating on the following notes:
US$9,260,000 Class F Secured Deferrable Floating Rate Notes due
2030 (the "Class F Notes"), Downgraded to Caa2 (sf); previously on
September 8, 2020 Confirmed at B3 (sf)
Eaton Vance CLO 2014-1R, Ltd., issued in August 2018 is a managed
cashflow CLO. The notes are collateralized primarily by a portfolio
of broadly syndicated senior secured corporate loans. The
transaction's reinvestment period will end in July 2023.
RATINGS RATIONALE
The upgrade rating action reflects the benefit of the short period
of time remaining before the end of the deal's reinvestment period
in July 2023. 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 be maintained and continue to satisfy
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from lower WARF compared to the respective
covenant level. Moody's modeled a WARF of 2782 compared to its
current covenant level of 2995.
The downgrade rating action on the Class F notes reflects the
specific risks to the junior notes posed by par loss and credit
deterioration observed in the underlying CLO portfolio. Based on
Moody's calculation, the total collateral balance, including
principal collections and expected recoveries from defaulted
securities, is $473.2 million, or $14.2 million less than the
$487.4 million initial par amount targeted during the deal's
ramp-up.
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: $470,295,473
Defaulted par: $10,906,377
Diversity Score: 80
Weighted Average Rating Factor (WARF): 2782
Weighted Average Spread (WAS)(before accounting for reference rate
floors): 3.44%
Weighted Average Recovery Rate (WARR): 47.96%
Weighted Average Life (WAL): 4.5 years
In addition to base case analysis, Moody's ran additional scenarios
where outcomes could diverge from the base case. The additional
scenarios consider one or more factors individually or in
combination and include: defaults by obligors whose low ratings or
debt prices suggest distress, defaults by obligors with potential
refinancing risk, deterioration in the 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.
ELLINGTON CLO IV: Moody's Downgrades Rating on 2 Tranches to Caa1
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Ellington CLO IV, Ltd.:
US$29,212,500 Class C-R Secured Deferrable Floating Rate Notes due
2029 (the "Class C-R Notes"), Upgraded to Aaa (sf); previously on
April 8, 2022 Upgraded to Aa2 (sf)
US$32,775,000 Class D-1 Secured Deferrable Floating Rate Notes due
2029 (the "Class D-1 Notes"), Upgraded to A2 (sf); previously on
April 8, 2022 Upgraded to A3 (sf)
US$5,700,000 Class D-2-R Secured Deferrable Fixed Rate Notes due
2029 (the "Class D-2-R Notes"), Upgraded to A2 (sf); previously on
April 8, 2022 Upgraded to A3 (sf)
Moody's has also downgraded the ratings on the following notes:
US$6,975,000 Class F-1 Secured Deferrable Floating Rate Notes due
2029 (the "Class F-1 Notes"), Downgraded to Caa1 (sf); previously
on June 17, 2021 Upgraded to B3 (sf)
US$150,000 Class F-2 Secured Deferrable Fixed Rate Notes due 2029
(the "Class F-2 Notes"), Downgraded to Caa1 (sf); previously on
June 17, 2021 Upgraded to B3 (sf)
Ellington CLO IV, Ltd, originally issued in March 2019 and
partially refinanced in June 2021 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 April 2021.
RATINGS RATIONALE
The upgrade rating actions are primarily a result of deleveraging
of the senior notes and an increase in the transaction's
over-collateralization (OC) ratios since April 2022. The Class A-R
notes have been paid down by approximately 66% or $74.7 million
since that time. Based on Moody's calculation, the OC ratios for
the Class A/B, Class C, and Class D are currently 269.71%, 199.95%,
and 149.14%, respectively, versus April 2022 levels of 190.68%,
164.51%, and 139.32%, respectively.
The downgrade rating actions on the Class F-1 and Class F-2 notes
reflect the specific risks to the junior notes posed by par loss
and credit deterioration observed in the underlying CLO portfolio.
Based on the Moody's calculation, the OC ratio for the Class F-1
and F-2 notes is currently 109.60% vs a April 2022 level of
114.45%. Additionally, the weighted average rating factor (WARF)
has been deteriorating and the WARF is currently 4742, compared to
4437 in April 2022.
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: $209,101,924
Defaulted par: $53,424,764
Diversity Score: 26
Weighted Average Rating Factor (WARF): 4742
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 4.78%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 46.0%
Weighted Average Life (WAL): 2.6 years
In addition to base case analysis, Moody's ran additional scenarios
where outcomes could diverge from the base case. The additional
scenarios consider one or more factors individually or in
combination, and include: defaults by obligors whose low ratings or
debt prices suggest distress, defaults by obligors with potential
refinancing risk, deterioration in the credit quality of the
underlying portfolio, decrease in overall WAS or net interest
income, 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.
EXETER AUTOMOBILE 2021-3: S&P Raises Class E Notes Rating to 'BB+'
------------------------------------------------------------------
S&P Global Ratings raised its ratings on 27 classes of notes from
12 Exeter Automobile Receivables Trust (EART) transactions. At the
same time, S&P affirmed its ratings on five classes.
S&P said, "The rating actions reflect the transactions' collateral
performance to date, our views regarding future collateral
performance, and the transactions' structures, credit enhancement
levels, and remaining cumulative net loss (CNL) expectations. In
addition, we incorporated secondary credit factors, including
credit stability, payment priorities under various scenarios, and
sector- and issuer-specific analyses, including our most recent
macroeconomic outlook, which incorporates a baseline forecast for
U.S. GDP and unemployment. Based on these factors, we believe the
notes' creditworthiness is consistent with the raised and affirmed
ratings."
Most of the transactions are performing better than S&P's prior CNL
expectations, and it has revised its loss expectation accordingly.
Table 1
Collateral performance (%)(i)
Pool Current 61+ day
Series Month factor CNL delinq.
2018-4 55 10.51 15.33 12.52
2019-1 52 12.30 15.13 12.43
2019-2 49 15.10 15.07 12.07
2019-3 46 17.20 13.65 11.71
2019-4 43 19.17 12.67 10.66
2020-1 40 21.82 11.78 9.95
2020-2 35 25.80 9.28 9.34
2020-3 32 31.01 8.58 9.02
2021-1 27 34.69 8.32 9.02
2021-2 23 41.55 9.03 9.03
2021-3 21 45.75 10.06 9.08
2021-4 18 51.30 10.19 9.16
(i)As of the May 2023 distribution date.
CNL--Cumulative net loss.
Delinq.--Delinquencies.
Table 2
CNL expectations (%)
Original Former Revised
lifetime lifetime lifetime
Series CNL exp. CNL exp.(i) CNL exp.(ii)
2018-4 20.50-21.50 16.00 (15.75-16.25) Up to 15.75
2019-1 20.50-21.50 16.50 (16.25-16.75) Up to 16.00
2019-2 20.50-21.50 17.00 (16.75-17.25) Up to 16.50
2019-3 20.50-21.50 16.50 (16.25-16.75) 16.00
2019-4 20.50-21.50 16.00 (15.75-16.25) 15.60
2020-1 20.50-21.50 16.00 (15.75-16.25) 15.50
2020-2 23.75-24.75 15.50 (15.25-15.75) 14.25
2020-3 23.50-24.50 15.50 (15.25-15.75) 14.50
2021-1 23.00-24.00 16.00 (15.75-16.25) 15.25
2021-2 21.00-22.00 N/A 18.00
2021-3 19.75-20.75 N/A 20.25
2021-4 19.50-20.50 N/A 21.25
(i)As of March 2022.
(ii)As of May 2023.
CNL exp.--Cumulative net loss expectations.
N/A–-Not applicable.
The transactions contain a sequential principal payment structure
in which the notes are paid principal by seniority. Each
transaction also has credit enhancement in the form of a
nonamortizing reserve account, overcollateralization, subordination
for the higher-rated tranches, and excess spread. As of the May
2023 distribution date, the hard credit enhancement is at the
specified target or floor, and each class's credit support
continues to increase as a percentage of the amortizing collateral
balance. The raised and affirmed ratings reflect our view that the
total credit support as a percentage of the amortizing pool
balance, compared with our expected remaining losses, is
commensurate with each respective rating.
In addition, the overcollateralization for each transaction prior
to series 2019-4 can step up to a higher target
overcollateralization level if certain CNL triggers are breached.
Overcollateralization step-up tests occur every three months and
are curable on any following test dates if the CNL rate is below
the specified threshold. All series are currently below their CNL
trigger levels.
Table 3
Hard Credit Support (%)(i)(ii)
Total hard Current total hard
credit support credit support
Series Class at issuance (%) (% of current)
2018-4 D 14.75 105.52
2018-4 E 7.30 34.63
2019-1 D 15.80 103.79
2019-1 E 7.00 32.26
2019-2 D 13.75 79.59
2019-2 E 6.00 28.25
2019-3 D 13.75 71.67
2019-3 E 6.00 26.63
2019-4 D 13.00 63.77
2019-4 E 5.50 24.64
2020-1 D 13.00 56.78
2020-1 E 5.50 22.41
2020-2 C 31.70 111.35
2020-2 D 22.10 74.15
2020-2 E 11.85 34.43
2020-3 C 29.20 99.92
2020-3 D 19.60 68.96
2020-3 E 9.80 37.35
2020-3 F 5.80 24.45
2021-1 C 28.30 86.54
2021-1 D 16.80 53.39
2021-1 E 7.60 26.87
2021-2 C 26.55 71.68
2021-2 D 10.65 33.41
2021-2 E 5.00 19.81
2021-3 B 38.65 90.27
2021-3 C 24.50 59.34
2021-3 D 10.50 28.74
2021-3 E 4.50 15.63
2021-4 B 38.65 79.60
2021-4 C 25.20 53.38
2021-4 D 12.20 28.03
2021-4 E(iii) 2.80 9.71
2021-4 F(iii) 1.00 6.20
(i)As of the May 2023 distribution date.
(ii)Calculated as a percentage of the total gross receivable pool
balance, which consists of a reserve account,
overcollateralization, and, if applicable, subordination.
(iii)Not rated by S&P Global Ratings. Excess spread is excluded
from the hard credit support and can also provide additional
enhancement.
S&P said, "We incorporated an analysis of the current hard credit
enhancement compared to the remaining expected CNL expectations for
the classes where hard credit enhancement alone--without credit to
any excess spread--was sufficient, in our view, to raise or affirm
the ratings at the 'AAA (sf)' level. For the other classes, we
incorporated a cash flow analysis to assess the loss coverage
levels, giving credit to stressed excess spread. Our cash flow
scenarios included forward-looking assumptions on recoveries, the
timing of losses, and voluntary absolute prepayment speeds that we
believe are appropriate given each transaction's performance to
date and our current economic outlook. Additionally, we conducted
sensitivity analyses to determine the impact that a moderate
('BBB') stress level scenario would have on our ratings if losses
trended higher than our revised base-case loss expectations. In our
view, the results demonstrated that all the classes' ratings meet
our credit stability limits at their respective raised and affirmed
rating levels.
"In our view, the results demonstrated that all of the classes have
adequate credit enhancement at the current rating levels. We will
continue to monitor the performance of the outstanding transactions
to ensure that the credit enhancement remains sufficient, in our
view, to cover our CNL expectations under our stress scenarios for
each of the rated classes.
"On March 31, 2023, we placed our 'BB (sf)' rating on EART 2022-5's
class E notes on CreditWatch with negative implications, reflecting
the transaction's worse-than-expected performance and decreased
overcollateralization amounts, among other factors. The rating
actions are limited to the below-referenced securities; we have not
taken any action on any class of notes from EART 2022-5, including
the class E notes, which are currently on CreditWatch negative."
RATINGS RAISED
Exeter Automobile Receivables Trust
Rating
Series Class To From
2018-4 E AAA (sf) AA (sf)
2019-1 E AAA (sf) A (sf)
2019-2 D AAA (sf) AA+ (sf)
2019-2 E AA+ (sf) A- (sf)
2019-3 D AAA (sf) AA (sf)
2019-3 E A+ (sf) BBB+ (sf)
2019-4 D AAA (sf) AA- (sf)
2019-4 E A- (sf) BBB (sf)
2020-1 D AAA (sf) AA- (sf)
2020-1 E BBB+ (sf) BBB (sf)
2020-2 D AAA(sf) AA (sf)
2020-2 E A (sf) BBB+ (sf)
2020-3 D AAA (sf) AA (sf)
2020-3 E A+ (sf) A- (sf)
2020-3 F BBB+ (sf) BBB (sf)
2021-1 C AAA (sf) AA+ (sf)
2021-1 D AA (sf) AA- (sf)
2021-2 C AAA (sf) A (sf)
2021-2 D A (sf) BBB (sf)
2021-2 E BBB (sf) BB (sf)
2021-3 B AAA (sf) AA (sf)
2021-3 C AA+ (sf) A (sf)
2021-3 D A- (sf) BBB (sf)
2021-3 E BB+ (sf) BB (sf)
2021-4 B AAA (sf) AA (sf)
2021-4 C AA (sf) A (sf)
2021-4 D A- (sf) BBB (sf)
RATINGS AFFIRMED
Exeter Automobile Receivables Trust
Series Class Rating
2018-4 D AAA (sf)
2019-1 D AAA (sf)
2020-2 C AAA (sf)
2020-3 C AAA (sf)
2021-1 E BBB+ (sf)
EXETER AUTOMOBILE 2023-2: Fitch Gives Final BB Rating on E Notes
----------------------------------------------------------------
Fitch Ratings has assigned final ratings and Outlooks to Exeter
Automobile Receivables Trust (EART) 2023-2.
Entity/Debt Rating Prior
----------- ------ -----
Exeter
Automobile
Receivables
Trust 2023-2
A-1 ST F1+sf New Rating F1+(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-3 LT AAAsf New Rating AAA(EXP)sf
B LT AAsf New Rating AA(EXP)sf
C LT Asf New Rating A(EXP)sf
D LT BBBsf New Rating BBB(EXP)sf
E LT BBsf New Rating BB(EXP)sf
KEY RATING DRIVERS
Collateral Performance — Subprime Credit Quality: EART 2023-2 is
backed by collateral with subprime credit attributes, including a
weighted average (WA) FICO score of 571, a WA loan-to-value (LTV)
ratio of 114.72% and WA APR of 22.10%. In addition, 98.92% of the
loans are backed by used vehicles and the WA payment-to-income
(PTI) ratio is 12.12%.
Forward-Looking Approach to Derive Base Case Proxy: Fitch
considered economic conditions and future expectations by assessing
key macroeconomic and wholesale market conditions to derive the
series loss proxy. Although recessionary performance data from
Exeter are not available, the initial base case cumulative net loss
(CNL) proxy was derived utilizing 2006-2009 data from Santander
Consumer, as proxy recessionary static-managed portfolio data, and
2016-2017 vintage data from Exeter to arrive at a forward-looking
base case CNL proxy of 20.00%.
Payment Structure — Sufficient Credit Enhancement: Initial hard
credit enhancement (CE) totals 62.60%, 46.55%, 33.15%, 19.05% and
9.80% for classes A, B, C, D and E, respectively. The class A CE
level is up from 2023-1. The class B, C, D and E CE levels are all
lower than in 2023-1, but CE for each class is up from those of
transactions prior to 2023-1. Excess spread is expected to be
12.28% per annum. Loss coverage for each class of notes is
sufficient to cover the respective multiples of Fitch's base case
CNL proxy of 20%.
Seller/Servicer Operational Review — Adequate
Origination/Underwriting/Servicing: Exeter demonstrates adequate
abilities as the originator, underwriter and servicer, as evidenced
by historical portfolio and securitization performance. Fitch does
not rate Exeter but deems the company as capable of servicing this
transaction. In addition, Citibank, N.A., which Fitch rates
'A+'/Stable/'F1', has been contracted as backup servicer for this
transaction.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Unanticipated increases in the frequency of defaults could produce
CNL levels that are higher than the base case and would likely
result in declines of CE and remaining net loss coverage levels
available to the notes. Additionally, unanticipated declines in
recoveries could also result in lower net loss coverage, which may
make certain note ratings susceptible to potential negative rating
actions, depending on the extent of the decline in coverage.
Therefore, Fitch conducts sensitivity analyses by stressing both a
transaction's initial base case CNL and recovery rate assumptions,
as well as by examining the rating implications on all classes of
issued notes. The CNL sensitivity stresses the CNL proxy to the
level necessary to reduce each rating by one full category, to
non-investment grade (BBsf) and to 'CCCsf' based on the break-even
loss coverage provided by the CE structure.
Additionally, Fitch conducts 1.5x and 2.0x increases to the CNL
proxy, representing both moderate and severe stresses. Fitch also
evaluates the impact of stressed recovery rates on an auto loan ABS
structure and rating impact with a 50% haircut. These analyses are
intended to provide an indication of the rating sensitivity of the
notes to unexpected deterioration of a trust's performance.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to rising CE levels and consideration for
potential upgrades. If CNL is 20% less than the projected proxy,
the expected subordinate note ratings could be upgraded by up to
one category.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by Ernst & Young LLP. The third-party due diligence
described in Form 15E focused on comparing or recomputing certain
information with respect to 150 loans from the statistical data
file. Fitch considered this information in its analysis and it did
not have an effect on Fitch's analysis or conclusions.
ESG CONSIDERATIONS
The concentration of electric and hybrid vehicles in the pool is
low and did not have an impact on Fitch's ratings analysis or
conclusion of this transaction and has no impact on Fitch's ESG
Relevance Score.
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.
FANNIE MAE 2023-R04: S&P Assigns Prelim 'BB-' Rating on 1B-1 Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Fannie Mae
Connecticut Avenue Securities Trust 2023-R04'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 primarily prime borrowers.
The preliminary ratings are based on information as of May 22,
2023. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The credit enhancement provided by the subordinated reference
tranches and the associated structural deal mechanics;
-- The REMIC structure, which reduces the counterparty exposure to
Fannie Mae for periodic principal and interest payments but also
pledges the support of Fannie Mae (as a highly rated counterparty)
to cover any shortfalls on interest payments and make up for any
investment losses;
-- The issuer's aggregation experience and the alignment of
interests between the issuer and the noteholders in the
transaction's performance, which we believe enhances the notes'
strength;
-- The enhanced credit risk management and quality control
processes Fannie Mae uses in conjunction with the underlying R&W
framework; and
-- The potential impact that current and near-term macroeconomic
conditions may have on the performance of the mortgage borrowers in
the pool. S&P said, "On April 17, 2020, we updated our mortgage
outlook and corresponding archetypal foreclosure frequency levels
to account for the potential impact of the COVID-19 pandemic on the
overall credit quality of collateralized pools. While
pandemic-related performance concerns have since waned, we continue
to maintain our updated 'B' foreclosure frequency for the
archetypal pool at 3.25%, given our current outlook for the U.S.
economy. With rising interest rates and inflation, the ongoing
Russia-Ukraine conflict, escalating tensions over Taiwan, and the
China slowdown exacerbating supply-chain and pricing pressures, the
U.S. economy appears to be teetering toward recession."
Preliminary Ratings Assigned
Fannie Mae Connecticut Avenue Securities Trust 2023-R04
Class 1A-H(i), $19,816,052,580: NR
Class 1M-1, $377,100,000: BBB+ (sf)
Class 1M-1H(i), $19,847,811: NR
Class 1M-2A(ii), $62,850,000: BBB+ (sf)
Class 1M-AH(i), $3,307,969: NR
Class 1M-2B(ii), $62,850,000: BBB (sf)
Class 1M-BH(i), $3,307,969: NR
Class 1M-2C(ii), $62,850,000: BBB (sf)
Class 1M-CH(i), $3,307,969: NR
Class 1M-2(ii), $188,550,000: BBB (sf)
Class 1B-1A(ii), $65,809,000: BB+ (sf)
Class 1B-AH(i), $43,873,948: NR
Class 1B-1B(ii), $65,809,000: BB- (sf)
Class 1B-BH(i), $43,873,948: NR
Class 1B-1(ii), $131,618,000: BB- (sf)
Class 1B-2, $67,898,000: B- (sf)
Class 1B-2H(i), $67,899,934: NR
Class 1B-3H(i), $125,351,940: NR
Related combinable and recombinable notes exchangeable
classes(iii)
Class 1E-A1, $62,850,000: BBB+ (sf)
Class 1A-I1, $62,850,000(iv): BBB+ (sf)
Class 1E-A2, $62,850,000: BBB+ (sf)
Class 1A-I2, $62,850,000(iv): BBB+ (sf)
Class 1E-A3, $62,850,000: BBB+ (sf)
Class 1A-I3, $62,850,000(iv): BBB+ (sf)
Class 1E-A4, $62,850,000: BBB+ (sf)
Class 1A-I4, $62,850,000(iv): BBB+ (sf)
Class 1E-B1, $62,850,000: BBB (sf)
Class 1B-I1, $62,850,000(iv): BBB (sf)
Class 1E-B2, $62,850,000: BBB (sf)
Class 1B-I2, $62,850,000(iv): BBB (sf)
Class 1E-B3, $62,850,000: BBB (sf)
Class 1B-I3, $62,850,000(iv): BBB (sf)
Class 1E-B4, $62,850,000: BBB (sf)
Class 1B-I4, $62,850,000(iv): BBB (sf)
Class 1E-C1, $62,850,000: BBB (sf)
Class 1C-I1, $62,850,000(iv): BBB (sf)
Class 1E-C2, $62,850,000: BBB (sf)
Class 1C-I2, $62,850,000(iv): BBB (sf)
Class 1E-C3, $62,850,000: BBB (sf)
Class 1C-I3, $62,850,000(iv): BBB (sf)
Class 1E-C4, $62,850,000: BBB (sf)
Class 1C-I4, $62,850,000(iv): BBB (sf)
Class 1E-D1, $125,700,000: BBB (sf)
Class 1E-D2, $125,700,000: BBB (sf)
Class 1E-D3, $125,700,000: BBB (sf)
Class 1E-D4, $125,700,000: BBB (sf)
Class 1E-D5, $125,700,000: BBB (sf)
Class 1E-F1, $125,700,000: BBB (sf)
Class 1E-F2, $125,700,000: BBB (sf)
Class 1E-F3, $125,700,000: BBB (sf)
Class 1E-F4, $125,700,000: BBB (sf)
Class 1E-F5, $125,700,000: BBB (sf)
Class 1-X1, $125,700,000(iv): BBB (sf)
Class 1-X2, $125,700,000(iv): BBB (sf)
Class 1-X3, $125,700,000(iv): BBB (sf)
Class 1-X4, $125,700,000(iv): BBB (sf)
Class 1-Y1, $125,700,000(iv): BBB (sf)
Class 1-Y2, $125,700,000(iv): BBB (sf)
Class 1-Y3, $125,700,000(iv): BBB (sf)
Class 1-Y4, $125,700,000(iv): BBB (sf)
Class 1-J1, $62,850,000: BBB (sf)
Class 1-J2, $62,850,000: BBB (sf)
Class 1-J3, $62,850,000: BBB (sf)
Class 1-J4, $62,850,000: BBB (sf)
Class 1-K1, $125,700,000: BBB (sf)
Class 1-K2, $125,700,000: BBB (sf)
Class 1-K3, $125,700,000: BBB (sf)
Class 1-K4, $125,700,000: BBB (sf)
Class 1M-2Y, $188,550,000: BBB (sf)
Class 1M-2X, $188,550,000(iv): BBB (sf)
Class 1B-1Y, $131,618,000: BB- (sf)
Class 1B-1X, $131,618,000(iv): BB- (sf)
Class 1B-2Y, $67,898,000(iv): B- (sf)
Class 1B-2X, $67,898,000(iv): B- (sf)
(i)Reference tranche only and will not have corresponding notes.
Fannie Mae retains the risk of these tranches.
(ii)The class 1M-2 noteholders may exchange all or part of that
class for proportionate interests in the class 1M-2A, 1M-2B, and
1M-2C notes and vice versa. The class 1B-1 noteholders may exchange
all or part of that class for proportionate interests in the class
1B-1A and 1B-1B notes and vice versa. The class 1M-2A, 1M-2B,
1M-2C, 1B-1A, 1B-1B, and 1B-2 noteholders may exchange all or part
of those classes for proportionate interests in the classes of RCR
notes as specified in the offering documents. (iii)See the offering
documents for more detail on possible combinations.
(iv)Notional amount.
NR--Not rated.
FLAGSHIP CREDIT 2023-2: DBRS Finalizes BB Rating on Class E Notes
-----------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the following
classes of notes issued by Flagship Credit Auto Trust 2023-2 (FCAT
2023-2 or the Issuer):
-- $42,000,000 Class A-1 Notes at R-1 (high) (sf)
-- $188,000,000 Class A-2 Notes at AAA (sf)
-- $58,760,000 Class A-3 Notes at AAA (sf)
-- $37,770,000 Class B Notes at AA (sf)
-- $51,100,000 Class C Notes at A (sf)
-- $36,180,000 Class D Notes at BBB (sf)
-- $36,190,000 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.
(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 - April 2023 Update, published on April 28, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse COVID-19 pandemic scenarios, which were first
published in April 2020.
(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 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 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.
This transaction is structured as a Rule 144A transaction of the
Securities Act of 1933. There are seven classes of Notes—Class
A-1, Class A-2, Class A-3, Class B, Class C, Class D, and Class
E—included in FCAT 2023-2. Initial credit enhancement for the
Class A-1, Class A-2, and Class A-3 Notes is expected to be 37.15%
and includes a 1.00% reserve account (funded at inception and
nondeclining), initial OC of 0.50%, and subordination of 35.65% of
the initial pool balance. Initial Class B enhancement is 28.80% and
includes a 1.00% reserve account (funded at inception and
nondeclining), initial OC of 0.50%, and subordination of 27.30% of
the initial pool balance. Initial Class C enhancement is 17.50% and
includes a 1.00% reserve account (funded at inception and
nondeclining), initial OC of 0.50%, and subordination of 16.00% of
the initial pool balance. Initial Class D enhancement is 9.50% and
includes a 1.00% reserve account (funded at inception and
nondeclining), initial OC of 0.50%, and subordination of 8.00% of
the initial pool balance. Initial Class E enhancement is 1.50% and
includes a 1.00% reserve account (funded at inception and
nondeclining) and initial OC of 0.50%.
Notes: All figures are in U.S. dollars unless otherwise noted.
FREDDIE MAC 2023-HQA1: Moody's Assigns Ba3 Rating to 16 Tranches
----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to 24
classes of credit risk transfer (CRT) residential mortgage-backed
securities (RMBS) issued by Freddie Mac STACR Remic Trust
2023-HQA1, and sponsored by Federal Home Loan Mortgage Corp.
(Freddie Mac).
The securities reference a pool of mortgage loans acquired by
Freddie Mac, and originated and serviced by multiple entities.
