/raid1/www/Hosts/bankrupt/TCR_Public/230820.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, August 20, 2023, Vol. 27, No. 231
Headlines
A&D MORTGAGE 2023-NQM3: DBRS Finalizes B(low) Rating on B-2 Certs
ACREC 2021-FL1: DBRS Confirms B(low) Rating on Class G Notes
AFFIRM ASSET 2022-A: DBRS Confirms BB Rating on Class E Notes
AGL CLO 26: S&P Assigns 'BB- (sf)' Rating on Class E Notes
AMERICAN CREDIT 2023-3: DBRS Gives Prov. BB Rating on E Notes
AMERICAN CREDIT 2023-3: S&P Assigns BB- (sf) Rating on Cl. E Notes
AMSR 2023-SFR2: DBRS Finalizes BB Rating on Class F-1 Certs
APIDOS CLO XXVII: Moody's Lowers Rating on $22.5MM D Notes to Ba3
BAIN CAPITAL 2023-3: Fitch Assigns 'BB-sf' Rating to Class E Notes
BAMLL COMMERCIAL 2016-ISQR: S&P Lowers Cl. E Certs Rating to 'B-'
BANK 2017-BNK6: DBRS Confirms B Rating on Class F Certs
BANK 2017-BNK8: Fitch Lowers Rating on 2 Tranches to 'B-sf'
BANK 2018-BNK13: Fitch Affirms 'CCC' Rating on 2 Tranches
BANK 2023-BNK46: Fitch Assigns 'B-sf' Rating on 2 Tranches
BBCMS MORTGAGE 2018-C2: Fitch Affirms 'B-sf' Rating on 2 Tranches
BENCHMARK 2018-B1: Fitch Affirms 'B-sf' Rating on 2 Tranches
BLACKROCK DLF 2022-1: DBRS Finalizes B Rating on Class W Notes
BMO 2023-C6: Fitch Assigns 'B-(EXP)sf' Rating on 2 Tranches
BRAEMAR HOTELS 2018-PRME: DBRS Confirms BB Rating on E Certs
BRAVO RESIDENTIAL 2023-NQM5: Fitch Gives 'Bsf' Rating to B-2 Notes
BX 2021-SDMF: DBRS Confirms B(low) Rating on Class G Certs
BX COMMERCIAL 2021-VOLT: DBRS Confirms BB Rating on G Certs
CAPITAL ONE: Fitch Affirms 'BBsf' Rating on Series 2002-1D Notes
CARVANA AUTO 2023-P3: S&P Assigns BB+ (sf) Rating on CL. N Notes
CHESTNUT NOTES: DBRS Gives Prov. B Rating on Class D Notes
COMM 2013-CCRE8: DBRS Confirms B(high) Rating on Class F Certs
DBJPM MORTGAGE 2016-C3: Fitch Cuts Rating on Cl. E Certs to 'B-sf'
DRYDEN 102: S&P Assigns Prelim BB- (sf) Rating on Class F Notes
DRYDEN 45: Moody's Cuts Rating on $7.5MM Class F-R Notes to Caa1
ELEMENT NOTES: DBRS Gives Prov. B Rating on Class D Notes
ELEVATION CLO 2017-6: Moody's Cuts Rating on $9MM F Notes to Caa3
ELEVATION CLO 2018-10: Moody's Cuts $23.5MM E Notes Rating to B1
EXETER 2023-4: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
FLAGSHIP CREDIT 2023-3: DBRS Gives Prov. BB(high) Rating on E Notes
FREDDIE MAC 2023-1: DBRS Gives Prov. B(low) Rating on M Trusts
FRONTIER ISSUER 2023-1: Fitch Assigns 'BB-sf' Rating to C Notes
FRTKL 2021-SFR1: DBRS Confirms B(high) Rating on Class G Certs
GCAT TRUST 2023-INV1: Moody's Assigns (P)B2 Rating to Cl. B-5 Debt
GEMINI NOTES: DBRS Gives Prov. B Rating on Class D Notes
GLS AUTO 2023-3: S&P Assigns BB- (sf) Rating on Class E Notes
GOLDENTREE LOAN 15: Fitch Assigns 'B-(EXP)sf' Rating to F-R Notes
GSCG 2019-600C: DBRS Cuts 3 Certs Rating to CCC
HERTZ VEHICLE III: Moody's Assigns (P)Ba2 Rating to 2 Tranches
HONO 2021-LULU: DBRS Confirms B(low) Rating on Class F Certs
HOUSTON GALLERIA 2015-HGLR: DBRS Confirms BB Rating on E Certs
IMSCI 2015-6: DBRS Hikes G Certs Rating to BB(low)
INVESCO U.S. 2023-3: S&P Assigns Prelim BB- (sf) Rating on E Notes
JORDAN NOTES: DBRS Gives Prov. B Rating on Class D Notes
JP MORGAN 2016-JP2: Fitch Lowers Rating on 2 Tranches to 'BBsf'
JP MORGAN 2023-6: DBRS Finalizes B(low) Rating on Class B-5 Certs
JP MORGAN 2023-DSC2: S&P Assigns Prelim 'B-' Rating on B-2 Certs
JPMCC COMMERCIAL 2017-JP7: Fitch Affirms Bsf Rating on G-RR Certs
JPMCC COMMERCIAL 2019-COR4: Fitch Affirms B- Rating on G-RR Certs
JPMDB COMMERCIAL 2016-C2: Fitch Affirms B-sf Rating on 2 Tranches
JPMDB COMMERCIAL 2017-C7: DBRS Confirms B(low) Rating on F-RR Certs
LCM 38 LTD: Fitch Affirms 'BB-sf' Rating on Class E Notes
LOANCORE 2021-CRE5: DBRS Confirms B Rating on Class G Notes
M&T EQUIPMENT 2023-LEAF1: Moody's Gives Ba1 Rating to Cl. E Notes
MF1 2021-FL7: DBRS Confirms B(low) Rating on Class H Notes
MORGAN STANLEY 2016-BNK2: Fitch Cuts Rating on 2 Tranches to BBsf
NINE WESTLAKE 2022-2: S&P Affirms 'B (sf)' Rating on Cl. F Notes
RIPPLE NOTES: DBRS Gives Prov. B Rating on Class D Notes
SANTANDER CONSUMER 2021-A: Fitch Ups Rating on F Notes to 'BBsf'
SOUND POINT 36: Fitch Assigns 'BB-sf' Rating to Class E Notes
TGIF FUNDING 2017-1: S&P Affirms 'B(sf)' Rating on Class A-2 Notes
TIDAL NOTES: DBRS Gives Prov. B Rating on Class D Notes
UBS COMMERCIAL 2017-C3: Fitch Hikes Rating on G-RR Certs to CCC
UCAT 2005-1: Moody's Withdraws 'C' Rating on Cl. B-1-B Notes
UNITED STATES CELLULAR 2004-6: S&P Places 'BB' Rating on Watch Dev
VELOCITY COMMERCIAL 2023-3: DBRS Gives Prov. B Rating on 3 Classes
VMC FINANCE 2021-FL4: DBRS Confirms B(low) Rating on G Notes
VOYA CLO 2022-2: Fitch Affirms 'BB-sf' Rating on Class E Notes
WELLS FARGO 2015-C30: DBRS Confirms B Rating on Class X-F Certs
WELLS FARGO 2015-LC20: DBRS Cuts Class F Certs Rating to CCC
WELLS FARGO 2016-C32: DBRS Confirms B Rating on Class X-F Certs
WELLS FARGO 2018-C47: DBRS Confirms BB Rating on Class G-RR Certs
WESTLAKE AUTOMOBILE 2023-3: DBRS Gives Prov. BB Rating on E Notes
WESTLAKE AUTOMOBILE 2023-3: S&P Assigns BB (sf) Rating on F Notes
WSTN 2023-MAUI: DBRS Finalizes BB Rating on Class HRR Certs
[*] DBRS Confirms 8 Ratings From 2 Republic Finance Transactions
[*] DBRS Reviews 54 Classes From 3 US RMBS Transactions
*********
A&D MORTGAGE 2023-NQM3: DBRS Finalizes B(low) Rating on B-2 Certs
-----------------------------------------------------------------
DBRS, Inc. finalized the following provisional ratings on the
following Mortgage Pass-Through Certificates, Series 2023-NQM3 (the
Certificates) issued by A&D Mortgage Trust 2023-NQM3 (the Trust):
-- $242.8 million Class A-1 at AAA (sf)
-- $40.3 million Class A-2 at AA (low) (sf)
-- $35.3 million Class A-3 at A (low) (sf)
-- $15.6 million Class M-1 at BBB (low) (sf)
-- $16.3 million Class B-1 at BB (low) (sf)
-- $11.7 million Class B-2 at B (low) (sf)
The AAA (sf) rating on the Class A-1 Certificates reflects 34.65%
of credit enhancement provided by subordinated Certificates. The AA
(low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B
(low) (sf) ratings reflect 23.80%, 14.30%, 10.10%, 5.70%, and 2.55%
of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This transaction is a securitization of a portfolio of fixed-rate
and adjustable-rate prime and nonprime first-lien residential
mortgages funded by the issuance of the Certificates. The
Certificates are backed by 898 loans with a total principal balance
of approximately $371,535,264 as of the Cut-Off Date (July 1,
2023).
The originators for the mortgage pool are A&D Mortgage LLC (ADM;
97.0%) and others (3.0%). ADM originated the mortgages under the
following five programs:
-- Super Prime
-- Prime
-- Debt Service Coverage Ratio (DSCR)
-- Foreign National β Full Doc
-- Foreign National β DSCR
A&D Mortgage LLC (ADM) will act as the Sponsor and the Servicer for
all loans.
Nationstar Mortgage LLC (Nationstar) will act as the Master
Servicer and Citibank, N.A. (rated AA (low) with a Stable trend by
DBRS Morningstar) will act as the Securities Administrator and
Certificate Registrar.
Wilmington Trust, National Association will serve as the Custodian,
and Wilmington Savings Fund Society, FSB will act as the Trustee.
The pool is about two months seasoned on a weighted-average basis,
although seasoning may span from zero to 24 months.
In accordance with U.S. credit risk retention requirements, ADM as
the Sponsor, either directly or through a Majority-Owned Affiliate,
will retain an eligible horizontal residual interest consisting of
the Class X Certificates, the Class B-3 Certificates, and a portion
of the Class B-2 Certificates (together, the Risk Retained
Certificates), representing not less than 5% economic interest in
the transaction, to satisfy the requirements under Section 15G of
the Securities and Exchange Act of 1934 and the regulations
promulgated thereunder. Such retention aligns Sponsor and investor
interest in the capital structure.
Although the applicable mortgage loans were originated to satisfy
the Consumer Financial Protection Bureau (CFPB) ability-to-repay
(ATR) rules, they were made to borrowers who generally do not
qualify for the agency, government, or private-label nonagency
prime products for various reasons described above. In accordance
with the CFPB Qualified Mortgage (QM)/ATR rules, 63.6% of the loans
are designated as non-QM. Approximately 35.9% of the loans are made
to investors for business purposes and are thus not subject to the
QM/ATR rules. Also, five loans (0.4% of the pool) are QM with a
conclusive presumption of compliance with the ATR rules and
designated as QM Safe Harbor.
The Servicer will generally fund advances of delinquent principal
and interest (P&I) on any mortgage until such loan becomes 90 days
delinquent under the Mortgage Bankers Association (MBA) method,
contingent upon recoverability determination. The Servicer is also
obligated to make advances in respect of taxes, insurance premiums,
and reasonable costs incurred in the course of servicing and
disposing of properties. If the Servicer fails in its obligation to
make P&I advances, Nationstar, as the Master Servicer, will be
obligated to fund such advances. In addition, if the Master
Servicer fails in its obligation to make P&I advances, Citibank,
N.A., as the Securities Administrator, will be obligated to fund
such advances. The Master Servicer and Securities Administrator are
only responsible for P&I Advances; the Servicer is responsible for
P&I and advances with respect to taxes, insurance premiums, and
reasonable costs incurred in the course of servicing and disposing
of properties (Servicing Advances). If the Servicer fails to make
the Servicing Advances on a delinquent loan, the recovery amount
upon liquidation may be reduced.
The Sponsor (ADM) will have the option, but not the obligation, to
repurchase any mortgage loan that is 90 or more days delinquent
under the MBA method (or, in the case of any Coronavirus Disease
(COVID-19) forbearance loan, such mortgage loan becomes 90 or more
days delinquent under the MBA method after the related forbearance
period ends or any REO property acquired in respect of a mortgage
loan) at the Repurchase Price, provided that such repurchases in
aggregate do not exceed 7.5% of the total principal balance as of
the Cut-Off Date.
The Depositor (A&D Mortgage Depositor LLC) may, at its option, on
any date that is the later of (1) the two-year anniversary of the
Closing Date, and (2) the earlier of (A) the three-year anniversary
of the Closing Date and (B) the date on which the total loan
balance is less than or equal to 30% of the loan balance as of the
Cut-Off Date, purchase all outstanding certificates at a price
equal to the outstanding class balance plus accrued and unpaid
interest, including any cap carryover amounts (Optional
Redemption). An Optional Redemption will be followed by a qualified
liquidation, which requires a complete liquidation of assets within
the Trust and the distribution of proceeds to the appropriate
holders of regular or residual interests.
The transaction employs a sequential-pay cash flow structure with a
pro rata principal distribution among the senior tranches subject
to certain performance triggers related to cumulative losses or
delinquencies exceeding a specified threshold (Credit Event).
Principal proceeds can be used to cover interest shortfalls on the
Class A-1 and Class A-2 Certificates (IIPP) before being applied
sequentially to amortize the balances of the senior and
subordinated certificates. For the Class A-3 Certificates (only
after a Credit Event) and for the mezzanine and subordinate classes
of certificates (both before and after a Credit Event), principal
proceeds will be available to cover interest shortfalls only after
the more senior certificates have been paid off in full. Also, the
excess spread can be used to cover realized losses first before
being allocated to unpaid Cap Carryover Amounts due to Class A-1,
Class A-2, Class A-3 and Class M-1 Certificates.
