/raid1/www/Hosts/bankrupt/TCR_Public/230611.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, June 11, 2023, Vol. 27, No. 161
Headlines
ACC TRUST 2022-1: Moody's Lowers Rating on Class C Notes to B2
ALLO ISSUER 2023-1: Fitch Gives 'BB-'(EXP)' Rating on Cl. C Notes
BELLEMEADE RE 2021-1: Moody's Ups Rating on Cl. B-1 Debt to Ba3
CHC COMMERCIAL 2019-CHC: Fitch Lowers Rating on Cl. F Certs to CCC
CITIGROUP 2015-101A: Fitch Affirms 'B-sf' Rating on Cl. F Certs
COMM 2013-LC6: Moody's Lowers Rating on Cl. F Notes to Caa3
COMM 2013-LC6: S&P Lowers Class F Certs Rating to 'CCC- (sf)'
CQS US 2022-2: Fitch Affirms B+sf Rating on Class E-2 Notes
EAGLE RE 2021-1: Moody's Upgrades Rating on Cl. M-2C Notes to Ba1
FLAGSTAR MORTGAGE 2020-1INV: Moody's Hikes B-5 Debt Rating From Ba1
FORTRESS CREDIT XIX: Fitch Assigns 'BB+(EXP)' Rating on Cl. E Notes
FORTRESS CREDIT XIX: Moody's Gives (P)B3 Rating to $1.2MM F Notes
FREDDIE MAC 2021-HQA2: Moody's Upgrades 10 Tranches to Ba1
GILBERT PARK CLO: Moody's Cuts Rating on $50MM Class E Notes to B1
GOLDENTREE LOAN 17: Fitch Assigns 'B-(EXP)' Rating on Cl. F Notes
GS MORTGAGE 2023-NQM1: Fitch Assigns 'Bsf' Rating on Cl. B2 Certs
HPS LOAN 2023-18: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
HPS PRIVATE 2023-1: Moody's Assigns (P)Ba3 Rating to $36MM E Notes
JP MORGAN 2013-LC11: S&P Cuts Cl. X-B Notes Rating to 'BB-(sf)'
LCM XIV: Moody's Lowers Rating on $8MM Class F-R Notes to Caa1
MAD COMMERCIAL 2019-650M: Fitch Lowers Rating on Cl. B Debt to CCC
METRONET INFRASTRUCTURE 2023-1: Fitch Affirms BB- on Cl. C Notes
MORGAN STANLEY 2018-BOP: S&P Lowers Cl. D Certs Rating to 'BB(sf)'
PALMER SQUARE 2023-2: S&P Assigns BB- (sf) Rating on Cl. E Notes
PRKCM 2023-AFC2: S&P Assigns Prelim B (sf) Rating on Cl. B-2 Notes
PRPM LLC 2023-RCF1: Fitch Assigns BB-(EXP) Rating on Cl. M-2 Notes
TIKEHAU US IV: S&P Assigns Prelim BB- (sf) Rating on Cl. E Notes
[*] Moody's Upgrades $154MM of US RMBS Issued 2003-2007
[*] Moody's Upgrades $47.1MM of US RMBS Issued 2003-2007
*********
ACC TRUST 2022-1: Moody's Lowers Rating on Class C Notes to B2
--------------------------------------------------------------
Moody's Investors Service has downgraded two classes of notes and
confirmed one class of notes issued by ACC Trust 2021-1 (ACC
2021-1) and ACC Trust 2022-1 (ACC 2022-1). The notes are backed by
pools of closed-end retail automobile leases to non-prime borrowers
originated by RAC King, LLC, the parent company of American Car
Center (ACC) and serviced by Westlake Portfolio Management, LLC
("WPM").
The complete rating actions are as follows:
Issuer: ACC Trust 2021-1
Class D Notes, Confirmed at B3 (sf); previously on Mar 8, 2023 B3
(sf) Placed Under Review for Possible Downgrade
Issuer: ACC Trust 2022-1
Class C Notes, Downgraded to B2 (sf); previously on Mar 8, 2023
Downgraded to Ba2 (sf) and Placed Under Review for Possible
Downgrade
Class D Notes, Downgraded to Caa3 (sf); previously on Mar 8, 2023
Downgraded to Caa1 (sf) and Remained On Review for Possible
Downgrade
RATINGS RATIONALE
The downgrades consider deterioration in pool performance and
declining credit enhancement for the notes following ACC's closure
on Feb 24, 2023. The confirmation reflects credit enhancement
levels that are sufficient for the current rating.
On Mar 10, 2023, Westlake Portfolio Management ("WPM"), took over
the servicing of the ACC leases and is responsible for processing
the lease payments and handling all lease-related customer service
needs. WPM replaced RAC Servicer, LLC as the servicer following a
servicer default within the transactions, resulting from RAC
Servicer, LLC's failure to remit trust collections within the
required two business days of receipt.
The rating actions reflect weak performance of the underlying pools
in recent months, including rising delinquencies and net loss
rates. Moreover, as of April 30, approximately 68% of leases in ACC
2021-1 and 75% of leases in ACC 2022-1 received a payment
extension. WPM noted that these extensions are non-recurring and
were granted in line with its standard procedures for transferred
portfolios.
Moody's lifetime cumulative credit net loss (CNL) expectation is
46% for the ACC 2022-1 pool and 36% for the ACC 2021-1 pool. In
Moody's analysis, Moody's considered increases in remaining
expected losses on the underlying pools to evaluate the resiliency
of the ratings amid the uncertainty surrounding the pools'
performance.
Moody's analysis further considers the consistently declining
overcollateralization levels in ACC 2022-1, reaching 10.1% of the
current pool balance in April from 20.9% at closing.
Overcollateralization declined to 29.5% in ACC 2021-1 in April,
though remains above the closing level of 19.45%.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
November 2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the notes if, given current expectations of
portfolio losses, levels of credit enhancement are consistent with
higher ratings. Moody's expectation of pool losses could decline as
a result of a lower number of obligor defaults or appreciation in
the value of the vehicles leading to a residual value gain when the
vehicle is turned in at the end of the lease and remarketed.
Portfolio losses also depend greatly on the US job markets, the
market for used vehicles, and changes in servicing practices.
Down
Moody's could downgrade the notes if, given Moody's expectations of
portfolio losses, levels of credit enhancement are consistent with
lower ratings. 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 vehicles leading to higher
residual value loss when the vehicle is turned in at the end of a
lease and remarketed. Portfolio losses also depend greatly on the
US job markets and the market for used vehicles. Other reasons for
worse-than-expected performance include servicing disruption,
incorrect application of funds on the part of transaction parties,
inadequate transaction governance, and fraud.
ALLO ISSUER 2023-1: Fitch Gives 'BB-'(EXP)' Rating on Cl. C Notes
-----------------------------------------------------------------
Fitch Ratings has issued a presale report for ALLO Issuer, LLC's
Secured Fiber Network Revenue Notes, Series 2023-1.
Fitch expects to rate ALLO Issuer, LLC, Series 2023-1 as follows:
- $24 million(a) 2023-1 class A-1-L 'Asf'; Outlook Stable;
- $75 million(b) 2023-1 class A-1-V 'Asf'; Outlook Stable;
- $405 million 2023-1 class A-2 'Asf'; Outlook Stable;
- $58 million 2023-1 class B 'BBBsf'; Outlook Stable;
- $123 million 2023-1 class C 'BB-sf'; Outlook Stable.
The following class is not expected to be rated by Fitch:
- $38,00,000(c) series 2023-1, class R.
(a) This note is a Liquidity Funding Note that can be drawn for the
purpose of funding Liquidity Funding Advances subject to the
satisfaction of certain conditions. The balance of the note will be
$0 at issuance and is not counted when calculating debt/Fitch NCF
ratio.
Entity/Debt Rating
----------- ------
ALLO Issuer,
LLC Secured
Fiber Network
Revenue Notes,
Series 2023-1
A-1-L LT A(EXP)sf Expected Rating
A-1-V LT A(EXP)sf Expected Rating
A-2 LT A(EXP)sf Expected Rating
B LT BBB(EXP)sf Expected Rating
C LT BB-(EXP)sf Expected Rating
R LT NR(EXP)sf Expected Rating
(b) This note is a Variable Funding Note (VFN) and has a maximum
commitment of $75 million contingent on leverage consistent with
the class A-1 notes. This class will reflect a zero balance at
issuance.
(c) Horizontal credit risk retention interest representing 5% of
the 2023-1 notes.
The note balances include $30 million of prefunding, which is
allocated between classes B and C. Fitch's expected ratings take
into account the range of prefunding amounts that may be issued in
connection with the transaction.
TRANSACTION SUMMARY
The transaction is a securitization of the contract payments
derived from an existing Fiber to the Premise (FTTP) network. Debt
is secured by the net revenue of operations and benefits from a
perfected security interest in the securitized assets, which
includes conduits, cables, network-level equipment, access rights,
customer contracts, transaction accounts and an equity pledge from
the asset entities.
The collateral consists of high-quality fiber lines that support
the provision of internet, cable and telephone services to a
network of approximately 97,000 retail customers located across 15
issuer-defined markets in Nebraska and Colorado. These markets
represented approximately 97.2% of the company's total revenue as
of YE22. For the markets contributed to the transaction, the
majority of the subscriber base, comprising 61.8% of annualized run
rate revenue (ARRR), is located in Lincoln and 97.9% of ARRR is
attributable to markets in the state of Nebraska.
Transaction proceeds will be utilized to repay indebtedness under
an existing credit facility, fund the series 2023-1 prefunding
account, fund the applicable securitization transaction reserves,
pay transaction fees, and for general corporate purposes, which may
include a distribution to the parent for growth capex.
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, ALLO Communications LLC.
KEY RATING DRIVERS
Net Cash Flow and Trust Leverage: Fitch Ratings' net cash flow
(NCF) on the pool is $60.3 million in the base case, implying a
19.3% haircut to issuer base case NCF. The debt multiple relative
to Fitch's NCF on the rated classes is 9.2x in this scenario,
versus the debt/issuer NCF leverage of 7.4x.
Inclusive of the cash flow required to draw upon the $75 million
VFN and the $30 million prefunding account balance, Fitch NCF flow
is $72.1 million, implying a 17.4% haircut to the implied issuer
NCF.
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 of the network, market concentration, the market position of
the sponsor, capability of the operator, higher barriers to entry
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.
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;
- 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. The transaction is also structured with Variable
Funding Notes, which will likely offset any improvements in cash
flow with a corresponding increase in debt, keeping leverage levels
relatively flat. 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.
BELLEMEADE RE 2021-1: Moody's Ups Rating on Cl. B-1 Debt to Ba3
---------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of 13 bonds from
four US mortgage insurance-linked note (MILN) transactions issued
in 2021 and 2022. These transactions were issued to transfer to the
capital markets the credit risk of private mortgage insurance (MI)
policies issued by ceding insurers on a portfolio of residential
mortgage loans.
Complete rating actions are as follows:
Issuer: Bellemeade Re 2021-1 Ltd.
Cl. M-1A, Upgraded to Aaa (sf); previously on Jan 31, 2022 Upgraded
to Aa2 (sf)
Cl. M-1B, Upgraded to Aa3 (sf); previously on Jan 31, 2022 Upgraded
to A1 (sf)
Cl. M-1C, Upgraded to A3 (sf); previously on Jan 31, 2022 Upgraded
to Baa1 (sf)
Cl. M-2, Upgraded to Ba1 (sf); previously on Jan 31, 2022 Upgraded
to Ba2 (sf)
Cl. B-1, Upgraded to Ba3 (sf); previously on Jan 31, 2022 Upgraded
to B2 (sf)
Issuer: Bellemeade Re 2021-2 Ltd.
Cl. M-1A, Upgraded to Aa2 (sf); previously on Nov 17, 2022 Upgraded
to Aa3 (sf)
Cl. M-1B, Upgraded to A1 (sf); previously on Nov 17, 2022 Upgraded
to A3 (sf)
Cl. M-1C, Upgraded to Baa1 (sf); previously on Nov 17, 2022
Upgraded to Baa2 (sf)
Cl. M-2, Upgraded to Ba2 (sf); previously on Nov 17, 2022 Upgraded
to Ba3 (sf)
Cl. B-1, Upgraded to B1 (sf); previously on Nov 17, 2022 Upgraded
to B2 (sf)
Issuer: Bellemeade Re 2022-1 Ltd
Cl. M-1A, Upgraded to Baa1 (sf); previously on Jan 31, 2022
Definitive Rating Assigned Baa2 (sf)
Issuer: Home Re 2021-1 Ltd.
Cl. M-1B, Upgraded to A2 (sf); previously on Jan 5, 2022 Upgraded
to Baa1 (sf)
Cl. M-1C, Upgraded to Baa2 (sf); previously on Jan 5, 2022 Upgraded
to Baa3 (sf)
RATINGS RATIONALE
The rating upgrades reflect the increased levels of credit
enhancement available to the bonds, the recent performance, and
Moody's updated loss expectations on the underlying pool.
Moody's updated loss expectations on the pools incorporate, amongst
other factors, Moody's assessment of the representations and
warranties frameworks of the transactions, the due diligence
findings of the third-party reviews received at the time of
issuance, and the strength of the transaction's originators and
servicer.
Principal Methodologies
The principal methodology used in these ratings 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 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.
CHC COMMERCIAL 2019-CHC: Fitch Lowers Rating on Cl. F Certs to CCC
------------------------------------------------------------------
Fitch Ratings has downgraded seven classes of CHC Commercial
Mortgage Trust 2019-CHC certificates (CHC 2019-CHC). The Rating
Outlook is Negative for six of the classes following their
downgrades.
Entity/Debt Rating Prior
----------- ------ -----
CHC Commercial
Mortgage Trust
2019-CHC
A 162665AA1 LT AAsf Downgrade AAAsf
B 162665AG8 LT A-sf Downgrade AA-sf
C 162665AJ2 LT BBB-sf Downgrade A-sf
D 162665AL7 LT BBsf Downgrade BBB-sf
E 162665AN3 LT Bsf Downgrade BB-sf
F 162665AQ6 LT CCCsf Downgrade B-sf
X 162665AC7 LT BBsf Downgrade BBB-sf
KEY RATING DRIVERS
Sustained Portfolio Net Cash Flow Decline: The downgrades reflect
the sustained deterioration in the portfolio net cash flow (NCF)
since issuance. Fitch lowered its assumption of sustainable NCF for
the portfolio given the lack of performance stabilization post
pandemic and the upward trajectory in expenses, especially labor.
Total expenses have been growing at a significantly higher rate
than portfolio rental revenue and other income streams since
issuance.