The complete rating actions are as follows:
Issuer: Freddie Mac STACR Remic Trust 2023-HQA1
CI. M-1A, Definitive Rating Assigned A3 (sf)
CI. M-1B, Definitive Rating Assigned Baa3 (sf)
CI. M-2, Definitive Rating Assigned Ba3 (sf)
CI. M-2A, Definitive Rating Assigned Ba2 (sf)
CI. M-2AI*, Definitive Rating Assigned Ba2 (sf)
CI. M-2AR, Definitive Rating Assigned Ba2 (sf)
CI. M-2AS, Definitive Rating Assigned Ba2 (sf)
CI. M-2AT, Definitive Rating Assigned Ba2 (sf)
CI. M-2AU, Definitive Rating Assigned Ba2 (sf)
CI. M-2B, Definitive Rating Assigned Ba3 (sf)
CI. M-2BI*, Definitive Rating Assigned Ba3 (sf)
CI. M-2BR, Definitive Rating Assigned Ba3 (sf)
CI. M-2BS, Definitive Rating Assigned Ba3 (sf)
CI. M-2BT, Definitive Rating Assigned Ba3 (sf)
CI. M-2BU, Definitive Rating Assigned Ba3 (sf)
CI. M-2I*, Definitive Rating Assigned Ba3 (sf)
CI. M-2R, Definitive Rating Assigned Ba3 (sf)
CI. M-2RB, Definitive Rating Assigned Ba3 (sf)
CI. M-2S, Definitive Rating Assigned Ba3 (sf)
CI. M-2SB, Definitive Rating Assigned Ba3 (sf)
CI. M-2T, Definitive Rating Assigned Ba3 (sf)
CI. M-2TB, Definitive Rating Assigned Ba3 (sf)
CI. M-2U, Definitive Rating Assigned Ba3 (sf)
CI. M-2UB, Definitive Rating Assigned Ba3 (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 GSE's oversight of
originators and servicers, and the third-party review.
Moody's expected loss for this pool in a baseline scenario-mean is
1.04%, in a baseline scenario-median is 0.83% and reaches 4.90% at
a stress level consistent with Moody's Aaa rating.
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 April 2023.
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.
GS MORTGAGE 2023-PJ3: Fitch Gives B-(EXP) Rating on Cl. B-5 Certs
-----------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by GS Mortgage-Backed Securities Trust 2023-PJ3
(GSMBS 2023-PJ3).
Entity/Debt Rating
----------- ------
GSMBS 2023-PJ3
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-11 LT AAA(EXP)sf Expected Rating
A-11-X 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-15-X LT AAA(EXP)sf Expected Rating
A-16 LT AAA(EXP)sf Expected Rating
A-16L LT AAA(EXP)sf Expected Rating
A-17 LT AAA(EXP)sf Expected Rating
A-17-X 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-21-X LT AAA(EXP)sf Expected Rating
A-22 LT AAA(EXP)sf Expected Rating
A-22L LT AAA(EXP)sf Expected Rating
A-23 LT AA+(EXP)sf Expected Rating
A-23-X LT AA+(EXP)sf Expected Rating
A-24 LT AA+(EXP)sf Expected Rating
A-3 LT AAA(EXP)sf Expected Rating
A-3-X LT AAA(EXP)sf Expected Rating
A-3A LT AAA(EXP)sf Expected Rating
A-3L LT AAA(EXP)sf Expected Rating
A-4 LT AAA(EXP)sf Expected Rating
A-4A LT AAA(EXP)sf Expected Rating
A-4L LT AAA(EXP)sf Expected Rating
A-5 LT AAA(EXP)sf Expected Rating
A-5-X LT AAA(EXP)sf Expected Rating
A-6 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-9-X 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
TRANSACTION SUMMARY
The certificates are supported by 315 prime-jumbo and agency
conforming loans with a total balance of approximately $362.2
million, as of the cut-off date. The transaction is expected to
close on May 31, 2023.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to its updated view
on sustainable home prices, Fitch views the home price values of
this pool as 6.2% above a long-term sustainable level (versus 7.8%
on a national level as of March 2023, down 2.7% since last
quarter). The rapid gain in home prices through the pandemic has
been moderating, with a decline observed in 3Q22. Driven by the
strong gains seen in 1H22, home prices rose 2.0% YOY nationally as
of February 2023.
High-Quality Mortgage Pool (Positive): The collateral consists of
30-year, fixed-rate mortgage (FRM) fully amortizing loans seasoned
at approximately 8 months in aggregate.
The collateral comprises primarily prime-jumbo loans and less than
2% agency conforming loans. Borrowers in this pool have moderate
credit profiles (a 756 model FICO) but lower than what Fitch has
observed for other prime-jumbo securitizations. The sustainable
loan-to-value ratio (sLTV) is 78.6% and the mark-to-market combined
LTV ratio (CLTV) is 73.4%. Fitch treated 100% of the loans as full
documentation collateral, and all the loans are qualified mortgages
(QMs). Of the pool, 85% are loans for which the borrower maintains
a primary residence, while 15% are for second homes.
Additionally, 60.7% of the loans were originated through a retail
channel or a correspondent's retail channel. Expected losses in the
'AAA' stress amount to 8.0%, similar to those of prior issuances
and other prime-jumbo shelves.
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.
To help mitigate tail risk, which arises as the pool seasons and
fewer loans are outstanding, a subordination floor of 3.00% of the
original balance will be maintained for the senior notes, and a
subordination floor of 2.00% of the original balance will be
maintained for the subordinate notes.
RATING SENSITIVITIES
Factors 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 39.0% at 'AAA'. The
analysis indicates that there is some potential rating migration
with higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home prices
would lower all rated classes by one full category.
Factors 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.
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.
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 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.
GSCG TRUST 2019-600C: DBRS Puts Class G Notes Under Review
-----------------------------------------------------------
DBRS Limited placed its ratings of all classes of the Commercial
Mortgage Pass-Through Certificates, Series 2019-600C issued by GSCG
Trust 2019-600C Under Review with Negative Implications as
follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class X at A (high) (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
There are no trends for these rating actions.
The five-year $240.0 million loan is secured by a Class A, Leed
Gold-certified office building totaling 359,154 square feet (sf) in
the North Financial District of San Francisco. The loan transferred
to special servicing in March 2023 because of a payment default,
with the last payment received in February 2023. According to the
special servicer, the largest tenant, WeWork (51.7% net rentable
area (NRA) on a lease expiring in March 2035), has stopped making
its rent payments and is currently seeking a lease modification.
Based on recent news articles, WeWork is employing cost-cutting
measures and restructuring its debt in order to avoid bankruptcy.
According to an article published by New York Times in March 2023,
WeWork reached a deal with SoftBank and other investors to
significantly reduce its debt. The agreement would cancel or
convert about $1.5 billion of their debt into equity. An article by
the Wall Street Journal published in November 2022 stated that
WeWork announced the closure of 40 locations in the United States.
As WeWork continues to right size its operations and discussions
surrounding the lease modification are ongoing, it is uncertain to
what degree the terms of the modification may affect the subject's
net cash flow (NCF) and ultimately the loan's ability to meet its
debt obligations. Lastly, interest shortfalls have accrued over the
past two months, with approximately $22,000 of cumulative
shortfalls tied to special servicing fees. Given the uncertainty
surrounding WeWork and its lease modification, DBRS Morningstar
placed the ratings of all classes Under Review with Negative
Implications until more information becomes available in the coming
months. It is DBRS Morningstar's expectation to evaluate the
information as part of the process to resolve the Under Review with
Negative Implications status within a 90-day period, but the
resolution period may extend further depending on the information
received from the servicer. The sponsor, Ark Capital Advisors, LLC
(Ark), is a joint venture among Ivanhoe Cambridge, the Rhone Group,
and The We Company. The We Company is the owner of approximately
80% of Ark and is also the parent company of WeWork.
According to the financials for the trailing 12 months ended
September 30, 2022, the loan reported an NCF of $16.6 million with
a debt service coverage ratio (DSCR) of 1.71 times (x), which is
unchanged from YE2021 but slightly below the YE2020 NCF of $17.4
million and DSCR of 1.79x. These figures are still above the DBRS
Morningstar NCF of $14.7 million and DSCR of 1.69x. According to
the April 2023 loan-level reserve report, there was $3.2 million
held across reserves, including $2.4 million in a replacement
reserve and approximately $573,000 in other reserves. As per the
December 2022 rent roll, the subject was 87.9% occupied, compared
with YE2021 occupancy of 88.4% and YE2020 occupancy of 99.2%. The
third-largest tenant, Audentes Therapeutics (Audentes; 8.3% of
NRA), has a lease expiring in June 2023 and is not expected to
extend its lease. Although the borrower is working toward
backfilling Audentes' space, the borrower has expressed challenges
in general to lease-up the vacant space at the subject. Upon the
departure of Audentes, the occupancy rate will drop to
approximately 80%.
Per Reis, office properties in the North Financial District
submarket reported a Q1 2023 vacancy rate of 14.4% with an asking
rental rate of $67.91 per sf (psf), compared with the Q1 2022
vacancy rate of 10.9% and asking rental rate of $68.13 psf. The
subject's December 2022 average rental rate was of $80.45 psf, but
this was mainly attributed to WeWork's above-market rent at $86.40
psf and is likely to be affected after the revised lease
modification.
Notes: All figures are in U.S. dollars unless otherwise noted.
HMH TRUST 2017-NSS: S&P Lowers Class D Certs Rating to 'CCC (sf)'
-----------------------------------------------------------------
S&P Global Ratings lowered its ratings on three classes of
commercial mortgage pass-through certificates from HMH Trust
2017-NSS, a U.S. CMBS transaction. At the same time, S&P affirmed
its 'A+ (sf)' rating on class A from the same transaction.
This U.S. stand-alone (single borrower) CMBS transaction is backed
by a fixed-rate, interest-only (IO), five-year mortgage loan
secured by the borrower's fee simple interest in one
limited-service hotel and the borrower's leasehold interests in 21
limited-service and extended-stay hotel properties totaling 2,883
guestrooms in nine U.S. states.
Rating Actions
S&P said, "The downgrades on classes B, C, and D reflect our view
that the continued increase in the total loan exposure since our
last review in February 2023, due to the extended resolution timing
of the specially serviced loan, further reduces the liquidity and
ultimate recovery to the bondholders. Through the February 2023
remittance report date, servicer advances for loan interest, taxes
and insurance, and other expenses totaled $19.3 million; interest
thereon totaled $1.5 million; and cumulative ASERs totaled $2.8
million. Since that time, the servicer advanced an additional $1.4
million; interest on advances increased by $342,021; and cumulative
ASERs increased by $1.1 million, resulting in a total loan exposure
of $230.3 million. Our concerns also extend to the potential that,
based on updated information from the special servicer, Mount
Street US, the lodging portfolio may liquidate below the July 2022
appraisal value of $186.2 million. Mount Street US stated that it
is currently working toward a deed-in-lieu of foreclosure, the
timing of which is unknown at this time. Our affirmation on class A
considers the relatively low debt per guestroom ($34,183, based on
total loan exposure) and its senior position in the payment
waterfall, among other factors.
"We noted in our February 2023 review that the
Shidler/NSSP-Hospitality Portfolio's performance was negatively
affected at the onset of the COVID-19 pandemic and, while
recovering, still lagged our expectations. Since then, according to
the year ended Dec. 31, 2022, operating statements provided by
Mount Street US, net cash flow (NCF) has rebounded to $12.4
million, up from $430,841 in 2021, but still below the pre-pandemic
level of $23.0 million in 2019. While our current NCF of $16.2
million and expected-case value of $152.2 million are unchanged
from our last review, they are still down 16.5% and 26.2%,
respectively, from our issuance NCF of $19.4 million and value of
$206.3 million. This yielded an S&P Global Ratings loan-to-value
ratio of 134.0%, compared with 98.9% at issuance. Our current value
is 18.2% lower than the July 2022 appraisal value of $186.2
million."
The special servicer indicated that despite a reported debt service
coverage (DSC) of 1.27x for year-end 2022, the portfolio's NCF is
being reserved for potential change-of-ownership-related property
improvement plan (PIP) expenses, as well as other potential quality
assurance and brand requirement updates, resulting in the continued
increase in exposure build-up. To date, $2.2 million has been
reserved. Potential PIP-related outlays were considered in our
February 2023 review.
S&P said, "After our February 2023 review, we received and reviewed
the special servicer's asset summary report dated as of March 22,
2023. The report outlined Mount Street US's proposed resolution
strategy to pursue a deed-in-lieu of foreclosure; retain GF Hotels
& Resorts to continue managing the lodging portfolio (which it has
been doing since August 2020), facilitate securing replacement
franchise agreements, and negotiate future PIP requirements; and
hire JLL Hotel & Hospitality to market and sell the portfolio.
Mount Street US received a broker opinion of value as of January
2023, which indicated that the portfolio may liquidate at below the
July 2022 appraisal value. Mount Street US stated that it is in the
process of ordering updated appraisal reports.
S&P said, "Our downgrades on class D to 'CCC (sf)' from 'B (sf)'
and class C to 'B (sf)' from 'BB- (sf)' reflect our view that the
susceptibility of liquidity interruption and risk of default and
loss are elevated based on additional exposure build-up,
potentially lower liquidation proceeds, and current market
conditions. Class C's downgrade below the model-indicated rating
reflects these risks."
Although the model-indicated ratings were lower than the current or
revised ratings on classes A and B, S&P affirmed its rating on
class A, and tempered our downgrade on class B, in consideration of
the following:
-- The potential that the lodging portfolio liquidates in the near
term at a higher value, stemming the deleterious effects of the
ongoing exposure build-up;
-- The additional principal recovery support provided by the $10.2
million horizontal cash reserve (HCR) account; and
-- The relative position of these classes in the payment
waterfall.
S&P said, "We will continue to monitor for further developments,
including any updated appraisal values and the eventual resolution
of the specially serviced asset (including any piecemeal property
liquidations). If there are negative changes in the situation
beyond what we have already considered, we may revisit our analysis
and further adjust our ratings as necessary."
At issuance, to comply with risk retention regulations, the sponsor
deposited $10.2 million into an eligible HCR account, which is
maintained by the certificate administrator. On the final
distribution date, the certificate administrator will be required
to remit funds from the account to reimburse certain trust fund
expenses to the extent the trust has insufficient funds to pay such
amounts. After trust expenses are paid in full, the certificate
administrator will be required to remit funds to the distribution
account to make payments on the certificates to the extent
necessary, including reimbursement of principal losses that do not
exceed the amount of the HCR account. After these disbursements,
any amounts remaining in the HCR account will be remitted back to
the sponsor. A loan default could indirectly accelerate the
disbursement of funds in the HCR account by accelerating the final
distribution date. The loan going into receivership may also result
in an earlier final distribution date.
Transaction Summary
The fixed-rate, IO, five-year mortgage loan had an initial and
current balance of $204.0 million (according to the May 5, 2023,
trustee remittance report), pays a per annum fixed-rate equal to
4.78%, and matured on July 1, 2022. At issuance, there was a $25.0
million mezzanine loan, which, according to the servicer, remains
outstanding. The master servicer, Wells Fargo Bank N.A., reported a
DSC of 1.27x for 2022, up from 0.04x for 2021. To date, the trust
has not incurred any principal losses.
The loan transferred to special servicing on May 28, 2020, due to
monetary default, and a receiver was appointed in August 2020. The
loan has a reported non-performing matured balloon payment status
and is paid through its September 2021 payment date. As discussed
above, the special servicer is currently pursuing deed-in-lieu of
foreclosure.
Ratings Lowered
HMH Trust 2017-NSS
Class B to 'BBB (sf)' from 'BBB+ (sf)'
Class C to 'B (sf)' from 'BB- (sf)'
Class D to 'CCC (sf)' from 'B (sf)'
Rating Affirmed
HMH Trust 2017-NSS
Class A: 'A+ (sf)'
HOMES TRUST 2023-NQM2: Fitch Gives B-(EXP) Rating on Cl. B2 Certs
-----------------------------------------------------------------
Fitch Ratings expects to rate the residential mortgage-backed
certificates to be issued by HOMES 2023-NQM2 Trust (HOMES
2023-NQM2).
Entity/Debt Rating
----------- ------
HOMES 2023-NQM2
A1 LT AAA(EXP)sf Expected Rating
A2 LT AA(EXP)sf Expected Rating
A3 LT A(EXP)sf Expected Rating
M1 LT BBB-(EXP)sf Expected Rating
B1 LT BB-(EXP)sf Expected Rating
B2 LT B-(EXP)sf Expected Rating
B3 LT NR(EXP)sf Expected Rating
AIOS LT NR(EXP)sf Expected Rating
X LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The certificates are supported by 764 non-prime loans with a total
balance of approximately $330 million as of the cut-off date.
Loans in the pool were primarily originated by HomeXpress Mortgage
Corporation. Loans were aggregated by subsidiaries of funds managed
by Ares Alternative Credit Management LLC (Ares). Loans are
currently serviced by Select Portfolio Servicing, Inc. or
Specialized Loan Servicing, LLC.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to its updated view
on sustainable home prices, Fitch considers the home price values
of this pool as 5.6% above a long-term sustainable level (versus
7.8% on a national level as of March 2023, down 2.7% since last
quarter). The rapid gain in home prices through the pandemic has
seen signs of moderating with a decline observed in 3Q22. Home
prices rose 2.0% YOY nationally as of February 2023.
Non-QM Credit Quality (Negative): The collateral consists of 764
loans, totaling $330 million and seasoned approximately seven
months in aggregate. The borrowers have a moderate credit profile
(726 Fitch model FICO). The borrowers also have moderate leverage
with a 76.3% sustainable loan to value (sLTV) ratio and 72%
original combined LTV (cLTV). The pool consists of 55.6% of loans
where the borrower maintains a primary residence, while 41.2%
constitute an investor property. Additionally, 59% are
non-qualified mortgage (non-QM, or NQM), while the remainder are
generally not applicable to QM/Ability to Repay (ATR) rules.
Fitch's expected loss in the 'AAAsf' stress is 24.5%. This is
mostly driven by the non-QM collateral and the significant investor
cash flow product concentration.
Loan Documentation (Negative): Approximately 96% of the loans in
the pool were underwritten to less than full documentation, and 47%
(by loan count) were underwritten to a 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) 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 610bps relative to a fully documented
loan.
High Percentage of DSCR Loans (Negative): There are 364 debt
service coverage ratio (DSCR) products in the pool (46.6% by loan
count). These business-purpose loans are available to real estate
investors qualified on a cash flow basis, rather than debt to
income (DTI), and borrower income and employment are not verified.
Compared to standard investment properties, for DSCR loans, Fitch
converts the DSCR values to a DTI ratio and treats them as low
documentation.
Fitch's expected loss for these loans is 32.6% in the 'AAAsf'
stress, which is driving the higher pool expected losses due to the
33.2% weighted average (WA) concentration. The WA DSCR is 1.11x.
2.55% have DSCR ratios less than 0.75x.
Modified Sequential-Payment Structure with No 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 or delinquency 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.
There will be no servicer advancing of delinquent principal and
interest (P&I). The lack of advancing reduces loss severities as a
lower amount is repaid to the servicer when a loan liquidates, and
liquidation proceeds are prioritized to cover principal repayment
over accrued but unpaid interest.
The downside to this is the additional stress on the structure, as
there is limited liquidity in the event of large and extended
delinquencies. The structure has enough internal liquidity through
the use of principal to pay interest, and excess spread and credit
enhancement (CE) to pay timely interest to senior notes during
stressed delinquency and cash flow periods.
The structure has a step-up coupon for the senior classes (A-1, A-2
and A-3). Starting with the payment date in June 2027, the senior
classes pay the lesser of a 100-bp increase to the fixed coupon or
the net WA coupon (WAC) rate. Additionally, beginning at issuance,
the unrated class B-3 interest allocation goes toward the senior
cap carryover amount for as long as the senior cap carryover amount
is greater than zero. This increases the P&I allocation for the
senior classes as long as class B-3 is not written down.
As additional analysis 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 impaired 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
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 38.7% at 'AAA'. The
analysis indicates that there is some potential rating migration
with higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home prices
would lower all rated classes by one full category.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Downgrade
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.
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."
Clayton, Consolidated Analytics, Selene, and Infinity 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.
HOTWIRE FUNDING 2023-1: Fitch Assigns 'BBsf' Rating on Cl. C Notes
------------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Hotwire Funding LLC's Secured Fiber Network Revenue Notes, Series
2023-1 as follows:
Entity/Debt Rating Prior
----------- ------ -----
Hotwire Secured
Fiber Network
Revenue Notes,
Series 2023-1
2023-1 A-2 LT Asf New Rating A(EXP)sf
2023-1 B LT BBBsf New Rating BBB(EXP)sf
2023-1 C LT BBsf New Rating BB(EXP)sf
2023-1 R LT NRsf New Rating NR(EXP)sf
Hotwire Secured
Fiber Network
Revenue Notes,
Series 2021-1
2021-1 A-1 LT Asf Affirmed Asf
2021-1 A-2
44148JAA7 LT Asf Affirmed Asf
2021-1 B
44148JAB5 LT BBBsf Affirmed BBBsf
2021-1 C
44148JAC3 LT BBsf Affirmed BBsf
- $416.3 million 2023-1 class A-2 'Asf'; Outlook Stable;
- $38 million 2023-1 class B 'BBBsf'; Outlook Stable;
- $80 million 2023-1 class C 'BBsf'; Outlook Stable.
The following class is not rated by Fitch:
- $28,200,000(a) series 2023-1, class R.
The note balances include $100 million of prefunding, which is
allocated between classes A-2, B and C.
In addition, Fitch has affirmed the following classes:
- $240 million(b) 2021-1 class A-1-VFN at 'Asf'; Outlook Stable;
- $895 million 2021-1 class A-2 at 'Asf'; Outlook Stable;
- $150 million 2021-1 class B at 'BBBsf'; Outlook Stable;
- $295 million 2021-1 class C at 'BBsf'; Outlook Stable.
(a) Horizontal credit risk retention interest representing 5% of
the 2023-1 notes.
(b) This note is a Variable Funding Note (VFN) and has a maximum
commitment of $240 million contingent on leverage consistent with
the class A-1 notes.
TRANSACTION SUMMARY
The transaction is a securitization of the contract payments
derived from an existing Fiber to the Home (FTTH) network. The
collateral consists of conduits, cables, network-level equipment,
access rights, customer contracts, transaction accounts and an
equity pledge from the asset entities. Debt is secured by the net
revenue of operations and benefits from a perfected security
interest in the securitized assets.
The collateral consists of best-in-class fiber lines that support
the provision of internet, cable and telephony services to a
portfolio of homeowners' associations (HOAs) and condominium
owners' associations (COAs), located predominantly in Florida
(95.9% ARR). These agreements are governed by long-term contracts
with the associations directly.
Transaction proceeds will be utilized to fund the Series 2023-1
Prefunding Account, fund the applicable securitization transaction
reserves, pay transaction fees and expenses, pay the outstanding
principal balance of the Series 2021-1 Class A-1-V Notes and for
general corporate purposes.
The ratings reflect a structured finance analysis of the cash flows
from the ownership interest in the underlying fiber optic network,
not an assessment of the corporate default risk of the ultimate
parent, Hotwire Communications, LLC.
KEY RATING DRIVERS
Net Cash Flow and Trust Leverage: Fitch's base case net cash flow
(NCF) on the pool is $154.5 million, implying a 12.9% haircut to
issuer base case NCF. The debt multiple relative to Fitch's NCF on
the rated classes is 11.5x based on the base case cash flow and
minimum debt balances, versus the debt/issuer NCF leverage of
10.0x.
Inclusive of the cash flow required to draw upon the $240 million
VFN and the $100 million prefunding account balance, Fitch net cash
flow is $194.8 million, implying a 12.1% haircut to the implied
issuer net cash flow.
Credit Risk Factors: The major factors affecting Fitch's
determination of cash flow and Maximum Potential Leverage (MPL)
include the high quality of the underlying collateral networks,
scale, creditworthiness and diversity of the customer base,
long-term contractual cash flow, market position of the sponsor,
capability of the operator, limited operational requirements and
strength of the transaction structure.
Technology-Dependent Credit: Due to the specialized nature of the
collateral and potential for changes in technology to affect
long-term demand for digital infrastructure, the senior classes of
this transaction do not achieve ratings above 'Asf'. The securities
have a rated final payment date 30 years after closing, and the
long-term tenor of the securities increases the risk that an
alternative technology will be developed that renders obsolete the
current transmission of data through fiber optic cables. Fiber
optic cable networks are currently the fastest and most reliable
means to transmit information, and data providers continue to
invest in and utilize this technology.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Declining cash flow as a result of higher expenses, contract
churn, or the development of an alternative technology for the
transmission of data could lead to downgrades;
- Fitch's NCF was 12.9% below the issuer's underwritten cash flow
as of May 2023. A further 10% decline in Fitch's NCF indicates the
following ratings based on Fitch's determination of Maximum
Potential Leverage: Class A to 'BBBsf' from 'Asf'; class B to
'BBB-sf' from 'BBBsf'; class C to 'B-sf' from 'BBsf'
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Increasing cash flow without an increase in corresponding debt,
from rate increases, additional contracts, or contract amendments
could lead to upgrades;
- A 10% increase in Fitch's NCF indicates the following ratings
based on Fitch's determination of Maximum Potential Leverage: Class
A to 'Asf' from 'Asf'; class B to 'Asf' from 'BBBsf'; class C to
'BBB-sf' from 'BBsf';
- Upgrades are unlikely for these transactions given the provision
for the issuer to issue additional notes, which rank pari passu or
subordinate to existing notes, without the benefit of additional
collateral. In addition, the transaction is capped in the 'Asf'
category, given the risk of technological obsolescence.
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.
JP MORGAN 2012-WLDN: DBRS Confirms CCC Rating on Class C Certs
--------------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2012-WLDN issued by J.P. Morgan
Chase Commercial Mortgage Securities Trust 2012-WLDN as follows:
-- Class X-A at BB (sf)
-- Class A at BB (low) (sf)
-- Class B at B (low) (sf)
-- Class C at CCC (sf)
All trends are Stable, with the exception of Class C, which has a
rating that does not typically carry trends in commercial
mortgage-backed securities (CMBS) ratings. The rating confirmations
and Stable trends reflect the overall stable performance of the
underlying collateral, which remains in line with DBRS
Morningstar's expectations.
The transaction is collateralized by a 10-year, fixed-rate,
first-lien mortgage loan secured by the fee-simple interest in the
Walden Galleria, a super-regional shopping mall in Cheektowaga, New
York. As of April 2023, the loan balance had amortized down to
$230.3 million from $270.0 million, representing a collateral
reduction of 14.7% since issuance. Walden Galleria is a
super-regional mall that is a destination for both local and
visitor shopping in the Buffalo metropolitan statistical area. The
mall is anchored by JCPenney (collateral) and Macy's
(noncollateral), and major tenants include Dick's Sporting Goods
(on a ground lease), Regal Cinemas, Best Buy, and Forever 21. Sears
and Lord & Taylor were anchor tenants at issuance, but they closed
their stores at the subject in 2018 and 2020, respectively. The
loan sponsor is The Pyramid Companies, the largest privately held
shopping mall developer in the Northeast United States; its
affiliate, Pyramid Management Group, LLC, provides management
services.