Of note, the Class A-1, Class A-2, and Class A-3 Certificates'
coupon rates step up by 100 basis points on and after the payment
date in November 2026 (Step-Up Certificates). Also, the interest
and principal otherwise payable to the Class B-3 Certificates as
accrued and unpaid interest may be used to pay the Class A-1, Class
A-2, Class A-3 and Class M-1 Certificates' Cap Carryover Amounts
after the Class A coupons step up.
The ratings reflect transactional strengths that include the
following:
-- Substantial borrower equity, robust loan attributes, and pool
composition;
-- Compliance with the ATR rules;
-- Satisfactory third-party due-diligence review;
-- Current loans; and
-- Improved underwriting standards.
The transaction also includes the following challenges:
-- Nonprime, non-QM, and investor loans;
-- Three-month advances of delinquent P&I;
-- Representations and warranties framework;
-- Servicer's financial capability; and
-- A servicer with limited performance history.
The full description of the strengths, challenges, and mitigating
factors is detailed in the related report.
DBRS Morningstar's credit ratings on the Certificates address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations for each of the rated Certificates are the
related Interest Distribution Amount, Interest Carryforward Amount
and the related Class Balances.
DBRS Morningstar's credit ratings do not address non-payment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, in this transaction, DBRS Morningstar's
ratings do not address the payment of any Cap Carryover Amounts
based on its position in the cash flow waterfall.
DBRS Morningstar's credit ratings on the Class A-1, Class A-2, and
Class A-3 Certificates also address the credit risk associated with
the increased rate of interest applicable to the Class A-1, Class
A-2, and Class A-3 Certificates if the Class A-1, Class A-2, and
Class A-3 Certificates remain outstanding on the step-up date
(November 2026) in accordance with the applicable transaction
document(s).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
ACREC 2021-FL1: DBRS Confirms B(low) Rating on Class G Notes
------------------------------------------------------------
DBRS, Inc. confirmed its ratings on all classes of notes issued by
ACREC 2021-FL1 Ltd. as follows:
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which has remained in line with DBRS Morningstar's
expectations since issuance. In conjunction with this press
release, DBRS Morningstar has published a Surveillance Performance
Update report with in-depth analysis and credit metrics for the
transaction and with business plan updates on select loans.
The initial collateral consisted of 23 floating-rate mortgages
secured by 23 transitional multifamily properties with a cut-off
date balance totaling approximately $875.6 million. Most loans were
in a period of transition with plans to stabilize performance and
improve the asset value. The transaction was a managed vehicle with
an 18-month reinvestment period that was scheduled to expire with
the April 2023 Payment Date. The reinvestment period was extended
through July 2023 as the issuer identified an additional loan that
was added to the transaction, according to July 2023 reporting. The
Replenishment Account now has a zero balance and the transaction
will pay down sequentially with all subsequent successful loan
repayments.
As of the July 2023 remittance, the pool comprises 21 loans secured
by 21 properties with a cumulative trust balance of $862.7 million,
as there has been collateral reduction of 1.5%. Since issuance,
eight loans with a former cumulative trust balance of $275.0
million have been successfully repaid from the pool. Of the
original 23 loans, 15 loans, representing 69.5% of the current
trust balance, remain in the transaction as of July 2023 reporting.
Since the previous DBRS Morningstar rating action in November 2022,
four loans with a current trust balance of 21.1% have been added to
the trust.
The transaction is concentrated by property type, as all loans are
secured by multifamily properties. The loans are primarily secured
by properties in suburban markets. Fourteen loans, representing
65.9% of the pool, are secured by properties in suburban markets,
as defined by DBRS Morningstar, with a DBRS Morningstar Market Rank
of 3, 4, or 5. An additional six loans, representing 28.7% of the
pool, are secured by properties with a DBRS Morningstar Market Rank
of 6 or 7, denoting an urban market, while one loan, representing
5.4% of the pool, is secured by property with a DBRS Morningstar
Market Rank of 2, denoting a tertiary market. In comparison, in
July 2022, properties in suburban markets represented 71.9% of the
collateral and properties in urban markets represented 28.1% of the
collateral.
Leverage across the pool has also remained consistent from the pool
as of July 2022 reporting as the current weighted-average (WA)
as-is appraised value loan-to-value (LTV) ratio is 73.1%, with a
current WA stabilized LTV ratio of 67.9%. In comparison, these
figures were 74.5% and 69.8%, respectively, as of July 2022. DBRS
Morningstar recognizes that select property values may be inflated
as the majority of the individual property appraisals were
completed in 2021 and 2022 and may not reflect the current rising
interest rate or widening capitalization rate environments.
Through June 2023, the lender had advanced cumulative loan future
funding of $10.5 million to seven of the 21 remaining individual
borrowers to aid in property stabilization efforts. The largest
advance, $2.6 million, has been made to the borrower of the Belmont
Apartments loan, which is secured by a multifamily property in
Grand Prarie, Texas. Funds were advanced to the borrower to
complete its capital improvement project across the property. An
additional $11.9 million of loan future funding allocated to seven
of the remaining individual borrowers remains available. The
largest portion of available funds, $3.0 million, is allocated to
the borrower of the City Club Apartments β CBD Detroit loan,
which is secured by a multifamily property in Detroit. The loan
future funding is available to the borrower as a performance based
earnout out. According to the collateral manager, the property
remains in lease up as the borrower has encountered challenges in
increasing the occupancy rate.
An additional remaining $2.1 million of future funding is allocated
to the borrower of the Lakewood Greens loan, which is secured by a
multifamily property in Dallas. The available funds are to continue
the borrower's capital improvement plan as the lender has already
advanced $2.5 million in funding since loan closing. Notably, the
loan is sponsored by Tides Equities. In a June 2023 The Real Deal
article, the principals of the firm noted it would likely need to
conduct a capital call from its investors in order to fund debt
service shortfalls across its portfolio given the rise in floating
interest rate debt. The loan benefits from an interest rate cap
agreement with a pay rate of 5.61%; however, according to YE2022
servicer reporting, the debt service coverage ratio was 0.59x. Of
the remaining loans, 11 loans, representing 52.2% of the current
pool balance, were not structured with future funding components as
the individual business plans generally revolved around completing
initial lease-up phases and stabilizing operations on recently
delivered properties.
As of the May 2023 remittance, there are no delinquent loans or
loans in special servicing, and there are three loans on the
servicer's watchlist, representing 12.2% of the current trust
balance. The loans have been flagged for upcoming maturity dates.
According to the collateral manager, the properties are being
marketed for sale; however, if a sale does not close prior to loan
maturity, each loan has a remaining extension option. An additional
five loans, representing 31.4% of the current trust balance, have
been modified. In most instances, the modifications were executed
to extend loan maturity dates with borrowers required to purchase
new interest rate cap agreements or deposit additional cash equity
into operating and debt service carry reserves.
Notes: All figures are in U.S. dollars unless otherwise noted.
AFFIRM ASSET 2022-A: DBRS Confirms BB Rating on Class E Notes
-------------------------------------------------------------
DBRS, Inc. confirmed five ratings of Affirm Asset Securitization
Trust 2022-A.
-- Class A Notes AAA (sf) Confirmed
-- Class B Notes AA (sf) Confirmed
-- Class C Notes A (sf) Confirmed
-- Class D Notes BBB (sf) Confirmed
-- Class E Notes BB (sf) Confirmed
The rating actions are based on the following analytical
considerations:
-- The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary Baseline Macroeconomic Scenarios For
Rated Sovereigns - June 2023 Update, published on June 30, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse COVID-19 pandemic scenarios, which were first
published in April 2020.
-- The transaction parties' capabilities with regard to
originating, underwriting, and servicing.
-- The rating actions are the result of performance to date, DBRS
Morningstar's assessment of future performance assumptions, and the
increasing levels of credit enhancement.
-- The transaction's capital structure and form and sufficiency of
available credit enhancement. The current level of hard credit
enhancement and estimated excess spread are sufficient to support
the DBRS Morningstar-projected remaining cumulative net loss
assumption at a multiple of coverage commensurate with the ratings.
AGL CLO 26: S&P Assigns 'BB- (sf)' Rating on Class E Notes
----------------------------------------------------------
S&P Global Ratings assigned its ratings to AGL CLO 26 Ltd./AGL CLO
26 LLC 's floating-rate debt.
The debt issuance is a CLO securitization governed by investment
criteria and backed by broadly syndicated speculative-grade (rated
'BB+' or lower) senior secured term loans. AGL CLO Credit
Management LLC manages the transaction.
The ratings reflect S&P's view of:
-- The collateral pool's diversification;
-- The credit enhancement provided through subordination, excess
spread, and overcollateralization;
-- The experience of the collateral manager's team, which can
affect the performance of the rated debt through portfolio
identification and ongoing management; and
-- The transaction's legal structure, which is expected to be
bankruptcy remote.
Ratings Assigned
AGL CLO 26 Ltd./AGL CLO 26 LLC
Class A, $256.00 million: Not rated
Class B, $48.00 million: AA (sf)
Class C (deferrable), $24.00 million: A (sf)
Class D (deferrable), $24.00 million: BBB- (sf)
Class E (deferrable), $12.40 million: BB- (sf)
Subordinated notes, $32.52 million: Not rated
AMERICAN CREDIT 2023-3: DBRS Gives Prov. BB Rating on E Notes
-------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by American Credit Acceptance Receivables Trust
2023-3 (ACAR 2023-3 or the Issuer):
-- $158,940,000 Class A Notes at AAA (sf)
-- $37,400,000 Class B Notes at AA (sf)
-- $69,700,000 Class C Notes at A (low) (sf)
-- $57,380,000 Class D Notes at BBB (low) (sf)
-- $32,300,000 Class E Notes at BB (sf)
CREDIT RATING RATIONALE/DESCRIPTION
The provisional ratings are based on DBRS Morningstar's review of
the following analytical considerations:
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization
(OC), subordination, amounts held in the reserve fund, and excess
spread. Credit enhancement levels are sufficient to support the
DBRS Morningstar-projected cumulative net loss (CNL) assumption
under various stress scenarios.
-- The DBRS Morningstar CNL assumption is 28.00% based on the
expected cut-off date pool composition and concentration limits for
the prefunding collateral.
-- The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms on which
they have invested. For this transaction, the ratings address the
payment of timely interest on a monthly basis and principal by the
final scheduled distribution date.
(2) The credit quality of the collateral and the consistent
performance of ACA's auto loan portfolio.
-- Availability of considerable historical performance data and a
history of consistent performance of the ACA portfolio.
-- The statistical pool characteristics include the following: the
pool is seasoned by approximately five months and contains ACA
originations from Q3 2016 through Q3 2023, the weighted-average
(WA) remaining term of the collateral pool is approximately 66
months, and the WA FICO score of the pool is 547.
(3) ACAR 2023-3 provides for the Class A, B, C, and D coverage
multiples being slightly below the DBRS Morningstar range of
multiples set forth in the "Rating U.S. Retail Auto Loan
Securitizations" methodology for this asset class. DBRS Morningstar
believes that this is warranted, given the magnitude of expected
loss and structural features of the transaction.
(4) The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary "Baseline Macroeconomic Scenarios for
Rated Sovereigns: June 2023 Update," published on June 30, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse Coronavirus Disease (COVID-19) pandemic
scenarios, which were first published in April 2020.
(5) The consistent operational history of American Credit
Acceptance, LLC (ACA or the Company) as well as the overall
strength of the Company and its management team.
-- The ACA senior management team has considerable experience,
with an approximate average of 18 years in banking, finance, and
auto finance companies as well as an average of approximately ten
years of Company tenure.
(6) ACA's operating history and its capabilities with regard to
originations, underwriting, and servicing.
-- DBRS Morningstar has performed an operational review of ACA and
considers the Company to be an acceptable originator and servicer
of subprime automobile loan contracts.
-- ACA has completed 43 securitizations since 2011, including four
transactions in 2022 and two in 2023.
-- ACA maintains a strong corporate culture of compliance and a
robust compliance department.
(7) The Company indicated that it may be subject to various
consumer claims and litigation seeking damages and statutory
penalties. Some litigation against ACA could take the form of
class-action complaints by consumers; however, the Company
indicated that there is no material pending or threatened
litigation.
(8) The legal structure and presence of legal opinions that are
expected to address the true sale of the assets to the Issuer, the
nonconsolidation of the depositor and the issuer with ACA, that the
issuer has a valid first-priority security interest in the assets,
and the consistency with DBRS Morningstar "Legal Criteria for U.S.
Structured Finance" methodology.
DBRS Morningstar's credit rating on the securities listed below
addresses the credit risk associated with the identified financial
obligations in accordance with the relevant transaction documents.
DBRS Morningstar's credit rating does not address non-payment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations.
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
The rating on the Class A Notes reflects 63.60% of initial hard
credit enhancement provided by the subordinated notes in the pool
(46.30%), the reserve account (1.00%), and OC (16.30%). The ratings
on the Class B, C, D, and E Notes reflect 54.80%, 38.40%, 24.90%,
and 17.30% of initial hard credit enhancement, respectively.
Additional credit support may be provided from excess spread
available in the structure.
ACA is an independent full-service automotive financing and
servicing company that provides (1) financing to borrowers who do
not typically have access to prime credit-lending terms for the
purchase of late-model vehicles and (2) refinancing of existing
automotive financing.
Notes: All figures are in U.S. dollars unless otherwise noted.
AMERICAN CREDIT 2023-3: S&P Assigns BB- (sf) Rating on Cl. E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its ratings to American Credit
Acceptance Receivables Trust 2023-3's automobile receivables-backed
notes.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The ratings reflect:
-- The availability of approximately 64.5%, 57.7%, 46.9%, 38.2%,
and 33.3% credit support (hard credit enhancement and haircut to
excess spread) for the class A, B, C, D, and E notes, respectively,
based on final post pricing stressed cash flow scenarios. These
credit support levels provide at least 2.35x, 2.10x, 1.70x, 1.37x,
and 1.20x coverage of S&P's expected cumulative net loss of 27.25%
for the class A, B, C, D, and E notes, respectively.
-- The expectation that under a moderate ('BBB') stress scenario
(1.37x S&P's expected loss level), all else being equal, its 'AAA
(sf)', 'AA (sf)', 'A (sf)', 'BBB (sf)', and 'BB- (sf)' ratings on
the class A, B, C, D, and E notes, respectively, will remain within
its credit stability limits.
-- The timely payment of interest and principal by the designated
legal final maturity dates under S&P's stressed cash flow modeling
scenarios, which it believes are appropriate for the assigned
ratings.