The servicer-reported YE 2022 portfolio NCF fell to $89.1 million
from $108.9 million in 2021 and $122.1 million in 2020, driven
primarily by a significant increase in operating expenses; in 2022,
effective gross income also decreased substantially from a higher
vacancy and credit loss.
As of May 2023, the mezzanine lender, Ventas, foreclosed on the
borrower, assumed the loan and is now in control of the portfolio.
The initial loan sponsor was Colony Capital, which exited the
industry and sold its wellness platform, including the management
of the transaction's portfolio, to Highgate and Aurora Health
Network LLC, in early 2022.
The Negative Outlooks reflect the potential for further downgrades
should portfolio NCF further deteriorate beyond Fitch's view of
sustainable performance and/or the new sponsor fails to stabilize
portfolio performance and deleverage the portfolio through expected
asset sales by the fully extended maturity date of June 2024.
Lower Fitch Cash Flow; Higher Leverage: The updated Fitch
sustainable property NCF of $89.1 million is 13% below Fitch's last
rating action NCF of $102.2 million and 19% below Fitch's issuance
NCF of $110 million. Fitch believes the current servicer-reported
cash flow is reflective of sustainable performance, which also
aligns with the sponsor's expectation of future portfolio cash flow
per their most recent public investor reporting. The $1.0 billion
mortgage loan has a Fitch- stressed DSCR and LTV of 0.85x and 110%,
respectively, compared with 1.04x and 91.2% at issuance. Fitch
utilized a blended cap rate of 9.8% in its analysis due to the
various collateral types within the portfolio.
Upcoming Loan Maturity: The floating-rate loan is scheduled to
mature on June 9, 2023; however, the borrower has indicated their
intent to exercise the third and final loan extension option to
June 2024. The borrower would be required to purchase a replacement
interest rate cap in order to extend.
Loan and Transaction Structure: The $1 billion mortgage loan is
interest-only. At issuance, there was $489.8 million of subordinate
mezzanine debt, which was extinguished following Ventas, as
mezzanine lender, taking control of the portfolio. The certificates
will follow a sequential-pay structure; however, so long as there
is no event of default, any voluntary prepayments (up to the first
20% of the loan), including property releases, will be applied to
the certificates on a pro-rata basis.
Individual property releases are permitted subject to, among other
things, 115% paydown of the allocated loan amount (ALA) for the
first 20.0% of the mortgage (other than certain properties
designated as 105% individual properties or NOI excluded
properties, which have lower ALA paydowns). Releases are subject to
a debt yield test both at a property-type level and portfolio level
to partially mitigate potential portfolio migration.
Loan Cash Management: After the second loan extension in June of
2022, a cash sweep commenced due to the loan's debt yield falling
below a 7.4% threshold. As of May 2023, there was approximately $18
million of cash flow swept into a reserve account.
Collateral Characteristics: The transaction is secured by the fee
and leasehold interests in 154 medical office and
healthcare-related properties totaling over seven million sf. The
portfolio collateral consists of 88 medical office buildings
(MOBs), 55 healthcare properties NNN-leased to third-party
operators and 11 healthcare properties subject to operating leases
tied directly to the underlying property operations (RIDEA
Properties). The portfolio's healthcare properties are operated as
skilled nursing facilities (SNFs), senior housing and long-term
acute care hospitals (LTACHs).
Since issuance, two NNN-SNFs ($5.0 million at issuance) were
released from the pool. The proceeds were applied to the
transaction's capital structure on a pro rata basis. There are no
provisions to ensure certain property-type distribution will be
maintained. Therefore, disproportionate MOB property releases could
redistribute the remaining portfolio toward a larger weighting of
collateral with material operating risk.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Sponsor fails to execute on its strategy to stabilize overall
performance and deleverage the portfolio;
- Further deterioration in the Fitch sustainable NCF.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Significant and sustainable improvement in Fitch NCF, coupled
with paydown from the release of properties.
ESG CONSIDERATIONS
CHC Commercial Mortgage Trust 2019-CHC has an ESG Relevance Score
of '4' for Transaction Parties & Operational Risk due to exposure
to the healthcare sector and elevated 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.
CITIGROUP 2015-101A: Fitch Affirms 'B-sf' Rating on Cl. F Certs
---------------------------------------------------------------
Fitch Ratings has affirmed eight classes of Citigroup Commercial
Mortgage Trust 2015-101A, commercial mortgage pass-through
certificates series 2015-101A.
Entity/Debt Rating Prior
----------- ------ -----
CGCMT 2015-101A
A 17290MAA2 LT AAAsf Affirmed AAAsf
B 17290MAJ3 LT AA-sf Affirmed AA-sf
C 17290MAL8 LT A-sf Affirmed A-sf
D 17290MAN4 LT BBB-sf Affirmed BBB-sf
E 17290MAQ7 LT BB-sf Affirmed BB-sf
F 17290MAS3 LT B-sf Affirmed B-sf
X-A 17290MAE4 LT AAAsf Affirmed AAAsf
X-B 17290MAG9 LT A-sf Affirmed A-sf
KEY RATING DRIVERS
Stable Performance and Cash Flow: The affirmations and Stable
Outlooks reflect the continued stable performance of the property.
As of the YE 2022, the servicer-reported NOI debt service coverage
ratio (DSCR) was 2.07x, compared with 2.05x at issuance. According
to the March 2023 rent roll, occupancy was reported to be 96.1%,
compared to 94.5% at issuance.
High-Quality Manhattan Asset: The certificates represent the
beneficial ownership in the issuing entity, the primary asset of
which is one loan secured by the leasehold interest in the 101
Avenue of the Americas office property in New York, NY. The
23-story, class A office building is located within the Hudson
Square submarket in Manhattan. The property was gut renovated
between 2011 and 2013, including upgraded building systems, as well
as a new lobby, restrooms and a green roof terrace.
The property is a LEED Silver Existing Building (EB). The two
largest tenants, NY Genome Center (38.5% of total square footage)
and Two Sigma Investments (32.3%) occupy approximately 71% of the
property. Other major tenants include Digital Ocean (10.3%) and
Regus (7.3%). Tenancy in the building is concentrated with the five
largest tenants representing 94% of the gross leasable area (GLA).
Tenant Rollover: The property has limited near-term rollover in
2023 when 7.3% of leases expire and in 2024 when 14.5% of leases
expire. The majority of the building rollover is associated with
the two largest tenants, both of which roll prior to the loan's
maturity date in January 2035. The largest tenant (NY Genome
Center) has a lease expiration in 2033, and the second largest
tenant (Two Sigma Investments) has lease expirations in 2024 (7.3%)
and 2029 (25.1%). Two Sigma's lease is structured with a
termination option; however, the notice period for exercising the
option has passed and is no longer available. Additionally, media
reports indicate that the firm recently extended its lease through
2029 for 265,000-sf at the neighboring 100 Avenue of the Americas.
Leasehold Interest: The property is subject to a 99-year ground
lease that expires in December 2088. The loan is structured with
monthly reserves for all payments associated with the ground lease
and is recourse to the borrower and guarantor for termination of
the ground lease. The Fitch stressed constant and cap rate reflect
the higher risks associated with a leasehold mortgage.
Interest Only Loan: The loan is interest only (annual interest rate
of 4.65%) for the entire 20-year term.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades to classes A, B and X-A are not likely due to their
position in the capital structure but may occur should interest
shortfalls occur. A downgrade to classes C, D, E, F and X-B is
possible if there is a material and sustained decline in the
property's occupancy or cash flow.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades are possible should cash flow improve significantly.
Classes would not be upgraded beyond 'Asf' if there is any
likelihood of interest shortfalls. Defeasance and paydown would not
be expected to play a role in contemplating an upgrade, given the
single-borrower and non-amortizing nature of the securitized loan.
ESG CONSIDERATIONS
CGCMT 2015-101A has an ESG Relevance Score of '4' [+] for Waste &
Hazardous Materials Management; Ecological Impacts due to the
collateral's sustainable building practices including Green
building certificate credentials, which has a positive impact on
the credit profile, and is relevant to the ratings in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
COMM 2013-LC6: Moody's Lowers Rating on Cl. F Notes to Caa3
-----------------------------------------------------------
Moody's Investors Service has downgraded the ratings on four
classes in COMM 2013-LC6 Mortgage Trust, Commercial Mortgage
Pass-Through Certificates, Series 2013-LC6 as follows:
Cl. D, Downgraded to Ba2 (sf); previously on Nov 22, 2022 Affirmed
Baa3 (sf)
Cl. E, Downgraded to B3 (sf); previously on Nov 22, 2022 Downgraded
to B1 (sf)
Cl. F, Downgraded to Caa3 (sf); previously on Nov 22, 2022
Downgraded to Caa2 (sf)
Cl. X-C*, Downgraded to Ca (sf); previously on Nov 22, 2022
Affirmed Caa2 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on three P&I classes, Cl.D, Cl.E and Cl.F were
downgraded due to higher anticipated losses and increased risk of
interest shortfalls due to the significant exposure to specially
serviced loans. Two loans, representing 90% of the pool, are in
special servicing and as of the May 2023 remittance reported
appraisal values for these loans were well below the outstanding
loan balances. The largest specially serviced loan (Coastland
Center - 83% of the pool) is secured by a regional mall that has
exhibited declining performance in recent years. In Moody's rating
analysis Moody's also analyzed loss and recovery scenarios to
reflect the recovery value, the current cash flow of the properties
and timing to ultimate resolution on the remaining loans and
properties in the pool.
The rating on the IO class was downgraded based on the credit
quality of the 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 44.2% of the
current pooled balance, compared to 12.6% at Moody's last review.
Moody's base expected loss plus realized losses is now 4.7% of the
original pooled balance, compared to 4.3% 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 90% 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 and troubled 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 92% to $121.5
million from $1.49 billion at securitization. The certificates are
collateralized by three mortgage loans, two of which are in special
servicing.
The largest specially serviced loan is the Coastland Center Loan
($100.7 million – 83% of the pool), which is secured by a 459,000
square feet (SF) portion of a 926,000 SF regional mall located in
Naples, Florida. The mall currently has two non-collateral anchors,
Dillard's and Macys and one collateral anchor, J.C. Penney. A
former non-collateral anchor, Sears, closed its store in November
2018. The former Sears location has been demolished and a luxury
movie theater opened in October 2021. As of December 2022, the mall
had a total occupancy was 98% and inline occupancy was 95%
(including temporary tenants). While the property's performance had
improved from securitization through year-end 2016, the net
operating income (NOI) has been below securitization levels since
2018. Despite the slight uptick in 2022, the annualized NOI as of
June 2022 was still 14% below that of 2019 and 31% below 2013 NOI
levels. The loan transferred to special servicing in July 2022 for
imminent maturity default and failed to payoff at its scheduled
maturity date in November 2022. As of the May 2023 remittance
statement, the loan has amortized 22% since securitization. A
November 2022 appraisal valued the property 67% below the
securitization value and 24% below the outstanding loan balance as
of the May 2023 remittance date. The property's cash flow remains
sufficient to cover its in-place debt service obligations and the
June 2022 NOI DSCR was 1.45X based on amortizing payments and a
3.8% interest rate. As of the May 2023 remittance date, the loan is
last paid through its October 2022 payment date and is classified
as "non-performing maturity balloon".
The second largest specially serviced loan is the Pathmark Castle
Center Loan ($8.2 million – 6.7% of the pool), which is secured
by a 63,000 SF single tenant shopping center located in Bronx, New
York. The single tenant announced they will vacate at their lease
expiration in July 2023. The loan transferred to special servicing
in July 2022 due to imminent default. The loan matured in January
2023, and a loan modification was executed by the borrower and the
lender whereby the loan was extended by 6 months, with an
additional 6-month option. A February 2023 appraisal valued the
property 81% below the securitization value and 61% below the
outstanding loan balance. As of the May 2023 remittance date, the
loan has amortized 28% since securitization and was current through
its May 2023 payment date.
Moody's has estimated an aggregate loss of $53.8 million (a 49%
expected loss on average) for the specially serviced loans.
The sole performing loan is the Laurel Canyon Loan ($12.7 million
– 10.4% of the pool), which is secured by a 60.8 acre site that
is currently utilized for parking, auto auction, open storage and
other incidental operations located in North Hollywood, California.
The 15-year loan is structured with an anticipated repayment date
(ARD) of 12 years, and is based on a 15 year amortization schedule.
If the loan is not repaid by the ARD in January 2025, the interest
rate will increase by 2.0% and all excess cash flow will be applied
first to payment of principal until the outstanding principal
balance of the loan is repaid in full and then to accrued interest.
The property was 100% as of December 2022 and as of the May 2023
remittance date, the loan has amortized 58% since securitization.
Moody's LTV on the loan is 35%.
COMM 2013-LC6: S&P Lowers Class F Certs Rating to 'CCC- (sf)'
-------------------------------------------------------------
S&P Global Ratings lowered its ratings on three classes of
commercial mortgage pass-through certificates from COMM 2013-LC6
Mortgage Trust, a U.S. CMBS transaction.
Rating Actions
The downgrades on classes D, E, and F primarily reflect the adverse
selection of the remaining loans in the transaction (two of the
remaining three loans are specially serviced, constituting 89.6% of
the total pool balance), and concerns around reduced liquidity
support to these classes in the event that appraisal reduction
amounts (ARAs) are increased, resulting in higher appraisal
subordinate entitlement reduction (ASER), or non-recoverability
determinations are made on the specially serviced loans. The
downgrades also reflect our revised loss expectations on the two
loans currently with the special servicer, Rialto Capital Advisors
LLC: Coastland Center ($100.7 million; 82.8% of the remaining
pooled trust balance) and Pathmark Castle Center ($8.2 million;
6.7%). S&P has revised its loss expectations for these two loans to
reflect observed declines in performance at the collateral
properties and updated third-party valuations.
S&P said, "The downgrade of class F to 'CCC- (sf)' further reflects
the interest shortfalls outstanding and our view that the risk of
default and loss for the class is elevated upon the eventual
resolution of the specially serviced loans. According to the May
2023 trustee remittance report, the current monthly interest
shortfalls totaled $132,631, due primarily to special servicing
fees ($22,740) and ASER amounts ($109,891) on the specially
serviced loans, with class F and class G (not rated) experiencing
interest shortfalls. If the accumulated interest shortfalls on
class F remain outstanding for a prolonged time, we may further
lower our rating to 'D (sf)'.