At the time of the last rating action, the loan was in special
servicing, having recently been modified. The loan transferred to
special servicing for a second time in February 2022 because of
imminent maturity default as the loan was not able to be refinanced
ahead of its May 2022 maturity date. A modification was approved in
May 2022, and the terms included an extension through November
2024, with an additional six-month extension option, conditional
upon the loan balance being the lessor of $225.0 million or 80.0%
of its appraised value (a new appraisal would be ordered 90 days
prior to the new November 2024 maturity). In addition, loan
payments became interest only (IO), and a cash trap will remain in
effect until the loan is paid in full. The loan was returned to the
master servicer in September 2022 and continues to perform in
accordance with the modification terms.
Despite the mall's cash flow declines since the start of the
Coronavirus Disease (COVID-19) pandemic, which were predominantly
driven by several anchor and non-anchor tenants that filed for
bankruptcy and/or vacated, property operations have been sufficient
to cover debt service payments since 2021. According to the YE2022
reporting, net cash flow (NCF) was $25.2 million (reflecting a debt
service coverage ratio (DSCR) of 1.31 times (x)), below the YE2021
NCF of $30.6 million (reflecting a DSCR of 1.87x), but well above
the YE2020 NCF of $14.4 million (reflecting a DSCR of 0.68x) and
above the most recent DBRS Morningstar derived NCF of $21.6
million. The year-over-year decrease reflects a 9.8% decrease in
base rent and a 27.3% drop in expense reimbursements. DBRS
Morningstar notes the higher YE2021 NCF was partially attributed to
the collection of deferred rents from 2020, which was projected to
decline in 2022. Additionally, according to the servicer, Dick's
Sporting Goods has been paying 50% of base rent following the
trigger of a cotenancy clause in May 2021.
According to the January 2023 rent roll, the property was 81.7%
occupied, an improvement from the YE2022 and YE2021 figures of
79.3% and 71.3%, respectively. DBRS Morningstar noted more than 30
tenants, representing approximately 25.2% of the net rentable area
(NRA), have lease expirations scheduled in the next 12 months
including JCPenney and Dick's Sporting Goods. However, based on a
recent update from the servicer, only tenants representing 0.4% of
the NRA have confirmed they will not renew their leases, while
tenants representing approximately 18.4% of the NRA will remain at
the mall for at least the next year, including JCPenney. Dick's
Sporting goods has yet to exercise its extension option, which is
due May 2023. In addition, Primark has opened a new
34,000-square-foot (2.3% of the NRA) store in the former
noncollateral Sears space as of April 2023. For the trailing
12-month period ended August 2022, in line sales were $438 per
square foot (psf), which is in line with the YE2021 amount of $437
psf, and slightly surpassing the pre-pandemic YE2019 figure of $422
psf.
An August 2022 appraisal valued the property at $219.0 million.
This represents a slight increase from the August 2020 appraised
value of $216.0 million, but a 64.0% drop from the issuance value
of $600.0 million. The updated appraised value represents a
loan-to-value ratio of 105.1% on the current loan balance, and an
implied capitalization rate of 9.9% based on the DBRS Morningstar
derived NCF.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2019-FL12: S&P Lowers EYT3 Certs Rating to 'CCC (sf)'
---------------------------------------------------------------
S&P Global Ratings lowered its ratings on three classes of
commercial mortgage pass-through certificates from J.P. Morgan
Chase Commercial Mortgage Securities Trust 2019-FL12, a U.S. CMBS
transaction. At the same time, S&P affirmed its ratings on two
other classes from the transaction.
This U.S. CMBS transaction is backed by one remaining
floating-rate, interest-only (IO) mortgage loan secured by the
borrower's fee simple interest in Ernst & Young Tower, an office
building in Cleveland.
Rating Actions
The downgrades on classes EYT1, EYT2, and EYT3 reflect S&P's
revised valuation of the remaining loan in the pool, Ernst & Young
Tower, which is lower than the valuation it derived in its last
review in November 2020. The downgrades also consider that the loan
was transferred to special servicing because the sponsor, The
Wolstein Group LLC, was not able to exercise its final extension
option and could not pay off the loan upon its Dec. 9, 2022,
maturity date (see below). The affirmation on class A accounts for
the significant deleveraging of the pooled trust balance (68.3%)
since our last review, the relatively low debt per sq. ft. (about
$106 per sq. ft.), and its senior position in the waterfall, among
other factors.
The servicer reported that occupancy and net cash flow (NCF) at the
property had been relatively stable to increasing since our last
review in November 2020--95.3% and $7.9 million, respectively, in
2020 and 95.1% and $8.7 million in 2021 from 89.4% and $8.0 million
in 2019. The reported occupancy and NCF were 92.3% and $6.8 million
for the nine months ending Sept. 30, 2022. According to various
media reports and confirmed by the servicer, the second-largest
tenant, Ernst & Young, comprising 15.3% of net rentable area (NRA)
is expected to move to a neighboring office building upon its
November 2023 lease expiration. Per CoStar, the sponsor is
currently marketing available spaces at the property, including
Ernst & Young's; however, the special servicer, KeyBank Real Estate
Capital, stated that based on current market participants'
interests, the sponsor does not anticipate backfilling the vacant
spaces until at least first- or second-quarter 2024.
S&P said, "Our current property-level analysis also considers the
weakened office submarket fundamentals due to lower demand and
longer re-leasing timeframes as companies continue to embrace a
remote or hybrid work arrangement. As a result, we used a 23.0%
vacancy rate, S&P Global Ratings base rent of $29.76 per sq. ft.
and gross rent of $34.47 per sq. ft., 48.4% operating expense
ratio, and higher tenant improvement costs assumptions to revise
and lower our long-term sustainable NCF to $5.9 million from $6.3
million in our last review and at issuance. Utilizing an S&P Global
Ratings' capitalization rate of 7.75% (up 25 basis points from our
last review and at issuance to account for adverse office submarket
conditions, a lack of a clear catalyst for increased demand, a
concentrated tenant roster, and additional potential tenant
rollover), we arrived at an expected-case value of $76.7 million
($161 per sq. ft.), down 8.5% from our issuance and last review's
value of $83.7 million, or $176 per sq. ft., and down 42.8% from
the issuance appraised value of $134.0 million. This yielded an S&P
Global Ratings' loan-to-value (LTV) ratio of 65.5% on the pooled
trust balance and 97.8% on the whole loan trust balance, up from
60.0% and 89.6%, respectively, in our last review and at
issuance."
The loan was transferred to the special servicer on Dec. 8, 2022,
due to imminent maturity default. KeyBank stated that the borrower
was unable to meet the debt yield threshold (greater than or equal
to 11.4%) to exercise its third and final extension option and
confirm the lease renewal of Ernst & Young. KeyBank indicated that
it is currently working with the borrower and mezzanine lender on
potential extension terms. Further, KeyBank informed S&P that it
expects to post a new appraisal report in the next 60 days.
S&P said, "Specifically, the downgrade on class EYT3 (which derives
its cash flow from a subordinate nonpooled component of the Ernst &
Young Tower whole loan) to 'CCC (sf)' reflects our view that the
susceptibility to liquidity interruption and risk of default and
loss are elevated based on our revised expected-case value and
current market conditions. In addition, class EYT3 had non-de
minimis accumulated interest shortfalls totaling $2,652 outstanding
as of the May 15, 2023, trustee remittance report, due
predominately to interest on advances. KeyBank specified that the
trust will be reimbursed for these shortfalls upon potential
special servicing resolution. If the accumulated interest
shortfalls on class EYT3 remain outstanding for a prolonged period,
we may further lower our rating to 'D (sf)'.
"Although the model-indicated ratings were lower than the classes'
current or revised ratings, we affirmed our rating on class A and
tempered our downgrades on classes EYT1 and EYT2 based on certain
weighed qualitative considerations." These include:
-- The potential that the property's operating performance could
improve above our current revised expectations especially if
potential leasing prospects materialize (see below);
-- The property's status as the newest office tower in Cleveland
and one of only three class A five-star office properties in the
central business district (CBD) office submarket, according to
CoStar;
-- 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.
S&P said, "We will continue to monitor the loan's status. If we
receive information that differs materially from our expectations,
such as an updated appraisal value that is substantially below our
expected-case value, property performance that is materially below
our assumptions, or a workout strategy that negatively impact the
transaction's liquidity and recovery, we may revisit our analysis
and take further rating actions.
"The affirmation on the class X 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 certificates
references class A."
Property-Level Analysis
The collateral property is the Ernst & Young Tower, an 18-story,
475,188-sq.-ft. class A office building in downtown Cleveland. The
property, completed in 2013, was part of a mixed-use development
project known as Flats Phase I, which included an Aloft by Starwood
hotel, retail stores, and a 550-space parking garage, none of which
are part of the loan collateral. The subject property, situated
above the parking garage and connected to the adjacent hotel via an
enclosed walkway, is the newest office tower in the Cleveland CBD
office submarket and is listed as one of only three class A
five-star office properties in the submarket by CoStar. The
property features a modern design with an open rectangular concept
and has unobstructed views of Lake Erie and downtown Cleveland. The
building's amenities include a fitness center, rooftop terrace, and
café.
Since 2016, reported occupancy was at or above 92.3%, except for
2019 (89.4%). As of the Sept. 30, 2022, rent roll, the property was
92.3% occupied. However, S&P expects occupancy to decline to 77.0%
by the end of the year after the second-largest tenant, Ernst &
Young, vacates upon its lease expiration in November 2023 and the
sponsor is unable to backfill the vacant space in a timely manner.
The five largest tenants, excluding Ernst & Young, comprise 48.8%
of NRA and include:
-- Tucker Ellis & West LLP (26.0% of NRA, 30.5% of gross rent as
calculated by S&P Global Ratings, May 2030 lease expiration).
According to the September 2022 rent roll, the tenant exercised one
of its four five-year renewal options extending the lease term from
May 2025 to May 2030. The tenant has no termination options;
-- Vectra Co. (5.8%, 6.6%, June 2026);
-- Zashin & Rich Co. LPA (5.8%, 4.8%, May 2025). The tenant has
the right to terminate its lease after June 2021 with 12 months'
notice;
-- AON (5.6%, 5.7%, September 2030); and
-- Dollar Bank FSB (5.6%, 5.7%, April 2038).
The property faces considerable near-term rollover risk. In
addition to the upcoming known departure of Ernst & Young, the
Sept. 30, 2022, rent roll indicated that an additional 4.6% of NRA
is scheduled to roll in 2023, 10.5% in 2024, 9.6% in 2025, and
11.4% in 2026. Although the borrower notes that there are a few
prospective tenants interested in leasing up to a combined 27,000
sq. ft. of space, none have yet signed letters of intent, and none
are interested in taking occupancy until at least 2024.
According to CoStar, the CBD office submarket where the property is
located had elevated vacancies prior to the pandemic that continue
today and relatively flat rents. As of year-to-date May 2023, four-
and five-star properties in the office submarket had a gross market
rent of $24.83 per sq. ft., vacancy rate of 12.7%, and availability
rate of 14.2%. This compares with a submarket asking rent of $23.79
per sq. ft. and vacancy rate of 13.9% in 2019, when the transaction
was issued. CoStar projects average office submarket vacancy to
stay elevated at 12.8% in 2023 and 2024 and asking rent to be flat
to marginally declining at $24.22 per sq. ft. in 2023 and $23.34
per sq. ft. in 2024.
While the property's current in-place vacancy rate of 7.7% is lower
than the office submarket's 12.7%, the gross rent of $34.47 per sq.
ft., as calculated by S&P Global Ratings, is 38.8% higher than that
of the office submarket. According to the September 2022 rent roll,
three tenants signed new leases totaling 32,532 sq. ft., or 6.8% of
NRA, at an average gross rent of $31.82 per sq. ft.
S&P's current analysis considered the aforementioned tenant
movements, the in place above market rents, the current office
submarket conditions, and potential increased timeframe to lease up
vacancy (hence, utilizing a 77.0% occupancy rate) in determining
our sustainable NCF.
Transaction Summary
As of the May 15, 2023, trustee remittance report, the transaction
consists of one loan with a pooled trust balance of $50.2 million
and a total trust balance, inclusive of the nonpooled loan
components, of $75.0 million, down from four uncrossed loans with a
pooled trust balance of $158.3 million and a total trust balance of
$244.9 million at issuance. The pooled trust and nonpooled classes
have not incurred principal losses to date.
The remaining loan, Ernst & Young Tower, has a $75.0 million whole
loan balance (unchanged from issuance and S&P's last review) that
is split into a $50.2 million senior pooled component and a $24.8
million subordinate non-pooled component that supports the class
EYT1, EYT2, and EYT3 certificates. In addition, there is an
outstanding $25.0 million mezzanine loan. Including the mezzanine
loan, the S&P Global Ratings LTV ratio increases to 130.4%.
The IO whole loan pays interest at a per annum floating rate
indexed to one-month LIBOR plus a 2.45% gross margin (increases by
25 basis points to 2.70% upon commencement of the third extension
term). The loan had an initial maturity date of Dec. 9, 2020, and
three one-year extension options, with a fully extended maturity
date of Dec. 9, 2023. The borrower was able to exercise its first
two extension options, extending the loan's current maturity date
to Dec. 9, 2022. The loan currently has a reported performing
matured balloon payment status despite having one remaining
extension option. As previously discussed, the loan is currently
with the special servicer due to imminent maturity default. The
sponsor and special servicer are currently negotiating a potential
longer-term loan modification and extension. The master servicer,
also KeyBank, reported a 1.69x and 1.74x debt service coverage on
the whole loan balance for the nine months ended Sept. 30, 2022,
and year-end 2021, respectively.
Ratings Lowered
J.P. Morgan Chase Commercial Mortgage Securities Trust 2019-FL12
Class EYT1 to 'BB+ (sf)' from 'BBB- (sf)'
Class EYT2 to 'B+ (sf)' from 'BB- (sf)'
Class EYT3 to 'CCC (sf)' from 'B (sf)'
Ratings Affirmed
J.P. Morgan Chase Commercial Mortgage Securities Trust 2019-FL12
Class A: A- (sf)
Class X: A- (sf)
JP MORGAN 2023-3: DBRS Gives Prov. B(low) Rating on Class B5 Certs
------------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Mortgage Pass-Through Certificates, Series 2023-3 (the
Certificates) to be issued by J.P. Morgan Mortgage Trust 2023-3
(JPMMT 2023-3):
-- $397.2 million Class A-1 at AA (high) (sf)
-- $297.9 million Class A-1-A at AA (high) (sf)
-- $99.3 million Class A-1-B at AA (high) (sf)
-- $99.3 million Class A-1-C at AA (high) (sf)
-- $99.3 million Class A-1-X at AA (high) (sf)
-- $90.2 million Class A-2 at AAA (sf)
-- $360.7 million Class A-3 at AAA (sf)
-- $270.5 million Class A-3-A at AAA (sf)
-- $90.2 million Class A-3-C at AAA (sf)
-- $90.2 million Class A-3-X at AAA (sf)
-- $270.5 million Class A-4 at AAA (sf)
-- $202.9 million Class A-4-A at AAA (sf)
-- $67.6 million Class A-4-B at AAA (sf)
-- $67.6 million Class A-4-C at AAA (sf)
-- $67.6 million Class A-4-X at AAA (sf)
-- $90.2 million Class A-5 at AAA (sf)
-- $67.6 million Class A-5-A at AAA (sf)
-- $22.5 million Class A-5-B at AAA (sf)
-- $22.5 million Class A-5-C at AAA (sf)
-- $22.5 million Class A-5-X at AAA (sf)
-- $216.4 million Class A-6 at AAA (sf)
-- $162.3 million Class A-6-A at AAA (sf)
-- $54.1 million Class A-6-B at AAA (sf)
-- $54.1 million Class A-6-C at AAA (sf)
-- $54.1 million Class A-6-X at AAA (sf)
-- $144.3 million Class A-7 at AAA (sf)
-- $108.2 million Class A-7-A at AAA (sf)
-- $36.1 million Class A-7-B at AAA (sf)
-- $36.1 million Class A-7-C at AAA (sf)
-- $36.1 million Class A-7-X at AAA (sf)
-- $108.2 million Class A-8 at AAA (sf)
-- $81.2 million Class A-8-A at AAA (sf)
-- $27.1 million Class A-8-B at AAA (sf)
-- $27.1 million Class A-8-C at AAA (sf)
-- $27.1 million Class A-8-X at AAA (sf)
-- $198.4 million Class A-9 at AAA (sf)
-- $148.8 million Class A-9-A at AAA (sf)
-- $49.6 million Class A-9-B at AAA (sf)
-- $49.6 million Class A-9-C at AAA (sf)
-- $49.6 million Class A-9-X at AAA (sf)
-- $162.3 million Class A-10 at AAA (sf)
-- $121.7 million Class A-10-A at AAA (sf)
-- $40.6 million Class A-10-B at AAA (sf)
-- $40.6 million Class A-10-C at AAA (sf)
-- $40.6 million Class A-10-X at AAA (sf)
-- $54.1 million Class A-11 at AAA (sf)
-- $40.6 million Class A-11-A at AAA (sf)
-- $13.5 million Class A-11-B at AAA (sf)
-- $13.5 million Class A-11-C at AAA (sf)
-- $13.5 million Class A-11-X at AAA (sf)
-- $54.1 million Class A-12 at AAA (sf)
-- $40.6 million Class A-12-A at AAA (sf)
-- $13.5 million Class A-12-B at AAA (sf)
-- $13.5 million Class A-12-C at AAA (sf)
-- $13.5 million Class A-12-X at AAA (sf)
-- $27.4 million Class A-13 at AA (high) (sf)
-- $20.5 million Class A-13-A at AA (high) (sf)
-- $6.8 million Class A-13-B at AA (high) (sf)
-- $6.8 million Class A-13-C at AA (high) (sf)
-- $6.8 million Class A-13-X at AA (high) (sf)
-- $9.1 million Class A-14 at AA (high) (sf)
-- $6.8 million Class A-14-A at AA (high) (sf)
-- $2.3 million Class A-14-B at AA (high) (sf)
-- $2.3 million Class A-14-C at AA (high) (sf)
-- $2.3 million Class A-14-X at AA (high) (sf)
-- $36.5 million Class A-15 at AA (high) (sf)
-- $27.4 million Class A-15-A at AA (high) (sf)
-- $9.1 million Class A-15-B at AA (high) (sf)
-- $9.1 million Class A-15-C at AA (high) (sf)
-- $9.1 million Class A-15-X at AA (high) (sf)
-- $397.2 million Class A-X-1 at AA (high) (sf)
-- $397.2 million Class A-X-2 at AA (high) (sf)
-- $397.2 million Class A-X-3 at AA (high) (sf)
-- $397.2 million Class A-X-4 at AA (high) (sf)
-- $397.2 million Class A-X-5 at AA (high) (sf)
-- $7.4 million Class B-1 at AA (low) (sf)
-- $7.9 million Class B-2 at A (low) (sf)
-- $4.9 million Class B-3 at BBB (low) (sf)
-- $3.4 million Class B-4 at BB (low) (sf)
-- $1.7 million Class B-5 at B (low) (sf)
Classes A-1-X, A-3-X, A-4-X, A-5-X, A-6-X, A-7-X, A-8-X, A-9-X,
A-10-X, A-11-X, A-12-X, A-13-X, A-14-X, A-15-X, A-X-1, A-X-2,
A-X-3, A-X-4, and A-X-5 are interest-only (IO) certificates. The
class balances represent notional amounts.
Classes A-1, A-1-A, A-1-B, A-1-C, A-1-X, A-2, A-3, A-3-A, A-3-C,
A-3-X, A-4, A-4-A, A-4-B, A-4-C,A-4-X, A-5, A-5-B, A-6, A-6-A,
A-6-B, A-6-C, A-6-X, A-7, A-7-A, A-7-B, A-7-C, A-7-X, A-8, A-8-A,
A-8-B, A-8-C, A-8-X, A-9, A-9-A, A-9-B, A-9-C, A-9-X, A-10, A-10-B,
A-11, A-11-B, A-12, A-12-B, A-13, A-13-B, A-14, A-14-B, A-15,
A-15-A, A-15-B, A-15-C, A-15-X, A-X-3, A-X-4, and A-X-5 are
exchangeable certificates. These classes can be exchanged for
combinations of exchange certificates as specified in the offering
documents.
Classes A-2, A-3, A-3-A, A-3-C, A-4, A-4-A, A-4-B, A-4-C, A-5,
A-5-A, A-5-B, A-5-C, A-6, A-6-A, A-6-B, A-6-C, A-7, A-7-A, A-7-B,
A-7-C, A-8, A-8-A, A-8-B, A-8-C, A-9, A-9-A, A-9-B, A-9-C, A-10,
A-10-A, A-10-B, A-10-C, A-11, A-11-A, A-11-B, A-11-C, A-12, A-12-A,
A-12-B, and A-12-C are super-senior certificates. These classes
benefit from additional protection from the senior support
certificates (Classes A-13, A-13-A, A-13-B, A-13-C, A-14, A-14-A,
A-14-B, A-14-C, A-15, A-15-A, A-15-B, and A-15-C certificates) with
respect to loss allocation.
The AAA (sf) ratings on the Certificates reflect 15.00% of credit
enhancement provided by subordinated certificates. The AA (high)
(sf), AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf)
and B (low) (sf) ratings reflect 6.40%, 4.65%, 2.80%, 1.65%, 0.85%,
and 0.45% of credit enhancement, respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
DBRS Morningstar assigned provisional ratings to JPMMT 2023-3, a
securitization of a portfolio of first-lien fixed-rate prime
residential mortgages funded by the issuance of the Certificates.
The Certificates are backed by 374 loans with a total principal
balance of $424,337,424 as of the Cut-Off Date (April 1, 2023).
The pool consists of fully amortizing fixed-rate mortgages with
original terms to maturity of primarily 30 years and a
weighted-average loan age of seven months. Approximately 96.0% of
the loans are traditional, nonagency, prime jumbo mortgage loans.
The remaining 4.0% of the pool are conforming mortgage loans that
were underwritten using an automated underwriting system designated
by Fannie Mae or Freddie Mac and were eligible for purchase by such
agencies. Details on the underwriting of conforming loans can be
found in the Key Probability of Default Drivers section of the
related Presale Report. In addition, all of the loans in the pool
were originated in accordance with the new general qualified
mortgage rule.
The originators for the aggregate mortgage pool are United
Wholesale Mortgage, LLC (57.6%) and various other originators, each
comprising less than 15% of the pool. The mortgage loans will be
serviced or subserviced, as applicable, by Cenlar FSB (57.5%),
NewRez LLC doing business as Shellpoint Mortgage Servicing (30.5%),
and various other servicers and subservicers each comprising less
than 10% of the pool.
For this transaction, generally, the servicing fee payable for
mortgage loans is composed of three separate components: the base
servicing fee, the delinquent servicing fee, and the additional
servicing fee. These fees vary based on the delinquency status of
the related loan and will be paid from interest collections before
distribution to the securities.
Nationstar Mortgage LLC will act as the Master Servicer. Citibank,
N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) will
act as Securities Administrator and Delaware Trustee. Computershare
Trust Company, N.A. (rated BBB with a Stable trend by DBRS
Morningstar) will act as Custodian. Pentalpha Surveillance LLC will
serve as the Representations and Warranties Reviewer.
The transaction employs a senior-subordinate, shifting-interest
cash flow structure that is enhanced from a precrisis structure.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2023-4: Fitch Assigns 'B-(EXP)sf' Rating on Cl. B-5 Notes
-------------------------------------------------------------------
Fitch Ratings has assigned expected ratings to JP Morgan Mortgage
Trust 2023-4 (JPMMT 2023-4).
Entity/Debt Rating
----------- ------
JPMMT 2023-4
1-A-2 LT AAA(EXP)sf Expected Rating
1-A-3 LT AAA(EXP)sf Expected Rating
1-A-3-X LT AAA(EXP)sf Expected Rating
1-A-4 LT AAA(EXP)sf Expected Rating
1-A-4-A LT AAA(EXP)sf Expected Rating
1-A-4-X LT AAA(EXP)sf Expected Rating
1-A-5 LT AAA(EXP)sf Expected Rating
1-A-5-A LT AAA(EXP)sf Expected Rating
1-A-5-X LT AAA(EXP)sf Expected Rating
1-A-6 LT AAA(EXP)sf Expected Rating
1-A-6-A LT AAA(EXP)sf Expected Rating
1-A-6-X LT AAA(EXP)sf Expected Rating
1-A-7 LT AAA(EXP)sf Expected Rating
1-A-7-A LT AAA(EXP)sf Expected Rating
1-A-7-X LT AAA(EXP)sf Expected Rating
1-A-8 LT AAA(EXP)sf Expected Rating
1-A-8-A LT AAA(EXP)sf Expected Rating
1-A-8-X LT AAA(EXP)sf Expected Rating
1-A-9 LT AAA(EXP)sf Expected Rating
1-A-9-A LT AAA(EXP)sf Expected Rating
1-A-9-X LT AAA(EXP)sf Expected Rating
1-A-10 LT AAA(EXP)sf Expected Rating
1-A-10-A LT AAA(EXP)sf Expected Rating
1-A-10-X LT AAA(EXP)sf Expected Rating
1-A-11 LT AAA(EXP)sf Expected Rating
1-A-11-A LT AAA(EXP)sf Expected Rating
1-A-11-X LT AAA(EXP)sf Expected Rating
1-A-12 LT AAA(EXP)sf Expected Rating
1-A-12-A LT AAA(EXP)sf Expected Rating
1-A-12-X LT AAA(EXP)sf Expected Rating
1-A-13 LT AA+(EXP)sf Expected Rating
1-A-13-A LT AA+(EXP)sf Expected Rating
1-A-13-X LT AA+(EXP)sf Expected Rating
1-A-X-1 LT AA+(EXP)sf Expected Rating
2-A-2 LT AAA(EXP)sf Expected Rating
2-A-3 LT AAA(EXP)sf Expected Rating
2-A-3-X LT AAA(EXP)sf Expected Rating
2-A-4 LT AAA(EXP)sf Expected Rating
2-A-4-A LT AAA(EXP)sf Expected Rating
2-A-4-X LT AAA(EXP)sf Expected Rating
2-A-5 LT AAA(EXP)sf Expected Rating
2-A-5-A LT AAA(EXP)sf Expected Rating
2-A-5-X LT AAA(EXP)sf Expected Rating
2-A-6 LT AA+(EXP)sf Expected Rating
2-A-6-A LT AA+(EXP)sf Expected Rating
2-A-6-X LT AA+(EXP)sf Expected Rating
2-A-X-1 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
TRANSACTION SUMMARY
Fitch Ratings expects to rate the residential mortgage-backed
certificates issued by J.P. Morgan Mortgage Trust 2023-4 (JPMMT
2023-4) as indicated above. The certificates are supported by 626
loans with a total balance of approximately $451.47 million as of
the cutoff date. The pool consists of prime-quality fixed-rate
mortgages from various mortgage originators.