-- The collateral characteristics of the series' subprime
automobile loans, S&P's view of the credit risk of the collateral,
and our updated macroeconomic forecast and forward-looking view of
the auto finance sector.
-- The series' bank accounts at Wells Fargo Bank N.A., which do
not constrain the ratings.
-- S&P's operational risk assessment of American Credit Acceptance
LLC as servicer, and its view of the company's underwriting and
backup servicing arrangement with Computershare Trust Co. N.A.
-- S&P's assessment of the transaction's potential exposure to
environmental, social, and governance credit factors, which are in
line with its sector benchmark.
-- The transaction's payment and legal structures.
Ratings Assigned
American Credit Acceptance Receivables Trust 2023-3
Class A, $205.70 million: AAA (sf)
Class B, $48.40 million: AA (sf)
Class C, $90.20 million: A (sf)
Class D, $74.25 million: BBB (sf)
Class E, $41.80 million: BB- (sf)
AMSR 2023-SFR2: DBRS Finalizes BB Rating on Class F-1 Certs
-----------------------------------------------------------
DBRS, Inc. finalized its provisional ratings to the Single-Family
Rental Pass-Through Certificates (the Certificates) issued by AMSR
2023-SFR2 Trust (AMSR 2023-SFR2):
-- $161.3 million Class A at AAA (sf)
-- $65.5 million Class B at AA (high) (sf)
-- $23.9 million Class C at A (high) (sf)
-- $30.2 million Class D at A (low) (sf)
-- $49.1 million Class E-1 at BBB (sf)
-- $31.5 million Class E-2 at BBB (low) (sf)
-- $22.7 million Class F-1 at BB (sf)
-- $26.5 million Class F-2 at BB (low) (sf)
The AAA (sf) rating on the Class A Certificate reflects 67.7% of
credit enhancement provided by subordinated notes in the pool. The
AA (high) (sf), A (high) (sf), A (low) (sf), BBB (sf), BBB (low)
(sf), BB (sf), and BB (low) (sf) ratings reflect 54.5%, 49.8%,
43.7%, 33.8%, 27.5%, 23.0%, and 17.7% of credit enhancement,
respectively.
Other than the classes specified above, DBRS Morningstar does not
rate any other classes in this transaction.
The Certificates are supported by the income streams and values
from 1,623 rental properties. The properties are distributed across
13 states and 34 MSAs in the United States. DBRS Morningstar maps
an MSA based on the ZIP code provided in the data tape, which may
result in different MSA stratifications than those provided in
offering documents. As measured by BPO value, 68.0% of the
portfolio is concentrated in three states: Florida (42.5%), Georgia
(15.4%), and North Carolina (10.1%). The average value is $310,543.
The average age of the properties is roughly 36 years. The majority
of the properties have three or more bedrooms. The Certificates
represent a beneficial ownership in an approximately five-year,
fixed-rate, interest-only loan with an initial aggregate principal
balance of approximately $498.9 million.
The Sponsor intends to satisfy its risk-retention obligations under
the U.S. Risk Retention Rules, EU Risk Retention Requirements, and
UK Risk Retention Requirements by Class G, which is 17.7% of the
initial total issuance balance, either directly or through a
majority-owned affiliate.
DBRS Morningstar assigned the provisional ratings for each class of
Certificates by performing a quantitative and qualitative
collateral, structural, and legal analysis. This analysis uses DBRS
Morningstar's single-family rental subordination analytical tool
and is based on DBRS Morningstar's published criteria. DBRS
Morningstar developed property-level stresses for the analysis of
single-family rental assets. DBRS Morningstar assigned the
provisional ratings to each class based on the level of stresses
each class can withstand and whether such stresses are commensurate
with the applicable rating level. DBRS Morningstar's analysis
includes estimated base-case net cash flows (NCFs) by evaluating
the gross rent, concession, vacancy, operating expenses, and
capital expenditure data. The DBRS Morningstar NCF analysis
resulted in a minimum debt service coverage ratio of more than 1.0
times.
Furthermore, DBRS Morningstar reviewed the third-party participants
in the transaction, including the property manager, servicer, and
special servicer. These transaction parties are acceptable to DBRS
Morningstar. (For more details, see the Property Manager and
Servicer Summary section in the DBRS Morningstar presale report.)
DBRS Morningstar also conducted a legal review and found no
material rating concerns. (For details, see the Scope of Analysis
section in the DBRS Morningstar presale report.)
DBRS Morningstar's credit rating on the Certificates addresses the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations for each of the rated Certificates are the
related Interest Payment Amounts and the related Class Balances. In
addition, the associated financial obligations for the Class E-1,
E-2, F-1, and F-2 Certificates include Deferred Interest Amounts.
DBRS Morningstar's credit rating does not address non-payment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations.
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
APIDOS CLO XXVII: Moody's Lowers Rating on $22.5MM D Notes to Ba3
-----------------------------------------------------------------
Moody's Investors Service has upgraded the rating on the following
notes issued by Apidos CLO XXVII:
US$57,500,000 Class A-2R Senior Secured Floating Rate Notes due
2030 (the "Class A-2R Notes"), Upgraded to Aaa (sf); previously on
August 5, 2022 Upgraded to Aa1 (sf)
Moody's has also downgraded the ratings on the following notes:
US$31,250,000 Class C-R Mezzanine Secured Deferrable Floating Rate
Notes due 2030 (the "Class C-R Notes"), Downgraded to Baa2 (sf);
previously on August 5, 2022 Upgraded to Baa1 (sf)
US$22,500,000 Class D Mezzanine Deferrable Floating Rate Notes due
2030 (the "Class D Notes"), Downgraded to Ba3 (sf); previously on
August 5, 2022 Upgraded to Ba2 (sf)
US$7,500,000 Class E Junior Deferrable Floating Rate Notes due 2030
(the "Class E Notes"), Downgraded to Caa1 (sf); previously on
August 5, 2022 Upgraded to B2 (sf)
Apidos CLO XXVII, originally issued in July 2017 and partially
refinanced in June 2021, is a managed cashflow CLO. The notes are
collateralized primarily by a portfolio of broadly syndicated
senior secured corporate loans. The transaction's reinvestment
period ended in July 2022.
RATINGS RATIONALE
The upgrade rating action is primarily a result of deleveraging of
the senior notes and an increase in the transaction's
over-collateralization (OC) ratios since July 2022. The Class A-1R
notes have been paid down by approximately 7% or $21.4 million
since then. Based on Moody's calculation, the OC ratios for the
Class A-1R/A-2R notes are currently 131.57%, versus July 2022 level
of 130.67%.
The downgrade rating actions result primarily from the correction
of an error. In the prior rating action for this transaction,
Moody's incorrectly modeled the OC ratio haircuts, leading to
unduly high cashflow diversion to amortize the notes. The actions
reflect the specific risks to the junior notes posed by par loss
and credit deterioration observed in the underlying CLO portfolio.
Based on Moody's calculations, the OC ratio for the Class C-R, D
and E notes is reported at 112.6%, 106.8%, and 105.0% versus July
2022 levels of 112.8%, 107.2%, and 105.5% respectively.
Furthermore, Moody's calculated weighted average rating factor
(WARF) has been deteriorating and the current level is 2757,
compared to 2708 in July 2022.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score, weighted average
spread, and weighted average recovery rate, are based on its
published methodology and could differ from the trustee's reported
numbers. For modeling purposes, Moody's used the following
base-case assumptions:
Performing par and principal proceeds balance: $467,020,623
Defaulted par: $3,595,934
Diversity Score: 76
Weighted Average Rating Factor (WARF): 2757
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.13%
Weighted Average Recovery Rate (WARR): 47.21%
Weighted Average Life (WAL): 3.42 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, 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.
BAIN CAPITAL 2023-3: Fitch Assigns 'BB-sf' Rating to Class E Notes
------------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to Bain
Capital Credit CLO 2023-3, Limited.
ENTITY/DEBT RATING
---------- ------
Bain Capital Credit CLO 2023-3,
Limited
A LT NRsf New Rating
B LT AAsf New Rating
C LT Asf New Rating
D LT BBB-sf New Rating
E LT BB-sf New Rating
Subordinated
Notes LT NRsf New Rating
TRANSACTION SUMMARY
Bain Capital Credit CLO 2023-3, Limited is an arbitrage cash flow
collateralized loan obligation (CLO) that will be managed by Bain
Capital Credit U.S. CLO Manager II, LP. Net proceeds from the
issuance of the secured and subordinated notes will provide
financing on a portfolio of approximately $600 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 24.13, versus a maximum covenant, in accordance with
the initial expected matrix point of 25. Issuers rated in the 'B'
rating category denote a highly speculative credit quality;
however, the notes benefit from appropriate credit enhancement and
standard U.S. CLO structural features.
Asset Security (Positive): The indicative portfolio consists of
99.2% first-lien senior secured loans. The weighted average
recovery rate (WARR) of the indicative portfolio is 75.13% versus a
minimum covenant, in accordance with the initial expected matrix
point of 71.20%.
Portfolio Composition (Positive): The largest three industries may
constitute up to 39% of the portfolio balance in aggregate, while
the top five obligors can represent up to 12.5% of the portfolio
balance in aggregate. The level of diversity required by industry,
obligor and geographic concentrations is in line with other recent
U.S. CLOs.
Portfolio Management (Neutral): The transaction has a 5.0-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 'Bsf' and
'BBB+sf' for class C, between less than 'B-sf' and 'BB+sf' for
class D, and between less than 'B-sf' and 'B+sf' for class E.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Variability in key model assumptions, such as increases in recovery
rates and decreases in default rates, could result in an upgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics. The minimum rating results under these sensitivity
scenarios are 'AAAsf' for class B, 'A+sf' for class C, 'Asf' for
class D, and 'BBB+sf' for class E.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, and together with any assumptions, 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.
BAMLL COMMERCIAL 2016-ISQR: S&P Lowers Cl. E Certs Rating to 'B-'
-----------------------------------------------------------------
S&P Global Ratings lowered its ratings on the class D and E
commercial mortgage pass-through certificates from BAMLL Commercial
Mortgage Securities Trust 2016-ISQR, a U.S. CMBS transaction. At
the same time, S&P affirmed its ratings on five other classes from
the transaction.
This U.S. CMBS transaction is backed by a portion of a 10-year,
fixed-rate, interest-only (IO) mortgage whole loan secured by the
borrower's fee interest in International Square, which comprises
three interconnected, 12-story, class-A office buildings with
ground-floor retail space totaling 1.16 million sq. ft. in downtown
Washington, D.C.
Rating Actions
S&P said, "The downgrades on the class D and E certificates reflect
our concerns that the property's operating performance has not
improved and continues to underperform our expectations that we
derived in our last review in August 2022 (see "One Rating Lowered
And Six Affirmed From BAMLL Commercial Mortgage Securities Trust
2016-ISQR", published Aug. 12, 2022). Due to weakened office
submarket conditions for the Washington D.C. central business
district (CBD), the property experienced limited new leasing in the
past year. On the other hand, our affirmations on classes A, B, and
C consider the moderate debt per sq. ft. (about $286 per sq. ft.
through class C) and the possibility that property performance
improves, among other factors.
"Since our last review in August 2022, the property was 70.3%
leased as of the March 31, 2023 rent roll and after accounting for
the One Market LLC food hall tenant whose lease began in July 2023,
we calculated a 73.6% occupancy rate. This compares to the 74.1%
occupancy that we had assumed at our last review, which also
considered the food hall tenant and other new leases at the
property signed in early 2022."
According to the master servicer, Wells Fargo Bank N.A.,
prospective new leases for the property have gone idle and there is
generally a lack of new leasing at the property. While there is one
new lease for a tenant on the 8th floor for approximately 40,000
sq. ft., the lease does not begin until January 2025 and therefore,
S&P has not considered the potential income from this tenant in our
analysis. Furthermore, CoStar indicates that the Washington D.C.
CBD office submarket continues to experience weakness given the
downsizing and relocations of office tenants, as well as an
increasing availability of sublet space across both the submarket
and the larger Washington D.C. metro area.
S&P said, "Given the property's lack of improvement in operating
performance, limited new leasing, the softening of the property's
submarket, and historical servicer-reported net cash flows (NCFs),
we maintained our NCF of $29.6 million, 6.75% capitalization rate,
and $450.8 million value or $390 per sq. ft., that we derived in
our last review (see below), which is 40.4% lower than the $757.0
million appraisal value at issuance.
"Although the model-indicated ratings were lower than the classes'
current or revised ratings, we affirmed our ratings on the class A,
B, and C certificates, and tempered our downgrades on the class D
and E certificates based on certain qualitative considerations."
These include:
-- The property's desirable location in downtown Washington,
D.C.;
-- The potential that the property's operating performance may
improve above our revised expectations, particularly the sponsor is
nearing the completion of the $50.0 million capital improvement
project to build a ground-floor food hall and renovate certain
common areas and amenities to attract new tenants;
-- The significant market value decline that would be needed
before these classes experience principal losses;
-- The liquidity support provided in the form of servicer
advancing; and
-- The relative position of the classes in the payment waterfall.
S&P said, "We will continue to monitor the leasing and performance
of the property, as well as the market conditions. If we receive
information that differs materially from our expectations or if the
property's performance continues to not improve, we may revisit our
analysis and further take rating actions as we deem necessary.
"We affirmed our ratings on the class X-A and X-B IO certificates
based on our criteria for rating IO securities, in which the
ratings on the IO securities would not be higher than that of the
lowest-rated reference class. Class X-A's notional amount
references class A, and class X-B references classes B and C."
Property-Level Analysis
The loan collateral, International Square, consists of three
interconnected, 12-story, class-A office buildings with
ground-floor retail space, totaling 1.16 million sq. ft. in
downtown Washington, D.C. The buildings were built from 1979-1982
and the entire property occupies almost a full city block between K
and I (Eye) Street, and 18th and 19th Street NW in the city's CBD.