"While the model-indicated ratings were higher than the revised
ratings on classes D and E, we downgraded these classes because in
our view, the transaction faces adverse selection, with 89.6% of
the loans in special servicing. We also considered the potential
for reduced liquidity support from the specially serviced loans,
particularly if the property performance and/or market value
decline more than our expectations, which can result in an increase
in the appraisal reduction amounts and/or a non-recoverability
determination on the loans. While class D, as the front bond,
benefits from principal amortization, the ultimate repayment of its
outstanding principal amount is dependent on the resolution of the
two specially serviced loans.
"We will continue to monitor the transaction's performance,
especially any developments around the performance, refinancing, or
workouts of the specially serviced loans. To the extent future
developments differ meaningfully from our underlying assumptions,
we may take further rating actions as we deem necessary."
Transaction Summary
As of the May 2023 trustee remittance report, the collateral pool
balance was $121.5 million, which is 8.1% of the pool balance at
issuance. The pool currently includes three loans, down from 70
loans at issuance. Two of these loans ($108.8 million, 89.6%) are
with the special servicer, and no loans are on the master
servicer's watchlist or defeased.
Using adjusted servicer-reported numbers, S&P calculated a 1.30x
S&P Global Ratings debt service coverage (DSC) and a 28.7% S&P
Global Ratings loan-to-value (LTV) ratio using a 9.00% S&P Global
Ratings capitalization rate, for the sole remaining performing
loan, Laurel Canyon, in the pool. Laurel Canyon is a performing
loan that has an anticipated maturity date in January 2025.
To date, the transaction has experienced $16.6 million (1.1% of the
original pool trust balance) in principal losses. S&P expects
losses to reach approximately 4.4% of the original pool trust
balance upon the eventual resolution of the specially serviced
loans, based on losses incurred to date and additional losses S&P
expects upon the eventual resolution of the two specially serviced
loans.
Loan Details
Coastland Center ($100.7 million trust amount; 82.8% of the trust
balance)
The Coastland Center loan is the largest remaining loan in the pool
and is secured by 458,926-sq.-ft. of a 925,395-sq.-ft. regional
mall property in Naples, Fla. Anchors at the property include
Dillard's (noncollateral; 176,000 sq. ft.), Macy's (noncollateral;
138,000 sq. ft.), and J.C. Penney (collateral; 124,000 sq. ft.).
The property also previously had a Sears, but the noncollateral
space has been re-demised and is now occupied by a theater, CMX
Cinebistro.
The loan has a trust balance of $100.7 million and total exposure
of $104.9 million (down from a $129.6 million loan balance at
issuance), with most of the increase in loan exposure due to
principal and interest advanced by the master servicer. The loan
amortizes on a 30-year schedule, pays a fixed interest rate of
3.76% per annum, and matured on Nov. 1, 2022.
The loan transferred to the special servicer in July 2022, due to
imminent maturity default and is currently reported as being paid
through the October 2022 reporting period. The borrower was not
able to refinance the outstanding mortgage by the maturity date.
According to the special servicer, discussions with the borrower on
various resolution strategies, including a potential borrower's
transition of the property to the lender, are ongoing. A cash sweep
event has occurred and, as of the May 2023 reserve report, there
are $6.3 million of funds held in reserve.
Based on the March 2023 special servicer provided asset strategy
report, the space that serves as collateral for the mortgage loan
is approximately 98.0% occupied with net cash flow (NCF) of $10.3
million as of year-end 2022. However, servicer-reported NCF
performance has declined since the onset of the COVID-19 pandemic
when it was $11.8 million as of year-end 2019. Additionally, three
of the five largest collateral tenants have leases that have either
expired or will be expiring in the near-term. The top five
collateral tenants are J.C. Penney (123,000 sq. ft., lease
expiration November 2026), H&M (20,097 sq. ft., January 2023),
Forever 21 (19,806 sq. ft., January 2024), Old Navy (14,879 sq.
ft., January 2024), and Macy's (11,870 sq. ft., April 2034).
Although H&M's lease expired, it appears they are still in
occupancy at the mall, as H&M still appears on the mall's
directory.
Given the observed NCF decline from pre-COVID-19 levels, and in
consideration of the recently released appraisal value on the
property, S&P revised its loss expectations on the loan. The
recently released appraisal value of $76.1 million is down from
$233.0 million at loan origination. S&P currently expects a
moderate loss (26%-59%) upon the ultimate resolution of the loan.
Pathmark Castle Center ($8.2 million trust amount; 6.7% of the
trust balance)
This loan is the smallest loan in the pool and is secured by the
leasehold interest in a 63,000-sq.-ft. single-tenanted retail
property located in the Bronx, N.Y. The property is occupied by
Stop & Shop under a lease that expires in July 2023, at which time
it is expected that Stop & Shop will vacate the property. The
ground lease at the property expires in 2048.
The loan has a trust balance of $8.2 million and total exposure of
$8.2 million (down from $11.3 million loan balance at issuance).
The loan amortizes on a 25-year schedule, pays a fixed interest
rate of 4.54%, and matured on Jan. 1, 2023.
The loan transferred to the special servicer in July 2022, due to
imminent monetary default and is currently reported as being
current in debt service payment. The loan has since been modified,
whereby the maturity date of the loan was extended to July 2023,
with an option to extend for another six months until February
2024. A cash sweep event has occurred and, as of the May 2023
reserve report, there are $3.8 million of funds held in reserve.
S&P said, "However, given that the sole tenant is expected to
vacate the property upon lease expiration, as well as the recently
released appraisal value of $3.3 million (down from $17.7 million
at loan origination), we revised our loss expectations on the loan.
As a result, we currently expect a significant loss (greater than
60%) upon the ultimate resolution of the loan."
Ratings Lowered
COMM 2013-LC6 Mortgage Trust
Class D to 'BBB- (sf)' from 'BBB+ (sf)'
Class E to 'BB- (sf)' from 'BB+ (sf)'
Class F to 'CCC- (sf)' from 'B+ (sf)'
CQS US 2022-2: Fitch Affirms B+sf Rating on Class E-2 Notes
-----------------------------------------------------------
Fitch Ratings has affirmed the ratings on the class A-1, A-2, B-1
and B-F (collectively, the class B notes), C, D, E-1, and E-2 notes
of CQS US CLO 2022-2, Ltd. (CQS 2022-2). Fitch also revised the
Rating Outlook on the class C and D notes to Negative from Stable.
The Outlook remains Stable for all other rated tranches.
Entity/Debt Rating Prior
----------- ------ -----
CQS US CLO
2022-2, Ltd.
A-1 12664BAA5 LT AAAsf Affirmed AAAsf
A-2 12664BAC1 LT AAAsf Affirmed AAAsf
B-1 12664BAE7 LT AA+sf Affirmed AA+sf
B-F 12664BAG2 LT AA+sf Affirmed AA+sf
C 12664BAJ6 LT A+sf Affirmed A+sf
D 12664BAL1 LT BBB+sf Affirmed BBB+sf
E-1 12664CAA3 LT BB+sf Affirmed BB+sf
E-2 12664CAC9 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
CQS 2022-2 is a broadly syndicated collateralized loan obligation
(CLO) managed by CQS (US), LLC. CQS 2022-2 is a static CLO that
closed in September 2022, and is secured primarily by first-lien,
senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality
The Negative Outlooks on the class C and D notes are driven by the
credit deterioration of the static portfolio since closing. As of
May 2023 reporting, the Fitch weighted average rating factor (WARF)
increased to 27.0 (B/B- ) compared to 24.8 (B/B-) at closing.
Exposure to issuers with a Negative Outlook and Fitch's watchlist
is 25.0% and 12.2%, respectively. There have been no defaults.
Cash Flow Analysis
Fitch conducted a cash flow analysis based on the current
portfolio. The rating actions for the classes of CQS 2022-2 are in
line with the model implied ratings (MIRs), as defined in Fitch's
CLO criteria, except for the class D notes. This class of notes
were affirmed one notch above their MIR of 'BBB' due to a limited
number of failing scenarios (two out of nine) and relatively small
magnitude of failures in the back-default timing scenarios under
flat and down interest rate stresses.
Given the high exposure to issuers with Negative Outlooks and the
static nature of the portfolio, Fitch also modelled a sensitivity
scenario assuming a one-notch downgrade on the Fitch IDR
Equivalency Rating for assets with a Negative Outlook on the
driving rating of the obligor. The class C and D notes are more
sensitive to potential future credit quality deterioration, which
is reflected in the revised Outlook on these notes.
The committee viewed the outcomes of the sensitivity analysis to be
supportive of the Stable Outlooks for the rest of the classes.
Asset Security, Portfolio Management and Portfolio Composition
Approximately 3.1% of the original aggregate balance of the class
A-1 debt have amortized since closing, resulting in slightly
increased credit enhancement (CE) levels to all classes. The
portfolio remains diversified across 202 obligors, with the largest
10 obligors comprising 9.1% of the portfolio (excluding cash).
First lien loans, cash and eligible investments comprised 99.9% of
the portfolio, and Fitch's weighted average recovery rate (WARR) of
the portfolio decreased to 75.9%, compared to 76.5% at closing.
All coverage tests, collateral quality tests (CQTs), and
concentration limitations are in compliance.
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' CE 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 one notch for
the class A-1 notes, two notches for the class A-2 notes, five
notches for the class B and C notes, six notches for the class D
notes, and at least a rating category for the class E-1 and E-2
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 no rating change for the
class C notes and upgrades of one notch for the class B notes,
three notches for the class D and E-1 notes, and six notches for
the class E-2 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.
EAGLE RE 2021-1: Moody's Upgrades Rating on Cl. M-2C Notes to Ba1
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of nine bonds
from three MI CRT transactions issued in 2021. These transactions
were issued to transfer to the capital markets the credit risk of
private mortgage insurance (MI) policies issued by ceding insurers
on a portfolio of residential mortgage loans.
Complete rating actions are as follows:
Issuer: Eagle Re 2021-1 Ltd.
Cl. M-1C, Upgraded to A3 (sf); previously on Nov 17, 2022 Upgraded
to Baa1 (sf)
Cl. M-2, Upgraded to Baa3 (sf); previously on Nov 17, 2022 Upgraded
to Ba1 (sf)
Cl. M-2A, Upgraded to Baa2 (sf); previously on Nov 17, 2022
Upgraded to Baa3 (sf)
Cl. M-2B, Upgraded to Baa3 (sf); previously on Nov 17, 2022
Upgraded to Ba1 (sf)
Cl. M-2C, Upgraded to Ba1 (sf); previously on Nov 17, 2022 Upgraded
to Ba2 (sf)
Issuer: Eagle Re 2021-2 Ltd.
Cl. M-1A, Upgraded to A1 (sf); previously on Sep 2, 2022 Upgraded
to A2 (sf)
Issuer: Radnor Re 2021-1 Ltd.
Cl. M-1B, Upgraded to A3 (sf); previously on Nov 17, 2022 Upgraded
to Baa1 (sf)
Cl. M-1C, Upgraded to Baa3 (sf); previously on Nov 17, 2022
Upgraded to Ba2 (sf)
Cl. M-2, Upgraded to B1 (sf); previously on Nov 17, 2022 Upgraded
to B2 (sf)
RATINGS RATIONALE
The rating upgrades reflect the increased levels of credit
enhancement available to the bonds, the recent performance, and
Moody's updated loss expectations on the underlying pool.
Moody's updated loss expectations on the pools incorporate, amongst
other factors, Moody's assessment of the representations and
warranties frameworks of the transactions, the due diligence
findings of the third-party reviews received at the time of
issuance, and the strength of the transaction's originators and
servicer.
Principal Methodologies
The principal methodology used in these ratings 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 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.
FLAGSTAR MORTGAGE 2020-1INV: Moody's Hikes B-5 Debt Rating From Ba1
-------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of three bonds
issued by Flagstar Mortgage Trust. The collateral backing this deal
consists of GSE eligible first-lien investment property mortgage
loans.
Complete rating actions are as follows:
Issuer: Flagstar Mortgage Trust 2020-1INV
Cl. B-3, Upgraded to Aa3 (sf); previously on Nov 18, 2022 Upgraded
to A1 (sf)
Cl. B-4, Upgraded to A2 (sf); previously on Nov 18, 2022 Upgraded
to Baa1 (sf)
Cl. B-5, Upgraded to Baa2 (sf); previously on Nov 18, 2022 Upgraded
to Ba1 (sf)
RATINGS RATIONALE
The rating upgrades reflect the increased levels of credit
enhancement available to the bonds, the recent performance, and
Moody's updated loss expectations on the underlying pool.
In Moody's analysis Moody's considered the additional risk of
default on modified loans. Generally, Moody's apply a 7x multiple
to the Probability of Default (PD) for private label modified
mortgage loans and an 8x multiple to the PD for agency-eligible
modified mortgage loans. However, Moody's may apply a lower
multiple to the PD for loans that were granted short-term payment
relief as long as there were no other changes to the loan terms,
such as a reduced interest rate or an extended loan term, which can
be used to lower the monthly payment on the loan. For loans granted
short-term payment relief, servicers will generally defer the
missed payments, which could be added as a non-interest-bearing
balloon payment due at the end of the loan term. Alternatively,
servicers could extend the maturity on the loan to match the number
of missed payments.
Moody's updated loss expectations on the pools incorporate, amongst
other factors, Moody's assessment of the representations and
warranties frameworks of the transactions, the due diligence
findings of the third-party reviews received at the time of
issuance, and the strength of the transaction's originators and
servicer.
Principal Methodologies
The principal methodology used in these ratings 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 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.
FORTRESS CREDIT XIX: Fitch Assigns 'BB+(EXP)' Rating on Cl. E Notes
-------------------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
Fortress Credit BSL XIX Limited.
Entity/Debt Rating
----------- ------
Fortress Credit
BSL XIX Limited
A LT NR(EXP)sf Expected Rating
B 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
F LT NR(EXP)sf Expected Rating
Subordinated LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fortress Credit BSL XIX Limited (the issuer) is an arbitrage cash
flow collateralized loan obligation (CLO) that will be managed by
FC BSL CLO Management III LLC. Net proceeds from the issuance of
the secured and subordinated notes will provide financing on a
portfolio of approximately $480 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/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
100.0% first-lien senior secured loans and has a weighted average
recovery assumption of 75.3%. Fitch Ratings stressed the indicative
portfolio by assuming a higher portfolio concentration of assets
with lower recovery prospects and further reduced recovery
assumptions for higher rating stresses.
Portfolio Composition (Positive): The largest three industries may
comprise up to 39.0% 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 five year
reinvestment period and reinvestment criteria similar to other
CLOs. Fitch's analysis was based on a stressed portfolio created by
adjusting the indicative portfolio to reflect the 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 in line with their
assigned ratings. The WAL used for the transaction stress portfolio
is 12.0 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 '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
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+' 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.