The pool consists of loans mainly originated by United Wholesale
Mortgage, LLC (52.5%) with the remaining 47.5% of the loans
originated by various originators, each contributing less than 10%
to the pool. The loan-level representations and warranties are
provided by the various originators, MAXEX or Verus (aggregators).
NewRez LLC (f/k/a New Penn Financial, LLC), d/b/a Shellpoint
Mortgage Servicing (Shellpoint), will act as interim servicer for
approximately 28.1% of the pool from the closing date until the
servicing transfer date, which is expected to occur on or about
Sept. 1, 2023. After the servicing transfer date, these mortgage
loans will be serviced by JPMorgan Chase Bank, National Association
(Chase).
Since Chase will service these loans after the transfer date, Fitch
performed its analysis assuming Chase is the servicer for these
loans. The other main servicer in the transaction is United
Wholesale Mortgage, LLC (servicing 52.5% of the loans); the
remaining 19.4% of the loans are being serviced by various
servicers, each contributing less than 10% to the pool. Nationstar
Mortgage LLC (Nationstar) will be the master servicer.
Most of the loans (94.4%) qualify as safe-harbor qualified mortgage
(SHQM) or SHQM (average prime offer rate [APOR]); the remaining
5.6% qualify as QM rebuttable presumption, QM agency rebuttable
presumption, or QM rebuttable presumption (APOR).
There is no exposure to Libor in this transaction. The collateral
comprises 100% fixed-rate loans, and the certificates are fixed
rate and capped at the net weighted average coupon (WAC) or based
on 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 7.2% above a long-term sustainable level (vs. 7.8%
on a national level as of March 2023, down 2.7% since last
quarter). The rapid gain in home prices through the pandemic has
begun to moderate, with a decline in 3Q 2022. Driven by the strong
gains in 1H22, home prices rose 5.8% YoY nationally as of December
2022.
High Quality Mortgage Pool (Positive): The pool consists of
high-quality, fixed-rate, fully amortizing loans with maturities of
up to 30 years. Most of the loans (94.4%) qualify as SHQM or SHQM
(APOR); the remaining 5.6% qualify as QM rebuttable presumption, QM
agency rebuttable presumption, or QM rebuttable presumption (APOR).
The loans were made to borrowers with strong credit profiles,
relatively low leverage and large liquid reserves.
The loans are seasoned at an average of six months, according to
Fitch (four months per the transaction documents). The pool has a
WA original FICO score of 761, as determined by Fitch, which is
indicative of very high credit quality borrowers. Approximately
68.8%, as determined by Fitch, of the loans have a borrower with an
original FICO score equal to or above 750. In addition, the
original WA combined loan-to-value (CLTV) ratio of 76.5%,
translating to a sustainable loan-to-value (sLTV) ratio of 81.7%,
represents moderate borrower equity in the property and reduced
default risk compared with a borrower with a CLTV over 80%.
Per the transaction documents, nonconforming loans comprise 68.9%
of the pool, while the remaining 31.1% represents conforming loans.
However, in Fitch's analysis, Fitch considered HPQM GSE eligible
loans to be nonconforming. As a result, Fitch viewed the pool as
having 73.7% nonconforming loans 26.3% conforming loans. All of the
loans are designated as QM loans, with 55.2% of the pool originated
by a retail and correspondent channel.
Of the pool, 100.0% comprises loans where the borrower maintains a
primary or secondary residence. Single-family homes, planned unit
developments, townhouses, and single-family attached dwellings
constitute 90.8% of the pool; condominiums and site condos make up
8.3%; and multifamily homes make up 0.9%. The pool consists of
loans with the following loan purposes: purchases (91.4%), cashout
refinances (6.5%) and rate-term refinances (2.1%). Fitch views
favorably that there are no loans to investment properties and the
majority of the mortgages are purchases.
A total of 159 loans in the pool are over $1.0 million, and the
largest loan is approximately $2.99 million.
Of the pool, 27.2% is concentrated in California. The largest MSA
concentration is in the Los Angeles-Long Beach-Santa Ana, CA MSA
(10.6%), followed by the Miami-Fort Lauderdale-Miami Beach, FL MSA
(4.8%) and Phoenix-Mesa-Scottsdale, AZ MSA (3.7%). The top three
MSAs account for 19% of the pool. As a result, no probability of
default (PD) penalty was applied for geographic concentration.
Shifting-Interest Structure with Full Advancing (Mixed): The
mortgage cash flow and loss allocation are based on a
senior-subordinate, shifting-interest structure whereby the
subordinate classes receive only scheduled principal and are locked
out from receiving unscheduled principal or prepayments for five
years. The lockout feature helps maintain subordination for a
longer period should losses occur later in the life of the
transaction. The applicable credit support percentage feature
redirects subordinate principal to classes of higher seniority if
specified credit enhancement (CE) levels are not maintained.
The servicers will provide full advancing for the life of the
transaction; each servicer is expected to advance delinquent
principal and interest (P&I) on loans that entered into a
coronavirus pandemic-related forbearance plan. Although full P&I
advancing will provide liquidity to the certificates, it will also
increase the loan-level loss severity (LS) since the servicer looks
to recoup P&I advances from liquidation proceeds, which results in
less recoveries.
Nationstar is the master servicer and will advance if the servicer
is unable to do so. If the master servicer is unable to advance,
then the securities administrator (Citibank) will advance.
CE Floor (Positive): A CE or senior subordination floor of 2.20%
has been considered to mitigate potential tail-end risk and loss
exposure for senior tranches as the pool size declines and
performance volatility increases due to adverse loan selection and
small loan count concentration. Additionally, a junior
subordination floor of 1.30% has been considered to mitigate
potential tail-end risk and loss exposure for subordinate tranches
as the pool size declines and performance volatility increases due
to adverse loan selection and small loan count concentration.
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 39.7% at 'AAA'. The analysis indicates that there
is some potential rating migration with higher MVDs for all rated
classes, compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
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.
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review
performed on 100% of the pool. The third-party due diligence was
generally consistent with Fitch's "U.S. RMBS Rating Criteria."
SitusAMC, Consolidated Analytics, and Clayton were engaged to
perform the review. Loans reviewed under this engagement were given
compliance, credit and valuation grades and assigned initial grades
for each subcategory. Minimal exceptions and waivers were noted in
the due diligence reports. Refer to the "Third-Party Due Diligence"
section for more detail.
Fitch also utilized data files provided by the issuer on its SEC
Rule 17g-5 designated website. Fitch received loan level
information based on the ResiPLS data layout format, and the data
are considered comprehensive. The data contained in the ResiPLS
layout data tape were reviewed by the due diligence companies, and
no material discrepancies were noted.
ESG CONSIDERATIONS
JPMMT 2023-4 has an ESG Relevance Score of '4+' for Transaction
Parties and Operational Risk. Operational risk is well controlled
for in JPMMT 2023-4, including strong transaction due diligence, an
'Above Average' aggregator, the majority of the pool originated by
an 'Above Average' originator, and the majority of the pool being
serviced by an 'RPS1-' servicer. All of these attributes have a
positive impact on the credit profile that resulted in a reduction
in expected losses and are relevant to the ratings in conjunction
with other factors.
Although this transaction has loans purchased in connection with
the sponsor's Elevate Diversity and Inclusion program or the
sponsor's Clean Energy program, Fitch did not take these programs
into consideration when assigning an ESG Relevance Score, as the
programs did not directly affect the expected losses assigned or
were not relevant to the rating, in Fitch's view.
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.
MFA 2023-NQM2: DBRS Gives Prov. B(high) Rating on Class B-2 Certs
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following Mortgage
Pass-Through Certificates, Series 2023-NQM2 (the Certificates) to
be issued by MFA 2023-NQM2 Trust (MFA 2023-NQM2):
-- $230.0 million Class A-1 at AAA (sf)
-- $33.8 million Class A-2 at AA (high) (sf)
-- $45.0 million Class A-3 at A (high) (sf)
-- $20.4 million Class M-1 at BBB (high) (sf)
-- $15.4 million Class B-1 at BB (high) (sf)
-- $15.4 million Class B-2 at B (high) (sf)
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
The AAA (sf) rating on the Class A-1 certificates reflects 38.10%
of credit enhancement provided by subordinate certificates. The AA
(high) (sf), A (high) (sf), BBB (high) (sf), BB (high) (sf), and B
(high) (sf) ratings reflect 29.00%, 16.90%, 11.40%, 7.25%, and
3.10% of credit enhancement, respectively.
This is a securitization of a portfolio of fixed- and
adjustable-rate expanded prime and nonprime primarily (97.2%)
first-lien residential mortgages funded by the issuance of the
Mortgage Pass-Through Certificates, Series 2023-NQM2 (the
Certificates). The Certificates are backed by 717 mortgage loans
with a total principal balance of $371,581,844 as of the Cut-Off
Date (March 31, 2023).
The pool is, on average, 11 months seasoned with loan age ranges
from two months to 66 months. The top two originators are Castle
Mortgage Corporation dba Excelerate Capital (48.8% of the pool) and
Citadel Servicing Corporation dba Acra Lending (44.5% of the pool).
The Servicers are Planet Home Lending, LLC (55.5% of the pool); and
Citadel Servicing Corporation (CSC; 44.5% of the pool). ServiceMac,
LLC (ServiceMac) will subservice all but four of the CSC-serviced
mortgage loans under a subservicing agreement.
Although the applicable mortgage loans were originated to satisfy
the Consumer Financial Protection Bureau's (CFPB) Ability-to-Repay
(ATR) rules, they were made to borrowers who generally do not
qualify for agency, government, or private-label nonagency prime
jumbo products for various reasons. In accordance with the QM/ATR
rules, 59.0% of the loans are designated as nonqualified mortgages
(non-QM). Approximately 40.9% and 2.4% of the loans are made to
investors for business purposes and foreign nationals,
respectively, which are not subject to the QM/ATR rules.
In addition, second-lien mortgage loans make up 2.8% of the pool.
These 28 closed end second-lien loans were originated by Fund Loans
and have lower CLTV (58.5%) and a higher average FICO (731) than
the pool weighted average CLTV and FICO.
The Sponsor, directly or indirectly through a majority-owned
affiliate, will retain the Class XS and an eligible horizontal
interest consisting of the Class B-3 and some portion of the B-2
Certificates representing at least 5% of the aggregate fair value
of the Certificates to satisfy the credit risk-retention
requirements under Section 15G of the Securities Exchange Act of
1934 and the regulations promulgated thereunder.
On or after the earlier of (1) three years after the Closing Date
or (2) the date when the aggregate unpaid principal balance (UPB)
of the mortgage loans is reduced to 30% of the Cut-Off Date
balance, the Depositor, at its option, 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, any pre-closing deferred
amounts due to the Class XS Certificates, and other amounts
described in the transaction documents (optional redemption). After
such purchase, the Depositor must complete 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.
On any date following the date on which the aggregate UPB of the
mortgage loans is less than or equal to 10% of the Cut-Off Date
balance, the Servicing Administrator will have the option to
terminate the transaction by purchasing all of the mortgage loans
and any real estate owned (REO) property from the issuer at a price
equal to the sum of the aggregate UPB of the mortgage loans (other
than any REO property) plus accrued interest thereon, the lesser of
the fair market value of any REO property and the stated principal
balance of the related loan, and any outstanding and unreimbursed
servicing advances, accrued and unpaid fees, and expenses that are
payable or reimbursable to the transaction parties, as described in
the transaction documents (optional termination). An optional
termination is conducted as a qualified liquidation.
For this transaction, the Servicers will not fund advances of
delinquent principal and interest (P&I) on any mortgage. However,
the Servicers are obligated to make advances in respect of taxes,
insurance premiums, and reasonable costs incurred in the course of
servicing and disposing of properties (servicing advances).
Of note, if a Servicer defers or capitalizes the repayment of any
amounts owed by a borrower in connection with the borrower's loan
modification, the Servicer is entitled to reimburse itself from the
excess servicing fee (applicable to the loans serviced by such
Servicer), first, and from principal collections, second, for any
previously made and unreimbursed servicing advances related to the
capitalized amount at the time of such modification.
The transaction employs a sequential-pay cash flow structure with a
pro rata principal distribution among the senior tranches subject
to certain performance triggers related to cumulative losses or
delinquencies exceeding a specified threshold (Trigger Event).
Principal proceeds can be used to cover interest shortfalls on the
Class A-1, A-2, and A-3 Certificates before being applied
sequentially to senior and subordinate Certificates. For the Class
A-3 Certificates (only after a Trigger Event) and more subordinate
Certificates, principal proceeds can be used to cover interest
shortfalls after the more senior Certificates are paid in full.
Also, the excess spread can be used to cover realized losses by
reducing the balance of the Class A Certificates and then,
sequentially, of the other Certificates, before being allocated to
unpaid Cap Carryover Amounts due to Class A-1 down to Class A-3.
The Class B-1 and B-2 are principal-only certificates and are not
entitled to distributions of interest on any distribution date and
do not have pass-through rates.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2015-C20: DBRS Confirms CCC Rating on Class F Certs
------------------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2015-C20 issued by Morgan Stanley
Bank of America Merrill Lynch Trust 2015-C20 as follows:
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 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 (high) (sf)
-- Class PST at A (high) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at B (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)
All trends are Stable, with the exception of Class F, which has a
rating that does not typically carry a trend in commercial
mortgage-backed securities (CMBS) ratings.
The rating confirmations and Stable trends reflect DBRS
Morningstar's current outlook and loss expectations for the
transaction, which remain relatively unchanged from the November
2022 rating action.
At issuance, the transaction consisted of 88 fixed-rate loans
secured by 102 commercial and multifamily properties, with a total
trust balance of $1.1 billion. As of the April 2023 remittance, 72
loans remained in the trust, with an aggregate principal balance of
$837.8 million, reflecting collateral reduction of 27.0% since
issuance. The transaction is concentrated by property type, with
loans representing 25.4% and 23.3% of the pool collateralized by
office and retail properties, respectively. There are 17 fully
defeased loans representing 19.3% of the current pool balance. In
addition, nine loans, representing 21.2% of the pool, are on the
servicer's watchlist, and four loans, representing 4.8% of the
pool, are in special servicing. To date, losses of $9.1 million
have been realized and are contained to the unrated Class G.
Although the majority of loans secured by office properties
reported generally healthy credit metrics, there is continued
uncertainty related to end-user demand and investor appetite for
this property type. DBRS Morningstar anticipates upward pressure on
vacancy rates in the broader office market, challenging landlords'
efforts to backfill vacant space, and, in certain instances,
contributing to value declines, particularly for assets in noncore
markets and/or with disadvantages in location, building quality, or
amenities offered. Where applicable, DBRS Morningstar increased the
probability of default penalties, and, in certain cases, applied
stressed loan-to-value (LTV) ratios for loans that are secured by
office properties.
The largest specially serviced loan, 33 West 46th Street
(Prospectus ID#12; 2.1% of the pool), is secured by a
42,525-square-foot (sf) office property in Midtown Manhattan, New
York. The loan transferred to special servicing in August 2020
following payment default. The lender subsequently filed a
foreclosure complaint, and a receiver was appointed in March 2022.
As of the April 2023 remittance, the loan remains delinquent; the
lender has filed a motion for summary judgment, for which a hearing
is scheduled in June 2023. According to the most recent reporting
on file, dated March 2022, the property was 47.0% occupied, down
from the YE2021 occupancy rate of 52.1%. The top three tenants
(Teamamerica & Volatour, Inc.; Dana Saltzman MD; and Lifespan
Pilates LLC) occupy over 33.0% of the net rentable area (NRA) and
have lease expiration dates in November 2027, September 2024, and
April 2032, respectively. The remainder of the rent roll is
granular, with no other tenant occupying more than 5.0% of the NRA.
In addition, lease rollover at the property is limited, with only
one lease, representing approximately 4.5% of the NRA, scheduled to
roll within the next 12 months.
The most recent appraisal, dated January 2023, valued the property
at $20.7 million, a 6.3% decline from the May 2022 appraised value
of $22.1 million and a 20.4% decline from the issuance appraised
value of $26.0 million. DBRS Morningstar's analysis includes a
liquidation scenario, which is based on a stress to the most recent
appraisal value and results in a loss severity under 15%.
The largest watch listed loan, Orlando Maitland Office Portfolio
(Prospectus ID#2; 10.7% of the pool), is secured by four Class A
office buildings totaling 588,68 sf on 9.9 acres of land in
Maitland, Florida, eight miles north of Orlando's central business
district. The buildings, referred to as Summit Tower, Summit Park
I, Summit Park II, and Summit Park III, were constructed between
1992 and 2009. The two oldest buildings, Summit Park I and Summit
Park II, underwent extensive renovations between 2009 and 2013, at
a total cost of $1.1 million. Electronic Arts (EA), which formerly
occupied 22.0% of the portfolio's NRA (128,240 sf) and 100% of the
NRA at Summit Park I, exercised an early termination option in
November 2021, ahead of its October 2025 lease expiration date,
after Orlando's city council approved an agreement to move EA from
its Maitland headquarters to Orlando's Creative Village area in the
downtown core. As part of the early termination agreement, EA paid
a termination fee of $1.9 million.
According to the YE2022 financial reporting, the portfolio was
83.5% occupied, with the Summit Park I building reporting an
occupancy rate of 34.5%. The former EA space has been partially
backfilled with one tenant, ThreatLocker, Inc., which occupies
44,246 sf of space through staggered leases that began in March
2022 and September 2022. The remaining three properties continue to
perform well with cash flows that are in line with DBRS
Morningstar's expectations and occupancy rates, ranging from 99.4%
to 100.0%. Tenancy across the portfolio is concentrated, with only
nine tenants constituting the tenant base and the top three tenants
making up approximately 77.0% of the total NRA. According to the
April 2023 remittance, reserve balances total $5.7 million,
representing approximately $67.9 per sf of currently vacant space.
The portfolio generated NCF of $5.1 million in 2022 with a debt
service coverage ratio of 0.93 times (x), down from the YE2021
figures of $8.1 million and 1.47x and YE2020 figures of $7.6
million and 1.38x, respectively. Lease rollover risk is moderate,
with two tenants, Staples Contract & Commercial, Inc. (57,818 sf;
9.82% of total NRA) and Federal Express Corporate Services Inc.
(37,940 sf; 6.45% of total NRA) having leases that are scheduled to
expire within the next 12 months. According to Reis, Class A office
properties in the Maitland submarket reported an average vacancy
rate of 13.0%. DBRS Morningstar's analysis includes an elevated
probability of default and an additional LTV stress. The resulting
expected loss is 2.6 times higher than the pool average.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2023-19: Fitch Gives 'BB-(EXP)' Rating on E Notes
----------------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
Morgan Stanley Eaton Vance CLO 2023-19, Ltd.
Entity/Debt Rating
----------- ------
Morgan Stanley
Eaton Vance CLO
2023-19, Ltd.
A-1 LT NR(EXP)sf Expected Rating
A-2 LT AAA(EXP)sf Expected Rating
B LT AA(EXP)sf Expected Rating
C LT A(EXP)sf Expected Rating
D LT BBB-(EXP)sf Expected Rating
E LT BB-(EXP)sf Expected Rating
Subordinated
Notes LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Morgan Stanley Eaton Vance CLO 2023-19, Ltd., is an arbitrage cash
flow collateralized loan obligation (CLO) that will be managed by
Morgan Stanley Eaton Vance CLO Manager LLC. Net proceeds from the
issuance of the secured and subordinated notes will provide
financing on a portfolio of approximately $400 million of primarily
first lien senior secured loans.
KEY RATING DRIVERS
Asset Credit Quality (Negative): The average credit quality of the
indicative portfolio is 'B', which is in line with that of recent
CLOs. The weighted average rating factor (WARF) of the indicative
portfolio is 23.54, versus a maximum covenant, in accordance with
the initial expected matrix point of 25. Issuers rated in the 'B'
rating category denote a highly speculative credit quality;
however, the notes benefit from appropriate credit enhancement and
standard U.S. CLO structural features.
Asset Security (Positive): The indicative portfolio consists of
99.5% first-lien senior secured loans. The weighted average
recovery rate (WARR) of the indicative portfolio is 76.07% versus a
minimum covenant, in accordance with the initial expected matrix
point of 74.1%.
Portfolio Composition (Positive): The largest three industries may
comprise up to 42.5% of the portfolio balance in aggregate while
the top five obligors can represent up to 12.5% of the portfolio
balance in aggregate. The level of diversity resulting from the
industry, obligor and geographic concentrations is in line with
other recent CLOs.
Portfolio Management (Neutral): The transaction has a 5.1-year
reinvestment period and reinvestment criteria similar to other U.S.
CLOs. Fitch's analysis was based on a stressed portfolio created by
making adjustments to the indicative portfolio to reflect
permissible concentration limits and collateral quality test
levels.
Cash Flow Analysis (Positive): Fitch used a customized proprietary
cash flow model to replicate the principal and interest waterfalls
and assess the effectiveness of various structural features of the
transaction. In Fitch's stress scenarios at the initial expected
matrix point, the rated notes can withstand default and recovery
assumptions consistent with their assigned ratings. The WAL used
for the transaction stress portfolio and matrices analysis is 12
months less than the WAL covenant to account for structural and
reinvestment conditions after the reinvestment period. In Fitch's
opinion, these conditions would reduce the effective risk horizon
of the portfolio during stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics. The results under these sensitivity scenarios are as
severe as between 'BBBsf' and 'AA+sf' for class A-2, between
'BB+sf' and 'A+sf' for class B, between 'B-sf' and 'BBB+sf' for
class C, between 'less than B-sf' and 'BB+sf' for class D; and
between 'less than B-sf' and 'B+sf' for class E.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrade scenarios are not applicable to the class A-2 notes, as
these notes are in the highest rating category of 'AAAsf'.
At other rating levels, variability in key model assumptions, such
as increases in recovery rates and decreases in default rates,
could result in an upgrade. Fitch evaluated the notes' sensitivity
to potential changes in such metrics. Results under these
sensitivity scenarios are 'AAAsf' for class B, 'A+sf' for class C,
'A+sf' for class D, and 'BBB+sf' for class E.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
MOSAIC SOLAR 2023-3: Fitch Gives 'BB-(EXP)' Rating on Class D Notes
-------------------------------------------------------------------
Fitch Ratings has assigned expected ratings to notes issued by
Mosaic Solar Loan Trust 2023-3 (Mosaic 2023-3).
Entity/Debt Rating
----------- ------
Mosaic Solar Loan
Trust 2023-3
A LT AA-(EXP)sf Expected Rating
B LT A-(EXP)sf Expected Rating
C LT BBB-(EXP)sf Expected Rating
D LT BB-(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch expects to rate the Mosaic 2023-3 class A, B, C and D notes
as listed. This is a securitization of consumer loans backed by
residential solar equipment. All the loans were originated by Solar
Mosaic, LLC (Mosaic), one of the oldest established solar lenders
in the U.S.; it has originated solar loans since 2014.
KEY RATING DRIVERS
Limited History Determines 'AAsf' Cap: Residential solar loans in
the U.S. typically have long terms, many of which are 25 years (and
for a small portion, 30 years). For Mosaic, more than eight years
of performance data are available, which compares favorably with
the other solar ABS that Fitch currently rates, and the solar
industry at large. 2023-3 is the first Mosaic deal that contains
assets whose payments are deferred for up to six months (7.5% of
the closing portfolio as of April 30 cut-off date). These assets
are originated under more stringent criteria, but default data is
not yet available for them.
Extrapolated Asset Assumptions: Fitch considered both
originator-wide data and previous Mosaic transactions to set a
lifetime default expectation of 8.3%. Fitch has also assumed a 30%
base case recovery rate. Fitch's rating default rates (RDRs) for
'AA-sf', 'A-sf', 'BBB-sf' and 'BB-sf' are, respectively, 33.5%,
24.9%, 17.8% and 12.6%; Fitch's rating recovery rates (RRRs) are
19%, 21.8%, 24.0% and 26.0%, respectively. Fitch considered the
deferred assets' impact on expected default rates, but found the
limited exposure to have negligible impact. Additionally, the
transaction incorporates two prefunding periods where new loans can
be added; Fitch considers the eligibility criteria sufficient to
ensure that the credit quality of the subsequent loans remains in
line with or better than the initial portfolio, hence not affecting
Fitch assumptions.
Target OC and Amortization Trigger: Class A and B notes will
amortize based on target overcollateralization (OC) percentages.
The target OC is 100% of the outstanding adjusted balance for the
first 16 months, ensuring that there is no leakage of funds
initially, irrespective of the collateral performance; then it
falls to 24.5%. Should the escalating cumulative loss trigger be
breached, the payment waterfall will switch to turbo sequential,
deferring any interest payments for class C and D, and, thus,
accelerating the senior note deleveraging. The repayment timing of
classes C and D is highly sensitive to the timing of a trigger
breach.
Standard, Reputable Counterparties; No Swap: The transaction
account is with Wilmington Trust and the servicer's collection
account is with Wells Fargo Bank. Commingling risk is mitigated by
transfer of collections within two business days, the high initial
ACH share and Wells Fargo's ratings. As both assets and liabilities
pay a fixed coupon, there is no need for an interest rate hedge
and, thus, no exposure to swap counterparties.
Established Specialized Lender: Mosaic is one of the first-movers
among U.S. solar loan lenders, with the longest track record among
originators of the solar ABS that Fitch rates. Underwriting is
mostly automated and in line with those of other U.S. ABS
originators.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Asset performance that indicates an implied annualized default rate
(ADR) above 1.5% and a simultaneous fall in prepayments activity
may put pressure on the rating or lead to a Negative Rating
Outlook.
Material changes in policy support, the economics of purchasing and
financing PV panels and batteries, and/or ground-breaking
technological advances that make the existing equipment obsolete
may also negatively affect the rating.
Below, Fitch shows model-implied rating (MIR) sensitivities to
changes in default and/or recovery assumptions.
Decrease of prepayments (Class A/B/C/D):
-50%: 'AA-'/'A-'/'BBB-'/'BB-'
Increase of defaults (Class A/B/C/D):
+10%: 'AA-'/'A-'/'BBB-'/'BB-';
+25%: 'A+'/'A-'/'BBB-'/'BB-';
+50%: 'A'/'BBB+'/'BBB-'/'BB-';
Decrease of recoveries (Class A/B/C/D):
-10%: 'AA-'/'A-'/'BBB-'/'BB-';
-25%: 'AA-'/'A-'/'BBB-'/'BB-';
-50%: 'AA-'/'A-'/'BBB-'/'BB-'.
Increase of defaults and decrease of recoveries (Class A/B/C/D):
+10% / -10%: 'AA-'/'A-'/'BBB-'/'BB-';
+25% / -25%: 'A+'/'A-'/'BBB-'/'BB-';
+50% / -50%: 'A-'/'BBB+'/'BB+'/'BB-'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Fitch currently caps ratings in the 'AAsf' category due to limited
performance history, while the assigned rating of 'AA-sf' is
further constrained by the available credit enhancement (CE). As a
result, a positive rating action could result from an increase in
CE due to class A deleveraging, underpinned by good transaction
performance, for example, through high prepayments and ADR at
around 1% or below. The overall economic environment is also an
important consideration and Fitch's ABS outlook is generally
deteriorating in the short term.