The sponsor, a joint venture between affiliates of Tishman Speyer
Properties L.P. and the Abu Dhabi Investment Authority, commenced a
capital project in 2020, budgeted at approximately $50.0 million
that includes partially revamping the ground-floor retail space
into a new food hall, and building-out and renovating common areas
and amenity spaces to potentially drive more foot traffic around
the building to attract new tenants. The master servicer, Wells
Fargo Bank N.A., indicated that the food hall project is expected
to be completed this month (August 2023), and the amenity spaces
and common areas opened earlier this year in May 2023. It is our
understanding that the sponsor had signed a management agreement
with an operator, One Market LLC, to manage the food hall, with
rent based on a percentage of sales. Given the uncertainty of the
levels of sales for this new tenant, we did not include potential
income from this space in our analysis.
Reported operating performance at the property has declined since
our last review, with a servicer-reported NCF of $12.4 million for
year-end 2022 and a reported debt service coverage of 0.75x, a
decline of 50.3% from the reported NCF of $25.0 million and DSC of
1.52x for year-end 2021. However, this was due to lower rental
income because of a free rent period following the renewal and
extensions of certain leases for the Board of Governors of the
Federal Reserve, which is the largest tenant at the property. The
renewals and extensions were agreed to in 2020 and most of the free
rent associated with those leases is expiring by the end of 2024.
As such, we have, in our analysis, assumed a total base rent of
$24.7 million, or $62.35 per-sq.-ft., for the Board of Governors of
the Federal Reserve tenant, to reflect the end of the free rent
period over the next year. For year-to-date March 2023, the
servicer reported a debt service coverage of 1.20x and NCF of $4.9
million, an improvement from year-end 2022.
As mentioned above, the property was 73.6% leased as of the March
31, 2023 rent roll, including the One Market LLC tenant. The five
largest tenants comprise 59.4% of the net rentable area (NRA) and
include:
-- The Board of Governors of the Federal Reserve System
(AA+/Stable/A-1+; 32.6% of NRA; 46.1% of base rent as calculated by
S&P Global Ratings; January 2026 through May 2033 lease
expirations);
-- Blank Rome LLP (13.8%; 21.8%; July 2029);
-- Daniel J. Edelman Inc. (5.2%; 7.6%; July 2030);
-- Milbank LLP (4.4%; 5.3%; August 2025); and
-- One Market LLC (3.3%; pays percentage-rent; May 2030)
-- The property faces minimal rollover risk in the near term, with
0.3% of NRA rolling in 2023, 2.2% in 2024, and 4.4% in 2025.
As of June 2023, CoStar estimates a 19.3% vacancy rate, 21.2%
availability rate, and a $55.43 per sq. ft. market rent for the
Washington D.C. CBD submarket for three- to five-star office
buildings. CoStar also projects further deterioration in the coming
years, with vacancy rising to 25.0% and market rent falling to
$48.92 per-sq.-ft. by fourth quarter 2025 for three- to five-star
office properties. CoStar surmised that the deterioration in the
performance of the submarket is driven by lower demand for office
spaces for new tenants, in addition to an expectation of lower
lease renewal rates for upcoming lease expirations for office
tenants in the submarket as they downsize their spaces or relocate
their offices due to an increasing hybrid work environment.
S&P said, "Given the limited new leasing and weakness in the
submarket, we utilized a 25.0% vacancy rate (comparable to the
25.9% vacancy assumption utilized at our last review), S&P Global
Ratings' base rent of $62.26 per sq. ft. and gross rent of $65.42
per sq. ft., 44.0% operating expense ratio, which resulted in a
long-term sustainable NCF of $29.6 million, the same as our NCF
assumption at our last review. In our analysis, we excluded certain
operating expense amounts that are associated with
partnership-level expenses but reported by the servicer. Using the
same S&P Global Ratings' capitalization rate of 6.75% as in the
last review and considering the present-value of the future rent
steps for the Board of Governors of the Federal Reserve tenant, we
arrived at an expected-case value of $450.8 million, or $390 per
sq. ft.βthe same as our value in our last review and 40.4% lower
than the issuance appraisal value of $757.0 million. This yielded
an S&P Global Ratings' loan-to-value (LTV) ratio of 99.8% on the
whole loan balance."
Transaction Summary
The IO mortgage whole loan had an initial and current balance of
$450.0 million, pays a per annum fixed rate of 3.615%, and matures
on Aug. 10, 2026. The whole loan is split into three senior A notes
and a subordinate B note. The $370.0 million trust balance (as of
the July 15, 2023, trustee remittance report) comprises the $166.7
million senior note A-1 and $203.3 million subordinate B notes. The
A-2 and A-3 senior notes are in Morgan Stanley Bank of America
Merrill Lynch Trust 2016-C30, Morgan Stanley Bank of America
Merrill Lynch Trust 2016-C31, and Morgan Stanley Capital I Trust
2016-BNK2, all of which are U.S. CMBS transactions. The senior A
notes are pari passu to each other and senior to the B note. In
addition, the transaction documents permit the borrower to obtain
up to $100.0 million in mezzanine financing, subject to certain
performance hurdles, such as an LTV ratio of 56.5% or less on the
total debt, a debt yield of no less than 8.6% on the total debt and
a total debt service coverage ratio of 2.35x. It is our
understanding that no mezzanine debt has been incurred to date. The
borrower has been current on its debt service payments through the
July 2023 payment date. To date, the trust has not incurred any
principal losses.
Ratings Lowered
BAMLL Commercial Mortgage Securities Trust 2016-ISQR
Class D to 'BB+ (sf)' from 'BBB- (sf)'
Class E to 'B- (sf)' from 'B (sf)'
Ratings Affirmed
BAMLL Commercial Mortgage Securities Trust 2016-ISQR
Class A: AAA (sf)
Class B: AA- (sf)
Class C: A- (sf)
Class X-A: AAA (sf)
Class X-B: A- (sf)
BANK 2017-BNK6: DBRS Confirms B Rating on Class F Certs
-------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2017-BNK6 issued by BANK
2017-BNK6 as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class C at AA (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-E at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-F at B (high) (sf)
-- Class F at B (sf)
All trends are Stable.
The rating confirmations and Stable trends reflect DBRS
Morningstar's current outlook and loss expectations for the
transaction, which remains relatively unchanged from the last
rating action in November 2022. There is a high concentration of
loans secured by retail and office properties, which represent
27.7% and 17.7% of the current pool balance, respectively. The
majority of these loans exhibit healthy credit metrics, with
operating performance seeing improvements from the lows reported
during the Coronavirus Disease (COVID-19) pandemic, as evidenced by
the historical occupancy rate and/or cash flow trends demonstrated
over the last few reporting periods. In addition, the transaction,
as a whole, continues to benefit from increased credit support to
the bonds as a result of scheduled amortization, loan repayments,
and defeasance. Overall, the pool's performance has been stable
since the last rating action.
At issuance, the transaction consisted of 72 fixed-rate loans
secured by 189 commercial and multifamily properties, with an
aggregate trust balance of $933.3 million. As of the July 2023
remittance, 66 loans remain outstanding with a trust balance of
$848.7 million, reflecting collateral reduction of 9.1% since
issuance. Seven loans, representing 5.5% of the pool, have been
fully defeased. In addition, 11 loans, representing 18.6% of the
pool, are on the servicer's watchlist and one loan, representing
2.3% of the pool, is in special servicing.
The specially serviced loan, Trumbull Marriott (Prospectus ID#12;
2.3% of the pool), is secured by a 325-key, full-service hotel in
Trumbull, Connecticut. The hotel is managed by Marriott
International with no formal franchise agreement. Historically, 50
to 70 rooms were used as dormitory-style housing for students of
nearby Sacred Heart University, approximately six miles away. The
loan transferred to special servicing in May 2020 for imminent
default. A friendly foreclosure agreement was filed, at which time
GF Hotels & Resorts was appointed receiver.
The property was most recently appraised in January 2023 with an
as-is value of $11.5 million, a significant decline from the
December 2021 and issuance values of $21.0 million and $35.1
million, respectively. The property was underperforming prior to
the pandemic and was in need of significant upgrades that were
estimated to cost in excess of $20.0 millionβfurther contributing
to the collateral's decline in value. According to the YE2022
financial reporting, the property was 51.6% occupied and reporting
net cash flow (NCF) of -$1.7 million with a below breakeven debt
service coverage ratio (DSCR) of -1.2 times (x). The property is
currently being marketed for sale by Jones Lang LaSalle. Based on a
haircut to the most recent appraisal, DBRS Morningstar projects a
loss severity in excess of 80.0% will be realized at disposition.
The largest loan on the servicer's watchlist, Starwood Capital
Group Hotel Portfolio (Prospectus ID#4; 7.0% of the pool), is
secured by a portfolio of 65 hotels totaling 6,366 keys, spread
across 21 states. The majority of the rooms (59%) are limited
service while 35% are extended stay and the remaining 6% are full
service. The portfolio is granular with no property representing
more than 2.6% of the allocated loan balance. The loan was
originally added to the servicer's watchlist in July 2020 when the
underlying collateral saw contractions in operating performance,
caused primarily by pandemic-related travel restrictions.
Forbearance was granted in the form of deferment of non-tax,
non-insurance, and non-ground rent reserves for a period of three
months to allow for those amounts to be applied to the monthly debt
service obligations. Repayment of the deferred amounts was carried
out over a 12-month period that began in February 2021. The loan
has remained current since the modification request was granted.
Although the loan is no longer being monitored on the servicer's
watchlist for performance-related declines, the servicer did note
potential life safety issues at multiple properties across the
portfolio, resulting in the loan remaining on the watchlist.
Operating performance has improved from the lows reported during
the pandemic with the portfolio reporting YE2022 occupancy rate,
NCF, and DSCR metrics of 72.7%, $44.5 million, and 1.7x,
respectively, which compare favorably with the prior year's figures
of 66.1%, $36.3 million, and 1.4x. In addition, the portfolio's
average daily rate and revenue per available room are nearing
stabilization with the YE2022 figures of $116.8 and $81.9
approaching the issuance figures (trailing 12 months ended March
2017) of $119.1 and $88.8. Despite these improvements, NCF remains
approximately 38.0% below the issuance figure $71.3 million.
Franchise agreements for 33 hotels, representing 40.2% of the
allocated loan balance, are scheduled to expire prior to loan
expiration; however, the sponsor, Starwood Capital Group, will
reportedly begin renegotiating the franchise renewals two years
prior to expiration and will assess the profitability of each
expiring agreement to determine if each property is appropriately
flagged. DBRS Morningstar analyzed this loan with a stressed
probability of default penalty, resulting in an expected loss
approximately 2.7x the pool average.
Although the majority of loans collateralized by office properties
are performing well, DBRS Morningstar has a cautious outlook for
this asset type, as sustained upward pressure on vacancy rates in
the broader office market may challenge landlords' efforts to
backfill vacant space and, in certain instances, contribute to
value declines, particularly for assets in noncore markets and/or
with disadvantages in location, building quality, or amenities
offered. DBRS Morningstar identified four office loans,
representing 10.7% of the pool, as having increased credit risk,
which is likely to persist in the near to moderate term, given the
continued uncertainty related to end-user demand and current
macroeconomic headwinds. DBRS Morningstar applied stressed
loan-to-value ratios and, where applicable, increased the
probability of default penalties for these loans.
At issuance, DBRS Morningstar shadow-rated three loansβGeneral
Motors Building (Prospectus ID#1; 10.6% of the pool), Gateway Net
Lease Portfolio (Prospectus ID#2; 7.2% of the pool), and Del Amo
Fashion Center (Prospectus ID#3; 7.0% of the pool)βinvestment
grade. This assessment was supported by the loans' strong credit
metrics, strong sponsorship strength, and the underlying
collaterals' historically stable performance. With this review,
DBRS Morningstar confirms that the characteristics of these loans
remain consistent with the investment-grade shadow rating.
Notes: All figures are in U.S. dollars unless otherwise noted.
BANK 2017-BNK8: Fitch Lowers Rating on 2 Tranches to 'B-sf'
-----------------------------------------------------------
Fitch Ratings has downgraded four and affirmed nine classes of BANK
2017-BNK8 Commercial Mortgage Pass-Through Certificates, Series
2017-BNK8. Fitch has assigned Negative Rating Outlooks on classes
D, E, X-D and X-E following their downgrades. The under criteria
observation (UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
---------- ----- -----
BANK 2017-BNK8
A-3 06650AAD9 LT AAAsf Affirmed AAAsf
A-4 06650AAE7 LT AAAsf Affirmed AAAsf
A-S 06650AAH0 LT AAAsf Affirmed AAAsf
A-SB 06650AAC1 LT AAAsf Affirmed AAAsf
B 06650AAJ6 LT AA-sf Affirmed AA-sf
C 06650AAK3 LT A-sf Affirmed A-sf
D 06650AAU1 LT BBsf Downgrade BBB-sf
E 06650AAW7 LT B-sf Downgrade BB-sf
F 06650AAY3 LT CCCsf Affirmed CCCsf
X-A 06650AAF4 LT AAAsf Affirmed AAAsf
X-B 06650AAG2 LT AA-sf Affirmed AA-sf
X-D 06650AAL1 LT BBsf Downgrade BBB-sf
X-E 06650AAN7 LT B-sf Downgrade BB-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of the
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
Increased Loss Expectations: The downgrades and Negative Outlooks
reflect the impact of the updated criteria and higher loss
expectations from continued performance declines on larger Fitch
Loans of Concern (FLOCs), including Park Square (10.1% of the
pool), DHG Greater Boston Hotel Portfolio (6.7%) and Pleasant
Prairie Premium Outlets (4.6%).
Fitch's current ratings incorporate a 'Bsf' rating case loss of
5.9%. Eleven loans (25.1%) were identified as FLOCs, with no loans
currently in special servicing.
Largest Contributors to Loss Expectations: The largest contributor
to loss expectations, Park Square (10.1% of the pool), is secured
by a 500,000-sf office building located in Boston, MA. This
full-term interest-only loan remains a FLOC after the largest
tenant WeWork (26.8% of the NRA, 20% of base rents) terminated its
lease and vacated the property prior to its July 2032 lease
expiration. WeWork paid a $2.7 million termination fee, which is
being held in a reserve account. The remaining largest tenants
include Bay State College (6.7%, expiring March 2030) and HTNB
(5.2%, June 2026). With occupancy falling to approximately 53%, YE
2022 NOI declined 38% from YE 2021 and is 44% below NOI at
issuance. The servicer-reported YE 2022 NOI DSCR was lower at 1.20x
compared with 1.76x at YE 2021.