FORTRESS CREDIT XIX: Moody's Gives (P)B3 Rating to $1.2MM F Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to two
classes of notes to be issued by Fortress Credit BSL XIX Limited
(the "Issuer" or "Fortress Credit XIX").
Moody's rating action is as follows:
US$297,600,000 Class A Senior Secured Floating Rate Notes due 2036,
Assigned (P)Aaa (sf)
US$1,200,000 Class F Deferrable Mezzanine Floating Rate Notes due
2036, Assigned (P)B3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Notes."
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
Fortress Credit XIX is a managed cash flow CLO. The issued notes
will be collateralized primarily by broadly syndicated senior
secured corporate loans. At least 92.5% of the portfolio must
consist of first lien senior secured loans, cash, and eligible
investments, and up to 7.5% of the portfolio may consist of second
lien loans, senior unsecured loans, first lien last out loans,
senior secured bonds and senior secured notes, provided that no
more than 5.0% of the collateral may consist of senior secured
bonds and senior secured notes. Moody's expect the portfolio to be
approximately 80% ramped as of the closing date.
FC BSL CLO Manager III LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's five year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Notes, the Issuer will issue five other
classes of secured notes and one class of subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $480,000,000
Diversity Score: 60
Weighted Average Rating Factor (WARF): 3020
Weighted Average Spread (WAS): SOFR + 4.05%
Weighted Average Coupon (WAC): 7.0%
Weighted Average Recovery Rate (WARR): 47.5%
Weighted Average Life (WAL): 8.0 years
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Notes is subject to uncertainty. The
performance of the Rated Notes is sensitive to the performance of
the underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the Rated Notes.
FREDDIE MAC 2021-HQA2: Moody's Upgrades 10 Tranches to Ba1
----------------------------------------------------------
Moody's Investors Service has upgraded the ratings of 96 classes
from 6 credit risk transfer (CRT) RMBS transactions, which are
issued by the Freddie Mac to share the credit risk on a reference
pool of mortgages with the capital markets. All of these
transactions are high-LTV transactions that benefit from mortgage
insurance. In addition, the credit risk exposure of the notes
depends on the actual realized losses and modification losses
incurred by the reference pool.
A list of the Affected Credit Ratings is available at
https://urlcurt.com/u?l=9LynhT
RATINGS RATIONALE
The rating upgrades reflect the increased levels of credit
enhancement available to the bonds, the recent performance, and
Moody's updated loss expectations on the underlying pool.
In Moody's analysis Moody's considered the additional risk of
default on modified loans. Generally, Moody's apply a 7x multiple
to the Probability of Default (PD) for private label modified
mortgage loans and an 8x multiple to the PD for agency-eligible
modified mortgage loans. However, Moody's may apply a lower
multiple to the PD for loans that were granted short-term payment
relief as long as there were no other changes to the loan terms,
such as a reduced interest rate or an extended loan term, which can
be used to lower the monthly payment on the loan. For loans granted
short-term payment relief, servicers will generally defer the
missed payments, which could be added as a non-interest-bearing
balloon payment due at the end of the loan term. Alternatively,
servicers could extend the maturity on the loan to match the number
of missed payments.
Moody's updated loss expectations on the pools incorporate, amongst
other factors, Moody's assessment of the representations and
warranties frameworks of the transactions, the due diligence
findings of the third-party reviews received at the time of
issuance, and the strength of the transaction's originators and
servicer.
A List of Affected Credit Ratings is available at
https://urlcurt.com/u?l=SCTgbN
Principal Methodologies
Please note that a Request for Comment was published in which
Moody's requested market feedback on potential revisions to one or
more of the methodologies used in determining these Credit Ratings.
If the revised methodologies are implemented as proposed, the
Credit Ratings referenced in this press release might be positively
affected.
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.
GILBERT PARK CLO: Moody's Cuts Rating on $50MM Class E Notes to B1
------------------------------------------------------------------
Moody's Investors Service has upgraded the rating on the following
notes issued by Gilbert Park CLO, Ltd.:
US$105,000,000 Class B Senior Secured Floating Rate Notes due 2030
(the "Class B Notes"), Upgraded to Aa1 (sf); previously on October
24, 2017 Definitive Rating Assigned Aa2 (sf)
Moody's has also downgraded the rating on the following notes:
US$50,000,000 Class E Mezzanine Secured Deferrable Floating Rate
Notes due 2030 (the "Class E Notes"), Downgraded to B1 (sf);
previously on October 24, 2017 Definitive Rating Assigned Ba3 (sf)
Gilbert Park CLO, Ltd., issued in October 2017 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 October 2022.
RATINGS RATIONALE
The upgrade rating action reflects the benefit of the end of the
deal's reinvestment period in October 2022. In light of the
reinvestment restrictions during the amortization period which
limit the ability of the manager to effect significant changes to
the current collateral pool, Moody's analyzed the deal assuming a
higher likelihood that the collateral pool characteristics will 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 covenant level. Moody's modeled a WARF
of 2869 compared to its current covenant level of 2960.
The downgrade rating action on the Class E notes reflects the
specific risks to the junior notes posed by par loss observed in
the underlying CLO portfolio. Based on the trustee's May 2023[1]
report, the OC ratio for the Class E notes is reported at 106.07%
versus May 2022[2] level of 108.24%.
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: $968,791,127
Defaulted par: $7,388,875
Diversity Score: 71
Weighted Average Rating Factor (WARF): 2869
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.36%
Weighted Average Recovery Rate (WARR): 47.41%
Weighted Average Life (WAL): 4.07 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.
GOLDENTREE LOAN 17: Fitch Assigns 'B-(EXP)' Rating on Cl. F Notes
-----------------------------------------------------------------
Fitch Ratings has assigned expected ratings and Rating Outlooks to
GoldenTree Loan Management US CLO 17, Ltd.
Entity/Debt Rating
----------- ------
GoldenTree Loan
Management US
CLO 17, Ltd.
A LT NR(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
F LT B-(EXP)sf Expected Rating
Subordinated
Notes LT NR(EXP)sf Expected Rating
X LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
GoldenTree Loan Management US CLO 17, Ltd., is an arbitrage cash
flow collateralized loan obligation (CLO) that will be managed by
GLM II, LP. 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', which is in line with that of recent
CLOs. The weighted average rating factor (WARF) of the indicative
portfolio is 24.03, versus a maximum covenant, in accordance with
the initial expected matrix point of 25.75. 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
98.8% first lien senior secured loans. The weighted average
recovery rate (WARR) of the indicative portfolio is 75.5% versus a
minimum covenant, in accordance with the initial expected matrix
point of 71.7%.
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 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'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 weighted
average life (WAL) used for the transaction stress portfolio and
matrices analyses 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 notes at the other permitted
matrix points is in line with that of 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 notes' sensitivity to potential changes in such
metrics. The results under these sensitivity scenarios are as
severe as 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, between 'less than B-sf' and 'B+sf' for class E; and 'less
than B-sf' for class F.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
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, 'A-sf' for
class D, 'BBB+sf' for class E; and 'BB+sf' for class F.
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.
GS MORTGAGE 2023-NQM1: Fitch Assigns 'Bsf' Rating on Cl. B2 Certs
-----------------------------------------------------------------
Fitch Ratings has assigned ratings to the residential
mortgage-backed certificates issued by GS Mortgage-Backed
Securities Trust 2023-NQM1 (GSMBS 2023-NQM1).
Entity/Debt Rating
----------- ------
GSMBS 2023-NQM1
A1 LT AAAsf New Rating
A2 LT AAsf New Rating
A3 LT Asf New Rating
M1 LT BBBsf New Rating
B1 LT BBsf New Rating
B2 LT Bsf New Rating
B3 LT NRsf New Rating
X LT NRsf New Rating
RISKRETEN LT NRsf New Rating
PT LT NRsf New Rating
SA LT NRsf New Rating
R LT NRsf New Rating
TRANSACTION SUMMARY
The certificates are supported by 901 nonprime loans originated by
various entities and have a total balance of approximately $474
million, as of the cutoff date.
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 7.1% above a long-term sustainable level (vs. 7.8%
on a national level as of 4Q22, 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 Q3 2022. Driven by the strong
gains seen in H1 2022, home prices rose 2.0% YoY nationally as of
February 2023.
Nonprime Credit Quality (Mixed): The collateral consists of 901
loans, totaling $474 million and seasoned approximately 11 months
in aggregate (calculated as the difference between origination date
and cutoff date). The borrowers have a moderate credit profile (735
Fitch FICO) and 31% DTI, which takes into account converted debt
service coverage ratio (DSCR) to DTI values and moderate leverage
(80% sLTV). The pool consists of 74% of loans where the borrower
maintains a primary residence, while 26% is an investor property or
second home.
Additionally, 100% of the loans were originated through a retail
channel. 38% are non-qualified mortgages and for the remainder
Ability-to-Repay (ATR) does not apply. A portion of the loans had a
prior delinquency but were treated as current for the life of the
loan as the prior delinquencies were the result of servicing
transfers.
Loan Documentation (Negative): Approximately 95.8% of the pool was
underwritten to less than full documentation. 86% was underwritten
to a 12- or 24-month bank statement program for verifying income,
which is not consistent with Appendix Q standards and Fitch's view
of a full documentation program.
A key distinction between this pool and legacy Alt-A loans is that
these loans adhere to underwriting and documentation standards
required under the CFPB's Ability to Repay Rule (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 ability to repay.
Additionally, 2.2% is an Asset Depletion product, and 6.7% is a
DSCR product.
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 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 delinquency principal and
interest. 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, excess spread and credit
enhancement 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). 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. Fitch expects the senior classes to be capped by
the Net WAC. Additionally, at issuance, the unrated class B-3
interest allocation goes toward the senior cap carryover amount for
as long as the senior classes are outstanding. This increases the
P&I allocation for the senior classes as long as the 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 39.6% at 'AAA'. The
analysis indicates that there is some potential rating migration
with higher MVDs for all rated classes, compared with the model
projection. Specifically, a 10% additional decline in home prices
would lower all rated classes by one full category.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The defined positive rating sensitivity analysis demonstrates how
the ratings would react to positive home price growth of 10% with
no assumed overvaluation. Excluding the senior class, which is
already rated 'AAAsf', the analysis indicates there is potential
positive rating migration for all of the rated classes.
Specifically, a 10% gain in home prices would result in a full
category upgrade for the rated class excluding those assigned
ratings of 'AAAsf'.
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.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by situsAMC and Consolidated Analytics. The third-party
due diligence described in Form 15E focused on a credit, compliance
and property valuation review. Fitch considered this information in
its analysis and, as a result, Fitch made the following
adjustment(s) to its analysis:
- A 5% PD credit was applied at the loan level for all loans graded
either 'A' or 'B';
- Fitch lowered its loss expectations by approximately 50bps as a
result of the diligence review.
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.
HPS LOAN 2023-18: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to HPS Loan
Management 2023-18 Ltd./HPS Loan Management 2023-18 LLC's
floating-rate notes.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term loans.
The transaction is managed by HPS Investment Partners LLC.
The preliminary ratings are based on information as of June 7,
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 collateral pool's diversification;
-- The credit enhancement provided through subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated notes through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Preliminary Ratings Assigned
HPS Loan Management 2023-18 Ltd./HPS Loan Management 2023-18 LLC
Class A, $244.00 million: Not rated
Class B, $57.00 million: AA (sf)
Class C (deferrable), $23.60 million: A (sf)
Class D (deferrable), $21.00 million: BBB- (sf)
Class E (deferrable), $12.80 million: BB- (sf)
Class F (deferrable), $8.00 million: B- (sf)
Subordinated A and B notes, $43.67 million: Not rated
HPS PRIVATE 2023-1: Moody's Assigns (P)Ba3 Rating to $36MM E Notes
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to eight
classes of notes to be issued and one class of loans to be incurred
by HPS Private Credit CLO 2023-1, LLC (the "Issuer" or "HPS
2023-1").
Moody's rating action is as follows:
US$157,500,000 Class A-1 Senior Secured Floating Rate Notes due
2035, Assigned (P)Aaa (sf)
Up to US$112,500,000 Class A-L Senior Secured Floating Rate Notes
due 2035, Assigned (P)Aaa (sf)
US$112,500,000 Class A-L Loans maturing 2035, Assigned (P)Aaa (sf)
US$10,000,000 Class A-2 Senior Secured Fixed Rate Notes due 2035,
Assigned (P)Aaa (sf)
US$41,000,000 Class B-1 Senior Secured Floating Rate Notes due
2035, Assigned (P)Aa2 (sf)
US$5,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2035,
Assigned (P)Aa2 (sf)
US$29,000,000 Class C Secured Deferrable Floating Rate Notes due
2035, Assigned (P)A2 (sf)
US$35,000,000 Class D Secured Deferrable Floating Rate Notes due
2035, Assigned (P)Baa3 (sf)
US$36,000,000 Class E Secured Deferrable Floating Rate Notes due
2035, Assigned (P)Ba3 (sf)
The notes listed are referred to herein, collectively, as the
"Rated Debt."
On the closing date, the Class A-L Notes and Class A-L Loans have a
principal balance of $0 and $112,500,000, respectively. At any
time, the Class A-L Loans may be converted in whole or in part to
Class A-L Notes, thereby decreasing the principal balance of the
Class A-L Loans and increasing, by the corresponding amount, the
principal balance of the Class A-L Notes. The aggregate principal
balance of the Class A-L Loans and Class A-L Notes will not exceed
$112,500,000, less the amount of any principal repayments. Neither
Class A-L Notes nor any other Notes may be converted into Class A-L
Loans.
RATINGS RATIONALE
The rationale for the ratings is based on Moody's methodology and
considers all relevant risks, particularly those associated with
the CLO's portfolio and structure.
HPS 2023-1 is a managed cash flow CLO. The rated debt will be
collateralized primarily by middle market loans. At least 90.0% of
the portfolio must consist of first lien senior secured loans,
cash, and eligible investments, up to 7.5% of the portfolio may
consist of first-lien last-out loans, and up to 4.0% of the
portfolio may consist of second lien loans. Moody's expect the
portfolio to be approximately 80% ramped as of the closing date.
HPS Investment Partners, LLC (the "Manager") will direct the
selection, acquisition and disposition of the assets on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's four year
reinvestment period. Thereafter, subject to certain restrictions,
the Manager may reinvest unscheduled principal payments and
proceeds from sales of credit risk assets.