Below Fitch shows MIR sensitivities, capped at 'AA+sf', to changes
in default and/or recovery assumptions.
Increase of prepayments (Class A/B/C/D):
+50%: AA+/AA/A/A-
Decrease of defaults (Class A/B/C/D):
-10%: 'AA+'/'AA'/'A'/'BBB+';
-25%: 'AA+'/'AA+'/'A+'/'A-';
-50%: 'AA+'/'AA+'/'A+'/'A+'.
Increase of recoveries (Class A/B/C/D):
+10%: 'AA'/'AA-'/'A-'/'BBB+';
+25%: 'AA+'/'AA-'/'A-'/'BBB+';
+50%: 'AA+'/'AA'/'A'/'BBB+'.
Decrease of defaults and increase of recoveries (Class A/B/C/D):
-10% / +10%: 'AA+'/'AA'/'A'/'BBB+';
-25% / +25%: 'AA+'/'AA+'/'A+'/'A';
-50% / +50%: 'AA+'/'AA+'/'A+'/'A+'.
CRITERIA VARIATION
This analysis includes a criteria variation due to model-implied
rating (MIR) variations in excess of the limit stated in the
consumer ABS criteria report for new ratings. According to the
criteria, the committee can decide to deviate from the MIRs but, if
the MIR variation is greater than one notch, this will be a
criteria variation. The MIR variations for classes B to D are
greater than one notch.
Given the sensitivity of ratings to model assumptions and
conventions, repayment timing and tranche thickness, the ultimate
ratings were informed by sensitivity analyses.
DATA ADEQUACY
The historical information available for this originator did not
cover the asset tenor of up to 30 years, as originations began in
2014. Fitch applied a rating cap at the 'AAsf' category to address
this limitation.
The amortizing nature of the assets, the data available from
previous Mosaic transactions and the application of an ADR to the
static portfolio allowed Fitch to determine lifetime default
assumptions. Taking into account this analytical approach, the
rating committee considered the available data sufficient to
support a rating in the 'AAsf' category.
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.
MSWF COMMERCIAL 2023-1: Fitch Gives 'B-sf' Rating on Cl. G-RR Certs
-------------------------------------------------------------------
Fitch Ratings has assigned the following ratings and Rating
Outlooks to MSWF Commercial Mortgage Trust 2023-1, Commercial
Mortgage Pass-Through Certificates, Series 2023-1.
Entity/Debt Rating Prior
----------- ------ -----
MSWF Commercial
Mortgage Trust
2023-1
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAAsf New Rating AAA(EXP)sf
A-4 LT AAAsf New Rating AAA(EXP)sf
A-4-1 LT AAAsf New Rating AAA(EXP)sf
A-4-2 LT AAAsf New Rating AAA(EXP)sf
A-4-X1 LT AAAsf New Rating AAA(EXP)sf
A-4-X2 LT AAAsf New Rating AAA(EXP)sf
A-5 LT AAAsf New Rating AAA(EXP)sf
A-5-1 LT AAAsf New Rating AAA(EXP)sf
A-5-2 LT AAAsf New Rating AAA(EXP)sf
A-5-X1 LT AAAsf New Rating AAA(EXP)sf
A-5-X2 LT AAAsf New Rating AAA(EXP)sf
A-S LT AAAsf New Rating AAA(EXP)sf
A-S-1 LT AAAsf New Rating AAA(EXP)sf
A-S-2 LT AAAsf New Rating AAA(EXP)sf
A-S-X1 LT AAAsf New Rating AAA(EXP)sf
A-S-X2 LT AAAsf New Rating AAA(EXP)sf
A-SB LT AAAsf New Rating AAA(EXP)sf
B LT AA-sf New Rating AA-(EXP)sf
B-1 LT AA-sf New Rating AA-(EXP)sf
B-2 LT AA-sf New Rating AA-(EXP)sf
B-X1 LT AA-sf New Rating AA-(EXP)sf
B-X2 LT AA-sf New Rating AA-(EXP)sf
C LT A-sf New Rating A-(EXP)sf
C-1 LT A-sf New Rating A-(EXP)sf
C-2 LT A-sf New Rating A-(EXP)sf
C-X1 LT A-sf New Rating A-(EXP)sf
C-X2 LT A-sf New Rating A-(EXP)sf
D LT BBBsf New Rating BBB(EXP)sf
E LT BBB-sf New Rating BBB-(EXP)sf
F LT BB-sf New Rating BB-(EXP)sf
G-RR LT B-sf New Rating B-(EXP)sf
H-RR LT NRsf New Rating NR(EXP)sf
X-A LT AAAsf New Rating AAA(EXP)sf
X-B LT AAAsf New Rating A-(EXP)sf
X-D LT BBB-sf New Rating BBB-(EXP)sf
X-F LT BB-sf New Rating BB-(EXP)sf
- $2,500,000 class A-1 'AAAsf'; Outlook Stable;
- $104,300,000 class A-2 'AAAsf'; Outlook Stable;
- $155,000,000ab class A-4 'AAAsf'; Outlook Stable;
- $0b class A-4-1 'AAAsf'; Outlook Stable;
- $0bc class A-4-2 'AAAsf'; Outlook Stable;
- $0b class A-4-X1 'AAAsf'; Outlook Stable;
- $0bc class A-4-X2 'AAAsf'; Outlook Stable;
- $195,985,000ab class A-5 'AAAsf'; Outlook Stable;
- $0b class A-5-1 'AAAsf'; Outlook Stable;
- $0bc class A-5-2 'AAAsf'; Outlook Stable;
- $0b class A-5-X1 'AAAsf'; Outlook Stable;
- $0bc class A-5-X2 'AAAsf'; Outlook Stable;
- $7,000,000 class A-SB 'AAAsf'; Outlook Stable;
- $464,785,000c class X-A 'AAAsf'; Outlook Stable;
- $122,006,000c class X-B 'AAAsf'; Outlook Stable;
- $61,418,000b class A-S 'AAAsf'; Outlook Stable;
- $0b class A-S-1 'AAAsf'; Outlook Stable;
- $0bc class A-S-2 'AAAsf'; Outlook Stable;
- $0b class A-S-X1 'AAAsf'; Outlook Stable;
- $0bc class A-S-X2 'AAAsf'; Outlook Stable;
- $34,859,000b 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;
- $25,729,000b 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;
- $24,069,000cd class X-D 'BBB-sf'; Outlook Stable;
- $14,110,000cd class X-F 'BB-sf'; Outlook Stable;
- $16,599,000d class D 'BBBsf'; Outlook Stable;
- $7,470,000d class E 'BBB-sf'; Outlook Stable;
- $14,110,000d class F 'BB-sf'; Outlook Stable;
- $9,129,000de class G-RR 'B-sf'; Outlook Stable.
The following class is not rated by Fitch:
- $29,879,991df class H-RR 'NR'.
a) Since Fitch published its expected ratings on May 11, 2023, the
balances for classes A-4 and A-5 were finalized. At the time the
expected ratings were published, the initial certificate balances
of classes A-4 and A-5 were expected to be $350,985,000 in the
aggregate, subject to a 5% variance. The classes above reflect the
final ratings and deal structure.
b) Exchangeable Certificates. The class A-4, class A-5, class A-S,
class B and class C are exchangeable certificates. Each class of
exchangeable certificates may be exchanged for the corresponding
classes of exchangeable certificates, and vice versa. The dollar
denomination of each of the received classes of certificates must
be equal to the dollar denomination of each of the surrendered
classes of certificates. The class A-4 may be surrendered (or
received) for the received (or surrendered) classes A-4-1, A-4-X1,
A-4-2 and A-4-X2. The class A-5 may be surrendered (or received)
for the received (or surrendered) classes A-5-1, A-5-X1, A-5-2 and
A-5-X2. The class A-S may be surrendered (or received) for the
received (or surrendered) classes A-S-1, A-S-X1, A-S-2 and A-S-X2.
The class B may be surrendered (or received) for the received (or
surrendered) classes B-1, B-X1, B-2 and B-X2. The class C may be
surrendered (or received) for the received (or surrendered) classes
C-1, C-X1, C-2 and C-X2. The ratings of the exchangeable classes
would reference the ratings of the associated referenced or
original classes.
c) Notional amount and interest only.
d) Privately placed and pursuant to Rule 144A.
e) Vertical-risk retention interest.
f) Horizontal-risk retention interest.
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(EXP)',
reflecting class C, the lowest rated tranche. Since Fitch published
its expected ratings, the class B and C 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 its 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(EXP) 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.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 30 loans secured by 30
commercial properties having an aggregate principal balance of
approximately $664.0 million as of the cut-off date. The loans were
contributed to the trust by Wells Fargo Bank, National Association,
Argentic Real Estate Finance 2 LLC, Morgan Stanley Mortgage Capital
Holdings LLC, Starwood Mortgage Capital LLC, Argentic Real Estate
Finance LLC, and LMF Commercial, LLC. The Master Servicer is Wells
Fargo Bank, National Association and the Special Servicer is
Argentic Services LP.
KEY RATING DRIVERS
Lower Leverage Compared with Recent Transactions: The pool has
lower leverage compared with recent transactions rated by Fitch.
The pool's Fitch loan-to-value -- SR is 92.6% is lower than the
2022 average of 99.3% and the 2021 average of 103.3%. Additionally,
the pool's Fitch DY -- SR of 10.17% is higher than the 2022 average
of 9.90% and the 2021 average of 9.40%, respectively.
Investment-Grade Credit Opinion Loans: Two loans representing 15.2%
of the pool received an investment-grade credit opinion. CX - 250
Water Street (9.9%) received a standalone credit opinion of
'BBBsf'. Pacific Design Center (3.8%) received a standalone credit
opinion of 'BBB-sf'. The pool's total credit opinion percentage is
below the 2022 average of 14.4% and the 2021 average of 13.3%,
respectively.
Higher Pool Concentration: The pool has higher pool concentration
compared with recent transactions. The top 10 loans in the pool
make up 60.3% of the pool, higher than the 2022 average of 55.2%
and the 2021 average of 51.2%. Fitch measures loan concentration
risk with an effective loan count, which accounts for both the
number and size of loans in the pool. The pool's effective loan
count is 19.4.
Below Average Amortization: Based on the scheduled balances at
maturity, the pool will pay down by 1.6%, which is below the 2022
average of 3.3% and the 2021 average of 4.8%. The pool has 24
interest-only (IO) loans (82.0% of the pool by balance), which is
higher than the 2022 average of 77.5% and the 2021 average of
70.6%. Two loans (3.3% of the pool) are partial IO, which is below
the 2022 average of 10.2% and the 2021 average of 16.8%,
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 in one variable, Fitch
net cash flow (NCF):
- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf'
/ 'BB-sf' / 'B-sf';
- 10% NCF Decline: 'AA-sf' / 'A-sf' / 'BBB-sf' / 'BB+sf' / 'BBsf' /
'B-sf' / 'CCCsf'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Improvement in cash flow increases property value and capacity to
meet its debt service obligations. The table below indicates the
model-implied rating sensitivity to changes to in one variable,
Fitch NCF:
- Original Rating: 'AAAsf' / 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBB-sf'
/ 'BB-sf' / 'B-sf';
- 10% NCF Increase: 'AAAsf' / 'AA+sf' / 'Asf' / 'BBB+sf' / 'BBBsf'
/ 'BBsf' / 'B+sf'.
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.
NEW RESIDENTIAL 2023-1: DBRS Gives Prov. B Rating on B-5 Notes
--------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Mortgage-Backed Notes, Series 2023-1 (the Notes) to be issued by
New Residential Mortgage Loan Trust 2023-1 (NRMLT 2023-1 or the
Trust):
-- $138.1 million Class A at AAA (sf)
-- $11.5 million Class B-1 at AA (sf)
-- $10.5 million Class B-2 at A (sf)
-- $8.5 million Class B-3 at BBB (sf)
-- $5.5 million Class B-4 at BB (sf)
-- $5.5 million Class B-5 at B (sf)
The AAA (sf) rating on the Class A notes reflects 31.05% of credit
enhancement provided by subordinated notes in the transaction. The
AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect
25.30%, 20.05%, 15.80%, 13.05%, and 10.30% of credit enhancement,
respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
This transaction is a securitization of a portfolio of newly
originated and seasoned, performing and reperforming, first- and
second-lien residential mortgages, funded by the issuance of the
Notes. The Notes are backed by 1,215 loans with a total principal
balance of $200,346,263 as of the Cut-Off Date (April 1, 2023).
The portfolio is approximately 61 months seasoned on average,
though the loan ages are quite dispersed, ranging from three to 358
months. The majority of the loans had origination guideline or
document deficiencies, which prevented such loans being sold to
Fannie Mae, Freddie Mac, or another purchaser, and the loans were
subsequently put back to the sellers. In its analysis, DBRS
Morningstar assessed such defects and applied certain penalties,
consequently increasing expected losses on the mortgage pool.
NewRez LLC originated 72.0% of the pool, which includes most of the
loans with guideline or document deficiencies. DBRS Morningstar did
not receive originator information on certain loans (5.2%) and the
remaining originators each comprised less than 5.0% of the pool.
In the portfolio, 19.0% of the loans are modified. The
modifications happened more than two years ago for 66.9% of the
modified loans. Within the pool, 250 mortgages have
non-interest-bearing deferred amounts, which equates to 2.1% of the
total principal balance. Unless specified otherwise, all statistics
on the mortgage loans in this report are based on the current
balance, including the applicable non-interest-bearing deferred
amounts.
Certain loans in the pool (30.5%) are not subject to or exempt from
the Consumer Financial Protection Bureau Ability-to-Repay
(ATR)/Qualified Mortgage (QM) rules because of seasoning or because
they are business purpose loans. The loans subject to the ATR rules
are designated as QM Safe Harbor (37.4%), Non-QM (31.2%), and QM
Rebuttable (0.9%) by unpaid principal balance (UPB).
NRZ Sponsor XIII LLC (the Seller) acquired certain mortgage loans
prior to the Cut-Off Date and will acquire the remaining Mortgage
Loans on the Closing Date, and, through a wholly owned subsidiary,
New Residential Funding 2023-1 LLC (the Depositor), will contribute
the loans to the Trust. As the Sponsor, Rithm Capital Corp. or one
of its majority-owned affiliates will acquire and retain a 5%
eligible horizontal residual interest in the Notes, consisting of a
portion of the Class B-5 Notes and all of the Class B-6, B-7, B-8,
XS-1, and XS-2 Notes, in the aggregate, to satisfy the credit risk
retention requirements.
Since May 2014, 28 seasoned securitizations have been issued from
the NRMLT core shelf. These securitizations contained highly
seasoned loans sourced from prior deal collapses. Although
historical performance for prior NRMLT deals has been generally
satisfactory with low losses (
OBX TRUST 2023-NQM4: Fitch Gives Bsf Rating on B-2 Notes
--------------------------------------------------------
Fitch Ratings has assigned ratings to OBX 2023-NQM4 Trust.
Entity/Debt Rating Prior
----------- ------ -----
OBX 2023-NQM4
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
XS LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
After Fitch issued expected ratings to OBX 2023-NQM4 on May 16,
2023, the issuer provided an updated structure reflecting resized
bonds and credit enhancement levels, which was driven by an
increase in coupon on the senior notes. Fitch analyzed the updated
structure, and there were no changes to Fitch's expected losses or
ratings as a result of it.
Fitch rates the residential mortgage-backed notes issued by the OBX
2023-NQM4 Trust as indicated above. The notes are supported by 900
loans with an unpaid principal balance of approximately $394.3
million as of the cutoff date. The pool consists of fixed-rate
mortgages (FRMs) and adjustable-rate mortgages (ARMs) acquired by
Annaly Capital Management, Inc. (Annaly) from various originators
and aggregators. The loans will be serviced by Select Portfolio
Servicing, Inc. (SPS), AmWest Funding Corp. (AmWest) and NewRez LLC
d/b/a Shellpoint Mortgage Servicing (Shellpoint). Computershare
Trust Company, N.A. (Computerhare) will act as Master Servicer.
Distributions of principal and interest (P&I) and loss allocations
are based on a modified sequential-payment structure. The
transaction has a stop-advance feature where the P&I advancing
party will advance delinquent P&I for up to 120 days. Of the loans,
approximately 58.3% are designated as non-qualified mortgage
(non-QM), 0.2% are QM, 2.5% are higher-price QM (HPQM), 0.1% (one
loan) was designated as Ability to Repay (ATR) Risk and the
remaining 38.9% are investment properties not subject to the ATR
Rule.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, it views the home price values of
this pool as 6.7% above a long-term sustainable level (versus 7.8%
on a national level as of March 2023, down 2.7% since last
quarter). The rapid gain in home prices through the pandemic has
seen signs of moderating with a decline observed in 3Q22. Driven by
the strong gains seen in 1H22, home prices rose 5.8% yoy nationally
as of December 2022.
Nonprime Credit Quality (Mixed): The collateral consists of
15-year, 30-year and 40-year fixed-rate and adjustable-rate loans.
Adjustable-rate loans constitute 23.6% of the pool as calculated by
Fitch, which includes 7.6% debt service coverage ratio (DSCR) loans
with a default interest rate feature; 10.4% are interest-only (IO)
loans and the remaining 89.6% are fully amortizing loans.
The pool is seasoned approximately eight months in aggregate, as
calculated by Fitch (six months per the transaction documents).
Borrowers in this pool have a moderate credit profile with a
Fitch-calculated weighted average (WA) FICO score of 745, debt to
income ratio (DTI) of 43% and moderate leverage of 75% sustainable
loan-to-value ratio (sLTV). Pool characteristics resemble recent
nonprime collateral.
Investor Properties, Non-QM and Alternative Documentation
(Negative): The pool contains a meaningful amount of investor
properties (38.9%) and non-QM loans (58.3%). The remaining loans
are HPQM (2.5%), QM (0.2%), and ATR Risk (0.1%). Fitch's loss
expectations reflect the higher default risk associated with these
attributes as well as loss severity (LS) adjustments for potential
ATR challenges. Higher LS assumptions are assumed for the investor
property product to reflect potential risk of a distressed sale or
disrepair.
Fitch viewed approximately 94.4% of the pool as less than full
documentation, and alternative documentation was used to underwrite
the loans. Of this, 40.6% of loans were underwritten to a bank
statement program to verify income, which is not consistent with
Appendix Q standards or Fitch's view of a full-documentation
program. To reflect the additional risk, Fitch increases the
probability of default (PD) by 1.4x on the bank statement loans.
Besides loans underwritten to a bank statement program, 26.8% of
the loans are a DSCR product, 15.2% are profit & loss (P&L)
statement loans, 8.8% are a WVOE product and 1.5% constitute an
asset depletion or asset utilization product.
Modified Sequential-Payment Structure (Mixed): The structure
distributes principal pro rata among the senior notes while
shutting out the subordinate bonds from principal payments until
all senior classes are paid in full. If a credit event, either a
cumulative loss trigger event or a delinquency trigger event,
occurs in a given period, principal will be distributed
sequentially to class A-1, A-2 and A-3 notes until each class
balance is reduced to zero.
The delinquency trigger for this transaction is tighter than seen
in many other recent non-QM transactions; 10% for the first three
years which steps up to 15% in year three and 20% in year five.
Given this, the triggers trip early in the life of the deal,
switching the deal to sequential pay, under Fitch's stress
scenarios. By paying sequentially, the structure does not leak
principal to the A-2 and A-3 classes, which is resulting in a
smaller differential between Fitch's rating case expected losses
and actual tranche credit enhancement relative to other recent
non-QM deals.
The structure includes a step-up coupon feature where the fixed
interest rate for class A-1, A-2 and A-3 will increase by 100 bps,
subject to the net WA coupon (WAC), starting on the June 2027
payment date. This reduces the modest excess spread available to
repay losses. Starting on the June 2027 payment date, interest
distribution amounts otherwise allocable to the unrated class B-3,
to the extent available, may be used to reimburse any unpaid cap
carryover amount for class A-1, A-2 and A-3, as well as class M-1
notes if issued on the closing date with a fixed interest rate. As
an additional analysis to Fitch's rating stresses, Fitch ran a WAC
deterioration scenario that varied by rating stress. The ratings
are based off of the most conservative rating scenario.
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. Under
the WAC deterioration scenario, a portion of borrowers will likely
be impaired but will not ultimately default due to modifications
and reduced P&I. The WAC deterioration scenario had the largest
impact on the back-loaded benchmark scenario and resulted in higher
credit enhancement being needed to achieve the same ratings as the
non-WAC deterioration scenario.
Limited Advancing (Mixed): Advances of delinquent P&I will be made
on the mortgage loans for the first 120 days of delinquency, to the
extent such advances are deemed recoverable. The P&I advancing
party (Onslow Bay Financial LLC) is obligated to fund delinquent
P&I advances with respect to the loans (other than the AmWest
serviced loans). AmWest will be responsible for making P&I Advances
with respect to the AmWest serviced loans. If the P&I advancing
party or AmWest fail to remit any P&I advance required to be
funded, the master servicer (Computershare Trust Company, N.A.)
will fund the advance. The ultimate advancing party in the
transaction is the master servicer, Computershare, rated 'BBB'/'F3'
by Fitch.
The stop-advance feature limits the external liquidity to the bonds
in the event of large and extended delinquencies, but the
loan-level LS is less for this transaction than for those where the
servicer is obligated to advance P&I for the life of the
transaction, as P&I advances made on behalf of loans that become
delinquent and eventually liquidate reduce liquidation proceeds to
the trust.
RATING SENSITIVITIES
Factors 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 6.7% in the base case.
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
The defined positive rating sensitivity analysis demonstrates how
the ratings would react to positive home price growth of 10% with
no assumed overvaluation. Excluding the senior class, which is
already rated 'AAAsf', the analysis indicates there is potential
positive rating migration for all the rated classes. Specifically,
a 10% gain in home prices would result in a full category upgrade
for the rated class excluding those assigned ratings of 'AAAsf'.
CRITERIA VARIATION
Fitch's analysis incorporated one variation from the "U.S. RMBS
Rating Criteria."
The variation is related to the primary valuation type for
new-origination first lien loans. Per the criteria, Fitch expects
to receive a full appraisal as primary valuation for all
new-origination first lien loans. Approximately 10.1% of the pool
by loan count (91 loans) did not receive a full appraisal. These
loans received a hybrid appraisal as primary valuation,
supplemented by an AVM, desk review or drive-by secondary value.
Fitch took the lower of the hybrid appraisal and the secondary
value, which were subject to haircuts. For the 36 loans that
received AVMs, Fitch applied up to 20% haircut on the valuations
based on the AVM vendor and confidence score, per criteria.
The desk review and drive-by valuations were applied the maximum
20% haircut, consistent with the Fitch treatment for AVMs by an
unnamed AVM provider or a non-Fitch-reviewed vendor. The
application of the lower valuation for these loans resulted in a
higher sLTV compared to utilizing only the hybrid appraisal primary
valuation. This resulted in an increase of approximately 75bps at
'AAA'.
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.
OCTAGON 66: Fitch Affirms 'BB-sf' Rating on E Notes, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed the ratings on the class A-1, A-2, B-1,
B-2, C, D, and E notes of Octagon 64, Ltd. (Octagon 64) and the
class B-1, B-2, C-1, C-2, D and E notes of Octagon 66, Ltd.
(Octagon 66). The Rating Outlooks on all rated tranches remain
Stable.
Entity/Debt Rating Prior
----------- ------ -----
Octagon 64, Ltd.
A-1 67579AAD9 LT AAAsf Affirmed AAAsf
A-2 67579AAG2 LT AAAsf Affirmed AAAsf
B-1 67579AAK3 LT AA+sf Affirmed AA+sf
B-2 67579AAU1 LT AA+sf Affirmed AA+sf
C 67579AAN7 LT A+sf Affirmed A+sf
D 67579AAR8 LT BBB+sf Affirmed BBB+sf
E 67579BAA3 LT BBsf Affirmed BBsf
Octagon 66, Ltd.
B-1 67577WAC5 LT AAsf Affirmed AAsf
B-2 67577WAJ0 LT AAsf Affirmed AAsf
C-1 67577WAE1 LT A+sf Affirmed A+sf
C-2 67577WAL5 LT A+sf Affirmed A+sf
D 67577WAG6 LT BBB-sf Affirmed BBB-sf
E 67577XAA7 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
Octagon 64 and Octagon 66 are broadly syndicated collateralized
loan obligations (CLOs) managed by Octagon Credit Investors, LLC.
Octagon 64 closed in June 2022 and will exit its reinvestment
period in July 2027. Octagon 66 closed in July 2022 and will exit
its reinvestment period in August 2025. Both CLOs are secured
primarily by first-lien, senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are due to the portfolios' stable performance
since closing. The credit quality of Octagon 64 as of April 2023
reporting represents a weighted average rating factor (WARF) of
24.33 ('B' rating level), compared to 23.82 (also a 'B' rating
level) at closing. The credit quality of Octagon 66 as of April
2023 reporting represents a WARF of 23.65 ('B' rating level),
compared to 23.01 ('B+/B' rating level) at closing.
The portfolio for Octagon 64 consists of 366 obligors, and the
largest 10 obligors represent 9.2% of the portfolio. Octagon 66 has
248 obligors, with the largest 10 obligors comprising 12.5% of the
portfolio. As of April 2023 reporting, Octagon 64 holds three
defaulted assets totaling 1.0% of the portfolio and Octagon 66
holds one defaulted asset equal to 0.2% of the portfolio. Exposure
to issuers with a Negative Outlook and Fitch's watchlist is 21.0%
and 6.9%, respectively, for Octagon 64, and 19.9% and 4.9%,
respectively, for Octagon 66.
On average, first lien loans, cash and eligible investments
comprise 95.5% of the portfolio and fixed rated assets 2.2% of the
portfolio as of the April reports. Fitch's weighted average
recovery rate for Octagon 64 and Octagon 66 portfolios were 74.9
and 75.3, compared to 74.8 and 74.5 at closing.
All coverage tests, collateral quality tests (CQTs), and
concentration limitations are in compliance for both transactions.
Cash Flow Analysis
Fitch conducted updated cash flow analyses based on newly run Fitch
Stressed Portfolio (FSP) since both transactions are still in their
reinvestment periods. The FSP analysis stressed the current
portfolio from the latest trustee report to account for permissible
concentration and CQT limits. The FSP analysis was conducted at
weighted average life of 7.25 years for Octagon 64 and 6.0 years
for Octagon 66. Weighted average spreads were stressed to the
covenant minimum levels of 3.4% for both Octagon 64 and Octagon 66.
Other FSP assumptions for both CLOs include 7.5% non-senior secured
assets, 5.0% fixed rate assets, and 7.5% CCC assets.
The rating actions are in line with the model implied ratings
(MIRs) as defined in the criteria, except for the class B, D, and E
notes in Octagon 66. The class B notes were affirmed one notch
below their respective MIRs, and the class D and E notes two
notches below, as cushions to MIRs were considered in the context
of growing macroeconomic headwinds and potential acceleration of
defaults and negative migration in the underlying portfolios.