Fitch's 'Bsf' ratings case loss prior to concentration add-ons of
23% reflect a 9.5% cap rate and a 10% stress to the YE 2022 NOI.
The next largest contributor to loss expectations is the DHG
Greater Boston Hotel Portfolio loan (6.7%), which is secured by two
full-service hotels, the Crowne Plaza Boston Natick (251 rooms) and
Holiday Inn Boston-Bunker Hill (184 rooms), and one-select service
hotel, Hampton Inn Boston Natick (188 rooms). The portfolio has
exhibited sustained performance declines since the beginning of the
pandemic, with YE 2022 portfolio occupancy and NOI DSCR of 47.3%
and 0.98x, respectively, remaining below pre-pandemic levels of
68.4% and 1.51x at YE 2019.
Each hotel continues to underperform its competitive set and has
exhibited a slower performance recovery from pandemic-related
declines. The TTM March 2023 STR report showed that the Crown
Plaza, Hampton Inn Boston Natick, and Holiday Inn Bunker Hill
reported occupancy penetration rates of 79.8%, 78.1%, and 84.5%,
respectively, and revenue-per-available room (RevPAR) penetration
rates of 92.1%, 86.8%, and 76.9%.
Fitch's 'Bsf' rating case loss of 18% prior to concentration
add-ons is based off a 11.31% cap rate and YE 2019 NOI with a 15%
stress applied.
The Pleasant Prairie Premium Outlets loan (4.6%) is secured by a
400,000-sf retail outlet center located in Pleasant Prairie, WI.
Major tenants include Lacoste (6.5% of the NRA, expires March
2026), Nike Factory Store (5.0%, January 2028) and Old Navy (4.0%,
January 2022).
Occupancy has declined further to 84% as of March 2023 from 86% at
YE 2021 and 93% at YE 2019. Per the March 2023 rent roll,
approximately 11% of the collateral NRA have leases that expired in
2022, with upcoming rollover consisting of 12% in 2023 and 12% in
2024.
The interest-only NOI DSCR was 2.46x as of YE 2022 compared to
2.36x at YE 2020, 2.64x at YE 2020 and 2.58x at YE 2019.
To account for the sustained performance declines and tenant
rollover concerns, Fitch's analysis is based on a 12% cap rate and
a 10% stress the YE 2022 NOI, resulting in a 'Bsf' rating case loss
expectation prior to concentration add-ons of 8%.
Increased Credit Enhancement: As of the June 2022 remittance date,
the pool's aggregate balance has been paid down by 12.8% to $986.1
million from $1.13 billion. Four loans (15.5% of the pool) have
fully defeased. There are 17 loans (63.8% of the pool) that are
full-term, interest-only and 30 loans (36.2%) that are currently
amortizing. Cumulative interest shortfalls of $80,815 are currently
impacting non-rated classes G and RR Interest. Loan maturities are
concentrated in 2026 (0.3% of the pool) and 2027 (99.7%).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- Downgrades to the 'AA-sf' through 'AAAsf' rated-classes are not
likely due to increasing CE and expected continued paydowns, but
may occur should interest shortfalls affect these classes;
-- Downgrades to the 'A-sf' and 'BBB-sf' rated class may occur
should expected losses for the pool increase substantially,
particularly on all of the FLOCs;
-- Downgrades to the 'B-sf', and 'CCCsf' rated classes would occur
with greater certainty of loss, and/or overall pool loss
expectations increase from continued performance decline of the
FLOCs, and/or additional loans default or transfer to special
servicing.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
-- Sensitivity factors that lead to upgrades would include stable
to improved asset performance coupled with pay down and/or
additional defeasance;
-- Upgrades to the 'A-sf' and 'AA-sf' rated classes would likely
occur with significant improvement in CE and/or defeasance and
improved performance from loans which have sustained performance
declines from the pandemic; however, adverse selection and
increased concentrations, or underperformance of the FLOCs, could
cause this trend to reverse;
-- Upgrades to the 'BBB-sf' and below-rated classes are considered
unlikely and would be limited based on sensitivity to
concentrations or the potential for future concentrations. Classes
would not be upgraded above 'Asf' if there is a likelihood of
interest shortfalls. Additionally, an upgrade to the 'Bsf' and
'CCC-sf' rated classes is not likely until later years of the
transaction and only if the performance of the remaining pool is
stable and/or there is sufficient CE, which would likely occur when
the nonrated class is not eroded and the senior classes pay off.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
BANK 2018-BNK13: Fitch Affirms 'CCC' Rating on 2 Tranches
---------------------------------------------------------
Fitch Ratings has affirmed 16 classes of the BANK 2018-BNK13
transaction. The Rating Outlooks on classes D, E, X-D and X-E have
been revised to Negative from Stable. All classes have been removed
from Under Criteria Observation (UCO).
ENTITY/DEBT RATING PRIOR
---------- ------ -----
BANK 2018-BNK13
A-2 06539LAX8 LT AAAsf Affirmed AAAsf
A-3 06539LAY6 LT AAAsf Affirmed AAAsf
A-4 06539LBA7 LT AAAsf Affirmed AAAsf
A-5 06539LBB5 LT AAAsf Affirmed AAAsf
A-S 06539LBE9 LT AAAsf Affirmed AAAsf
A-SB 06539LAZ3 LT AAAsf Affirmed AAAsf
B 06539LBF6 LT AA-sf Affirmed AA-sf
C 06539LBG4 LT A-sf Affirmed A-sf
D 06539LAJ9 LT BBB-sf Affirmed BBB-sf
E 06539LAL4 LT BB-sf Affirmed BB-sf
F 06539LAN0 LT CCCsf Affirmed CCCsf
X-A 06539LBC3 LT AAAsf Affirmed AAAsf
X-B 06539LBD1 LT AAAsf Affirmed AAAsf
X-D 06539LAA8 LT BBB-sf Affirmed BBB-sf
X-E 06539LAC4 LT BB-sf Affirmed BB-sf
X-F 06539LAE0 LT CCCsf Affirmed CCCsf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of Fitch's
updated "U.S. and Canadian Multiborrower CMBS Rating Criteria,"
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
The Negative Outlook revisions reflect the impact of the criteria
and performance concerns with office assets and retail properties,
including the Ditson Building loan (4.5%) and Fair Oaks Mall loan
(3.7%). There are seven Fitch Loans of Concern (20%), which
includes two loans in special servicing (5.5%). Fitch's current
ratings incorporate a 'Bsf' rating case loss of 4.4%.
Largest Contributor to Loss: The largest contributor to loss
expectations, Ditson Building, is secured by a 58,850-sf office
property located in Midtown Manhattan. The loan has been designated
as a Fitch Loan of Concern (FLOC) due to declining occupancy. The
property's largest tenant, TTC USA Consulting (47.2% of NRA and 46%
of total base rent), vacated at its lease expiration in June 2022.
As a result, occupancy declined to approximately 43% from 91% at YE
2021 and 100% at YE 2020. NOI previously declined 20.7% from YE
2020 to YE 2021 due to a nearly 15% drop in total revenue as a
result of significantly lower base rental income. Servicer-reported
NOI DSCR was 0.82x at YE 2021, down from 1.04x at YE 2020 and 1.42x
at YE 2019. Fitch requested an updated rent roll and financials but
did not receive a response. Fitch's 'Bsf' Rating Case Loss (prior
to concentration add-on) of 19% is based on an 8.75% cap rate and
YE 2021 NOI. This reflects a value of $312 psf.
The second largest contributor to loss expectations, Fair Oaks
Mall, is secured by an enclosed regional mall located in Fairfax,
VA. Non-collateral anchors at the property include JCPenney and
Macy's with Furniture Gallery. A second Macy's store serves as a
collateral anchor (27.7% of collateral NRA leased through February
2026). The non-collateral, Seritage-owned former Sears store has
been subdivided and leased to Dick's Sporting Goods and Dave &
Buster's, and the non-collateral Lord & Taylor space has remained
vacant since early 2021.
This loan transferred to special servicing in February 2023 due to
imminent default; the loan did not pay off at its e scheduled May
2023 maturity date. The borrower is currently seeking relief and
negotiations with the special servicer are ongoing.
The collateral was 91% occupied as of September 2022, compared to
89% as of YE 2021, 91% as of YE 2020 and 93.8% as of YE 2019.
Upcoming lease rollover includes 16.9% (22 tenants) in 2023. The
2023 rollover includes Forever 21 (6.6%; January 2023 still
operating). YE 2021 NOI declined 4% from YE 2020 and 6% from
issuance.
TTM September 2021 inline sales (including Apple) were $459 psf
compared to $500 psf in 2021, $344 psf in 2020, $516 psf in 2019
and $524 psf in 2018; excluding Apple, they were $310 psf, $335
psf, $248 psf, $371 psf and $391 psf, respectively. Fitch's 'Bsf'
Rating Case Loss (prior to concentration add-on) is approximately
20%, which reflects a 12.5% cap rate, 10% stress to YE 2021 NOI to
account for rollover concerns, as well as recognition of a higher
probability of default.
The third largest contributor to loss expectations is the Regal
Cinemas Lincolnshire asset (1.8%), which transferred to special
servicing in March 2023 due to imminent default. Regal Cinemas
(100% NRA) filed bankruptcy in September 2022. The lease was
subsequently rejected through the bankruptcy proceedings. The
tenant continued to pay rent until February 2023, and has since
vacated. According to servicer updates, a receiver is in the
process of being appointed. Fitch's 'Bsf' Rating Case Loss (prior
to concentration add-on) of 34% is based on a 10.5% cap rate and YE
2021 NOI.
Credit Enhancement: As of the June 2023 distribution date, the
pool's aggregate balance has been paid down by 11.6% to $834.9
million from $944.2 million at issuance. One loan (0.6%) is
defeased. 22 loans (68%) are full-term interest-only (IO) and all
loans with a partial IO period have expired. Interest shortfalls
are currently affecting the NR G class.
Credit Opinion Loans: Four loans (19.4% of pool) received
investment-grade credit opinions at issuance. The Pfizer Building
loan (1.8%) received a credit opinion of 'A-sf*' on a standalone
basis. The 1745 Broadway (11.3%) and 181 Fremont Street (2.6%)
loans both received a standalone credit opinion of 'BBB-sf*'. These
loans are still considered investment-grade. These loans are still
considered investment-grade.
The Fair Oaks Mall loan (3.7%) was assigned a credit opinion of
'BBB-sf*' on a standalone basis; however, due to Fitch's current
view on regional mall properties, this loan is no longer considered
to have credit characteristics consistent with an investment-grade
credit opinion.
Co-Op Collateral: The transaction contains 20 loans (7%) that are
secured by multifamily co-operatives, all of which are located
within the greater New York City metro area.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades to classes rated in the 'AAAsf' category are not likely
due to expected continued paydowns and amortization, but may occur
should interest shortfalls occur. Downgrades to classes in the
'AA-sf' and 'A-sf' category are possible should overall pool losses
increase significantly and additional loans become FLOCs.
Downgrades to classes in the 'BBBsf' and 'BB-sf' categories would
occur should losses to the special serviced loans exceed Fitch's
loss expectations and/or continued performance decline of the
FLOCs, primarily office properties. Downgrades to the distressed
classes would occur as losses are realized and/or become more
certain.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades to the investment grade classes of 'AA-sf' and 'A-sf'
category may occur with significant improvement in CE and/or
defeasance, but would be limited based on the sensitivity to
concentrations or the potential for future concentrations. Classes
would not be upgraded above 'Asf' if there is a likelihood of
interest shortfalls.
Classes in the 'BBBsf' category and below are unlikely to be
upgraded absent sustained performance improvement of distressed
assets, FLOCs and/or office-backed loans.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
BANK 2023-BNK46: Fitch Assigns 'B-sf' Rating on 2 Tranches
----------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
BANK 2023-BNK46, commercial mortgage pass-through certificates,
series 2023-BNK46, as follows:
-- $3,674,000 class A-1 'AAAsf'; Outlook Stable;
-- $123,630,000a class A-2-1 'AAAsf'; Outlook Stable;
-- $75,000,000ae class A-2-2 'AAAsf'; Outlook Stable;
-- $6,426,000 class A-SB 'AAAsf'; Outlook Stable;
-- $270,454,000b class A-4 'AAAsf'; Outlook Stable;
-- $0b class A-4-1 'AAAsf'; Outlook Stable;
-- $0b class A-4-2 'AAAsf'; Outlook Stable;
-- $0bc class A-4-X1 'AAAsf'; Outlook Stable;
-- $0bc class A-4-X2 'AAAsf'; Outlook Stable;
-- $86,424,000b class A-S 'AAAsf'; Outlook Stable;
-- $0b class A-S-1 'AAAsf'; Outlook Stable;
-- $0b class A-S-2 'AAAsf'; Outlook Stable;
-- $0bc class A-S-X1 'AAAsf'; Outlook Stable;
-- $0bc class A-S-X2 'AAAsf'; Outlook Stable;
-- $479,184,000c class X-A 'AAAsf'; Outlook Stable;
-- $138,621,000c class X-B 'AAAsf'; Outlook Stable;
-- $30,805,000b class B 'AA-sf'; Outlook Stable;
-- $0b class B-1 'AA-sf'; Outlook Stable;
-- $0b class B-2 'AA-sf'; Outlook Stable;
-- $0bc class B-X1 'AA-sf'; Outlook Stable;
-- $0bc class B-X2 'AA-sf'; Outlook Stable;
-- $21,392,000b class C 'A-sf'; Outlook Stable;
-- $0b class C-1 'A-sf'; Outlook Stable;
-- $0b class C-2 'A-sf'; Outlook Stable;
-- $0bc class C-X1 'A-sf'; Outlook Stable;
-- $0bc class C-X2 'A-sf'; Outlook Stable;
-- $13,691,000d class D 'BBBsf'; Outlook Stable;
-- $6,846,000d class E 'BBB-sf'; Outlook Stable;
-- $20,537,000cd class X-D 'BBB-sf'; Outlook Stable;
-- $13,691,000d class F 'BB-sf'; Outlook Stable;
-- $13,691,000cd class X-F 'BB-sf'; Outlook Stable;
-- $10,268,000d class G 'B-sf'; Outlook Stable;
-- $10,268,000cd class X-G 'B-sf'; Outlook Stable.