In addition to the Rated Debt, the Issuer will issue one class of
subordinated notes.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
For modeling purposes, Moody's used the following base-case
assumptions:
Par amount: $500,000,000
Diversity Score: 35
Weighted Average Rating Factor (WARF): 3664
Weighted Average Spread (WAS): 5.50%
Weighted Average Coupon (WAC): 7.00%
Weighted Average Recovery Rate (WARR): 44.0%
Weighted Average Life (WAL): 7.09 years
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the Rated Debt is subject to uncertainty. The
performance of the Rated Debt is sensitive to the performance of
the underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the Rated Debt.
JP MORGAN 2013-LC11: S&P Cuts Cl. X-B Notes Rating to 'BB-(sf)'
---------------------------------------------------------------
S&P Global Ratings lowered its ratings on eight classes and
discontinued its rating on one other class of commercial mortgage
pass-through certificates from J.P. Morgan Chase Commercial
Mortgage Securities Trust 2013-LC11, a U.S. CMBS transaction.
Rating Actions
The downgrades on classes A-S, B, C, D, E, and F primarily reflect
the adverse selection of the remaining assets in the transaction
(six of the remaining seven assets are specially serviced,
constituting 96.0% of the total pool balance) and concern of
reduced liquidity support to these classes in the event that
appraisal reduction amounts (ARAs) are increased, resulting in
higher appraisal subordinate entitlement reduction (ASER), or
non-recoverability determinations are made on the specially
serviced assets. The downgrades further reflect our revised loss
expectations on the three largest remaining assets in the pool, all
of which are currently with the special servicer, Greystone
Servicing LLC, representing 70.8% of the pooled trust balance:
World Trade Center I and II ($98.5 million; 28.4% of the remaining
pooled trust balance), Pecanland Mall ($75.2 million; 21.7%) and
Chandler Crossings Portfolio ($71.4; 20.6%). World Trade Center I
and II has been foreclosed upon and is now real-estate-owned (REO),
and Pecanland Mall and Chandler Crossings Portfolio both defaulted
due to the borrowers' inability to refinance the loans before their
early-2023 maturity dates. S&P has revised its loss expectations
for these three assets, as well as its loss and recovery
assumptions for the other loans with the special servicer, to
reflect observed declines in performance at the collateral
properties and updated third-party valuations.
The downgrades of classes D and E to 'CCC (sf)' further reflect
S&P's view that the risk of default and loss for those classes is
elevated upon the eventual resolution of the specially serviced
assets.
S&P said, "Our downgrade on class F to 'D (sf)' reflects the
current interest shortfalls outstanding on the class and our
expectation of additional interest shortfalls due to increased
ASERs because of updated appraisal valuations for the specially
serviced assets. We expect interest shortfalls on this class will
remain outstanding for the foreseeable future.
"While the model-indicated ratings were higher than the revised
ratings on classes A-S, B, and C, we downgraded these classes
because, in our view, the transaction faces adverse selection, with
96.0% of the assets in special servicing. We also considered the
potential for reduced liquidity support from the six specially
serviced assets, particularly in the event that the property
performance and/or market value decline more than our expectations,
which can result in an increase in the appraisal reduction amounts
or a non-recoverability determination on the assets.
"We will continue to monitor the transaction's performance,
especially any developments around the performance, refinancing, or
workouts of the specially serviced assets. To the extent future
developments differ meaningfully from our underlying assumptions,
we may take further rating actions as we deem necessary.
"We lowered our rating on the classes X-A and X-B interest-only
(IO) certificates based on our criteria for rating IO securities,
in which the rating on the IO securities would not be higher than
that of the lowest-rated reference class. The notional amount on
class X-A references class A-S, and the notional amount on class
X-B refences classes B and C.
"Finally, we discontinued our 'AAA (sf)' rating on class A-5
following the full repayment of the outstanding principal balance
as of the May 2023 remittance report."
Transaction Summary
As of the May 2023 trustee remittance report, the collateral pool
balance was $346.2 million, which is 25.9% of the pool balance at
issuance. The pool currently includes six fixed-rate loans and one
REO asset, down from 52 loans at issuance. Six of these assets
($332.4 million, 96.0%) are with the special servicer and are
delinquent on their debt service payments.
S&P said, "Using adjusted servicer-reported numbers, we calculated
a 1.31x S&P Global Ratings weighted average debt service coverage
ratio (DSCR) and 93.5% S&P Global Ratings weighted average
loan-to-value (LTV) ratio using a 7.64% S&P Global Ratings weighted
average capitalization rate for Dulles View and Memorial Square,
the two loans we did not assign losses to. Memorial Square is a
performing loan that has a maturity date in December 2025, while
Dulles View is a specially serviced loan that is expected to be
modified.
"To date, the pooled bonds have experienced $6,666 in principal
losses. We expect losses to reach approximately 9.8% of the
original pool trust balance upon the eventual resolution of the
special serviced assets."
Loan Details
World Trade Center I and II ($98.5 million pooled trust amount;
28.4% of the pooled trust balance)
The World Trade Center I and II is the largest remaining asset in
the pool and is comprised of two adjacent, 1979-built, class A
office properties totaling 770,221-sq.-ft. in the central business
district of Denver. The properties are 28 and 29 stories tall and
share an indoor and outdoor plaza between them.
The asset has a balance of $98.5 million and total exposure of
$105.7 million (down from a $114.4 million loan balance at
issuance). The buildup in exposure was caused by $407,767 in
cumulative ASERs, $5.8 million in principal and interest (P&I)
advances, $889,736 in other expense advances, and $197,736 in
accrued, unpaid advance interest. It amortizes on a 30-year
schedule after an initial three-year IO period, pays a fixed
interest rate of 4.249% per annum, and matured on May. 1, 2023. On
July, 1 2020, it transferred to the special servicer due to
performance-related issues at the property as two major tenants had
vacated. It was later modified in January 2021 to allow excess cash
flow reserves to fund operating expense and debt service
shortfalls. On June 23, 2022, the property was foreclosed upon and
is now REO. Jones Lang Lasalle is managing the property and
handling leasing efforts on behalf of the trust. Currently, the
asset is being reported as being paid through the June 2022
remittance period.
Performance at the collateral has trended negative, with tenants
vacating and occupancy at the properties declining over time. The
most notable tenant that vacated during the COVID-19 pandemic was
the largest tenant at the property, Noble Energy, which vacated
42,192 sq. ft. in 2020 and another 81,547 sq. ft. at the end of
2021. As of the June 6, 2022, asset status report (the most
recent), the collateral had a reported occupancy of 37.8%, with a
number of tenants with lease expirations through 2023, as well as
minimal positive net cash flow (NCF) reported for the collateral.
Per the servicer, new leasing at the property has been limited. In
addition to the declines in property performance, the submarket
fundamentals for the Denver Central Business District have also
weakened materially since the onset of COVID-19 because of lower
demand for office space and longer re-leasing time frames as
companies continue to embrace a hybrid or remote work arrangement.
As of June 2023, Costar reports a vacancy rate of 26.5%, an
availability rate of 33.6%, and a market rental rate of $34.49 for
the submarket.
Currently, the property is being marketed for a potential sale by
Newmark Knight Frank, though at this time there is no update from
the special servicer regarding a potential buyer. The property has
an appraised value of $98.0 million of as January 2022. However,
based on information contained in the asset status report, as well
as other information provided by the special servicer, including an
updated appraisal value, S&P expects a recovery less than that
implied by the $98.0 million current appraised value. Its revised
loss and recovery estimate indicates a moderate loss (26.0%-59.0%)
upon the eventual resolution of this asset.
Pecanland Mall loan ($75.2 million pooled trust amount; 21.7% of
the pooled trust balance)
This loan is the second-largest in the pool and is secured by
433,200 sq. ft. of a 965,238-sq.-ft. class B regional mall property
in Monroe, La. Major anchors and tenants at the property include
Dillard's (noncollateral; 165,930 sq. ft.), JCPenney
(noncollateral; 138,426 sq. ft.), a vacant anchor space formerly
occupied by Sears (noncollateral; 122,032 sq. ft.), Belk
(noncollateral; 105,650 sq. ft.), and Tilt Studio (collateral;
63,436 sq. ft.).
The loan has a pooled trust balance of $75.2 million and total
exposure of $76.5 million (down from a $90.0 million loan balance
at issuance). The buildup in exposure was caused by $1.3 million in
P&I advances, $1,946 in other expense advances, and $7,899 in
accrued, unpaid advance interest. The loan amortizes on a 30-year
schedule after an initial two-year IO period, pays a fixed interest
rate of 3.875% per annum, and matured on March 1, 2023.
The loan originally transferred to the special servicer on Sept. 9,
2020, due to delinquent loan payments driven by the COVID-19
pandemic. It was later returned to the master servicer on March 15,
2022, as a corrected mortgage loan. The loan then transferred back
to the special servicer on Feb. 17, 2023, due to imminent maturity
default and is currently reported as being paid through the
February 2023 reporting period. Brookfield Properties Retail Inc.,
the sponsor, was not able to refinance the outstanding mortgage by
the maturity date. According to the special servicer, discussions
with the borrower on various resolution strategies, including
potential foreclosure, are ongoing. The special servicer indicated
that a new appraisal report had been ordered and that a draft
appraisal value indicates a valuation significantly below the
loan's total exposure.
As per the December 2022 rent roll, the entire mall is roughly
92.5% occupied, and the collateral space is 83.3% occupied, which
is generally in line with the servicer-reported occupancy in 2021
but lower than the 91.0% reported for 2020. Servicer-reported NCF
performance has declined since the onset of COVID-19, though it has
recovered somewhat in 2022. Servicer-reported NCF increased 3.2% to
$7.6 million in 2020 from $7.4 million in 2019, then declined 14.6%
to $6.5 million in 2021 and increased 6.1% to $6.9 million in 2022.
Three of the largest tenants, Tilt Studio (63,436 sq. ft., 14.5% of
the net rentable area), Cinema 10 (23,170- q. ft., 5.4%), and Belk
(19,962 sq. ft, 4.6%), have recently had their leases pass their
expiration dates; however, those tenants still appear on the mall's
directory.
Based on the draft appraisal value, as well as S&P's updated
analysis of the collateral, it currently expects a moderate loss
(26.0%-59.0%) upon the ultimate resolution of the loan.
Chandler Crossings Portfolio loan ($71.4 million pooled trust
amount; 20.6% of the pooled trust balance)
This loan is the third-largest in the pool and is secured by the
borrower's fee simple interest in three multifamily student housing
properties totaling 852 units (2,772 beds) in East Lansing, Mich.
The subject properties are approximately 2.5 miles from Michigan
State University and are adjacent to one another.
The loan has a pooled trust balance of $71.4 million and total
exposure of $72.7 million (down from an $85.0 million loan balance
at issuance). The buildup in exposure was caused by $1.2 million in
P&I advances, $12,684 in other expense advances, and $7,818 in
accrued, unpaid advance interest. The loan amortizes on a 30-year
schedule after an initial two-year IO period, pays a fixed interest
rate of 4.169% per annum, and matured on Feb. 1, 2023.
The loan transferred to the special servicer on Feb. 1, 2023, due
to imminent maturity default. The sponsor, Pierce Education
Properties, was not able to refinance the outstanding mortgage by
the maturity date. According to recent special servicer comments,
discussions with the borrower on various resolution strategies,
such as a potential loan modification or maturity date extension,
are ongoing. However, the special servicer has also noted the
possibility of foreclosure if negotiations reach an impasse. Per
the special servicer, a new appraisal report has been ordered but
is not yet available. The property was last appraised at $116.4
million when the loan was originated in 2013.
Performance at the collateral has declined materially in recent
years. Since the onset of the COVID-19 pandemic, the
servicer-reported occupancy and NCF at the properties had declined
to 79.0% and $5.2 million in 2020, 63.0% and $3.7 million in 2021,
and 74.1% and $2.5 million in 2022, down materially from 90.8% and
$5.6 million in 2019 and 88.0% and $5.9 million in 2018. The
decline in performance was driven by lower occupancy at the
property, but also by increasing operating expenses due to higher
insurance costs. The servicer-reported DSCR was 0.51x for the 2022
reporting period.
S&P said, "As a result of the decline in servicer-reported
performance, we revised our sustainable NCF assumption down to $3.8
million from $4.5 million in our last review. We also revised our
capitalization rate to 8.75% from 7.75% at last review, reflecting
the higher risk presented by the property from the recent
volatility in performance. We derived an S&P Global Ratings
expected-case value of $43.6 million, which is 25.60% lower than
the $58.6 million from our last review and 62.54% lower than the
appraised value at issuance of $116.4 million. We expect a moderate
loss (26.00%-59.00%) on this loan given our revised value and
updated analysis of the property."
Other specially serviced loans
As of the May 2023 trustee remittance report, three other loans
were with the special servicer.
Dulles View is the fourth-largest loan in the pool ($51.3 million
loan balance; 14.8% of the pool balance) with a total exposure of
$51.9 million. The loan, which matured on April 4, 2023,
transferred to special servicing on March 6, 2023, for imminent
maturity default. The loan is secured by two eight-story, suburban
office buildings totaling 355,543 sq. ft. in Herndon, Va. Per the
special servicer's comments, the borrower is requesting a possible
loan modification and extension. Due to the potential loan
modification and assumption extension, as well as the positive
servicer-reported performance at the property in 2022 and 2021, S&P
anticipates a potential return of the loan to master servicing in
the future.
Tysons Commerce Center is the fifth-largest loan in the pool ($32.0
million; 9.2%) with a total exposure of $32.3 million. The loan,
which matured on April 1, 2023, transferred to special servicing
due to imminent maturity default. The loan is secured by an
eight-story office building totaling 181,542 sq. ft. in Tyson's
Corner, Va. Per the special servicer's comments, the borrower and
the special servicer are discussing potential workout solutions,
including a potential loan modification and maturity date
extension. S&P said, "However, a foreclosure or liquidation of the
asset is also a possibility, which we believe is the more likely,
longer-term resolution strategy for the loan. We maintained our
sustainable NCF assumption from last review but revised our
capitalization rate to 9.50% from 7.50% to reflect the tenant
concentration risk of the Baker, Tilly, Virchow Krause LLP tenant,
whose lease expires in December 2024, and to reflect the higher
volatility in the office sector due to current market conditions.
We derived a revised S&P Global Ratings expected-case value of
$30.2 million, which is 21.1% lower than the $38.2 million value
from our last review and 41.0% lower than the $51.1 million
appraisal value at issuance. We expect a moderate loss
(26.0%-59.0%) on the eventual resolution of this loan given our
revised value and updated analysis."
Jimmy Choo on Bleecker is the smallest loan remaining in the pool
($4.0 million; 1.2%). The loan matured on March 6, 2023, and
transferred to the special servicer on March 7, 2023, due to
maturity default. Per the special servicer's commentary, the
property is under contract for sale to a third party for more than
the existing loan balance. To account for miscellaneous and
unexpected expenses that may be incurred by the trust, S&P
currently expects a minimal loss (less than 25.0%) upon the
ultimate resolution of the loan.