The Stable Outlooks reflect Fitch's expectation that the notes have
sufficient level of credit protection to withstand potential
deterioration in the credit quality of the portfolios in stress
scenarios commensurate with each class' rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement do not compensate for the higher loss
expectation than initially assumed.
A 25% increase of the mean default rate across all ratings, along
with a 25% decrease of the recovery rate at all rating levels for
the current portfolio, would lead to downgrades of up to three
rating notches for Octagon 64 and up to two rating notches for
Octagon 66, based on the MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Except for tranches already at the highest 'AAAsf' rating, upgrades
may occur in the event of better-than-expected portfolio credit
quality and transaction performance.
A 25% reduction of the mean default rate across all ratings, along
with a 25% increase of the recovery rate at all rating levels for
the current portfolio, would lead to upgrades of up to four rating
notches for Octagon 64 and up to six rating notches for Octagon 66,
based on the MIRs.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
OCTANE RECEIVABLES 2023-2: S&P Assigns BB (sf) Rating on E Notes
----------------------------------------------------------------
S&P Global Ratings assigned its ratings to Octane Receivables Trust
2023-2's asset-backed notes.
The note issuance is an ABS transaction backed by consumer
powersport receivables.
The ratings reflect:
-- The availability of approximately 40.93%, 31.29%, 20.63%,
14.69%, and 10.57% in credit support, including excess spread, for
the class A (A-1 and A-2), B, C, D, and E notes, respectively,
based on stressed cash flow scenarios. These credit support levels
provide at least 5.00x, 4.50x, 3.00x, 2.00x, and 1.60x coverage of
S&P's stressed net loss levels for the class A, 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
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. 10, 2021.
-- The collateral characteristics of the consumer powersport
amortizing receivables securitized, including a weighted average
nonzero FICO score of approximately 700 and an average monthly
payment of approximately $295.
-- The transaction's credit enhancement in the form of
subordination, overcollateralization that builds to a target level
of 3.50% 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 structures.
Ratings Assigned
Octane Receivables Trust 2023-2
Class A-1, $49.333 million: A-1+ (sf)
Class A-2, $206.507 million: AAA (sf)
Class B, $42.840 million: AA+ (sf)
Class C, $51.780 million: A (sf)
Class D, $25.378 million: BBB (sf)
Class E, $24.162 million: BB (sf)
OHA CREDIT 15: S&P Assigns BB- (sf) Rating on $13MM Class E Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its ratings to OHA Credit Funding 15
Ltd./OHA Credit Funding 15 LLC's fixed- and floating-rate notes.
The debt issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term loans.
The transaction is managed by Oak Hill Advisors L.P.
The ratings reflect 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.
Ratings Assigned
OHA Credit Funding 15 Ltd./OHA Credit Funding 15 LLC
Class A, $202.00 million: Not rated
Class A-L, $50.00 million: Not rated
Class B-1, $35.00 million: AA (sf)
Class B-2, $15.00 million: AA (sf)
Class C (deferrable), $26.00 million: A (sf)
Class D (deferrable), $23.00 million: BBB- (sf)
Class E (deferrable), $13.00 million: BB- (sf)
Subordinated notes, $36.00 million: Not rated
PAWNEE EQUIPMENT 2021-1: DBRS Hikes Rating on Class E to BB
-----------------------------------------------------------
DBRS, Inc. upgraded nine ratings and confirmed 10 ratings on four
Pawnee Equipment Receivables LLC transactions as follows:
Pawnee Equipment Receivables (Series 2019-1) LLC
-- Class C Notes confirmed at AAA (sf)
-- Class D Notes upgraded to AAA (sf) from AA (sf)
-- Class E Notes upgraded to A (high) (sf) from A (sf)
Pawnee Equipment Receivables (Series 2020-1) LLC
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AAA (sf)
-- Class C Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class D Notes upgraded to AA (low) (sf) from A (high) (sf)
-- Class E Notes upgraded to A (low) (sf) from BBB (sf)
Pawnee Equipment Receivables (Series 2021-1) LLC
-- Class A-2 Notes confirmed at AAA (sf)
-- Class B upgraded to AA (high) (sf) from AA (sf)
-- Class C upgraded to A (high) (sf) from A (sf)
-- Class D upgraded to BBB (high) (sf) from BBB (sf)
-- Class E upgraded to BB (sf) from BB (low) (sf)
Pawnee Equipment Receivables (Series 2022-1) LLC
-- Class A-2 Notes confirmed at AAA (sf)
-- Class A-3 Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)
-- Class C Notes confirmed at A (sf)
-- Class D Notes confirmed at BBB (sf)
-- Class E Notes confirmed at BB (low) (sf)
The rating actions are based on 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: April 2023 Update," published on April 28, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse Coronavirus Disease (COVID-19) pandemic
scenarios, which were first published in April 2020.
-- The currently available hard credit enhancement in the form of
overcollateralization, subordination (as applicable), and amounts
of deposit in the cash reserve account, as well as the change in
the level of protection afforded by each form of credit enhancement
since the closing of each transaction.
-- The collateral performance on the transactions is within
expectation with low levels of cumulative net loss to date.
-- The relative benefit from obligor and geographic
diversification of collateral pools.
-- The transaction parties' capabilities with regard to
originating, underwriting, and servicing.
SALUDA GRADE 2023-SEQ3: Fitch Gives 'B-(EXP)' Rating on B2 Notes
----------------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
Saluda Grade Alternative Mortgage Trust 2023-SEQ3 (GRADE
2023-SEQ3).
Entity/Debt Rating
----------- ------
Saluda Grade
Alternative
Mortgage Trust
2023-SEQ3
A1 LT AAA(EXP)sf Expected Rating
A2 LT AA-(EXP)sf Expected Rating
A3 LT A-(EXP)sf Expected Rating
M1 LT BBB-(EXP)sf Expected Rating
B1 LT BB-(EXP)sf Expected Rating
B2 LT B-(EXP)sf Expected Rating
B3 LT NR(EXP)sf Expected Rating
XS LT NR(EXP)sf Expected Rating
AIOS LT NR(EXP)sf Expected Rating
G LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch expects to rate the residential mortgage-backed notes issued
by Saluda Grade Alternative Mortgage Trust 2023-SEQ3 (GRADE
2023-SEQ3), as indicated above. The transaction is expected to
close on May 31, 2023. The notes are supported by 2,587 primarily
newly originated second lien residential mortgage loans with a
total balance of $232.7 million.
Spring EQ, LLC is the originator for 100% of the loans, 55.8% of
which are closed-end second (CES) lien fixed-rate loans and 44.2%
are home equity line of credit (HELOC) adjustable-rate loans (43.1%
second lien and 1.1% first lien). Percentages are based on the
current HELOC utilization rate.
Fitch's analysis incorporated the HELOC maximum available draw
amount, which is expected to be $139.7 million (with a utilization
rate of 73.6%, as of the cutoff date). The data in this presale are
based on the higher total pool balance, $269.5 million, that
considers the maximum available draw amount for HELOC loans, unless
otherwise noted.
Distributions of principal and interest (P&I) and loss allocations
are based on a senior-subordinate, sequential structure. The
sequential-pay structure locks out principal to the subordinated
notes until the most senior notes outstanding are paid in full. To
the extent the holders of class G certificates are required to fund
additional draws, the class G balance will increase. Class G is
paid sequentially in the waterfall and receives interest payments
after class B3, and principal payments prior to the notes. The
servicer will not advance delinquent monthly payments of P&I.
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 6.6% above a long-term sustainable level (vs. 7.8%
on a national level as of March 2023, down 2.7% since last
quarter). The rapid gain in home prices through the pandemic has
seen signs of moderating with a decline observed in 3Q22. Driven by
the strong gains seen in 1H22, home prices rose 5.8% YoY nationally
as of December 2022.
Closed-End Second Liens and HELOCs (Negative): Based on the current
HELOC utilization rate, 55.8% of the loans are newly originated CES
mortgages and 44.2% are newly originated HELOCs. Fitch's analysis
incorporated the HELOC maximum available draw amount, and
therefore, 48.2% were treated as CES liens and 51.8% were treated
as HELOCs. The utilization rate on the HELOCs is 73.6%. Borrowers
of HELOC loans have the ability to draw down additional amounts,
and to account for the potential higher principal balance and
related risks, Fitch incorporated the maximum draw amount in its
loan-to-value ratio (LTV) calculations and loss analysis. Fitch
assumed no recovery and 100% loss severity on second liens loans
based on the historical behavior of second lien loans in economic
stress scenarios. Fitch assumes second lien loans default at a rate
comparable to first lien loans; after controlling for credit
attributes, no additional penalty was applied.
Moderate Credit Quality (Mixed): The pool generally consists of new
origination, CES, fixed-rate and HELOC adjustable-rate loans,
seasoned approximately six months (as calculated by Fitch), with a
moderate credit profile -- weighted average (WA) model credit score
of 736, a 39.7% debt to income ratio and a relatively high
sustainable LTV (sLTV) of 81.4%. Roughly 98.4% of the loans were
treated as full documentation in Fitch's analysis. None of the
loans have experienced any prior modifications since origination.
Thirty-four loans were flagged previously DQ due to a temporary
payment interruption as a result of servicing transfer. Fitch did
not penalize the delinquencies and considered those loans as
current in its analysis.
Sequential-Pay Structure with Realized Loss and Charge Off Feature
(Positive): The transaction's cash flow is based on a
sequential-pay structure, whereby the subordinate classes do not
receive principal until the senior classes are repaid in full.
Losses are allocated in reverse-sequential order. Furthermore, the
provision to reallocate principal to pay interest on the 'AAAsf'
and 'AA-sf' rated notes prior to other principal distributions is
highly supportive of timely interest payments to those classes in
the absence of servicer advancing.
Second lien loans that become delinquent (DQ) for 180 days or more
under the Mortgage Bankers Association (MBA) methodology, may be
charged-off or considered a realized loss by the servicer (with the
consent of the administrator) to the extent it is determined that
no significant recovery is possible through foreclosure proceedings
or other liquidation of the related mortgaged property, therefore,
will cause the most subordinated class to be written down. Despite
the 100% LS assumed for each defaulted second lien loan, Fitch
views the writedown feature positively, as cash flows will not be
needed to pay timely interest to the 'AAAsf' and 'AA-sf' rated
notes during loan resolution by the servicer. In addition,
subsequent recoveries realized after the writedown at 180 days' DQ
will be passed on to bondholders as principal.
No Servicer P&I Advances (Mixed): The servicer will not advance DQ
monthly payments of P&I, which reduces liquidity to the trust. P&I
advances made on behalf of loans that become DQ and eventually
reduce liquidation proceeds to the trust. Structural provisions and
cash flow priorities, together with increased subordination,
provide for timely payments of interest to the 'AAAsf' and 'AA-sf'
rated classes.
RATING SENSITIVITIES
Factors 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 39.3% at 'AAA'. The
analysis indicates that there is some potential rating migration
with higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home prices
would lower all rated classes by one full category.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
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'.
CRITERIA VARIATION
Fitch's analysis incorporated one variation from the "U.S. RMBS
Rating Criteria."
The variation is related to the primary valuation type for
new-origination first lien loans. Per criteria, Fitch expects to
receive a full appraisal as primary valuation for all
new-origination first lien loans. Six loans or 0.23% of the pool by
loan count did not have a full appraisal as their primary
valuation.
For one of the six loans (0.02% by loan count of the total pool),
Fitch received a Form 2055 (Exterior-Only) as the primary valuation
type. The exterior-only valuations were applied the maximum 20%
haircut, consistent with the Fitch treatment for AVMs by an unnamed
AVM provider or a non-Fitch-reviewed vendor. In addition, five new
origination first lien loans utilized an AVM as their primary
valuation. Fitch applied haircuts ranging from 2.5% to 5.0%
depending on the associated confidence score of the AVM and the
vendor provider, per criteria. The six loans had low leverage with
an sLTV of 43.0% (relative to 81.6% for the whole pool) and a high
WA FICO of 749.
ESG CONSIDERATIONS
Saluda Grade Alternative Mortgage Trust 2023-SEQ3 has an ESG
Relevance Score of '4' for Transaction Parties & Operational Risk,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
SANDSTONE PEAK II: S&P Assigns Prelim BB-(sf) Rating on E Notes
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Sandstone
Peak II Ltd./Sandstone Peak CLO II LLC's floating-rate notes.
The note issuance is a CLO securitization backed by primarily
broadly syndicated speculative-grade (rated 'BB+' and lower) senior
secured term loans.
The preliminary ratings are based on information as of May 23,
2023. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect S&P's view of:
-- The diversification of the collateral pool.
-- The credit enhancement provided through 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.
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
Sandstone Peak II Ltd./Sandstone Peak CLO II LLC
Class A, $250.00 million: AAA (sf)
Class B, $54.00 million: AA (sf)
Class C (deferrable), $23.60 million: A (sf)
Class D (deferrable), $20.80 million: BBB- (sf)
Class E (deferrable), $12.60 million: BB- (sf)
Subordinated notes, $36.44 million: Not rated
SLM STUDENT 2008-7: S&P Lowers Class B Notes Rating to CC (sf)
--------------------------------------------------------------
S&P Global Ratings lowered its ratings on six classes from SLM
Student Loan Trust 2008-5, 2008-6, and 2008-7 to 'CC (sf)' from 'B
(sf)'. At the same time, S&P placed the class A-4 notes on
CreditWatch with negative implications and the class B notes on
CreditWatch with developing implications. Each transaction is a
student loan ABS transaction backed by a pool of student loans
originated through the U.S. Department of Education's (ED) Federal
Family Education Loan Program (FFELP).
S&P said, "In determining the ratings, we considered our criteria
article for assigning 'CCC' and 'CC' ratings (see "Criteria For
Assigning 'CCC+', 'CCC', 'CCC-', and 'CC' Ratings," published Oct.
1, 2012), which states that an obligation is rated 'CC' when it is
currently highly vulnerable to nonpayment and when we expect
default even under the most optimistic collateral performance.
"We place a rating on CreditWatch when we believe that there is at
least a 50% likelihood of a rating change in the short term.
CreditWatch with negative implications indicates that the rating on
the class A-4 notes may be lowered. CreditWatch with developing
implications indicates that the rating on the class B notes may be
raised, lowered, or affirmed. CreditWatch developing is used for
situations where potential future events are unpredictable and
differ so significantly that the rating could be raised, lowered,
or affirmed.
"Our review considered the transactions' collateral performance and
liquidity position, credit enhancement, and capital and payment
structures. We also considered secondary credit factors, such as
credit stability, peer comparisons, issuer-specific analyses, and
the current macroeconomic environment."
RATIONALE
Given the current macro-economic and regulatory environment, S&P
believes that the likelihood of executing the call option has
decreased since our last review. As such, there is a higher
likelihood that the senior notes will not be repaid on their legal
final maturity date in July 2023.
If the senior classes are not repaid on their legal final maturity
date, an event of default (EOD) under the transactions' documents
will occur. An EOD allows noteholders and/or the trustee to take
actions that could negatively affect the repayment of the class A
or class B notes. As such, the likelihood that the class B notes
might be affected is tied to the likelihood that the senior notes
might not be repaid by their legal final maturity dates.
S&P believes the current pace of collateral amortization is not
adequate to repay the senior notes by their respective legal final
maturity date. The table sets out the current senior class bond
balance, the remaining number of payment dates, and the
transactions' average quarterly pay down over the last year.
Table 1(i)
Transaction Information
Senior class No. of remaining Avg. quarterly
balance quarterly payment
Transaction (mil. $) payments amount (mil. $)
SLM 2008-5 260.7 1 18.5
SLM 2008-6 257.2 1 14.5
SLM 2008-7 192.9 1 11.3
(i)As of April 2023 distribution date.
The collateral pool factors range from 9.66% to 16.04% as of the
transactions' most recent servicer reports. The transactions have
features that allow the servicer to purchase either an additional
2.00% or 10.00% of the collateral pool (the additional collateral
purchase), which can be used to provide liquidity and lower the
pool factor to below 10.00%. When the pool factor is below 10.00%,
the collateral can be sold to the servicer or through an auction
(the clean-up call). The proceeds of the clean-up call can then be
used to repay the notes in full.
S&P said, "Once a course of action is determined by the trustee
and/or noteholders subsequent to the legal final maturity date, we
will determine whether the class B ratings will be raised, lowered,
or affirmed.
"We will continue to monitor the macroeconomic environment and the
transactions' performance (including the student loan receivables),
available credit enhancement, and liquidity, and take further
rating actions as we deem appropriate."
RATINGS LOWERED AND PLACED ON CREDITWATCH
SLM Student Loan Trust 2008-5
Rating
Class To From
A-4 CC (sf)/Watch Neg B (sf)
B CC (sf)/Watch Dev B (sf)
SLM Student Loan Trust 2008-6
Rating
Class To From
A-4 CC (sf)/Watch Neg B (sf)
B to CC (sf)/Watch Dev B (sf)
SLM Student Loan Trust 2008-7
Rating
Class To From
A-4 CC (sf)/Watch Neg B (sf)
B CC (sf)/Watch Dev B (sf)
STRUCTURED ASSET 2004-11: Moody's Hikes Class M2 Debt Rating to Ba1
-------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of four bonds
from two US residential mortgage-backed transactions (RMBS), backed
subprime mortgages issued by multiple issuers.
Complete rating actions are as follows:
Issuer: Structured Asset Investment Loan Trust 2004-11
Cl. M1, Upgraded to Aa2 (sf); previously on Jun 5, 2018 Upgraded to
A1 (sf)
Cl. M2, Upgraded to Ba1 (sf); previously on Jun 5, 2018 Upgraded to
Ba3 (sf)
Issuer: Terwin Mortgage Trust 2006-5
Cl. I-A-2b, Upgraded to Aa3 (sf); previously on Oct 25, 2019
Upgraded to A2 (sf)
Cl. I-A-2c, Upgraded to Baa2 (sf); previously on Jan 15, 2019
Upgraded to Ba1 (sf)
RATINGS RATIONALE
The rating actions reflect the recent performance as well as
Moody's updated loss expectations on the underlying pools. The
rating upgrades are a result of the improving performance of the
related pools, and/or an increase in credit enhancement available
to the bonds.
Principal Methodologies
The principal methodology used in rating all classes was "US RMBS
Surveillance Methodology" published in July 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 of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's expectations as a
result of a higher number of obligor defaults or deterioration in
the value of the mortgaged property securing an obligor's promise
of payment. Transaction performance also depends greatly on the US
macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions. In addition, improvements in
reporting formats and data availability across deals and trustees
may provide better insight into certain performance metrics such as
the level of collateral modifications.
TEXAS DEBT 2023-II: Fitch Assigns 'BB-sf' Rating on Class E Notes
-----------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to Texas
Debt Capital CLO 2023-II, Ltd.
Entity/Debt Rating
----------- ------
Texas Debt
Capital CLO
2023-II, Ltd.
A LT AAAsf New Rating
A-L LT AAAsf New Rating
B LT AAsf New Rating
C LT Asf New Rating
D LT BBB-sf New Rating
E LT BB-sf New Rating
Subordinated
Notes LT NRsf New Rating
TRANSACTION SUMMARY
Texas Debt Capital CLO 2023-II, Ltd. (the issuer) is an arbitrage
cash flow collateralized loan obligation (CLO) that will be managed
by CIFC Asset Management LLC. Net proceeds from the issuance of the
secured debt and subordinated notes and the incurrence of the class
A-L loans will provide financing on a portfolio of approximately
$500.0 million of primarily first lien senior secured leveraged
loans.
KEY RATING DRIVERS
Asset Credit Quality (Negative): The average credit quality of the
indicative portfolio is 'B'/B-', which is in line with that of
recent CLOs. The weighted average rating factor (WARF) of the
indicative portfolio is 24.84 versus a maximum covenant, in
accordance with the initial expected matrix point of 25.82. Issuers
rated in the 'B' rating category denote a highly speculative credit
quality; however, the rated debt benefits from credit enhancement
(CE) and standard U.S. CLO structural features.
Asset Security (Positive): The indicative portfolio consists of
98.5% first lien senior secured loans. The weighted average
recovery rate (WARR) of the indicative portfolio is 75.69% versus a
minimum covenant, in accordance with the initial expected matrix
point of 73.60%.
Portfolio Composition (Positive): The largest three industries may
constitute up to 44.5% of the portfolio balance in aggregate, while
the top five obligors can represent up to 12.5% of the portfolio
balance in aggregate. The level of diversity resulting from the
industry, obligor and geographic concentrations is in line with
other recent U.S. CLOs.
Portfolio Management (Neutral): The transaction has a 3.2-year
reinvestment period and reinvestment criteria similar to other U.S.
CLOs. Fitch's analysis was based on a stressed portfolio created by
adjusting the indicative portfolio to reflect permissible
concentration limits and collateral quality test levels.
Cash Flow Analysis (Positive): Fitch used a customized proprietary
cash flow model to replicate the principal and interest waterfalls
and assess the effectiveness of various structural features of the
transaction. In Fitch's stress scenarios, at the initial expected
matrix point, the rated debt can withstand default and recovery
assumptions consistent with their assigned ratings. The weighted
average life (WAL) used for the transaction stress portfolio and
matrices analysis is 12 months less than the WAL covenant to
account for structural and reinvestment conditions after the
reinvestment period.
In Fitch's opinion, these conditions would reduce the effective
risk horizon of the portfolio during stress periods. The
performance of the rated debt at the other permitted matrix points
is in line with other recent CLOs.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the sensitivity of the debt to potential changes in
such metrics; the results under these sensitivity scenarios are as
severe as between 'BBB+sf' and 'AA+sf' for class A debt, between
'BB+sf' and 'A+sf' for class B notes, between 'B+sf' and 'BBB+sf'
for class C notes, between less than 'B-sf' and 'BB+sf' for class D
notes and between less than 'B-sf' and 'B+sf' for class E notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrade scenarios are not applicable to the class A debt, as the
debt is in the highest rating category of 'AAAsf'.
At other rating levels, variability in key model assumptions, such
as increases in recovery rates and decreases in default rates,
could result in an upgrade. Fitch evaluated the notes' sensitivity
to potential changes in such metrics; the results under these
sensitivity scenarios are 'AAAsf' for class B notes, 'A+sf' for
class C notes, 'A-sf' for class D notes and 'BBB+sf' for class E
notes.
Key Rating Drivers and Rating Sensitivities are further described
in the new issue report, which is available to investors.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
UBS-BARCLAYS 2013-C6: Moody's Lowers Rating on Cl. C Certs to B2
----------------------------------------------------------------
Moody's Investors Service has affirmed the ratings on four classes
and downgraded the ratings on four classes in UBS-Barclays
Commercial Mortgage Trust 2013-C6, Commercial Mortgage Pass-Through
Certificates, Series 2013-C6 ("UBS-BB 2013-C6"), as follows:
Cl. A-S, Affirmed Aaa (sf); previously on Oct 12, 2022 Affirmed Aaa
(sf)
Cl. B, Affirmed Baa2 (sf); previously on Oct 12, 2022 Affirmed Baa2
(sf)
Cl. C, Downgraded to B2 (sf); previously on Oct 12, 2022 Downgraded
to B1 (sf)
Cl. D, Downgraded to Caa3 (sf); previously on Oct 12, 2022
Downgraded to Caa1 (sf)
Cl. E, Downgraded to C (sf); previously on Oct 12, 2022 Affirmed
Caa3 (sf)
Cl. F, Affirmed C (sf); previously on Oct 12, 2022 Affirmed C (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Oct 12, 2022 Affirmed
Aaa (sf)
Cl. X-B*, Downgraded to Ba2 (sf); previously on Oct 12, 2022
Affirmed Ba1 (sf)
* Reflects Interest-Only Classes
RATINGS RATIONALE
The ratings on two P&I classes were affirmed due to the expected
principal recoveries from the remaining loans in the pool as well
as the significant credit support and the transaction's key
metrics, including Moody's loan-to-value (LTV) ratio, are within
acceptable ranges.
The rating on one P&I class, Cl. F, was affirmed because its rating
is consistent with Moody's expected loss.
The ratings on three P&I classes, Cl. C, Cl. D and Cl. E, were
downgraded due to the potential for higher losses and interest
shortfalls driven primarily by the significant exposure to loans in
special servicing with declining performance. Five loans
constituting 46% of the pool are in special servicing and the
largest specially serviced loan (Broward Mall - 32% of the pool
balance) is already real estate owned (REO) and two additional
specially serviced loans, The Heights (7.8%) and 240 Park Avenue
South (3.8%), are either fully vacant or have very low occupancy.
As of the May 2023 remittance, all loans have now passed their
original maturity dates.
The rating on one interest only (IO) class, Cl. X-A, was affirmed
based on the credit quality of its referenced class.
The rating on the IO class, Cl. X-B, was downgraded due to a
decline in the credit quality of its referenced classes.
Moody's regard e-commerce competition as a social risk under
Moody's ESG framework. The rise in e-commerce and changing consumer
behavior presents challenges to brick-and-mortar discretionary
retailers.
Moody's rating action reflects a base expected loss of 31.2% of the
current pooled balance, compared to 10.7% at Moody's last review.
Moody's base expected loss plus realized losses is now 7.2% of the
original pooled balance, compared to 8.0% 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. Additionally, significant
changes in the 5-year rolling average of 10-year US Treasury rates
will impact the magnitude of the interest rate adjustment and may
lead to future rating actions.
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
decline in the performance of the pool, an increase in realized and
expected losses from specially serviced and troubled loans or
interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except
interest-only classes was "Large Loan and Single Asset/Single
Borrower Commercial Mortgage-Backed Securitizations Methodology"
published in July 2022.
Moody's analysis incorporated a loss and recovery approach in
rating the P&I classes in this deal since 46% of the pool is in
special servicing. In this approach, Moody's determines a
probability of default for each specially serviced loan that it
expects will generate a loss and estimates a loss given default
based on a review of broker's opinions of value (if available),
other information from the special servicer, available market data
and Moody's internal data. The loss given default for each loan
also takes into consideration repayment of servicer advances to
date, estimated future advances and closing costs. Translating the
probability of default and loss given default into an expected loss
estimate, Moody's then applies the aggregate loss from specially
serviced 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 May 12, 2023 distribution date, the transaction's
aggregate certificate balance has decreased by 77% to $295 million
from $1.3 billion at securitization. The certificates are
collateralized by eight mortgage loans.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity. Loan
concentration has an important bearing on potential rating
volatility, including the risk of multiple notch downgrades under
adverse circumstances. The credit neutral Herf score is 40. The
pool has a Herf of two, compared to nine at Moody's last review.
As of the May 2023 remittance report, loans representing 32% were
real estate owned (REO), 8% were performing past maturity and 60%
were non-performing past maturity.
One loan has been liquidated from the pool, resulting in a minimal
realized loss of $722,535. Five loans, constituting 46% of the
pool, are currently in special servicing.
The largest specially serviced loan is the Broward Mall loan ($95.0
million -- 32.2% of the pool), which is secured by a 326,000 square
feet (SF) portion of a one million SF super-regional mall located
in Plantation, Florida. The mall is currently anchored by Macy's,
JC Penney and Dillard's, none of which are part of the collateral.