Fitch has not assigned ratings to the following classes:
-- $22,248,287d class H;
-- $22,248,287cd class X-H;
-- $27,807,743e class RR;
-- $8,221,167e class RR-I.
a. Since Fitch published its expected ratings on July 27, 2023, the
balances for classes A-2-1 and A-2-2 were finalized. At the time
the expected ratings were published, the initial certificate
balances of classes A-2-1 and A-2-2 were expected to be
$198,630,000 in the aggregate, subject to a 5% variance. The
classes above reflect the final ratings and deal structure.
b. Exchangeable Certificates. Class A-4, A-S, B and C certificates
are exchangeable certificates. Each class of exchangeable
certificates may be exchanged for the corresponding classes of
exchangeable certificates and vice versa. The dollar denomination
of each of the received classes of certificates must be equal to
the dollar denomination of each of the corresponding classes of
exchangeable certificates. Class A-4 may be surrendered (or
received) for the received (or surrendered) classes A-4-1 and
A-4-X1. Class A-4 may be surrendered (or received) for the received
(or surrendered) classes A-4-2 and A-4-X2. Class A-S may be
surrendered (or received) for the received (or surrendered) classes
A-S-1 and A-S-X1. Class A-S may be surrendered (or received) for
the received (or surrendered) classes A-S-2 and A-S-X2. Class B may
be surrendered (or received) for the received (or surrendered)
classes B-1 and B-X1. Class B may be surrendered (or received) for
the received (or surrendered) classes B-2 andB-X2. Class C may be
surrendered (or received) for the received (or surrendered) classes
C-1 and C-X1. Class C may be surrendered (or received) for the
received (or surrendered) classes C-2 and C-X2.
c. Notional amount and interest only.
d. Privately placed and pursuant to Rule 144A.
e. Represents the "eligible vertical interest" comprising 5.0% of
the pool.
The ratings are based on information provided by the issuer as of
Aug. 9, 2023.
Since Fitch published its expected ratings on July 27, 2023, the
balances of class A-3 and A-4 have been finalized. At the time the
expected ratings were published, the initial certificate balances
of classes A-3 and A-4 were expected to be $270,454,000 in
aggregate, subject to a 5% variance. The final class balance for
class A-4 is $270,454,000, and class A-3 was removed.
Additionally, at the time the presale was issued, class X-B (which
is tied to the classes A-S, B, and C) was rated 'A-sf(EXP)',
reflecting class C, the lowest rated tranche. Since Fitch published
its expected ratings, the class B and C pass-through rates were
finalized and will be variable rate (WAC), equal to the weighted
average of the net mortgage interest rates on the mortgage loan,
and therefore its payable interest will not have an impact on the
IO payments for class X-B. Fitch updated class X-B to 'AAAsf' from
'A-sf(EXP)' at the time of the presale, reflecting the lowest
tranche (class A-S) whose payable interest has an impact on the IO
payments. This approach is consistent with Appendix 4 of Fitch's
Global Structured Finance Rating Criteria.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 32 loans secured by 32
commercial properties having an aggregate principal balance of
$720,578,197 as of the cut-off date. The loans were contributed to
the trust by Wells Fargo Bank, National Association, JPMorgan Chase
bank, National Association, Morgan Stanley Mortgage Capital
Holdings LLC, and Bank of America, National Association. The Master
Servicers are expected to be Wells Fargo Bank, National Association
and National Cooperative Bank, N.A., and the Special Servicers are
expected to be LNR Partners, LLC and National Cooperative Bank,
N.A.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 75.6% of the properties
by balance, cash flow analyses of 99.4% of the pool and asset
summary reviews on 100.0% of the pool.
Fitch has withdrawn the expected ratings for classes A-3, A-3-1,
A-3-2, A-3-X1, and A-3-X2 because the classes were removed from the
final deal structure. The classes above reflect the final ratings
and deal structure.
KEY RATING DRIVERS
Lower Leverage Compared to Recent Transactions: The pool has lower
leverage compared to recent multiborrower transactions rated by
Fitch. The pool's weighted average (WA) Fitch loan-to-value ratio
(LTV) of 80.9% is lower than both the YTD 2023 and 2022 averages of
89.1% and 99.3%, respectively. The pool's WA Fitch net cashflow
(NCF) debt yield (DY) of 13.0% is higher than the YTD 2023 and 2022
averages of 10.7% and 9.9%, respectively. Excluding credit opinion
loans, the pool's Fitch LTV and DY are 88.2% and 13.1%,
respectively, compared to the equivalent conduit YTD 2023 LTV and
DY averages of 95.2% and 10.3%, respectively.
Investment Grade Credit Opinion Loans: Four loans representing
29.2% of the pool received an investment grade credit opinion,
which is above the YTD 2023 and 2022 averages of 20.9% and 14.4%,
respectively. CX - 250 Water Street (10.0% of pool) received a
standalone credit opinion of 'BBBsf*', Fashion Valley Mall (9.7%)
received a standalone credit opinion of 'AAAsf*', 1201 Third Avenue
(5.8%) received a standalone credit opinion of 'BBB+sf*' and22330
Glenn Drive (3.7%) received a standalone credit opinion of
'A-sf*'.
Higher Pool Concentration: The pool is more concentrated than
recently rated Fitch transactions. The top 10 loans in the pool
make up 65.6% of the pool, higher than the YTD 2023 and 2022 levels
of 63.8% and 55.2%, respectively. The pool's effective loan count
of 17.9 is lower than the YTD 2023 and 2022 averages of 20 and 26,
respectively.
Limited Amortization: Based on the scheduled balances at maturity,
the pool will pay down by 1.7%, which is below the YTD 2023 and
2022 averages of 2.0% and 3.3%, respectively. The pool has 22
interest-only loans (83.8% of the pool by balance), which is higher
than the YTD 2023 and 2022 averages of 79.3% and 77.5%,
respectively. Three loans (9.6% of the pool by balance) are partial
interest-only, which is below the YTD 2023 and 2022 averages
of12.4% and10.2%, respectively.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Reduction in cash flow decreases property value and capacity to
meet its debt service obligations.
The table below indicates the model implied rating sensitivity to
changes to the same one variable, Fitch NCF:
-- Original Rating:
'AAAsf'/'AA-sf'/'A-sf'/'BBBsf'/'BBB-sf'/'BB-sf'/'B-sf';
-- 10% NCF Decline:
'AA-sf'/'A-sf'/'BBBsf'/'BB+sf'/'BBsf'/'Bsf'/CCCsf.
Fitch has revised its global economic outlook forecasts as a result
of the war in Ukraine and related economic sanctions. Downside
risks have increased and, therefore, Fitch has published an
assessment of the potential rating and asset performance impact of
a plausible, albeit worse than expected, adverse stagflation
scenario on Fitch's major structured finance and covered bond
subsectors (What a Stagflation Scenario Would Mean for Global
Structured Finance).
Fitch expects the North American CMBS sector in the assumed adverse
scenario to experience virtually no impact on ratings performance,
indicating very few rating or Outlook changes. Fitch expects the
asset performance impact of the adverse case scenario to be more
modest than the most stressful scenario shown above, which assumes
a further 30% decline from Fitch's NCF at issuance.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Similarly, improvement in cash flow increases property value and
capacity to meet its debt service obligations.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of 3;, unless
otherwise disclosed in this section. A score of 3 means ESG issues
are credit-neutral or have only a minimal credit impact on the
entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
BBCMS MORTGAGE 2018-C2: Fitch Affirms 'B-sf' Rating on 2 Tranches
-----------------------------------------------------------------
Fitch Ratings has affirmed 17 classes of BBCMS Mortgage Trust
2018-C2, commercial mortgage pass-through certificates, series
2018-C2. In addition, the Rating Outlooks on classes F, X-F, G and
X-G were revised to Negative from Stable. The criteria observation
(UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
BBCMS 2018-C2
A-2 05491UAZ1 LT AAAsf Affirmed AAAsf
A-3 05491UBB3 LT AAAsf Affirmed AAAsf
A-4 05491UBC1 LT AAAsf Affirmed AAAsf
A-5 05491UBD9 LT AAAsf Affirmed AAAsf
A-S 05491UBG2 LT AAAsf Affirmed AAAsf
A-SB 05491UBA5 LT AAAsf Affirmed AAAsf
B 05491UBH0 LT AA-sf Affirmed AA-sf
C 05491UBJ6 LT A-sf Affirmed A-sf
D 05491UAG3 LT BBBsf Affirmed BBBsf
E 05491UAJ7 LT BBB-sf Affirmed BBB-sf
F 05491UAL2 LT BB-sf Affirmed BB-sf
G 05491UAN8 LT B-sf Affirmed B-sf
X-A 05491UBE7 LT AAAsf Affirmed AAAsf
X-B 05491UBF4 LT AA-sf Affirmed AA-sf
X-D 05491UAA6 LT BBB-sf Affirmed BBB-sf
X-F 05491UAC2 LT BB-sf Affirmed BB-sf
X-G 05491UAE8 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of the
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
The affirmations reflect the impact of the criteria and the stable
loss expectations of the overall pool since Fitch's prior rating
action. The Outlook revisions to Negative from Stable on classes F,
X-F, G and X-G reflect performance concerns/declines with five
Fitch Loans of Concern (FLOCs; 17.5% of pool), including two
secured by office properties (GNL Portfolio; 6.2% and Liberty
Portfolio; 5.7%) with occupancy and tenancy concerns and one
secured by a regional mall, which transferred to special servicing
for maturity default (Fair Oaks Mall; 1.2%). Fitch's current
ratings incorporate a 'Bsf' rating case loss of 4.0%.
Fitch Loans of Concern: The largest contributor to loss
expectations, GNL Portfolio (6.2%), is cross-collateralized by
seven single tenant office/industrial properties totaling 647,713
sf and located across six states and seven distinct markets. The
loan, which is sponsored by Global Net Lease, was designated a FLOC
due to occupancy declines.
The Nimble Storage property (25% portfolio NRA; San Jose, CA) is
currently vacant after the sole tenant Nimble Storage vacated at
lease expiration in October 2021. As a result, portfolio occupancy
declined to 75% from 100% and servicer-reported NOI DSCR for this
IO loan declined by approximately 50% to 1.11x as of the TTM ended
March 2023 from 2.14x in 2021. There is no additional tenant
rollover expected across the portfolio until 2024 when 25% of the
NRA has lease expirations.
Fitch's 'Bsf' rating case loss prior to concentration add-on of 16%
is based on a 10% cap rate to the TTM ended March 2023 NOI.
Specially Serviced Loan: Fair Oaks Mall (1.2%) is secured by
779,949 of a 1.5 million sf enclosed super regional mall located in
Fairfax, VA, approximately 14 miles west of Washington, D.C. The
loan, which is sponsored by Simon Property Group, transferred to
special servicing in February 2023 and defaulted at loan maturity
in May 2023. The borrower requested a maturity extension, and the
servicer is considering all options available under the documents.
Collateral occupancy and servicer-reported NOI DSCR for this IO
loan were 91% and 2.15x as of the YTD September 2022 compared with
89% and 2.20x at YE 2021. TTM September 2021 in-line sales
excluding Apple were $318 psf compared with $371 psf prior to the
pandemic in 2019. The remaining non-collateral anchors are JCPenney
and Macy's with Furniture Gallery after Lord & Taylor and Sears
vacated. The former Sears box has been subdivided and backfilled by
Dick's Sporting Goods and Dave & Buster's, and the former Lord &
Taylor box is vacant. A second Macy's store serves as a collateral
anchor (27.7% collateral NRA leased through February 2026).
Fitch's 'Bsf' rating case loss prior to concentration add-on of 20%
is based on a 12.5% cap rate and the YE 2021 NOI with a 10% stress.
Fitch increased the probability of default to account for the
transfer to special servicing and maturity default.
High Office Concentration: Loans secured by office properties
comprise 36% of the pool, including seven (28.4.%) in the top 15,
two (11.9%) of which were designated FLOCs. Fitch increased cap
rates and stresses for several of these loans and remains concerned
with performance and refinance risk at loan maturity.
These concerns contributed to the Negative Outlooks on classes F,
X-F, G and X-G.
Minimal Change in Credit Enhancement: As of the June 2023
distribution date, the pool's aggregate balance has been reduced by
1.5% to $878.5 million from $891.9 million at issuance. Cumulative
interest shortfalls of $35,909 are currently impacting the
non-rated J-RR and VRR classes.
Seventeen loans (51.7%) are full-term, IO. Nineteen loans (36.1%)
had a partial-term, IO component; 14 have begun to amortize. Three
loans (4.5%) are fully defeased. Loan maturities are concentrated
in 2028 (95.4%).
Investment-Grade Credit Opinion Loans: Four loans representing
12.7% of the pool were assigned investment- grade credit opinions
at issuance: The Christiana Mall (6.2%), Moffett Towers - Buildings
E, F, G (2.8%), Moffett Towers II - Building 1 (2.5%), and Fair
Oaks Mall (1.2%). Fitch no longer considers the performance of Fair
Oaks Mall to be consistent with an investment-grade credit
opinion.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades of classes rated in the 'AAAsf' category are not likely
due to increasing CE and expected continued amortization but could
occur if interest shortfalls impact these classes. Downgrades of
classes B, X-B, C, D, E and X-D could occur if pool loss
expectations increase significantly, additional loans become FLOCs
and/or transfer to special servicing or performance of the FLOCs
declines further. Classes F, X-F, G and X-G would be downgraded if
loss expectations increase or become more certain.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades of classes B, X-B, C, D, E and X-D may occur with
significant improvement in CE but would be limited based on
sensitivity to concentrations or the potential for future
concentration. Upgrades of classes F, X-F, G and X-G are considered
unlikely until the later years of the transaction and only if
performance of the FLOCs stabilizes.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
BENCHMARK 2018-B1: Fitch Affirms 'B-sf' Rating on 2 Tranches
------------------------------------------------------------
Fitch Ratings has affirmed 13 classes of Benchmark 2018-B1 Mortgage
Trust commercial mortgage pass-through certificates. The Outlooks
on classes D and X-D were revised to Negative from Stable. The
criteria observation (UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Benchmark 2018-B1
Mortgage Trust
A-4 08162PAW1 LT AAAsf Affirmed AAAsf
A-5 08162PAX9 LT AAAsf Affirmed AAAsf
A-M 08162PAZ4 LT AAAsf Affirmed AAAsf
A-SB 08162PAV3 LT AAAsf Affirmed AAAsf
B 08162PBA8 LT AA-sf Affirmed AA-sf
C 08162PBB6 LT A-sf Affirmed A-sf
D 08162PAG6 LT BBB-sf Affirmed BBB-sf
E 08162PAJ0 LT B-sf Affirmed B-sf
F-RR 08162PAL5 LT CCCsf Affirmed CCCsf
X-A 08162PAY7 LT AAAsf Affirmed AAAsf
X-B 08162PAA9 LT AA-sf Affirmed AA-sf
X-D 08162PAC5 LT BBB-sf Affirmed BBB-sf
X-E 08162PAE1 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of Fitch's
updated "U.S. and Canadian Multiborrower CMBS Rating Criteria,"
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
The affirmations reflect the impact of the criteria and generally
stable performance of the pool. Fitch's current ratings incorporate
a 'Bsf' rating case loss of 6.2%. Fitch identified 14 loans (37.7%
of the pool) as Fitch Loans of Concern (FLOCs), which includes
three loans (6.1%) in special servicing.