Ratings Lowered
J.P. Morgan Chase Commercial Mortgage Securities Trust 2013-LC11
Class A-S to 'AA+ (sf)' from 'AAA (sf)'
Class B to 'BBB (sf)' from 'A- (sf)'
Class C to 'BB- (sf)' from 'BB+ (sf)'
Class D to 'CCC (sf)' from 'B+ (sf)'
Class E to 'CCC (sf)' from 'B- (sf)'
Class F to 'D (sf)' from 'CCC (sf)'
Class X-A to 'AA+ (sf)' from 'AAA (sf)'
Class X-B to 'BB- (sf)' from 'BB+ (sf)'
Rating Discontinued
J.P. Morgan Chase Commercial Mortgage Securities Trust 2013-LC11
Class A-5 to not rated from 'AAA (sf)'
LCM XIV: Moody's Lowers Rating on $8MM Class F-R Notes to Caa1
--------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by LCM XIV Limited Partnership:
US$47,500,000 Class B-R Senior Floating Rate Notes due 2031 (the
"Class B-R Notes"), Upgraded to Aa1 (sf); previously on June 7,
2018 Assigned Aa2 (sf)
US$22,250,000 Class C-R Deferrable Mezzanine Floating Rate Notes
due 2031 (the "Class C-R Notes"), Upgraded to A1 (sf); previously
on June 7, 2018 Assigned A2 (sf)
Moody's has also downgraded the rating on the following notes:
US$8,000,000 Class F-R Deferrable Mezzanine Floating Rate Notes due
2031 (the "Class F-R Notes"), Downgraded to Caa1 (sf); previously
on September 21, 2020 Downgraded to B3 (sf)
LCM XIV Limited Partnership, originally issued in July 2013 and
refinanced in June 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 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) levels compared to
their covenant levels. Moody's modeled a WARF of 2921 and WAS of
3.63% compared to their current respective covenant levels of 2980
and 3.48%.
The downgrade rating action on the Class F-R Notes reflects the
specific risks to the junior notes posed by par loss and credit
deterioration observed in the underlying CLO portfolio. Based on
the trustee's May 2023 report, the OC ratio for the Class F-R Notes
is reported at 102.91%[1] versus April 2022 level of 103.79%[2].
Furthermore, the trustee-reported weighted average rating factor
(WARF) have been deteriorating and the current level is currently
3065, compared to 2851 in April 2022 and failing the trigger of
2980.
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: $386,632,388
Defaulted par: $4,169,316
Diversity Score: 82
Weighted Average Rating Factor (WARF): 2921
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.63%
Weighted Average Recovery Rate (WARR): 47.48%
Weighted Average Life (WAL): 4.25 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.
MAD COMMERCIAL 2019-650M: Fitch Lowers Rating on Cl. B Debt to CCC
------------------------------------------------------------------
Fitch Ratings has downgraded two classes of MAD Commercial Mortgage
Trust 2019-650M. The Rating Outlook is Negative for one of the
classes following the downgrade.
Entity/Debt Rating Prior
----------- ------ -----
MAD 2019-650M
A 55283JAA8 LT Bsf Downgrade BB-sf
B 55283JAC4 LT CCCsf Downgrade B-sf
KEY RATING DRIVERS
The downgrades reflect a deterioration in performance since
issuance caused by the departure of Memorial Sloan Kettering (MSK)
prior to lease expiration and the largest tenant, Ralph Lauren
(RL), reducing their square footage. Additionally, Fitch expects RL
may further downsize or vacate their remaining footprint at the
property as the lease expiration approaches in December 2024.
The Negative Outlook reflects the significant near-term RL rollover
risk and possible further downgrade should property NCF and
occupancy and/or market conditions deteriorate beyond Fitch's view
of sustainable performance, including if new leases are signed at
rates significantly below expectations.
The updated Fitch sustainable property NCF of $43.9 million, which
is 17% below Fitch's issuance NCF of $52.7 million, reflects
leases-in-place as of the April 2023 rent roll, with credit given
to near-term contractual rent escalations. Fitch stressed the
in-place rents on the RL office space expiring in December 2024 by
25% to account for the high rollover risk. RL's office space are on
floors five through 10 and 14 of the property.
The Fitch sustainable NCF also assumes a lease up of vacant spaces
grossed up at the average in-place rent of $100 psf. Fitch's
sustainable long-term occupancy assumption of 89.4%, which is above
the submarket occupancy, reflects the strong collateral quality and
position in the market with unobstructed views of Central Park on
floors 15 through 27 of the property. According to Costar and as of
1Q23, the submarket vacancy, availability rate and average asking
rent were 13.3%, 15.7% and $89.30 psf, respectively.
New leasing activity in 2023 included existing tenant, BC Partners,
expanding from 3.4% of the NRA to 7.4%. The tenant extended the
lease through 2036 on a portion of the 23rd floor at a rate in-line
with the submarket rent.
Cash Flow and Occupancy Declines: The servicer-reported YE 2022 NOI
is down 38% from YE 2021 and 22% below YE 2020. Collateral
occupancy was 82% as of the April 2023 rent roll, an improvement
from 78% at YE 2022, but lower than 97% at issuance. The decline in
occupancy was driven by MSK (16.7% of NRA) vacating one year prior
to lease expiration in June 2022 and RL downsizing by 5.4% of the
NRA in late 2021. Termination fees totaling approximately $12
million were paid by both tenant upon departure and were placed
into rollover reserves.
Concentrated Near-Term Rollover Risk: Approximately 43.7% of the
NRA is scheduled to roll by the end of 2024, primarily concentrated
in the property's largest tenant, RL (40.7% of NRA; 36.5% of gross
rent), whose lease expires in December 2024.
RL, which has already downsized to 40.7% of the NRA from 46.0% at
issuance, has noted in earnings conference calls their intention to
reduce their North American footprint by 30%. The property serves
as the global corporate headquarters of RL.
The loan is structured with a "specific tenant trigger" tied to the
RL lease, which activates cash management upon non-renewal 18
months prior to its lease expiration date. The cash management will
allow the collection of up to $80 psf for the RL space for use
toward re-leasing vacated space. RL must maintain gross rent
payable at the property no less than 30%.
High-Quality Office Collateral in Prime Location: Fitch utilized a
7% cap rate, consistent with issuance, to reflect the strong
collateral quality and prime market location. The 650 Madison
Avenue property is a 27-story, LEED Gold certified, class A office
building occupying the western block of Madison Avenue between 59th
and 60th Streets in the Plaza office submarket of Midtown
Manhattan. Originally constructed in 1957 as an 8-story base
building, the property underwent a significant expansion in 1987,
which added 19 additional stories with Central Park views to the
building. Fitch assigned the property a quality grade of 'A' at
issuance.
High Fitch Leverage: The $800.0 million mortgage loan has a
Fitch-stressed DSCR and LTV of 0.69x and 127.5%, respectively,
compared with 0.82x and 106.3% at issuance. The mortgage debt is
$1,332 psf. The sponsor acquired the property in 2013 for $1.3
billion ($2,165 psf).
Institutional Sponsorship: Vornado (BBB-/Negative) is one of the
largest owners and managers of commercial real estate in the U.S.
with a portfolio of 37.1 million sf of office, retail and other
commercial space, primarily located in New York City. Oxford
Properties Group is the global real estate investment, development
and management arm of Ontario Municipal Employees Retirement System
(OMERS) Administration Corporation (AAA/Stable). Oxford Properties
owns and operates a diversified real estate portfolio consisting of
over 100 million sf of office, retail and industrial space, in
addition to multifamily units.
Single Asset Concentration: The transaction is secured by a single
property and is, therefore, more susceptible to single-event risk
related to the market, sponsor or the largest tenants occupying the
property.
Full-Term, Interest-Only Loan: The fixed-rate loan is interest-only
for the entire 10-year term. The loan matures in December 2029.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A significant decline in property NCF and occupancy and/or market
conditions deteriorate beyond Fitch's view of sustainable
performance.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Upgrades are not likely given the current ratings reflect Fitch's
view of sustainable performance but may be possible with
significant and sustained improvement in Fitch NCF, including
positive leasing to occupancy levels and rates above market.
ESG CONSIDERATIONS
MAD 2019-650M has an ESG Relevance Score of '4' [+] for Waste &
Hazardous Materials Management; Ecological Impacts due to the
collateral's sustainable building practices including Green
building certificate credentials, which has a positive impact on
the credit profile, and is relevant to the ratings in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
METRONET INFRASTRUCTURE 2023-1: Fitch Affirms BB- on Cl. C Notes
----------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Metronet Infrastructure Issuer LLC, Secured Fiber Network Revenue
Notes Series 2023-2. Fitch has also affirmed the ratings and
Outlooks on Metronet Infrastructure Issuer LLC, Secured Fiber
Network Revenue Notes Series 2023-1 and Metronet Infrastructure
Issuer LLC, Secured Fiber Network Revenue Notes Series 2022-1.
Entity/Debt Rating Prior
----------- ------ -----
Metronet Infrastructure
Issuer LLC, Secured Fiber
Network Revenue, Series 2023-2
Class A-1 LT Asf New Rating
Metronet Infrastructure
Issuer LLC, Secured Fiber
Network Revenue Notes,
Series 2022-1
Class A-2
59170JAA6 LT Asf Affirmed Asf
Class B 59170JAB4 LT BBBsf Affirmed BBBsf
Class C 59170JAC2 LT BB-sf Affirmed BB-sf
Metronet Infrastructure
Issuer LLC, Secured Fiber
Network Revenue Notes,
Series 2023-1
Class A-2
59170DAA9 LT Asf Affirmed Asf
Class B 59170DAB7 LT BBBsf Affirmed BBBsf
Class C 59170DAC5 LT BB-sf Affirmed BB-sf
Fitch has assigned final ratings and Rating Outlooks as follows:
- $150,000,000 series 2023-2, class A-1, 'Asf'; Outlook Stable.
In addition, Fitch has affirmed the following classes:
- $487,139,000 series 2023-1, class A-2, at 'Asf'; Outlook Stable;
- $67,387,000 series 2023-1, class B, at 'BBBsf'; Outlook Stable;
- $135,587,000 series 2023-1, class C, at 'BB-sf'; Outlook Stable.
- $860,781,000 series 2022-1, class A-2, at 'Asf'; Outlook Stable;
- $119,075,000 series 2022-1, class B, at 'BBBsf'; Outlook Stable;
- $239,584,000 series 2022-1, class C, at 'BB-sf'; Outlook Stable.
TRANSACTION SUMMARY
The transaction is a securitization of contract payments derived
from an existing fiber-to-the-premises (FTTP) network. The
collateral assets include: conduits, cables, network-level
equipment, access rights, customer contracts, transaction accounts
and a pledge of equity from the asset entities. Debt is secured by
net revenue from operations and benefits from a perfected security
interest in the securitized assets.
The collateral consists of high-quality fiber lines that support
the provision of internet, cable and telephone services to a
network of approximately 333,000 retail customers across 138
issuer-defined markets in nine states; these assets represent
approximately 77% of the sponsor's business based on the percentage
of revenue generated. For the markets contributed to the
transaction, the majority of the subscriber base, comprising 38.3%
of annualized run rate revenue (ARRR), is located in Indiana,
although the base is spread across a few distinct markets in the
state.
The ratings reflect a structured finance analysis of cash flows
from the ownership interest in the underlying fiber optic network,
rather than an assessment of the corporate default risk of the
ultimate parent, MetroNet Holdings, LLC.
KEY RATING DRIVERS
Net Cash Flow and Leverage: The Fitch net cash flow (NCF) on the
pool is $207.8 million, implying a 17.4% haircut to issuer NCF,
inclusive of the cash flow necessary to draw on the variable
funding note (VFN). The debt multiple relative to Fitch's NCF on
the rated classes is 9.9x, which compares to the debt / issuer NCF
leverage of 8.2x, inclusive of the fully-drawn VFN and associated
cash flow necessary to draw.
Excluding the draws on the VFN and associated cash flow required to
draw, the Fitch NCF on the pool is $204.0 million, implying a 16.4%
haircut to issuer NCF exclusive of the funds necessary to draw on
the VFN. The debt multiple Fitch's NCF is 9.4x in the base case,
which compares to debt/issuer NCF leverage of 7.8x.
Credit Risk Factors: The major factors impacting Fitch's
determination of cash flow and Maximum Potential Leverage (MPL)
include: the high quality of the underlying collateral networks,
scale and diversity of the customer base, market position and
penetration, capability of the operator, 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 — rendering obsolete the current
transmission of data through fiber optic cables — will be
developed. 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,
lower market penetration or the development of an alternative
technology for the transmission of data could lead to downgrades.
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.
However, 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.
MORGAN STANLEY 2018-BOP: S&P Lowers Cl. D Certs Rating to 'BB(sf)'
------------------------------------------------------------------
S&P Global Ratings lowered its ratings on two classes of commercial
mortgage pass-through certificates from Morgan Stanley Capital I
Trust 2018-BOP, a U.S. CMBS transaction. At the same time, S&P
affirmed its ratings on three other classes from the transaction.
This U.S. CMBS transaction is backed by a floating-rate,
interest-only (IO) mortgage loan secured by the borrowers' fee
simple interests in nine suburban office properties totaling 1.4
million sq. ft. located in Florida, Georgia, Maryland, and
Virginia.
Rating Actions
S&P said, "The downgrade on class D reflects our revised valuation,
which is lower than the valuation we derived in our last review in
May 2022 and at issuance due primarily to lower occupancy and
deteriorating performance at the remaining properties. The
downgrade also considers that the loan was transferred to special
servicing in March 2023 because the borrowers defaulted on the
mezzanine loans (see below). The affirmations on classes A, B, and
C account for the deleveraging of the pooled trust balance due to
property releases since our last review (10.7% of pooled trust
balance) and at issuance (27.7%) and the relatively low debt per
sq. ft. (about $72 per sq. ft. through class C), among other
factors.
"The servicer, KeyBank Real Estate Capital (KeyBank), reported that
occupancy at the remaining nine properties continued to decline
since our last review in May 2022--51.9% as of the December 2022
rent roll (weighted by remaining square footage), down from 62.4%
in the December 2021 rent roll and 77.8% at issuance. Our current
property-level analysis considers the portfolio's declining
occupancy and 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
an in-place 40.5% vacancy rate (see below), S&P Global Ratings base
rent of $32.57 per sq. ft. and gross rent of $34.82 per sq. ft.,
46.9% operating expense ratio, and higher tenant improvement costs
assumptions to revise and lower our long-term sustainable NCF to
$13.4 million from $18.4 million at issuance for the nine remaining
properties.