Seritage closed the fourth anchor, Sears, in 2018. As of February
2023, the property was 78% leased, unchanged from March 2022, while
the collateral is 92% occupied. The loan is interest-only
throughout the term. The loan transferred to special servicing in
June 2020 due to imminent default as a result of the coronavirus
outbreak and the property's consistent decline in revenue. As a
result of the significant decline in property performance the NOI
DSCR was below 1.00X in 2022. The property became REO in November
2022 and is expected to be listed for sale in the second quarter of
2023. Due to a significant decline in appraisal value from
securitization, the servicer has already recognized a 52% appraisal
reduction (based on the outstanding loan balance) as of the May
2023 remittance statement.
The second largest specially serviced loan is The Heights loan
($23.0 million -- 7.8% of the pool), which is secured by 13-story,
102,177 SF mixed-use property located in Brooklyn, New York. The
property was built in 2000 and operates subject to a ground lease
that expires in January 2048. The loan transferred to special
servicing in May 2022 for imminent monetary default due to the
largest tenant, Regal Theater, being dark. The second largest
tenant, Barnes & Noble, also vacated and the property is now fully
vacant. The loan matured in March 2023 and the borrower requested a
loan extension. The loan has amortized 28% since securitization and
the borrower has continued to make monthly principal and interest
payments. Special servicer commentary indicates loan negotiations
are underway.
The third largest specially serviced loan is the 240 Park Avenue
South loan ($11.1 million -- 3.8% of the pool), which is secured by
a 5,550 SF retail property in New York City. The loan transferred
to special servicing in October 2022 due to non-monetary default.
The largest tenant, Bank of America (75% of NRA; lease expiration
in November 2023) went dark. Servicer commentary indicates the
borrower requested a loan extension and discussions are ongoing.
The loan is last paid through its February 2023 payment date, but
cash flow is expected to significantly decline after the November
2023 lease expiration date.
The remaining specially serviced loan is secured by a hotel
property located in Kingston, New York. The borrower is requesting
a loan extension. Moody's estimates an aggregate $92.1 million loss
for the specially serviced loans (71% expected loss on average).
As of the May 2023 remittance statement cumulative interest
shortfalls were $1.7 million. 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.
The sole non-specially serviced exposure represents 54% of the pool
balance. The largest exposure is the Gateway Center Loan ($160
million -- 54.2% of the pool), which is secured by three
cross-collateralized and cross-defaulted loans secured by a 355,000
SF portion of a 639,000 SF anchored retail center in Brooklyn, New
York. The properties were constructed in 2002 by The Related
Companies and are shadow anchored by Target and Home Depot.
Collateral tenants include BJ's Wholesale Club, Dave and Busters,
Marshalls and Old Navy. As of December 2022, the property was 100%
leased, however, Bed Bath & Beyond represented approximately 11% of
the NRA and closed at this location in early 2023. The NOI DSCR was
2.09X based on interest only payments at a 4.5% interest rate.
While property performance has generally improved since
securitization, the loan failed to payoff at its scheduled maturity
date in March 2023 and the borrower is requesting an extension.
Moody's LTV and stressed DSCR are 122% and 0.73X, respectively.
VELOCITY COMMERCIAL 2023-2: DBRS Gives Prov. B Rating on 3 Classes
------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the Mortgage-Backed
Certificates, Series 2023-2 to be issued by Velocity Commercial
Capital Loan Trust 2023-2 (VCC 2023-2 or the Issuer) as follows:
-- $133.8 million Class A at AAA (sf)
-- $7.7 million Class M-1 at AA (sf)
-- $15.6 million Class M-2 at A (low) (sf)
-- $15.9 million Class M-3 at BBB (sf)
-- $29.2 million Class M-4 at BB (sf)
-- $17.4 million Class M-5 at B (sf)
-- $3.4 million Class M-6 at B (low) (sf)
-- $133.8 million Class A-S at AAA (sf)
-- $133.8 million Class A-IO at AAA (sf)
-- $7.7 million Class M1-A at AA (sf)
-- $7.7 million Class M1-IO at AA (sf)
-- $15.6 million Class M2-A at A (low) (sf)
-- $15.6 million Class M2-IO at A (low) (sf)
-- $15.9 million Class M3-A at BBB (sf)
-- $15.9 million Class M3-IO at BBB (sf)
-- $29.2 million Class M4-A at BB (sf)
-- $29.2 million Class M4-IO at BB (sf)
-- $17.4 million Class M5-A at B (sf)
-- $17.4 million Class M5-IO at B (sf)
-- $3.4 million Class M6-A at B (low) (sf)
-- $3.4 million Class M6-IO at B (low) (sf)
Classes A-IO, M1-IO, M2-IO, M3-IO, M4-IO, M5-IO, and M6-IO are
interest-only (IO) certificates. The class balances represent
notional amounts.
Classes A, M-1, M-2, M-3, M-4, M-5, and M-6 are exchangeable
certificates. These classes can be exchanged for combinations of
initial exchangeable certificates as specified in the offering
documents.
The AAA (sf) ratings on the Certificates reflect 40.90% of credit
enhancement (CE) provided by subordinated certificates. The AA
(sf), A (low) (sf), BBB (sf), BB (sf), B (sf), and B (low) (sf)
ratings reflect 37.50%, 30.60%, 23.60%, 10.70%, 3.00%, and 1.50% of
CE, respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
Velocity Commercial Capital Loan Trust 2023-2 (VCC 2023-2 or the
Issuer) is a securitization of a portfolio of newly originated
fixed, first-lien residential mortgages collateralized by investor
properties with one to four units (residential investor loans) and
small-balance commercial mortgages (SBC) collateralized by various
types of commercial, multifamily rental, and mixed-use properties.
The securitization is funded by the issuance of the Certificates,
which are backed by 675 mortgage loans with a total principal
balance of $226,439,361 as of the Cut-Off Date (April 1, 2023).
Approximately 64.2% of the pool comprises residential investor
loans and about 35.8% is SBC loans. All loans in this
securitization were originated by Velocity Commercial Capital, LLC
(Velocity or VCC). The loans were underwritten to program
guidelines for business-purpose loans where the lender generally
expects the property (or its value) to be the primary source of
repayment (No Ratio). The lender reviews the mortgagor's credit
profile, but it does not rely on the borrower's income to make its
credit decision. However, the lender considers the property-level
cash flow or minimum debt service coverage ratio (DSCR) in
underwriting SBC loans with balances of more than $750,000 for
purchase transactions and more than $500,000 for refinance
transactions. Because the loans were made to investors for business
purposes, they are exempt from the Consumer Financial Protection
Bureau's Ability-to-Repay (ATR) rules and TILA-RESPA Integrated
Disclosure rule.
PHH Mortgage Corporation (PMC) will service all loans within the
pool for a servicing fee of 0.30% per annum. In addition, Velocity
will act as a Special Servicer servicing the loans that defaulted
or became 60 or more days delinquent under Mortgage Bankers
Association (MBA) method and other loans, as defined in the
transaction documents (Specially Serviced Loans). The Special
Servicer will be entitled to receive compensation based on an
annual fee of 0.75% and the balance of Specially Serviced Loans.
Also, the Special Servicer is entitled to a liquidation fee equal
to 2.00% of the net proceeds from the liquidation of a Specially
Serviced Loan, as described in the transaction documents.
The Servicer will fund advances of delinquent principal and
interest (P&I) until the advances are deemed unrecoverable. Also,
the Servicer is obligated to make advances with respect to taxes,
insurance premiums, and reasonable costs incurred in the course of
servicing and disposing properties.
U.S. Bank National Association (rated AA (high) with a Stable trend
by DBRS Morningstar) will act as the Custodian. U.S. Bank Trust
Company, National Association will act as the Trustee.
The Seller, directly or indirectly through a majority-owned
affiliate, is expected to retain an eligible horizontal residual
interest consisting of the Class P and Class XS Certificates,
collectively representing at least 5% of the fair value of all
Certificates, to satisfy the credit risk-retention requirements
under Section 15G of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder. Such retention aligns Sponsor
and investor interest in the capital structure.
On or after the later of (1) the three-year anniversary of the
Closing Date or (2) the date when the aggregate stated principal
balance of the mortgage loans is reduced to 30% of the Closing Date
balance, the Depositor may purchase all outstanding Certificates
(Optional Purchase) at a price equal to the sum of the remaining
aggregate balance of the Certificates plus accrued and unpaid
interest, and any fees, expenses, and indemnity payments due and
unpaid to the transaction parties, including any unreimbursed P&I
and servicing advances, and other amounts due as applicable. The
Optional Purchase will be conducted concurrently with a qualified
liquidation of the Issuer.
Additionally, if on any date on which the unpaid mortgage loan
balance and the value of real estate owned (REO) properties has
declined to less than 10% of the initial mortgage loan balance as
of the Cut-off Date, the Directing Holder, the Special Servicer, or
the Servicer, in that order of priority, may purchase all of the
mortgages, REO properties, and any other properties from the Issuer
(Optional Termination) at a price specified in the transaction
documents. The Optional Termination will be conducted as a
qualified liquidation of the Issuer. The Directing Holder
(initially, the Seller) is the representative selected by the
holders of more than 50% of the Class XS certificates (the
Controlling Class).
The transaction uses a structure sometimes referred to as a
modified pro rata structure. Prior to the Class A credit
enhancement (CE) falling below 10.0% of the loan balance as of the
Cut-off Date (Class A Minimum CE Event), the principal
distributions allow for amortization of all senior and subordinate
bonds based on CE targets set at different levels for performing
(same CE as at issuance) and nonperforming (higher CE than at
issuance) loans. The target principal balance of each class is
determined based on the CE targets and the performing and
nonperforming (those that are 90 or more days MBA delinquent, in
foreclosure, are REO, or subject to a servicing modification within
the prior 12 months) loan amounts. As such, the principal payments
are paid on a pro rata basis, up to the target principal balance of
each class so long as no loans in the pool are nonperforming. If
the share of nonperforming loans grows, the corresponding CE target
increases. Thus, the principal payment amount increases for the
senior and senior subordinate classes and falls for the more
subordinate bonds. The goal is to distribute the appropriate amount
of principal to the senior and subordinate bonds each month, always
maintaining the desired level of CE, based on the performing and
nonperforming pool percentages. After the Class A Minimum CE Event,
the principal distributions are made sequentially.
Relative to the sequential pay structure, the modified pro rata
structure is more sensitive to the timing of the projected defaults
and losses as the losses may be applied at a time when the amount
of credit support is reduced as the bonds' principal balances
amortize over a life of the transaction. That said, the excess
spread can be used to cover realized losses after being allocated
to the unpaid net weighted average coupon shortfalls (Net WAC Rate
Carryover Amounts). Please see the Cash Flow Structure and Features
section of the report for more details.
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) METHODOLOGY
The collateral for the small balance commercial (SBC) portion of
the pool consists of 200 individual loans secured by 200 commercial
and multifamily properties with an average cutoff date loan balance
of $405,890. None of the mortgage loans are cross-collateralized or
cross-defaulted with each other. Given the complexity of the
structure and granularity of the pool, DBRS Morningstar applied its
"North American CMBS Multi-Borrower Rating Methodology" (the CMBS
Methodology).
The commercial mortgage-backed securities (CMBS) loans have a
weighted-average (WA) fixed interest rate of 11.40%. This is
approximately 87 basis points (bps) higher than the VCC 2023-1
transaction, 215 bps higher than the VCC 2022-5 transaction, 309
bps higher than the VCC 2022-4 transaction, and more than 450 bps
higher than the VCC 2022-3, VCC 2022-2, and VCC 2022-1
transactions, highlighting the recent increase in interest rates.
Most of the loans have original loan term lengths of 30 years and
fully amortize over 30-year schedules. However, 12 loans, which
represent 7.7% of the SBC pool, have an initial interest-only (IO)
period ranging from 60 months to 120 months.
Most SBC loans were originated between April 2022 and March 2023
(99.4% of the cutoff pool balance), with one loan originated in
April 2015 (0.6% of the cutoff pool balance), resulting in a WA
seasoning of 2.4 months. The SBC pool has a WA original term length
of 359.5 months, or nearly 30 years. Based on the current loan
amount, which reflects approximately 59 bps of amortization, and
the current appraised values, the SBC pool has a WA loan-to-value
(LTV) ratio of 60.4%. However, DBRS Morningstar made LTV
adjustments to 27 loans that had an implied capitalization rate
more than 200 bps lower than a set of minimal capitalization rates
established by the DBRS Morningstar Market Rank. The DBRS
Morningstar minimum capitalization rates range from 5.0% for
properties in DBRS Morningstar Market Rank 8 to 8.0% for properties
in DBRS Morningstar Market Rank 1. This resulted in a higher DBRS
Morningstar LTV of 64.4%. Lastly, all loans fully amortize over
their respective remaining terms, resulting in 100% expected
amortization; this amount of amortization is greater than what is
typical for CMBS conduit pools. DBRS Morningstar's research
indicates that, for CMBS conduit transactions securitized between
2000 and 2021, average amortization by year has ranged between 6.5%
and 22.0%, with a median rate of 16.5%.
As contemplated and explained in DBRS Morningstar's "Rating North
American CMBS Interest-Only Certificates" methodology, the most
significant risk to an IO cash flow stream is term default risk. As
DBRS Morningstar noted in the methodology, for a pool of
approximately 63,000 CMBS loans that had fully cycled through to
their maturity defaults, the average total default rate across all
property types was approximately 17%, the refinance default rate
was 6% (approximately one-third of the total default rate), and the
term default rate was approximately 11%. DBRS Morningstar
recognizes the muted impact of refinance risk on IO certificates by
notching the IO rating up by one notch from the Reference
Obligation rating. When using the 10-year Idealized Default Table
default probability to derive a probability of default (POD) for a
CMBS bond from its rating, DBRS Morningstar estimates that, in
general, a one-third reduction in the CMBS Reference Obligation POD
maps to a tranche rating that is approximately one notch higher
than the Reference Obligation or the Applicable Reference
Obligation, whichever is appropriate. Therefore, similar logic
regarding term default risk supported the rationale for DBRS
Morningstar to reduce the POD in the CMBS Insight Model by one
notch because refinance risk is largely absent for this SBC pool of
loans.
The DBRS Morningstar CMBS Insight Model does not contemplate the
ability to prepay loans, which is generally seen as credit positive
because a prepaid loan cannot default. The CMBS predictive model
was calibrated using loans that have prepayment lockout features.
Those loans' historical prepayment performance is close to a 0%
conditional prepayment rate. If the CMBS predictive model had an
expectation of prepayments, DBRS Morningstar would expect the
default levels to be reduced. Any loan that prepays is removed from
the pool and can no longer default. This collateral pool does not
have any prepayment lockout features, and DBRS Morningstar expects
this pool will have prepayments over the remainder of the
transaction. DBRS Morningstar applied a 5.0% reduction to the
cumulative default assumptions to provide credit for expected
prepayments. This assumption reflects DBRS Morningstar's opinion
that in a rising interest rate environment fewer borrowers may
elect to prepay their loan.
As a result of higher interest rates and lending spreads, the SBC
pool has a significant increase in interest rates compared with
prior VCC transactions. Consequently, more than 70% of the deal has
less than a 1.0 times (x) Issuer net operating income (NOI) debt
service coverage ratio (DSCR), which is a larger composition than
previous VCC transactions in 2022. Additionally, although the DBRS
Morningstar CMBS Insight Model does not contemplate FICO scores, it
is important to point out that the WA FICO score of 717 for the SBC
loans is lower than prior transactions. With regard to the
aforementioned concerns, DBRS Morningstar applied a 5.0% penalty to
the fully adjusted cumulative default assumption to account for
risks given these factors. A comparison of the subject deal to
previous VCC securitizations is shown on page 9 of the related
presale report.
The SBC pool is quite diverse based on loan count and size, with an
average cutoff date loan balance of $405,890, a concentration
profile equivalent to that of a transaction with 107 equal-size
loans, and a top 10 loan concentration of 20.8%. Increased pool
diversity helps to insulate the higher-rated classes from event
risk.
The loans are mostly secured by traditional property types (i.e.,
multifamily, retail, office, and industrial), with no exposure to
higher-volatility property types, such as hotels or other lodging
facilities.
All loans in the SBC pool fully amortize over their respective
remaining loan terms, reducing refinance risk.
As classified by DBRS Morningstar for modeling purposes, the SBC
pool contains a significant exposure to office (24.5% of the SBC
pool) and retail (22.5% of the SBC pool), which are two of the
higher-volatility asset types in the pool. Loans counted as retail
include those identified as automotive and potentially commercial
condominium. Combined, retail and office properties represent 47.3%
of the SBC pool balance. Retail, which has struggled because of the
Coronavirus Disease (COVID-19) pandemic, is the third-largest asset
type in the transaction. DBRS Morningstar applied a 20.5% reduction
to the net cash flow (NCF) for retail properties and a 31.3%
reduction to the NCF for office assets in the SBC pool, which is
above the average NCF reduction applied for comparable property
types in CMBS analyzed deals.
DBRS Morningstar did not perform site inspections on loans within
its sample for this transaction. Instead, DBRS Morningstar relied
upon analysis of third-party reports and online searches to
determine property quality assessments. Of the 85 loans DBRS
Morningstar sampled, 13 were Average quality (23.7%), 64 were
Average – (71.1%), and eight were Below Average (5.2%). DBRS
Morningstar assumed unsampled loans were Average – quality, which
has a slightly increased POD level. This is consistent with the
assessments from sampled loans and other SBC transactions rated by
DBRS Morningstar.
Limited property-level information was available for DBRS
Morningstar to review. Asset summary reports, property condition
reports, Phase I/II environmental site assessment (ESA) reports,
and historical cash flows were generally not available for review
in conjunction with this securitization. DBRS Morningstar received
and reviewed appraisals for the top 30 loans, which represent 39.8%
of the SBC pool balance. These appraisals were issued between
February 2022 and March 2023 when the respective loans were
originated. DBRS Morningstar was able to perform a loan-level cash
flow analysis on the top 30 loans. The NCF haircuts for the top 30
loans ranged from -2.5% to -100.0%, with an average of -28.5%. No
ESA reports were provided nor required by the Issuer; however, all
of the loans have an environmental insurance policy that provides
coverage to the Issuer and the securitization trust in the event of
a claim. No probable maximum loss information or earthquake
insurance requirements are provided. Therefore, a loss severity
given default penalty was applied to all properties in California
to mitigate this potential risk.
DBRS Morningstar received limited borrower information, net worth
or liquidity information, and credit history. Additionally, the WA
interest rate of the deal is 11.40%, which is indicative of the
broader increased interest rate environment and represents a large
increase over previous VCC deals. DBRS Morningstar initially
assumed loans had Weak sponsorship scores, which increases the
stress on the default rate. The initial assumption of Weak reflects
the generally less sophisticated nature of small balance borrowers
and assessments from past small balance transactions rated by DBRS
Morningstar.
RESIDENTIAL MORTGAGE-BACKED SECURITIES (RMBS) METHODOLOGY
The collateral pool consists of 475 mortgage loans with a total
balance of approximately $145.3 million collateralized by one- to
four-unit investment properties. Velocity underwrote the mortgage
loans to No Ratio program guidelines for business-purpose loans.
The transaction assumptions consider DBRS Morningstar's baseline
macroeconomic scenarios for rated sovereign economics, available in
its commentary "Baseline Macroeconomic Scenarios for Rated
Sovereigns: April 2023 Update," dated April 28, 2023. These
baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse coronavirus pandemic scenarios, which were
first published in April 2020.
The ratings reflect transactional strengths that, for residential
investor loans, include the following:
-- Improved underwriting standards,
-- Robust loan attributes and pool composition, and
-- Satisfactory third-party due-diligence review.
The transaction also includes the following challenges:
-- Residential investor loans underwritten to No Ratio lending
programs, and
-- Representations and warranties framework.
The full description of the strengths, challenges, and mitigating
factors is detailed in the related Presale Report.
DBRS Morningstar incorporates a dynamic cash flow analysis in its
rating process. A baseline of four prepayment scenarios, two
default timing curves, and two interest rate stresses were applied
to test the resilience of the rated classes. DBRS Morningstar ran a
total of 16 cash flow scenarios at each rating level for this
transaction. Additionally, WA coupon deterioration stresses were
incorporated in the runs.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2016-C33: DBRS Confirms B Rating on Class X-F Certs
---------------------------------------------------------------
DBRS Limited confirmed the ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2016-C33 issued by Wells Fargo
Commercial Mortgage Trust 2016-C33 as follows:
-- 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 B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transactions, which remains in line with DBRS Morningstar
expectations since last review.
As of the April 2023 remittance, 67 of the original 79 loans remain
in the pool, with an aggregate principal balance of $530.0 million,
reflecting a collateral reduction of 25.6% since issuance. Thirteen
loans, representing 16.2% of the pool, have fully defeased. There
are four loans in special servicing and eight loans on the
servicer's watchlist, representing 10.7% and 12.8% of the pool,
respectively. The watch listed loans are being monitored for low
performance, tenant rollover risk, or deferred maintenance items.
The Omni Office Centre loan (Prospectus ID#10; representing 2.7% of
the pool) is secured by two suburban Class B office buildings
totaling 294,090 square feet (sf) in Southfield, Michigan. The loan
transferred to special servicing in August 2022 due to imminent
monetary default. The former largest tenant, Blue Cross Blue Shield
(BCBS), which previously occupied 40.1% of the net rentable area
(NRA), vacated the property in January 2020, ahead of its June 2022
lease expiration. BCBS's departure triggered a cash flow sweep but,
according to the servicer, funds were insufficient to cover the
July 2022 payment and the loan defaulted at that time. According to
the April 2023 loan-level reserve report, the loan reported $1.5
million in leasing reserves. Based on the servicer's commentary,
the borrower intends to transition the property to the lender and
will not be contributing additional capital to the subject.
As per the December 2022 rent roll, the property was 20.9%
occupied, a significant decline from the year-end (YE) 2021
occupancy of 61.4%. In addition, tenants representing 14.5% of the
NRA have leases that expired/will be expiring in the next 12
months. According to the October 2022 appraisal, the property was
valued at $9.5 million, reflecting a 60.4% value decline from the
issuance appraised value of $24.0 million. DBRS Morningstar
liquidated the loan from the pool in its analysis for this review,
resulting in a loss severity in the excess of 50.0%.
The largest watch listed loan is Brier Creek Corporate Center I &
II (Prospectus ID#7, representing 3.8% of the pool). The collateral
includes two Class B office buildings totaling 180,995 sf in
Raleigh Park, North Carolina. The loan is being monitored for low
occupancy following the departure of the two largest tenants, Stock
Building Supply and UCB Biosciences, cumulatively occupying 75.0%
of NRA, in 2020 and 2021, respectively. The loan is structured with
a cash flow sweep in the event either Stock Building Supply or UCB
Biosciences fails to extend its lease 12 months prior to its
expiration, although it is unlikely any meaningful cash was swept
considering the loan has been reporting negative net cash flows
since 2021. Occupancy remains depressed at 34.3% as per the
September 2022 rent roll, although it is a slight improvement from
the YE2021 occupancy rate of 25.0%. The top three tenants at the
subject are Attindas Hygiene Partners (12.8% of NRA, lease expiring
in March 2026), OnRamp Access (6.7% of NRA, lease expiring in
January 2025), and ProKidney (4.3% of NRA, lease expiring in July
2027). The servicer noted that the borrower is working on potential
leases totalling 10,780 sf, which would increase the occupancy to
approximately 40% if executed. According to Reis, office properties
located in the Research Triangle Park submarket reported a Q1 2023
vacancy rate of 19.2%, compared with the Q1 2022 vacancy rate of
18.8%. Based on the YE2022 financials, the loan reported a DSCR of
-0.29x, compared with the YE2021 DSCR of 0.00x and YE2020 of 1.23x.
Given the depressed performance and soft submarket, DBRS
Morningstar analyzed this loan with an elevated probability of
default in its review, resulting in an expected loss that was more
than triple the pool's average expected loss.
At issuance, DBRS Morningstar shadow rated the 225 Liberty Street
loan (Prospectus ID#3, 7.6% of the trust balance) because of the
collateral's high quality, capital improvements invested to the
subject, and strong location within the Manhattan submarket. With
this review, DBRS Morningstar confirmed that the performance of the
loan remains consistent with investment-grade loan
characteristics.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2018-C44: DBRS Confirms BB Rating on Class F-RR Certs
-----------------------------------------------------------------
DBRS, Inc. confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2018-C44 issued by Wells Fargo
Commercial Mortgage Trust 2018-C44 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-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 BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E-RR at BBB (low) (sf)
-- Class F-RR at BB (sf)
-- Class G-RR at B (high) (sf)
DBRS Morningstar also changed the trends on Classes E-RR, F-RR, and
G-RR to Negative from Stable. The trends on all other classes are
Stable.
The Negative trends reflect DBRS Morningstar's concern surrounding
the pool's concentration of office properties, which totals 35.1%
of the current pool balance. In general, the performance of the
office sector has deteriorated in recent months; vacancy rates in
many submarkets remain elevated because of a shift in workplace
dynamics leading companies opting for remote and hybrid
environments to vacate their spaces entirely or reduce their
footprint at or prior to their lease expiration dates. In the
analysis for this review, loans backed by office and other
properties that were showing performance declines from issuance or
otherwise exhibiting increased risks from issuance were analyzed
with stressed scenarios to increase the expected losses as
applicable. As a result, loans secured by office properties have a
weighted-average expected loss that is approximately 65.0% higher
than the pool expected loss. Of the pool's concentration of office
properties, there are four suburban office properties in the top
10, representing 20.2% of the trust balance, that have a
weighted-average expected loss that is more than 95.0% higher than
the pool expected loss. DBRS Morningstar continues to be concerned
about the two loans in special servicing, which represent 5.7% of
the trust balance and reported updated values that are below
issuance values. As part of the analysis for this review, DBRS
Morningstar liquidated these loans with the implied loss contained
in the nonrated Class H-RR.
The rating confirmations reflect the overall stable performance of
the transaction, which remains in line with DBRS Morningstar's
expectations. As of the April 2023 remittance, 43 of the original
44 loans remain in the trust with an outstanding trust balance of
$735.6 million, reflecting a collateral reduction of 4.1% since
issuance. Three loans, representing 5.0% of the trust balance, are
defeased. Eleven loans, representing 22.1% of the trust balance,
are on the servicer's watchlist, primarily because of low debt
service coverage ratios (DSCRs), occupancy rates, tenant rollover
risk, and/or deferred maintenance items.
Prince and Spring Street Portfolio (Prospectus ID#9; 4.1% of the
pool balance), the largest specially serviced loan, is secured by a
portfolio of three mixed-use properties in New York City. The loan
transferred to special servicing in December 2020 for payment
default, and the servicer's current workout strategy is
foreclosure. According to the financials for the trailing six-month
period ended June 30, 2022, the loan reported a DSCR of 0.22 times
(x), compared with 0.08x as of YE2021 and 0.97x as of YE2019. The
property was most recently valued at $49.5 million according to a
December 2022 appraisal, an increase from the January 2021
appraisal value of $35.3 million, but still down from the issuance
value of $66.0 million and below the whole loan balance of $41.0
million. This loan was analyzed with a liquidation scenario, which
resulted in an implied loss severity in excess of 15.0%.