Negative Outlooks on classes E, D, X-D, and X-E reflect performance
concerns with FLOCs in the top 15 and loans in special servicing,
namely the Valencia Town Center (7.8% of the pool), Rochester Hotel
Portfolio (4.2%), and 156-168 Bleecker (3.8%). Due to performance
declines, a sensitivity analysis was utilized on the Valencia Town
Center loan, where loan-level losses reach 40% and pool-level
losses reach 8.1%.
Fitch Loans of Concern: The largest FLOC is the Valencia Town
Center (7.8% of the pool), which is secured by the leasehold
interest in a 395,483-sf mixed-use property located in Santa
Clarita, CA. The property is comprised of primarily office space
with retail space on the ground floor. The loan has been identified
as a FLOC and the largest tenant, Princess Cruise Lines (PCL)(73.3%
of the NRA at issuance), vacated a large portion of their space and
now physically occupies only 30.6% of its leased space. The tenant
continues to pay rent and perform under their current lease
obligation that expires in March 2026. The PCL lease is guaranteed
by their parent company, Carnival Corporation.
With the departure of PCL, physical occupancy has declined to
approximately 44%; however, YE 2022 NOI DSCR remained stable 2.43x
due to PCL's continued rent payments. A cash flow sweep has been
triggered with the June 2023 reserve balance reported at about
$13.1 million.
Fitch's 'Bsf' rating case loss of 8% prior to concentration
adjustments reflects a "sum of the parts" analysis to ascertain the
aggregate individual values of the leased fee and leasehold
interests based on market occupancy and rental rate assumptions to
lease-up the vacated office space. A sensitivity scenario was
conducted resulting in a 'Bsf' sensitivity case loss of 40% which
factors a higher probability of default given the concerns with the
large portion of dark space, elevated availability rates in the
submarket and leasehold interest in the collateral with escalating
ground rent payments.
The Rochester Hotel Portfolio (4.2%), which is secured by two full
service hotels: Kahler Grand (660 keys) and Residence Inn Rochester
(202 keys); one limited service hotel: Kahler Inn & Suites (271
keys); and one extended stay hotel: Marriot Rochester Mayo Clinic
(89 keys), totaling 1,222 keys and are located in Rochester, MN.
Each hotel has access to the Mayo Clinic via a series of
underground pedestrian walkways.
Portfolio performance has remained lower since experiencing
pandemic-related performance declines. Portfolio occupancy has
declined to approximately 45% for the YE 2022 and YE 2021 reporting
periods compared to pre-pandemic levels of 54% at YE 2019 and 61%
at YE 2018. Due to the sustained occupancy declines, the NOI DSCR
has remained near 1.00x for the TTM March 2023 reporting period.
The loan began amortizing in December 2020 and has remained
current.
Fitch's 'Bsf' rating case loss of 10% (prior to concentration
add-ons) is based on the TTM March 2023 NOI with no additional
stress and an 11.25% cap rate, and factors a higher probability of
default to account for sustained portfolio underperformance.
The largest contributor to losses is the specially serviced 156-168
Bleecker Street (3.8%), which is secured by 14,696 sf of on-grade
space and 14,709 sf of below-grade space located in the Greenwich
Village neighborhood of New York City. The loan transferred to
special servicing in November 2020 due to payment default as a
result of pandemic related performance declines.
The largest tenant, Le Poisson Rouge (49.5% of the NRA), a music
venue and cabaret, was closed for a duration of the pandemic, but
reopened in August 2021. It was noted at Fitch's prior review that
the tenant was not paying rent, but according to recent updates
from the servicer, the tenant has resumed rent payments and is in
discussion with the the receiver on a lease extension and settling
outstanding balances. The loan transferred to foreclosure in
November 2021 with judgement entered into in September 2022.
Fitch's analysis reflects a haircut to a recent appraisal value,
which equates to a value of $619 psf (69% below the appraised value
at issuance) and a loss severity of 54.9% (prior to concentration
add-ons).
Increasing Credit Enhancement: As of the June 2023 remittance, the
pool's aggregate balance has been paid down by 22.6% to $902.4
million from $1.17 billion. Since Fitch's prior rating action 7.7%
of the original pool balance has paid in full. There are 13 loans
(55.2% of the pool) that are full-term, interest-only (IO) and 27
loans (44.8%) that are currently amortizing. Interest shortfalls of
$678,000 are currently impacting the non-rated G-RR and VRR
Interest classes.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades to the 'AAAsf'- and 'AA-sf'-rated classes are not
considered likely due to their position in the capital structure
and expected continued paydown, but may occur should interest
shortfalls impact this class.
Downgrades to classes rated 'A-sf' and 'BBB-sf' may occur should
expected losses for the pool increase significantly, performance of
the FLOCs deteriorate further and/or one or more larger FLOCs
experience an outsized loss, which would erode CE.
Downgrades to classes rated 'B-sf' or 'BB-sf' would occur should
performance of the FLOC's continue to decline, particularly the
Valencia Town Center loan, additional loans transfer to special
servicing, and/or loans in special servicing remain unresolved.
Downgrades to classes rated 'CCCsf' would occur with a greater
certainty in losses, and/or FLOCs experience losses greater than
expected.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades to classes B, C and X-B would occur with significant
improvement in CE, defeasance, and/or performance stabilization of
the FLOCs, but would be limited as concentrations increase. Classes
would not be upgraded above 'Asf' if there is likelihood of
interest shortfalls.
Upgrades to classes D and X-D would occur with significant
improvement in performance of the FLOCs or loans in special
servicing and/or if there is sufficient CE to these classes.
Upgrades to the E and X-E are not likely until the later years in
the transaction and only if performance of the remaining pool is
stable and there is sufficient CE to these classes.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
BLACKROCK DLF 2022-1: DBRS Finalizes B Rating on Class W Notes
--------------------------------------------------------------
DBRS, Inc. finalized its provisional ratings on the Notes
(together, the Secured Notes), including upgrading its provisional
rating on the Class C Notes to BBB (sf) from BBB (low) (sf), issued
by BlackRock DLF X CLO 2022-1, LLC, pursuant to the Note Purchase
and Security Agreement (the NPSA) dated as of August 5, 2022, among
BlackRock DLF X CLO 2022-1, LLC, as the Issuer; Wilmington Trust
National Association, as the Collateral Agent, Custodian,
Collateral Administrator, Information Agent, and Note Agent; and
the Purchasers.
-- Class A-1 Notes at AAA (sf)
-- Class A-2 Notes at AA (high) (sf)
-- Class B Notes at A (low) (sf)
-- Class C Notes upgraded to BBB (sf) from BBB (low) (sf)
-- Class D Notes at BB (sf)
-- Class W Notes at B (sf)
The ratings on the Class A-1 Notes and the Class A-2 Notes address
the timely payment of interest (excluding the additional interest
payable at the Post-Default Rate, as defined in the NPSA) and the
ultimate repayment of principal on or before the Stated Maturity of
August 5, 2034.
The ratings on the Class B, Class C, Class D, and Class W Notes
address the ultimate payment of interest (excluding the additional
interest payable at the Post-Default Rate, as defined in the NPSA)
and the ultimate repayment of principal on or before the Stated
Maturity. The Class W Notes have a fixed-rate coupon that is lower
than the spread/coupon of some of the more-senior Secured Notes.
The Class W Notes also benefit from the Class W Note Payment
Amount, which allows for principal repayment of the Class W Notes
with collateral interest proceeds, in accordance with the Priority
of Payments.
The Secured Notes are collateralized primarily by a portfolio of
U.S. middle-market corporate loans. The Issuer is managed by
BlackRock Capital Investment Advisors, LLC (BCIA), which is a
wholly owned subsidiary of BlackRock, Inc. DBRS Morningstar
considers BCIA an acceptable collateralized loan obligation (CLO)
manager.
CREDIT RATING RATIONALE/DESCRIPTION
The rating actions is a result of DBRS Morningstar's surveillance
review of the transaction. DBRS Morningstar finalized its
provisional ratings on the Secured Notes, as the transaction is in
compliance with its Eligibility Criteria (each capitalized term as
defined in the NPSA). The current transaction performance is also
within DBRS Morningstar's expectation. The upgrade of the rating on
the Class C Notes is a result of the Class C Notes' performance
being above DBRS Morningstar's expectation. The Stated Maturity is
August 5, 2034. The Reinvestment Period ends on August 5, 2026.
The credit ratings reflect the following primary considerations:
(1) The NPSA, dated as of August 5, 2034.
(2) The integrity of the transaction's structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand DBRS Morningstar's
projected collateral loss rates under various cash flow-stress
scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and CLO management capabilities of BCIA.
(6) The legal structure as well as legal opinions addressing
certain matters of the Issuer and the consistency with the DBRS
Morningstar "Legal Criteria for U.S. Structured Finance"
methodology (the Legal Criteria).
The transaction has a dynamic structural configuration that permits
variations of certain asset metrics via a selection of an
applicable row from a collateral quality matrix (the CQM, as
defined in Schedule G of the NPSA). Depending on a given Diversity
Score (DScore), the following metrics are selected accordingly from
the applicable row of the CQM: DBRS Morningstar Risk Score, Advance
Rate, Weighted-Average (WA) Recovery Rate, and WA Spread Level.
DBRS Morningstar analyzed each structural configuration (row) as a
unique transaction, and all configurations passed the applicable
DBRS Morningstar rating stress levels. The Coverage Tests and
triggers as well as the Collateral Quality Tests that DBRS
Morningstar modeled in its base-case analysis are presented below.
DBRS Morningstar models tests and triggers as defined in the NPSA:
Class A OC Ratio 134.18
Class B OC Ratio 119.11
Class C OC Ratio 117.63
Class D OC Ratio 112.76
Class A IC Ratio 150.00
Class B IC Ratio 140.00
Class C IC Ratio 120.00
Class D IC Ratio 110.00
Class W IC Ratio 100.00
Collateral Quality Tests:
Minimum WA Spread Test: 5.0%, Subject to the Collateral Quality
Matrix
Minimum WA Coupon Test: 7.0%
Maximum DBRS Morningstar Risk Score Test: 41.75, Subject to the
Collateral Quality Matrix
Minimum Diversity Score Test: 8, Subject to the Collateral Quality
Matrix
Minimum WA DBRS Morningstar Recovery Rate Test: 43.8%, Subject to
the Collateral Quality Matrix
Some particular strengths of the transaction are (1) the collateral
quality, which consists mostly of senior-secured floating-rate MM
loans; and (2) the adequate diversification of the portfolio of
collateral obligations (the current DScore of 16 compared with test
level of 8). Some challenges were identified as follows: (1) the WA
credit quality of the underlying obligors may fall below investment
grade and may not have public ratings and (2) the underlying
collateral portfolio may be insufficient to redeem the Secured
Notes in an Event of Default.
The transaction is performing according to the contractual
requirements of the NPSA. As of June 12, 2023, the Issuer is in
compliance with all Coverage and Collateral Quality Tests, as well
as the Concentration Limitation tests. There were no defaulted
obligations registered in the underlying portfolio as of June 12,
2023.
DBRS Morningstar modeled the transaction using the DBRS Morningstar
CLO Asset model and its proprietary cash flow engine, which
incorporated assumptions regarding principal amortization, the
amount of interest generated, default timings, and recovery rates,
among other credit considerations referenced in the DBRS
Morningstar rating methodology, "Cash Flow Assumptions for
Corporate Credit Securitizations." Model-based analysis produced
satisfactory results, which supported the finalization of the
provisional ratings on the Secured Notes.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning ratings to a facility.
DBRS Morningstar's credit ratings on the Secured Notes address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations are the principal and interest due on the
Secured Notes.
DBRS Morningstar's credit ratings do not address non-payment risk
associated with contractual payment obligations contemplated in the
applicable transaction documents that are not financial
obligations. For example, the ratings do not address any additional
interest due on Secured Notes at the Post-Default Rate (as defined
in the NPSA).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
BMO 2023-C6: Fitch Assigns 'B-(EXP)sf' Rating on 2 Tranches
-----------------------------------------------------------
Fitch Ratings has assigned the following expected ratings to BMO
2023-C6 Mortgage Trust, commercial mortgage pass-through
certificates, series 2023-C6. A presale report has been issued.
-- $6,508,000 class A-1 'AAAsf'; Outlook Stable;
-- $54,300,000 class A-2 'AAAsf'; Outlook Stable;
-- $90,000,000a class A-4 'AAAsf'; Outlook Stable;
-- $262,095,000a class A-5 'AAAsf'; Outlook Stable;
-- $10,192,000 class A-SB 'AAAsf'; Outlook Stable;
-- $423,095,000b class X-A 'AAAsf'; Outlook Stable;
-- $80,086,000b class A-S 'AAAsf'; Outlook Stable;
-- $25,688,000 class B 'AA-sf'; Outlook Stable;
-- $16,925,000 class C 'A-sf'; Outlook Stable;
-- $122,699,000b class X-B 'A-sf'; Outlook Stable;
-- $12,512,000cd class D-RR 'BBBsf'; Outlook Stable;
-- $12,512,000bcd class XDRR 'BBBsf'; Outlook Stable;
-- $6,074,000cd class E-RR 'BBB-sf'; Outlook Stable;
-- $6,074,000bcd class XERR 'BBB-sf'; Outlook Stable;
-- $10,578,000cd class F-RR 'BB-sf'; Outlook Stable;
-- $10,578,000bcd class XFRR 'BB-sf'; Outlook Stable;
-- $6,799,000cd class G-RR 'B-sf'; Outlook Stable;
-- $6,799,000bcd class XGRR 'B-sf'; Outlook Stable.