"Our revised NCF of $17.4 million in our May 2022 review includes
the now-released University Corporate Center I property, which we
are unable to extract due to the servicer reporting financials on a
consolidated basis for the portfolio. Using an S&P Global Ratings'
capitalization rate of 8.98% (weighted average based on allocated
loan amount, one basis point lower than in our last review and 25
basis points lower than at issuance due to property releases), we
arrived at an expected-case value of $149.0 million ($108 per sq.
ft.), down 25.9% from our issuance value of $201.1 million, or $145
per sq. ft. (adjusted to exclude the three property releases to
date). This yielded an S&P Global Ratings' loan-to-value (LTV)
ratio of 108.4% on the trust balance."
Although the model-indicated ratings were lower than the classes'
current or revised ratings, S&P affirmed its ratings on classes A,
B, and C, and tempered our downgrade on class D based on certain
weighed qualitative considerations. These include:
-- The potential that the portfolio's operating performance could
improve above S&P's current revised expectations;
-- 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.
As discussed above, the loan was transferred to the special
servicer on March 14, 2023, due to monetary default on the
mezzanine loans. The special servicer, also KeyBank, stated that it
is in negotiations with the borrowers but did not provide any
further details. The borrowers are current on the trust loan
through the May 2023 debt service payment date.
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 downgrade on the class X-EXT 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-EXT
certificates references classes B, C, and D."
Property-Level Analysis
At origination, the Brookfield Office Portfolio loan collateral
consisted of 12 suburban office properties totaling 1.8 million sq.
ft. in four U.S. states. Three properties have since been released
from the portfolio:
-- The 52,809-sq.-ft. Prince Street Plaza property in Alexandria,
Va., was released in June 2020 for $8.2 million;
-- The 233,109-sq.-ft. West Gude Office Park property in
Rockville, Md., was released in December 2021 for $34.5 million;
and
-- The 124,019-sq.-ft. University Corporate Center I in Orlando,
Fla., was released in October 2022 for $19.3 million.
The transaction documents specify that property releases are
subject to certain performance tests and the release price for each
property release is generally 105% of the allocated loan amount
(ALA) up to the first 20% of the mortgage loan balance, and,
thereafter, 110% of ALA. The Prince Street Plaza property was
released at 105% of ALA; however, the West Gude Office Park
property was released at 168.2% of ALA and the University Corporate
Center I property was released at 182.0% of ALA because the
borrowers were required to remit the entire sales proceeds. The
property releases did not meet the required release debt yield
threshold, in which the debt yield for the remaining properties
subject to the first-mortgage lien must be equal to or greater than
the greater of the debt yield immediately prior to the release and
12.5%.
The nine remaining class A and class B suburban office properties
total 1.4 million sq. ft. and are in Florida, Georgia, Maryland,
and Virginia. Seven properties (representing 95.9% of the remaining
trust balance) are located in the Washington-Arlington-Alexandria,
DC-VA-MD-WV metropolitan statistical area (MSA), one (2.1%) is in
the Orlando-Kissimmee-Sanford, Fla. MSA, and one (2.0%) is in the
Atlanta-Sandy Springs-Roswell, Ga. MSA. The remaining properties
were built between 1970 and 2007 and last renovated between 1994
and 2018. The sponsor, Brookfield Strategic Real Estate Partners
II, acquired the properties in 2016 and 2017.
As previously mentioned, portfolio occupancy has been declining
since issuance in 2018. While occupancy for the remaining
properties dropped to 51.9%, according to the December 2022 rent
roll, we noted that a new tenant leased approximately 7.5% of net
rentable area (NRA) at the property in January 2023, bringing
occupancy up to 59.4%. The five largest tenants, including new
tenant, Eating Recovery Center, LLC, comprise 15.7% of NRA and
include:
-- Eating Recover Center LLC (7.5% of NRA, 7.2% of gross rent as
calculated by S&P Global Ratings, October 2038 lease expiration);
-- Montgomery County, Maryland (2.6%, 4.5%, March 2029 and
February 2031);
-- State of Maryland (2.0%, 3.1%, October 2023 and December
2024);
-- American Kidney Fund Inc. (1.9%, 3.3%, August 2025); and
-- The George Washington University (1.6%, 2.5%, July 2025).
The property faces elevated near-term rollover risk with 6.4% of
NRA scheduled to roll in 2023, 7.6% in 2024, and 11.1% in 2025.
According to CoStar, the office submarkets where the properties are
located have elevated vacancies that are projected to increase over
the next five years. As of year-to-date May 2023, submarket
vacancies range from 17.1% to 25.4%, with the availability rates
between 20.3% and 30.0%. Submarket vacancies are projected to
increase to a range of 18.9% to 29.1% in 2024. Submarket rents
range from $25.35 per sq. ft. to $38.57 as of May 2023. This
compares with the portfolio's current in-place vacancy of 40.5% and
S&P Global Ratings' gross rent of $34.82 per sq. ft. While the
sponsor was able to sign new leases for 15 tenants totaling 50,210
sq. ft., or 3.6% of NRA, at an average gross rent of $31.55 per sq.
ft. in 2022 (per the December 2022 rent roll), tenants vacating
outpaced the new additions at the properties. As a result, the
portfolio has underperformed relative to their respective
submarkets.
Transaction Summary
The IO mortgage loan had a current trust balance of $161.4 million
(as of the May 15, 2023, trustee remittance report), down from
$180.7 million in S&P's last review in May 2022 and $223.4 million
at issuance.
The IO loan pays interest at a per annum floating rate indexed to
one-month LIBOR plus a 1.65% gross margin (up from 1.57% at
issuance due to paydown from property releases). The loan had an
initial maturity date of Aug. 9, 2020, and three one-year extension
options, with a fully extended maturity date of Aug. 9, 2023. The
borrowers have exercised all three extension options. In addition,
there are two mezzanine loans outstanding totaling approximately
$44.5 million. Including the mezzanine loans, the S&P Global
Ratings' LTV ratio increases to 136.5%. The trust has not incurred
any principal losses to date.
As previously discussed, the trust loan is currently with the
special servicer due to the borrowers defaulting on the mezzanine
loans, and, according to KeyBank, negotiations are ongoing. The
master servicer reported a 1.47x debt service coverage on the trust
loan for year-end 2022.
Ratings Lowered
Morgan Stanley Capital I Trust 2018-BOP
Class D to 'BB (sf)' from 'BB+ (sf)'
Class X-EXT to 'BB (sf)' from 'BB+ (sf)'
Ratings Affirmed
Morgan Stanley Capital I Trust 2018-BOP
Class A: AAA (sf)
Class B: AA- (sf)
Class C: A- (sf)
PALMER SQUARE 2023-2: S&P Assigns BB- (sf) Rating on Cl. E Notes
----------------------------------------------------------------
S&P Global Ratings assigned its ratings to Palmer Square CLO 2023-2
Ltd./Palmer Square CLO 2023-2 LLC's floating-rate notes.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term loans.
The transaction is managed by Palmer Square Capital Management
LLC.
The 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; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
Palmer Square CLO 2023-2 Ltd./Palmer Square CLO 2023-2 LLC
Class A-1, $240.000 million: AAA (sf)
Class A-2, $12.000 million: AAA (sf)
Class B, $52.000 million: AA (sf)
Class C (deferrable), $24.000 million: A (sf)
Class D (deferrable), $23.000 million: BBB- (sf)
Class E (deferrable), $12.000 million: BB- (sf)
Subordinated notes, $35.635 million: Not rated
PRKCM 2023-AFC2: S&P Assigns Prelim B (sf) Rating on Cl. B-2 Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to PRKCM
2023-AFC2 Trust's mortgage-backed notes.
The note issuance is an RMBS transaction backed by first-lien,
fixed- and adjustable-rate, fully amortizing residential mortgage
loans to both prime and nonprime borrowers (some with interest-only
periods). The loans are secured by single-family residential
properties, planned unit developments, condominiums, townhomes, and
two- to four-family residential properties. The pool consists of
725 loans, which are primarily ability-to-repay (ATR)-exempt loans
and non-qualified mortgage/ATR-compliant loans.
The preliminary ratings are based on the preliminary private
placement memorandum dated June 1, 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 pool's collateral composition;
-- The transaction's credit enhancement, associated structural
mechanics, representation and warranty framework, and geographic
concentration;
-- The mortgage originator, AmWest Funding Corp.; and
-- The potential impact current and near-term macroeconomic
conditions may have on the performance of the mortgage borrowers in
the pool. S&P said, "Per our latest macroeconomic update, we
continue to expect that the U.S. will fall into a shallow recession
in 2023. Also, we now expect U.S. GDP to decline 0.30% from its
peak in first-quarter 2023 to its third-quarter trough. If correct,
this will beat the 2001 recession as the softest recession since
1960. Although safeguards from the Federal Reserve and other
regulators have stabilized conditions, banking concerns increase
risks of a worse outcome. Chances for a worsening recession have
increased, with inflation moderating faster than expected in our
baseline forecast. As a result, we continue to maintain the revised
outlook per the April 2020 update to the guidance to our RMBS
criteria, which increased the archetypal 'B' projected foreclosure
frequency to 3.25% from 2.50%."
Preliminary Ratings Assigned
PRKCM 2023-AFC2 Trust(i)
Class A-1, $195,324,000: AAA (sf)
Class A-2, $33,082,000: AA (sf)
Class A-3, $38,938,000: A (sf)
Class M-1, $17,095,000: BBB (sf)
Class B-1, $12,188,000: BB (sf)
Class B-2, $9,972,000: B (sf)
Class B-3, $9,972,547: Not rated
Class A-IO-S, Notional(ii): Not rated
Class XS, Notional(ii): Not rated
Class R, N/A: Not rated
(i)The preliminary ratings address the ultimate payment of interest
and principal.
(ii)The notional amount will equal the aggregate stated principal
balance of the mortgage loans as of the first day of the related
due period and is initially $316,571,548.
N/A--Not applicable.
PRPM LLC 2023-RCF1: Fitch Assigns BB-(EXP) Rating on Cl. M-2 Notes
------------------------------------------------------------------
Fitch Ratings has assigned expected ratings to PRPM 2023-RCF1,
LLC.
Entity/Debt Rating
----------- ------
PRPM 2023-RCF1
A-1 LT AAA(EXP)sf Expected Rating
A-2 LT AA-(EXP)sf Expected Rating
A-3 LT A-(EXP)sf Expected Rating
M-1 LT BBB-(EXP)sf Expected Rating
M-2 LT BB-(EXP)sf Expected Rating
B LT NR(EXP)sf Expected Rating
CERT LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Fitch Ratings expects to rate the residential mortgage-backed notes
to be issued by PRPM 2023-RCF1, Asset Backed Notes, Series
2023-RCF1 (PRPM 2023-RCF1), as indicated above. The notes are
supported by 562 loans with a balance of $204.88 million as of the
cutoff date. This will be the second PRPM transaction rated by
Fitch.
The notes are secured by a pool of fixed and adjustable rate
mortgage loans (some of which have an initial interest-only period)
that are primarily fully amortizing with original terms to maturity
of primarily 15 years to 40 years and are secured by first and
second liens primarily on one- to four-family residential
properties, units in planned unit developments, co-ops,
condominiums, single-wide manufactured housing, townhouses and 5-20
unit multifamily properties.
Based on the transaction documents, 68.0% of the pool is comprised
of collateral that had a defect or exception to guidelines that
made it ineligible to remain in a GSE pool, 21.2% are non-QM loans,
and 9.8% are seasoned performing loans.
According to Fitch, 63.4% of the loans are nonqualified mortgages
(non-QM) as defined by the Ability to Repay (ATR) rule (the Rule),
5.0% are safe-harbor QM loans and the remaining 31.6% are exempt
from QM rule as they are investment properties or were originated
prior to the ATR rule taking effect in January 2014. The
discrepancy in the non-QM percentages is due to Fitch considering
Scratch and Dent loans originated after January 2014 as non-QM.
Quicken Loans Inc (Rocket Mortgage). originated 32.9% of the loans
and the remaining 67.1% of the loans were originated by various
other third-party originators each contributing less than 10% each.
Fitch assesses Quicken Loans as an 'Above Average' originator.
SN Servicing Corp. (SN) will service 75.5% of the loans in the pool
and Fay Servicing LLC (Fay) will service 24.5% of the loans. Fitch
rates SN and Fay 'RPS3' and 'RSS2-', respectively.
There is limited Libor exposure in this transaction. While the
majority of the loans in the collateral pool comprise fixed-rate
mortgages, 7.6% of the pool comprises loans with an adjustable
rate. 4.4% of the pool consists of ARM loans based on SOFR, 0.6%
based on the 1-year treasury, 0.6% based on the FHLB contract
mortgage rate and 2.0% based on 1-month, 3-month, 6-month or 1-year
Libor. The offered A and M notes do not have Libor exposure as the
coupons are fixed rate and capped at available funds. The B note is
a principal only bond and is not entitled to interest.
Similar to other NQM transactions, classes A and M classes have a
step-up coupon feature if the deal is not called in July 2029.
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 7.8% 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 H1 2022, home prices rose 5.8% YoY
nationally as of December 2022.
Nonprime Credit Quality (Negative): The Collateral consists of 562
first (99.96%) and second lien (0.04%) fixed and adjustable-rate
loans with maturities of up to 40 years. Totaling $205 million
(including deferred balances). Specifically, the pool is comprised
of 82.5% 30-year fully amortizing fixed-rate loans, 6.5% 30-year
fully amortizing ARM loans, 5.0% 6-year and 10-year interest-only
balloon loans, 1.9% 30 and 40-year loans with a 10-year IO period
and 4.3% fully amortizing fixed-rate loans with terms between 11
years and 25 years. The pool is seasoned 20 months per the
transaction documents (23 months, as determined by Fitch).
The borrowers in this pool have relatively strong credit profiles
with a 695 Fitch determined weighted average (WA) FICO score (706
WA FICO per the transaction documents) and a 46.3% Fitch determined
debt-to-income ratio (DTI) (41.7% per the transaction documents),
as well as moderate leverage, with an original combined
loan-to-value ratio (CLTV) as determined by Fitch of 77.9% (77.5%
per the transaction documents), translating to a Fitch-calculated
sustainable loan-to-value ratio (sLTV) of 77.2%.