DBRS Morningstar also has concerns about 3200 North First Street
(Prospectus ID#15; 2.7% of the pool balance), which is not on the
servicer's watchlist. The loan is secured by an 85,017-square-foot
(sf) partial two-story flex/research and development (R&D) property
in San Jose, California, that is fully occupied by NextEV NIO. The
sole tenant has an upcoming lease expiration in September 2023 and
has provided confirmation that it will vacate at that time. The
borrower is actively marketing the property for lease at an asking
rental rate of $2.90 per square foot (psf), compared with the
in-place rental rate of $2.21 psf. According to the Q1 2023 Cushman
& Wakefield Marketbeat report for Silicon Valley R&D properties,
North San Jose vacancy averages 12.4% with an asking rental rate of
$2.65 psf. Given the near-term rollover risk, DBRS Morningstar
analyzed the loan with an elevated probability of default resulting
in an expected loss that is approximately 130.0% higher than the
pool average.
At issuance, DBRS Morningstar shadow-rated 181 Fremont Street
(Prospectus ID#7; 4.1% of the pool balance) as investment grade.
The loan is secured by the borrower's fee interest in a 436,332-sf
Class A office building in San Francisco. The property was
completed in early 2018 and the collateral space was delivered to
the sole occupant, Meta Platforms, Inc. (Meta), formerly Facebook
Inc., with a lease expiration in 2031. The lease includes two
five-year extensions with no early termination rights. In January
2023, Meta announced it was looking to sublease all of its space at
the property, with the space becoming available in June 2023,
making it the second-largest block of space available in the San
Francisco market. The San Francisco Standard reported that 10 San
Francisco tech firms have vacated their spaces over the past year,
comprising 2.4 million sf of available office space. While DBRS
Morningstar does not expect the net cash flow to be affected in the
near term given that Meta's rent obligation extends beyond the
loan's maturity, the overall risk is elevated given the uncertainty
around the ability to absorb the significant amount of space coming
available in an environment where supply is outpacing demand. For
this review, DBRS Morningstar took a conservative approach by
removing the shadow rating and applied a stressed loan-to-value
ratio to increase the expected loss in its analysis.
Notes: All figures are in U.S. dollars unless otherwise noted.
WESTGATE RESORTS 2023-1: DBRS Gives BB(low) Rating on D Notes
-------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Westgate Resorts 2023-1 LLC (the Issuer):
-- $45,250,000 Timeshare Collateralized Notes, Series 2023-1,
Class A rated AAA (sf)
-- $44,000,000 Timeshare Collateralized Notes, Series 2023-1,
Class B rated A (low) (sf)
-- $39,750,000 Timeshare Collateralized Notes, Series 2023-1,
Class C rated BBB (low) (sf)
-- 16,000,000 Timeshare Collateralized Notes, Series 2023-1, Class
D rated BB (low) (sf)
The provisional ratings are based on DBRS Morningstar's review of
the following analytical considerations:
(1) The transaction capital structure and form and sufficiency of
available credit enhancement are commensurate with the proposed
ratings. 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 the DBRS Morningstar-projected cumulative gross loss
(CGL) assumption under various stress scenarios.
(2) The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary Baseline Macroeconomic Scenarios For
Rated Sovereigns - April 2023 Update, published on April 28, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse COVID-19 pandemic scenarios, which were first
published in April 2020.
(3) The transactions ability to withstand stressed cash flow
assumptions and repay investors according to the terms under which
they have invested. For this transaction, the rating on the Class A
Notes addresses the timely payment of interest and the ultimate
payment of principal by the Final Maturity Date. The ratings on the
Class B, Class C and Class D Notes addresses the ultimate payment
of interest and the ultimate payment of principal by the respective
Final Maturity Dates.
(4) Westgate 2023-1 employs a full turbo structure where all excess
cashflow is used to repay note holders with no excess spread going
back to issuer until the notes are paid in full.
(5) Westgate Resorts, Ltd. (Westgate) has sufficient operating
history and capabilities with regard to developing and managing
timeshare resorts as well as the origination, underwriting, and
servicing of timeshare loans.
(6) The credit quality of the collateral reflects the ratings, and
Westgate's timeshare loans portfolio has had consistent
performance.
(7) The Westgate senior management team has considerable experience
and a successful track record within the timeshare industry.
(8) The legal structure and expected presence of legal opinions
will address the true sale of the assets to the Issuer, the
non-consolidation of each of the depositors and the Issuer with
Westgate, that the Issuer has a valid first-priority security
interest in the assets, and the consistency with DBRS Morningstar's
"Legal Criteria for U.S. Structured Finance."
Notes: All figures are in in U.S. dollars unless otherwise noted.
WFRBS COMMERCIAL 2012-C10: DBRS Cuts Rating on 2 Classes to C
-------------------------------------------------------------
DBRS Limited downgraded its ratings on two classes of Commercial
Mortgage Pass-Through Certificates, Series 2012-C10 issued by WFRBS
Commercial Mortgage Trust 2012-C10 as follows:
-- Class E to C (sf) from CCC (sf)
-- Class F to C (sf) from CCC (sf)
In addition, DBRS Morningstar confirmed the following ratings:
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at BBB (high) (sf)
-- Class C at BBB (sf)
-- Class D at CCC (sf)
DBRS Morningstar changed the trends on Classes C and X-B to
Negative from Stable. The trends on all other classes are Stable,
with the exception of Classes D, E, and F, which are assigned
ratings that do not typically carry trends in commercial
mortgage-backed securities (CMBS) ratings. As discussed in further
detail below, the rating downgrades and Negative trends reflect
significant risk imposed by the remaining loans in the pool and
increased certainty of losses given increasing concentration and
adverse selection as the transaction winds down. Declining property
values, uncertain disposition timelines, and high exposure to
regional malls are key drivers of DBRS Morningstar's loss
projections. Although low recoveries at resolution are expected,
the senior-most certificates remain insulated from loss, based on
DBRS Morningstar's stressed value estimates.
As of the April 2023 remittance, six of the original 85 loans
remain outstanding, with an aggregate principal balance of $299.7
million, representing a collateral reduction of 77.0% since
issuance. All of the remaining loans defaulted at maturity and are
currently in special servicing.
Since DBRS Morningstar's last rating action in November 2022, five
of the six outstanding loans (96.4% of the current pool) have
reported updated appraisal values. In all cases, the values have
significantly deteriorated from the prior figures, with the
declines ranging from 44.3% to 82.3% on a percentage basis. Based
on the updated appraised values, DBRS Morningstar adjusted the
projected loss scenarios and, for all loans liquidated in the
analysis, the combined loss figure was in excess of $117.0 million,
which represents a 38.2% increase in projected losses from DBRS
Morningstar's recoverability analysis in November 2022. This would
result in a full reduction of the Class E, Class F, and unrated
Class G certificates, as well as an erosion of nearly half of the
Class D certificate balance. Out of six loans, five continue to
make debt service payments despite being in maturity default, and
the special servicer is negotiating maturity extensions for two
loans.
As of April 2023, four loans (60.5% of the pool) are secured by
regional malls, two of which have experienced significant
performance and valuation declines. The Dayton Mall (Prospectus
ID#3; 24.7% of the pool) in Dayton, Ohio, and Towne Mall
(Prospectus ID#12; 6.2% of the pool) in Elizabethtown, Kentucky,
have reported performance declines since the peak of the
Coronavirus Disease (COVID-19) pandemic, with debt service coverage
ratios (DSCRs) reported well below breakeven for the past few
years. Based on the most recent rent rolls, the properties reported
occupancy rates of 69.0% in June 2022 and 66.0% in YE2022,
respectively. According to the latest special servicer update, both
loans are being tracked for foreclosure. Since DBRS Morningstar's
last rating action, both malls have received updated appraised
values. The value of Dayton Mall declined by 69.5% from issuance to
$40.2 million as of August 2022, and the value of Towne Mall
declined by 82.1% from issuance to $7.3 million as of November
2022. DBRS Morningstar's liquidation scenario, which is based on a
stress to the most recent appraised values, resulted in loss
severities above 70.0% for each of these loans.
The Rogue Valley Mall (Prospectus ID#5; 15.8% of the pool) is in
Medford, Oregon, and was 94.5% occupied as of November 2022. The
June 2022 DSCR was reported to be 1.13 times (x). Bed Bath & Beyond
is the third-largest tenant, and this location is on the company's
closure list related to its recent bankruptcy filing. The special
servicer is currently dual tracking foreclosure and continuing
negotiations with the borrower regarding a possible extension to
allow time to refinance the loan. The February 2023 appraisal value
of $32.5 million represents a 59.4% decline from the issuance value
of $80.0 million, resulting in a loss severity of 54.6% in DBRS
Morningstar's liquidation scenario.
The Animas Valley Mall (Prospectus ID#6; 13.7% of the pool) in
Farmington, New Mexico, was previously listed for sale and,
according to commentary from the special servicer, a buyer has been
identified. Closing is expected to occur by the end of April 2023.
The property was re-appraised in October 2022 at a value of $52.0
million, representing a 29.7% decline from the issuance value of
$74.0 million. DBRS Morningstar's liquidation scenario for this
loan resulted in a loss severity of 28.0%.
The largest loan in the pool is Republic Plaza (Prospectus ID#1;
35.9% of the pool), which is secured by a 1.3 million-square-foot
(sf), Class A office property in downtown Denver. The building
features 48,371 sf of ground floor retail space. According to the
most recent servicer commentary, the borrower is in discussions
with the special servicer regarding a potential workout. Per the
YE2022 financials, the DSCR was reported at 1.29x with an occupancy
rate of 79.4%, which is expected to decline as several tenants,
representing more than 20.0% of the net rentable area (NRA), are
scheduled to vacate the property upon lease expiration and/or
downsize its space in the next few months. The largest tenant,
Ovintiv USA Inc., is giving back approximately 72,000 sf while
extending its remaining 18.8% of the NRA through April 2026. The
second-largest tenant, DCP Midstream (11.0% of the NRA), is
vacating its space upon lease expiration in May 2023. The borrower
is in discussions with a prospective tenant, but no lease has been
signed to date. The December 2022 appraisal value of $298.1 million
represents a 44.3% decline from the issuance value of $535.4
million. The loan-to-value (LTV) ratio at issuance was only 52.3%,
while the most recent appraised value suggests an updated LTV of
93.9%. DBRS Morningstar's liquidation scenario, which is based on a
stress to the most recent appraised value given the upcoming tenant
rollover, results in a loss severity of less than 12%.
Notes: All figures are in U.S. dollars unless otherwise noted.
WIND RIVER 2022-2: Fitch Affirms Rating at 'BB-sf' on Cl. E Notes
-----------------------------------------------------------------
Fitch Ratings has affirmed the ratings on the class A-1, A-2A,
A-2B, B-1, B-2, C, D and E notes of Wind River 2022-2 CLO Ltd.
(Wind River 2022-2). The Rating Outlooks on all rated tranches
remain Stable.
Entity/Debt Rating Prior
----------- ------ -----
Wind River
2022-2 CLO Ltd.
A-1 97315DAA5 LT AAAsf Affirmed AAAsf
A-2A 97315DAC1 LT AAAsf Affirmed AAAsf
A-2B 97315DAE7 LT AAAsf Affirmed AAAsf
B-1 97315DAG2 LT AAsf Affirmed AAsf
B-2 97315DAJ6 LT AAsf Affirmed AAsf
C 97315DAL1 LT Asf Affirmed Asf
D 97315DAN7 LT BBB-sf Affirmed BBB-sf
E 97315MAA5 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
Wind River 2022-2 is a broadly syndicated collateralized loan
obligation (CLO) managed by First Eagle Alternative Credit, LLC.
The transaction closed in June 2022 and will exit its reinvestment
period in July 2027. The CLO is secured primarily by first lien,
senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are due to the portfolios' stable performance
since closing. The credit quality of the portfolio as of April 2023
reporting is at the 'B'/'B-' rating level. The Fitch weighted
average rating factor (WARF) of the portfolio increased to 24.9
from 24.4 of the indicative portfolio at closing. The portfolio
consists of 199 obligors, and the largest 10 obligors represent 10%
of the portfolio (excluding cash). There were no reported defaults
in the portfolio. Exposure to issuers with a Negative Outlook and
Fitch's watchlist is 20.1% and 6.6%, respectively.
First lien loans, cash and eligible investments comprise 98.0% of
the portfolio and fixed-rated assets 2.0% of the portfolio. Fitch's
weighted average recovery rate (WARR) of the portfolio was 76.1%,
compared with 75.6% at closing.
All coverage tests, collateral quality tests (CQTs), and
concentration limitations are in compliance.
Cash Flow Analysis
Fitch conducted updated cash flow analysis based on the newly run
Fitch Stressed Portfolio (FSP) since the transaction is still in
its reinvestment period. The FSP analysis stressed the current
portfolio from the latest trustee report to account for permissible
concentration and CQT limits. The FSP analysis assumed weighted
average life of 7.25 years. The weighted average spread, WARR and
WARF were stressed to the Fitch test matrix points. Other FSP
assumptions include 5.0% fixed rate assets and 7.5% CCC assets.
The ratings are in line with their respective model-implied ratings
(MIRs), as defined in Fitch's CLOs and Corporate CDOs Rating
Criteria. The Stable Outlooks reflect Fitch's expectation that the
notes have sufficient level of credit protection to withstand
potential deterioration in the credit quality of the portfolios in
stress scenarios commensurate with each class' rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement do not compensate for the higher loss
expectation than initially assumed;
- A 25% increase of the mean default rate across all ratings, along
with a 25% decrease of the recovery rate at all rating levels for
the current portfolio, would lead to no change for the class A-1,
A-2A and A-2B notes, a two-notch downgrade for the class B-1, B-2
and C notes, a one-notch downgrade for the class D notes, and a
three-notch downgrade for the class E notes based on the MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Upgrades may occur in the event of better-than-expected portfolio
credit quality and transaction performance;
- A 25% reduction of the mean default rate across all ratings,
along with a 25% increase of the recovery rate at all rating levels
for the current portfolio, would lead to upgrades of up to two
notches for the class B-1, B-2 and C notes, and five notches for
the class D and E notes, based on the MIRs. The 'AAAsf'-rated notes
would incur no rating impact, as their ratings are at the highest
level on Fitch's scale and cannot be upgraded.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ZAIS CLO 9: Moody's Hikes Rating on $32.3MM Class D Notes From Ba1
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Zais CLO 9, Limited:
US$20,000,000 Class B-1 Senior Secured Floating Rate Notes due 2031
(the "Class B-1 Notes"), Upgraded to Aaa (sf); previously on August
12, 2020 Confirmed at Aa2 (sf)
US$38,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2031
(the "Class B-2 Notes"), Upgraded to Aaa (sf); previously on August
12, 2020 Confirmed at Aa2 (sf)
US$26,800,000 Class C Deferrable Mezzanine Floating Rate Notes due
2031 (the "Class C Notes"), Upgraded to A1 (sf); previously on
August 12, 2020 Confirmed at A2 (sf)
US$32,300,000 Class D Deferrable Mezzanine Floating Rate Notes due
2031 (the "Class D Notes"), Upgraded to Baa3 (sf); previously on
August 12, 2020 Downgraded to Ba1 (sf)
Zais CLO 9, Limited, issued in July 2018 is a managed cashflow CLO.
The notes are collateralized primarily by a portfolio of broadly
syndicated senior secured corporate loans. The transaction's
reinvestment period will end in July 2023.
RATINGS RATIONALE
These rating actions reflect the benefit of the short period of
time remaining before the end of the deal's reinvestment period in
July 2023. 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 be maintained and continue to satisfy
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from lower weighted average rating factor
(WARF) and higher weighted average spread (WAS) compared to their
respective covenant levels. Moody's modeled a WARF of 2663 and WAS
of 3.99% compared to its current covenant levels of 2966 and 3.60%.
The deal has also benefited from a shortening of the portfolio's
weighted average life since April 2022.
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: $462,875,008
Defaulted par: $25,301,362
Diversity Score: 80
Weighted Average Rating Factor (WARF):2663
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.99%
Weighted Average Recovery Rate (WARR): 46.65%
Weighted Average Life (WAL): 4.29 years
In addition to base case analysis, Moody's ran additional scenarios
where outcomes could diverge from the base case. The additional
scenarios consider one or more factors individually or in
combination, and include: defaults by obligors whose low ratings or
debt prices suggest distress, defaults by obligors with potential
refinancing risk, deterioration in the 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.
[*] Moody's Takes Action on $81.8MM of US RMBS Issued 2004-2007
---------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of 12 bonds and
downgraded the rating of one bond from six US residential
mortgage-backed transactions (RMBS), backed by option ARM and
subprime mortgages issued by multiple issuers.
Complete rating actions are as follows:
Issuer: ACE Securities Corp. Home Equity Loan Trust, Series
2007-ASAP2
Cl. A-2B, Upgraded to Ba3 (sf); previously on May 15, 2019 Upgraded
to B2 (sf)
Cl. A-2C, Upgraded to Ba3 (sf); previously on May 15, 2019 Upgraded
to B2 (sf)
Cl. A-2D, Upgraded to Ba3 (sf); previously on May 15, 2019 Upgraded
to B2 (sf)
Issuer: Aegis Asset Backed Securities Trust 2004-1
Cl. M1, Downgraded to B2 (sf); previously on Nov 14, 2022
Downgraded to Ba3 (sf)
Issuer: First Franklin Mortgage Loan Trust 2006-FF8
Cl. I-A-1, Upgraded to Aa2 (sf); previously on Jan 20, 2021
Downgraded to A1 (sf)
Cl. II-A-4, Upgraded to A3 (sf); previously on Jan 11, 2019
Upgraded to Baa2 (sf)
Issuer: GSAA Home Equity Trust 2005-MTR1
Cl. A-5, Upgraded to Aaa (sf); previously on Aug 23, 2022 Upgraded
to Aa2 (sf)
Issuer: GSAA Trust 2004-3
Cl. AF-4, Upgraded to A1 (sf); previously on Nov 21, 2019 Upgraded
to A3 (sf)
Cl. AF-5, Upgraded to Aa3 (sf); previously on Mar 15, 2011
Downgraded to A2 (sf)
Issuer: Impac CMB Trust Series 2005-2 Collateralized Asset-Backed
Bonds, Series 2005-2
Cl. 1-A-1, Upgraded to A2 (sf); previously on Jan 10, 2013
Downgraded to Baa1 (sf)
Cl. 1-A-2, Upgraded to Baa2 (sf); previously on Apr 18, 2016
Upgraded to Ba1 (sf)
Cl. 1-M-1, Upgraded to B1 (sf); previously on Jun 24, 2015 Upgraded
to B3 (sf)
Cl. 1-M-2, Upgraded to Caa2 (sf); previously on May 11, 2010
Downgraded to Ca (sf)
RATINGS RATIONALE
The rating actions reflect the recent performance as well as
Moody's updated loss expectations on the underlying pools. The
rating upgrades are a result of the improving performance of the
related pools, and/or an increase in credit enhancement available
to the bonds. The rating downgrade is primarily due to a
deterioration in collateral performance.
The rating downgrade of Class M1 from Aegis Asset Backed Securities
Trust 2004-1 is due to outstanding interest shortfalls and the
uncertainty of whether those shortfalls will be reimbursed.
Principal Methodologies
The principal methodology used in these ratings was "US RMBS
Surveillance Methodology" published in July 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 of the subordinate bonds up. Losses could decline from
Moody's original expectations as a result of a lower number of
obligor defaults or appreciation in the value of the mortgaged
property securing an obligor's promise of payment. Transaction
performance also depends greatly on the US macro economy and
housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's expectations as a
result of a higher number of obligor defaults or deterioration in
the value of the mortgaged property securing an obligor's promise
of payment. Transaction performance also depends greatly on the US
macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions. In addition, improvements in
reporting formats and data availability across deals and trustees
may provide better insight into certain performance metrics such as
the level of collateral modifications.
[*] S&P Cuts Ratings on 14 Classes From 14 US RMBS Deals to 'D(sf)'
-------------------------------------------------------------------
S&P Global Ratings lowered its ratings on 14 classes of mortgage
pass-through certificates from 14 U.S. residential mortgage-backed
securities (RMBS) transactions, including one U.S. RMBS
re-securitized real estate mortgage investment conduits (re-REMIC),
issued between 2003 and 2007 to 'D (sf)'. These transactions are
backed by prime jumbo, alternative-A, subprime, or
negative-amortization collateral.
The downgrades reflect its assessment of the principal write-downs'
impact on the affected classes during recent remittance periods.
All of the classes whose ratings were lowered to 'D (sf)' were
rated either 'CCC (sf)' or 'CC (sf)' before the current rating
action.
All of the transactions in this review receive credit enhancement
from a combination of subordination, excess spread, and
overcollateralization (where applicable).
S&P will continue to monitor its ratings on securities that
experience principal write-downs, and S&P will further adjust its
ratings as it considers appropriate according to its criteria.
Ratings list
RATING
ISSUER: Aegis Asset Backed Securities Trust
SERIES: 2004-1
CLASS: B1
CUSIP: 00764MBG1
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Alternative Loan Trust 2004-12CB
SERIES: 2004-12CB
CLASS: M
CUSIP: 12667FJU0
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Alternative Loan Trust 2004-30CB
SERIES: 2004-30CB
CLASS: 1-A-6
CUSIP: 12667FG41
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Alternative Loan Trust 2005-36
SERIES: 2005-36
CLASS: 4-A-1
CUSIP: 12667GA29
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Alternative Loan Trust 2005-41
SERIES: 2005-41
CLASS: 1-A-1
CUSIP: 12667GR62
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Alternative Loan Trust 2005-82
SERIES: 2005-82
CLASS: A-1
CUSIP: 12668A5X9
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Alternative Loan Trust 2005-J3
SERIES: 2005-J3
CLASS: 1-A-1
CUSIP: 12667GDA8
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Alternative Loan Trust 2005-J5
SERIES: 2005-J5
CLASS: PO-B
CUSIP: 12667GHN6
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal-only criteria.
ISSUER: Alternative Loan Trust 2005-J6
SERIES: 2005-J6
CLASS: P0-2
CUSIP: 12667GVT7
RATING TO: D (sf)
RATING FROM: CC (sf)
MAIN RATIONALE: Principal-only criteria.
ISSUER: Banc of America Funding 2004-2 Trust
SERIES: 2004-2
CLASS: 1-B-1
CUSIP: 06051GCS6
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: Chase Mortgage Finance Trust Series 2007-A2
SERIES: 2007-A2
CLASS: I-B1
CUSIP: 16163LAW2
RATING TO: D (sf)
RATING FROM: CC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: DSLA Mortgage Loan Trust 2005-AR1
SERIES: 2005-AR1
CLASS: 1-A
CUSIP: 23332UCL6
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: MASTR Adjustable Rate Mortgages Trust 2005-5
SERIES: 2005-5
CLASS: A-1
CUSIP: 576433ZR0
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
ISSUER: MASTR Alternative Loan Trust 2003-5
SERIES: 2003-5
CLASS: 30-B-1
CUSIP: 576434FU3
RATING TO: D (sf)
RATING FROM: CCC (sf)
MAIN RATIONALE: Principal write-down.
[*] S&P Takes Various Actions on 50 Classes from 13 U.S. RMBS Deals
-------------------------------------------------------------------
S&P Global Ratings completed its review of 50 ratings from 13 U.S.
RMBS transactions issued between 2003 and 2006. The review yielded
nine upgrades, nine downgrades, one discontinuance, and 31
affirmations.
A list of Affected Ratings can be viewed at:
https://rb.gy/jzf6i
Analytical Considerations
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by our projected cash flows. These considerations
are based on transaction-specific performance and/or structural
characteristics and their potential effects on certain classes.
Some of these considerations may include:
-- Collateral performance or delinquency trends;
-- An increase or decrease in available credit support;
-- Historical missed interest payments or interest shortfalls;
and
-- The assessment of reduced interest payments due to loan
modifications and other credit-related events.
Rating Actions
The rating changes reflect S&P's view regarding the associated
transaction-specific collateral performance, structural
characteristics, and/or the application of specific criteria
applicable to these classes.
The upgrades primarily reflect the classes' increased credit
support. Most of these transactions have failed their cumulative
loss triggers, which resulted in a permanent sequential principal
payment mechanism. This prevents credit support from eroding and
limits the affected classes' exposure to losses. As a result, the
upgrades reflect the classes' ability to withstand a higher level
of projected losses than we had previously anticipated. In
addition, most of these classes are receiving all of the principal
payments or are next in the payment priority when the more senior
class pays down.
The rating affirmations reflect S&P's view that its projected
credit support, collateral performance, and credit-related
reductions in interest on these classes have remained relatively
consistent with its prior projections.
Classes M-7 and M-8 from Bear Stearns Asset Backed Securities I
Trust 2005-TC2 were raised to 'B (sf)' and 'B- (sf)' from 'D (sf)'.
These classes were previously downgraded to 'D (sf)' due to credit
related reductions in interest. These classes are no longer
experiencing credit related reductions in interest and have been
fully reimbursed. S&P believes these classes have credit support
that is sufficient to withstand losses at these higher rating
levels.
[*] S&P Takes Various Actions on 87 Classes From 32 US RMBS Deals
-----------------------------------------------------------------
S&P Global Ratings completed its review of 87 classes from 32 U.S.
RMBS transactions, including four resecuritized real estate
mortgage investment conduit (re-REMIC) transactions, issued between
2002 and 2010. The review yielded 21 upgrades, two downgrades, 10
withdrawals, and 54 affirmations.
A list of Affected Ratings can be viewed at:
https://rb.gy/s68o0
Analytical Considerations
S&P incorporates various considerations into its decisions to
raise, lower, or affirm ratings when reviewing the indicative
ratings suggested by its projected cash flows. These considerations
are based on transaction-specific performance and/or structural
characteristics and their potential effects on certain classes.
Some of these considerations may include:
-- Collateral performance or delinquency trends;
-- Available subordination and/or overcollateralization;
-- An erosion of or increase in credit support;
-- Underlying collateral performance or delinquency trends;
-- Reduced interest payments due to loan modifications;
-- Payment priority; and
-- A small loan count.
Rating Actions
S&P said, "The rating changes reflect our opinion regarding the
associated transaction-specific collateral performance and/or
structural characteristics, as well as the application of specific
criteria applicable to these classes.
"The rating affirmations reflect our opinion that our projected
credit support, collateral performance, and credit-related
reductions in interest on these classes has remained relatively
consistent with our prior projections.
"In addition, we withdrew our ratings on 10 classes from four
transactions due to the small number of loans remaining within the
related structures. Once a pool has declined to a de minimis
amount, we believe there is a high degree of credit instability
that is incompatible with any rating level."
*********
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