In Fitch's analysis, Fitch re-coded occupancy based on due
diligence findings for some loans, as a result, Fitch will have
more investor properties in its analysis than are shown in the
transaction documents. In Fitch's analysis it considered 67.4% of
the pool to consist of loans where the borrower maintains a primary
residence (71.6% based on the transaction documents), while 29.9%
comprises investor property (25.7% based on the transaction
documents) and 2.6% (2.7% per the transaction documents) represents
second homes.
In Fitch's analysis Fitch re-coded property types based on due
diligence findings, as a result, the percentages will not tie out
to the property types in the transaction documents. In Fitch's
analysis the majority of the loans (72.4%) are to single-family
homes, townhomes, and PUDs, 10.2% are to condos, 0.3% are to co-ops
and 17.1% are to multifamily, manufactured housing and other. In
the analysis, Fitch treated manufactured properties and properties
coded as other occupancy types as multifamily in its analysis and
the PD was increased for these loans as a result.
There are also cross-collateralized loans (one loan to multiple
properties) that were underwritten to DSCR/Investor guidelines in
the pool. These loans account for 10.2% of the pool. In the
analysis of these loans, Fitch used the most conservative
collateral attributes of the properties associated with the loan
and all properties are in the same MSA.
In total, 64.6% of the loans were originated through a retail
channel. According to Fitch, 63.4% of the loans are designated as
non-QM, 5.0% are safe-harbor QM loans, while the remaining 31.6%
are exempt from QM status. In Fitch's analysis Fitch considered
scratch and dent loans originated after January 2014 to be Non-QM,
since they are no longer eligible to be in GSE pools as a result,
Fitch's non-QM, QM, and exempt from QM will not tie out to the
transaction documents.
The pool contains 22 loans over $1.0 million, with the largest loan
at $4.0 million.
Fitch determined that self-employed, nondebt service coverage ratio
(non-DSCR) borrowers make up 15.1% of the pool, salaried non-DSCR
borrowers make up 65.2% and 19.7% comprises investor cash flow DSCR
loans. About 29.9% of the pool comprises loans for investor
properties according to Fitch (10.2% underwritten to borrowers'
credit profiles and 19.7% comprising investor cash flow loans).
According to Fitch, there are two second liens in the pool and 12
loans have subordinate financing.
Around 20.5% of the pool is concentrated in California. The largest
MSA concentration is in the New York MSA (7.7%), followed by the
Los Angeles MSA (6.5%) and the Riverside-San Bernardino-Ontario MSA
(5.4%). The top three MSAs account for 19.7% of the pool. As a
result, there was no penalty for geographic concentration.
97.7% of the pool is current as of April 30, 2023. Overall, the
pool characteristics resemble nonprime collateral; therefore, the
pool was analyzed using Fitch's nonprime model.
Guideline Exception Loans (Negative): Roughly 68% of the collateral
consists of loans that had defects or exceptions to guidelines at
origination with a substantial portion originally underwritten to
GSE guidelines. The exceptions ranged from those that are
immaterial to Fitch's analysis (loan seasoning and MI issues), to
those that are handled by Fitch's model due to the tape attributes
(prior delinquencies and LTVs above guidelines) to loans with
potential compliance exceptions that received loss adjustments.
(loans with miscalculate DTIs and potential ATR issues). In
addition there are loans with missing documentation that may extend
foreclosure timelines or increase loss severity, which Fitch is
able to account for in its loss analysis.
Non-QM Loans with Less than Full Documentation (Negative):
Approximately 57.7% of the pool was underwritten to less than full
documentation, according to Fitch (per the transaction documents,
71.8% was underwritten to full documentation and 28.2% was
underwritten to less than full documentation). Specifically, 3.4%
was 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. Additionally, 0.3% comprises a tax
return verification product, 1.7% comprises a no documentation
product and 19.7% is a DSCR product. Overall, Fitch increased the
PD on the nonfull documentation loans to reflect the additional
risk.
In Fitch's analysis, Fitch considered the less than full
documentation loans as 22.4% stated documentation, 7.8% less than
full documentation, 27.5% no documentation. The remaining 42.3%
were considered full documentation. Due to due diligence findings
and documentation treatment of certain loan documentation types
(DSCR, Alt-Doc, Other), Fitch's documentation types will not match
the documentation types in the transaction documents which viewed
the transaction being 71.8% full documentation.
A key distinction between this pool and legacy Alt-A loans is these
loans adhere to underwriting and documentation standards required
under the Consumer Financial Protection Bureau's (CFPB) ATR Rule.
This reduces the risk of borrower default arising from lack of
affordability, misrepresentation or other operational quality risks
due to the rigor of the Rule's mandates with respect to
underwriting and documentation of the borrower's ATR.
Sequential Deal Structure with Overcollateralization (Mixed): The
transaction utilizes a sequential payment structure with no
advances of delinquent principal or interest that re-allocates
interest from the more junior classes to pay principal on the more
senior classes to the extent the transaction is still outstanding
after the 72nd payment date. The amount of interest paid out as
principal to the more senior class, is added to the balance of the
impacted junior class(es). Offsetting this positive is that the
transaction will not write-down the bonds due to potential losses
or under-collateralization. During periods of adverse performance,
the subordinate bonds will continue to be paid interest from
available funds, at the expense of principal payments that
otherwise would have supported the more senior bonds, while a more
traditional structure would have seen them written down and accrue
a smaller amount of interest. The potential for increasing amounts
of under collateralization is partially mitigated by the
reallocation of available funds after the 72nd payment date.
The coupons on the notes are based on the lower of the available
fund cap or the stated coupon. If the AFC is paid it is considered
a coupon cap shortfall (interest shortfall) and the coupon cap
shortfall amount is the difference between interest that was paid
(AFC) and what should have been paid based on the stated coupon.
If the transaction is not called, the coupons step up 100 bps. The
class B and the Certificate Class will be issued as principal only
(PO) bond and will not accrue interest.
The transaction has over-collateralization which will provide
subordination and protect the classes from losses.
Classes will not be written down by realized losses.
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 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
ratings would react to steeper MVDs at the national level. The
analysis assumes MVDs of 10.0%, 20.0% and 30.0%, in addition to the
model-projected 40.0%, at 'AAA'. The analysis indicates there is
some potential rating migration, with higher MVDs for all rated
classes compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by
one full category.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Fitch incorporates a sensitivity analysis to demonstrate how the
ratings would react to steeper MVDs than assumed at the MSA level.
Sensitivity analysis was conducted at the state and national 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 loans. The third-party due diligence was
consistent with Fitch's "U.S. RMBS Rating Criteria".
The sponsor, PRP-LB V, LLC, engaged AMC and Infinity to perform the
review. Loans reviewed under these engagements were given
compliance, credit and valuation grades and assigned initial grades
for each subcategory.
An exception and waiver report was provided to Fitch, indicating
that the pool of reviewed loans has a number of exceptions and
waivers. Fitch determined that some of the exceptions and waivers
do materially affect the overall credit risk of the loans and
increased its loss expectations on these loans to account for the
issues found in the due diligence process on the loans that are
considered scratch and dent with material findings. For the
remaining loans, Fitch did not consider the exceptions (if any) to
be material due to the presence of compensating factors, such as
having liquid reserves or a FICO above guideline requirements or
LTVs or DTIs below guideline requirements. Therefore, no
adjustments were needed to compensate for these occurrences on the
non-scratch and dent loans.
Fitch also utilized data files that were made available by the
issuer on its SEC Rule 17g-5 designated website. The loan-level
information Fitch received was provided in the American
Securitization Forum's (ASF) data layout format. The ASF data tape
layout was established with input from various industry
participants, including rating agencies, issuers, originators,
investors and others, to produce an industry standard for the
pool-level data in support of the U.S. RMBS securitization market.
The data contained in the data tape layout were populated by the
due diligence company and no material discrepancies were noted.
ESG CONSIDERATIONS
PRPM 2023-RCF1 has an ESG Relevance Score of '4' for Transaction
Parties & Operational Risk due to elevated operational risk, which
resulted in an increase in expected losses. While the reviewed
originators and servicing parties did not have a material impact on
the expected losses, the Tier 2 R&W framework with an unrated
counterparty along with approximately 52% of the loans in the pool
being underwritten by originators that have not been assessed by
Fitch resulted in an increase in the expected losses and is
relevant to the ratings.
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.
TIKEHAU US IV: S&P Assigns Prelim BB- (sf) Rating on Cl. E Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Tikehau US
CLO IV Ltd./Tikehau US CLO IV LLC's floating-rate notes. The
transaction is managed by Tikehau Structured Credit Management
LLC.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term
loans.
The preliminary ratings are based on information as of June 1,
2023. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The diversification of the collateral pool, which consists
primarily of broadly syndicated speculative-grade (rated 'BB+' and
lower) senior secured term loans.
-- 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
Tikehau US CLO IV Ltd./Tikehau US CLO IV LLC
Class A-1, $300.00 mil.: AAA (sf)
Class A-2, $10.00 mil.: AAA (sf)
Class B, $67.50 mil.: AA (sf)
Class C (deferrable), $30.00 mil.: A (sf)
Class D-1 (deferrable), $20.00 mil.: BBB (sf)
Class D-2 (deferrable), $7.50 mil.: BBB- (sf)
Class E (deferrable), $16.25 mil.: BB- (sf)
Subordinated notes, $50.55 mil.: Not rated
[*] Moody's Upgrades $154MM of US RMBS Issued 2003-2007
-------------------------------------------------------
Moody's Investors Service has upgraded the ratings of 22 bonds from
7 US residential mortgage-backed transactions (RMBS), backed by
Alt-A, option ARM and subprime mortgages issued by multiple
issuers.
Complete rating actions are as follows:
Issuer: Bear Stearns Asset Backed Securities I Trust 2006-HE6
Cl. I-A-3, Upgraded to Baa1 (sf); previously on Oct 11, 2022
Upgraded to Baa3 (sf)
Cl. II-A-3, Upgraded to Baa3 (sf); previously on Oct 11, 2022
Upgraded to Ba3 (sf)
Issuer: Bear Stearns Asset Backed Securities I Trust 2006-HE9
Cl. I-A-2, Upgraded to Baa2 (sf); previously on Oct 11, 2022
Upgraded to Ba1 (sf)
Cl. I-A-3, Upgraded to Ba2 (sf); previously on Oct 11, 2022
Upgraded to B1 (sf)
Cl. II-A, Upgraded to Baa2 (sf); previously on Oct 11, 2022
Upgraded to Ba1 (sf)
Cl. III-A, Upgraded to Baa2 (sf); previously on Oct 11, 2022
Upgraded to Ba1 (sf)
Issuer: Bear Stearns Mortgage Funding Trust 2007-AR2, Mortgage
Pass-Through Certificates, Series 2007-AR2
Cl. A-1, Upgraded to Ba1 (sf); previously on Oct 11, 2022 Upgraded
to Ba2 (sf)
Issuer: Impac CMB Trust Series 2004-5 Collateralized Asset-Backed
Bonds, Series 2004-5
Cl. 1-A-3, Upgraded to Aaa (sf); previously on Sep 30, 2022
Upgraded to Aa1 (sf)
Cl. 1-M-1, Upgraded to Aa1 (sf); previously on Sep 30, 2022
Upgraded to Aa2 (sf)
Cl. 1-M-2, Upgraded to Aa1 (sf); previously on Sep 30, 2022
Upgraded to Aa2 (sf)
Cl. 1-M-3, Upgraded to Aa2 (sf); previously on Sep 30, 2022
Upgraded to Aa3 (sf)
Cl. 1-M-4, Upgraded to Aa3 (sf); previously on Sep 30, 2022
Upgraded to A1 (sf)
Cl. 1-M-5, Upgraded to A1 (sf); previously on Sep 30, 2022 Upgraded
to A2 (sf)
Cl. 1-M-6, Upgraded to A2 (sf); previously on Sep 30, 2022 Upgraded
to A3 (sf)
Issuer: Impac Secured Assets Corp. Mortgage Pass-Through
Certificates, Series 2003-3
Cl. B, Upgraded to B3 (sf); previously on Sep 14, 2022 Upgraded to
Caa2 (sf)
Cl. M-1, Upgraded to Baa3 (sf); previously on Sep 14, 2022 Upgraded
to Ba2 (sf)
Cl. M-2, Upgraded to B1 (sf); previously on Sep 14, 2022 Upgraded
to B3 (sf)
Issuer: IndyMac Home Equity Mortgage Loan Asset-Backed Trust, INABS
2006-B
Cl. 1A-1, Upgraded to Aa1 (sf); previously on Sep 30, 2022 Upgraded
to Aa3 (sf)
Cl. 1A-2, Upgraded to Aa1 (sf); previously on Sep 30, 2022 Upgraded
to Aa3 (sf)
Cl. 2A-3, Upgraded to Baa1 (sf); previously on Sep 30, 2022
Upgraded to Baa3 (sf)
Cl. 2A-4, Upgraded to Ba2 (sf); previously on Sep 30, 2022 Upgraded
to B1 (sf)
Issuer: Popular ABS Mortgage Pass-Through Trust 2006-E
Cl. A-3, Upgraded to Aa3 (sf); previously on Dec 17, 2019 Upgraded
to A1 (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 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.
[*] Moody's Upgrades $47.1MM of US RMBS Issued 2003-2007
--------------------------------------------------------
Moody's Investors Service has upgraded the ratings of seven bonds
from six US residential mortgage-backed transactions (RMBS), backed
by Alt-A and subprime mortgages issued by multiple issuers.
The complete rating actions are as follows:
Issuer: BNC Mortgage Loan Trust 2007-2
Cl. A3, Upgraded to Baa1 (sf); previously on Jun 1, 2022 Upgraded
to Baa3 (sf)
Issuer: Deutsche Mortgage Securities, Inc. Mortgage Loan Trust,
Series 2004-4
Cl. I-A-5, Upgraded to A1 (sf); previously on Dec 10, 2018 Upgraded
to A3 (sf)
Cl. I-A-6, Upgraded to Aa3 (sf); previously on Dec 10, 2018
Upgraded to A1 (sf)
Issuer: First Franklin Mortgage Loan Trust 2004-FF4
Cl. M-3, Upgraded to Caa3 (sf); previously on Mar 15, 2011
Downgraded to C (sf)
Issuer: Merrill Lynch Mortgage Investors, Inc. 2003-WMC3
Cl. M-3, Upgraded to Aa3 (sf); previously on Feb 28, 2019 Upgraded
to A2 (sf)
Issuer: RAMP Series 2003-RS10 Trust
Cl. M-II-1, Upgraded to A1 (sf); previously on Sep 30, 2019
Upgraded to A3 (sf)
Issuer: RASC Series 2003-KS11 Trust
Cl. M-II-1, Upgraded to Aa3 (sf); previously on Nov 7, 2019
Upgraded to A2 (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 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.
*********
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