Fitch does not expect to rate the following classes:
-- $22,666,958cd class J-RR;
-- $22,666,958bcd class XJRR.
a) The initial certificate balances of classes A-4 and A-5 are not
yet known but are expected to be $352,095,000 in aggregate, subject
to a 5% variance. The certificate balances will be determined based
on the final pricing of those classes of certificates. The expected
class A-4 balance range is $0-$180,000,000, and the expected class
A-4 balance range is $172,095,000-$352,095,000. The balances of
classes A-4 and A-5 above represent the hypothetical balance for
class A-4 if class A-5 were sized at the midpoint of its range. In
the event that the class A-5 certificates are issued with an
initial certificate balance of $352,095,000, the class A-4
certificates will not be issued.
b) Notional amount and interest-only.
c) Privately placed and pursuant to Rule 144A.
d) Represents the "eligible horizontal interest" comprising at
least 5.0% of the pool.
TRANSACTION SUMMARY
The certificates represent the beneficial ownership interest in the
trust, primary assets of which are 32 loans secured by 138
commercial properties having an aggregate principal balance of
$604,423,959 as of the cut-off date. The loans were contributed to
the trust by Bank of Montreal, KeyBank National Association,
Argentic Real Estate Finance 2 LLC, LMF Commercial, LLC, Wells
Fargo Bank, National Association, Zions Bancorporation, N.A.,
Goldman Sachs Mortgage Company, UBS AG, German American Capital
Corporation and Starwood Mortgage Capital LLC. The master servicer
is expected to be Midland Loan Services, a Division of PNC Bank,
National Association, and the special servicer is expected to be
Rialto Capital Advisors, LLC.
Fitch reviewed a comprehensive sample of the transaction's
collateral, including site inspections on 67.3% of the properties
by balance, cash flow analyses of 94.7% of the pool and asset
summary reviews on 100.0% of the pool.
KEY RATING DRIVERS
Lower Leverage Compared with Recent Transactions: The pool has
lower leverage compared with recent multiborrower transactions
rated by Fitch. The pool's Fitch loan to value ratio (LTV) of 86.8%
is lower than the YTD 2023 and 2022 averages of 89.1% and 99.3%,
respectively. The pool's Fitch NCF debt yield (DY) of 10.8% is
higher than the YTD 2023 and 2022 averages of 10.7% and 9.9%,
respectively. Excluding credit opinion loans, the pool's Fitch LTV
and DY are 93.9% and 10.3%, respectively, in line with the
equivalent conduit YTD 2023 LTV and DY averages of 95.2% and 10.3%,
respectively.
Investment-Grade Credit Opinion Loans: Three loans representing
20.1% of the pool received an investment-grade credit opinion.
Fashion Valley Mall (8.3% of the pool) received a standalone credit
opinion of 'AAAsf', CX - 250 Water Street (7.6%) received a
standalone credit opinion of 'BBBsf' and Back Bay Office (4.1%)
received a standalone credit opinion of 'AAAsf'. The pool's total
credit opinion percentage is in between the YTD 2023 and 2022
averages of 20.9% and 14.4%, respectively.
Lower Pool Concentration: The pool is less concentrated than
recently rated Fitch transactions. The top 10 loans in the pool
make up 61.5% of the pool, which is slightly lower than the 2023
YTD average of 63.8% and above the 2022 average of 55.2%. The
pool's effective loan count of 21.6 is higher than the 2023 YTD
average of 20.3 and below the 2022 average of 25.9.
Limited Amortization: Based on the scheduled balances at maturity,
the pool will pay down by 3.1%, which is above the 2023 YTD average
of 2.0% and below the 2022 average of 3.3%. The pool has 18
interest-only loans, or 70.3% of the pool by balance, which is
below the 2023 YTD and 2022 averages of 79.3% and 77.5%,
respectively.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Reduction in cash flow decreases property value and capacity to
meet its debt service obligations.
The table indicates the model implied rating sensitivity to changes
to the same one variable, Fitch NCF:
-- Original Rating:
'AAAsf'/'AA-sf'/'A-sf'/'BBBsf'/'BBB-sf'/'BB-sf'/'B-sf';
-- 10% NCF Decline:
'AA+sf'/'A+sf'/'A-sf'/'BBB-sf'/'BB+sf'/'B+sf'/'CCC+sf'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Improvement in cash flow increases property value and capacity to
meet its debt service obligations.
The list indicates the model implied rating sensitivity to changes
in one variable, Fitch NCF:
-- Original Rating:
'AAAsf'/'AA-sf'/'A-sf'/'BBBsf'/'BBB-sf'/'BB-sf'/'B-sf';
-- 10% NCF Increase:
'AAAsf'/'AAsf'/'A+sf'/'BBB+sf'/'BBBsf'/'BBsf'/'B+sf'.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
BRAEMAR HOTELS 2018-PRME: DBRS Confirms BB Rating on E Certs
------------------------------------------------------------
DBRS Limited upgraded its rating on the Commercial Mortgage
Pass-Through Certificates, Series 2018-PRME issued by Braemar
Hotels & Resorts Trust 2018-PRME as follows:
-- Class B to AAA (sf) from AA (high) (sf)
DBRS Morningstar confirmed all other classes as follows:
-- Class A at AAA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (sf)
-- Class F at B (low) (sf)
DBRS Morningstar changed the trends on Classes C and D to Positive
from Stable. All other trends remain Stable. The rating upgrade and
confirmations, as well as the trend changes for Classes C and D,
reflect the increased credit support provided to the bonds
following the partial principal pay down of the loan and improving
performance for the underlying collateral hotel portfolio, as
further outlined below.
The subject transaction is secured by a loan collateralized by four
full-service hotels, managed under two different brands and three
different flags in four different cities: Seattle (361 keys; 31.0%
of the allocated loan amount (ALA)), San Francisco (410 keys; 26.7%
of the ALA), Chicago (415 keys; 22.9% of the ALA), and Philadelphia
(499 keys; 19.4% of the ALA). The sponsor for this loan is Braemar
Hotels & Resorts, formerly known as Ashford Hospitality Prime,
which is a publicly traded real estate investment trust that was
spun off from the larger Ashford Hospitality Trust.
The portfolio has a combined room count of 1,685 keys with
management provided by Marriott International (Marriott) and
AccorHotel Group (Accor). The portfolio operates under three flags:
Courtyard by Marriott (two hotels; 46.2% of the total loan amount),
Marriott (one hotel; 31.0% of the total loan amount), and Sofitel
(one hotel; 22.8% of the total loan amount). Each property was
renovated within two years prior to issuance. In 2019, the two
Courtyard by Marriott hotels also underwent major renovations that
converted them to one of Marriott's luxury brands, the Autograph
Collection.
At issuance, the $370.0 million subject loan was primarily used to
refinance existing debt. In addition to the mortgage loan, there
was a $65.0 million mezzanine loan, held outside of the trust. As
of the July 2023 reporting, the current pool balance was $249.4
million, following an approximately $120.6 million principal
curtailment in June 2023, which was made in conjunction with the
borrower exercising the loan's fourth maturity extension option.
The servicer confirmed that the mezzanine loan was also paid down
by approximately $43.6 million. The subject transaction had an
initial two-year term with five one-year extension options. The
fourth extension option pushes the loan's current maturity out to
June 2024, with a fully extended maturity in June 2025.
According to the trailing 12-month (T-12) financial reporting dated
May 31, 2023, the portfolio reported a net cash flow (NCF) of $29.3
million, compared with negative cash flow at YE2021. While cash
flows have been improving, it remains below the issuer's
underwritten NCF of $38.8 million, a contributing factor to the
requirement that a principal curtailment be made as part of the
maturity extension in June 2023. According to the most recent STR,
Inc. (STR) reports on file, dated April 2023 (with the exception of
Courtyard Philadelphia Downtown, which has a March 2023 STR
report), the Seattle Marriott Waterfront and Courtyard San
Francisco Downtown properties were outperforming their competitive
sets and reported T-12 revenue per available room (RevPAR)
penetration rates of 115.1% and 110.3%, respectively. The Sofitel
Chicago Water Tower and Courtyard Philadelphia Downtown properties
were underperforming the competitive sets, with the hotels
reporting T-12 RevPAR penetration rates of 99.1% and 88.5%,
respectively. The portfolio reported T-12 ended May 31, 2023,
occupancy, average daily rate (ADR), and RevPAR figures of 66.3%,
$269.03, and $178.27, respectively. This compares with the YE2021
figures of 44.2%, $193.44, and $85.81, respectively. Additionally,
the debt service coverage ratio for the T-12 period ended May 31,
2023, was 1.59 times (x), compared with -0.53x at YE2021.
While the underlying collateral has seen improvements in operating
performance since the lows reported during the Coronavirus Disease
(COVID-19) pandemic, overall performance remains below issuance
expectations. Mitigating some of this risk is the sponsor's
commitment to the portfolio, which was most recently demonstrated
through the principal curtailment described above. In addition the
sponsor has also made significant investments toward capital
improvements across the portfolio since issuance. Prior to the
pandemic, the portfolio historically reported strong financial
metrics, with the hotels benefiting from prime locations within
their respective submarkets and brand affiliations with Marriott
and Accor.
In the analysis for this review, DBRS Morningstar updated the
sizing to reflect the principal paydown and the in-place cash flows
as reflected in an updated DBRS Morningstar value. The cash flows
were stressed to account for future volatility given performance
continues to lag pre-pandemic figures. A DBRS Morningstar value of
$270.2 million was derived based on a 20% haircut to the in-place
cash flows and a capitalization rate of 8.7%. The stressed DBRS
Morningstar value analyzed for this review implies a loan-to-value
(LTV) ratio of 92.3%, compared with the LTV of 36.4% based on the
appraised value at issuance and the current pool balance. In
addition, DBRS Morningstar made positive qualitative adjustments to
the final LTV sizing benchmarks, totaling 2.75% to account for
property quality, and market fundamentals. The resulting LTV sizing
benchmarks indicated upgrade pressure for the majority of the rated
classes in the capital stack, supporting the rating upgrades and
Positive trends with this review.
The DBRS Morningstar ratings assigned to Classes C and D are lower
than the results implied by the LTV sizing benchmarks by three or
more notches. These variances are warranted given (1) that the
in-place cash flows continue to lag pre-pandemic levels overall and
(2) the general uncertainty surrounding the final maturity in 2025,
when interest rates are expected to remain elevated, and the
borrower will likely be required to contribute additional equity
for a successful takeout barring continued improvement in the
collateral hotel portfolio's performance.
Notes: All figures are in U.S. dollars unless otherwise noted.
BRAVO RESIDENTIAL 2023-NQM5: Fitch Gives 'Bsf' Rating to B-2 Notes
------------------------------------------------------------------
Fitch Ratings has assigned ratings to the residential
mortgage-backed notes issued by BRAVO Residential Funding Trust
2023-NQM5 (BRAVO 2023-NQM5).
ENTITY/DEBT RATING PRIOR
----------- ------ -----
BRAVO 2023-NQM5
A-1 LT AAAsf New Rating AAA(EXP)sf
A-2 LT AAsf New Rating AA(EXP)sf
A-3 LT Asf New Rating A(EXP)sf
M-1 LT BBBsf New Rating BBB(EXP)sf
B-1 LT BBsf New Rating BB(EXP)sf
B-2 LT Bsf New Rating B(EXP)sf
B-3 LT NRsf New Rating NR(EXP)sf
AIOS LT NRsf New Rating NR(EXP)sf
FB LT NRsf New Rating NR(EXP)sf
SA LT NRsf New Rating NR(EXP)sf
XS LT NRsf New Rating NR(EXP)sf
R LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The notes are supported by 706 loans with a total interest-bearing
balance of approximately $324 million as of the cutoff date.
The loans in the pool were primarily originated by Arc Home LLC
(Arc) and Acra Lending (Acra). The remaining loans were originated
by multiple entities. The loans are serviced by Shellpoint Mortgage
Servicing (Shellpoint) and Acra (primarily subserviced by
ServiceMac).
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated
view on sustainable home prices, Fitch views the home price values
of this pool as 6.6% above a long-term sustainable level (versus
7.8% on a national level as of 4Q22, down 2.7% since 3Q22). Despite
rising in 1Q23, home prices are down yoy as of March 2023.
Nonqualified Mortgage Credit Quality (Negative): The collateral
consists of 706 loans totaling $324 million and seasoned at
approximately nine months in aggregate, calculated as the
difference between the origination date and the cutoff date. The
borrowers have a moderate credit profile β a 727 model FICO and a
41% debt-to-income (DTI) ratio, which includes mapping for debt
service coverage ratio (DSCR) loans β and leverage, as evidenced
by a 74% sustainable loan-to-value (sLTV) ratio. Of the pool, 59.8%
of loans are treated as owner-occupied, while 40.2% are treated as
an investor property or second home, which includes loans to
foreign nationals or loans where the residency status was not
confirmed.
Additionally, 8.4% of the loans were originated through a retail
channel. Of the loans, 43% are nonqualified mortgages (non-QM)
while the Ability to Repay Rule is not applicable for the remaining
portion.
Loan Documentation (Negative): Approximately 94.9% of the pool
loans were underwritten to less than full documentation as
determined by Fitch, and 50.3% were underwritten to a 12-month or
24-month bank statement program for verifying income, which is not
consistent with Appendix Q standards and Fitch's view of a full
documentation program. A key distinction between this pool and
legacy Alt-A loans is that these loans adhere to underwriting and
documentation standards required under the Consumer Financial
Protections Bureau's (CFPB) Ability-to-Repay/Qualified Mortgage
Rule (ATR), which reduces the risk of borrower default arising from
lack of affordability, misrepresentation or other operational
quality risks due to the rigors of the ATR mandates regarding
underwriting and documentation of the borrower's ability to repay.
Additionally, 23.3% of the loans are a DSCR product while the
remainder comprises a mix of asset depletion, collateral principal
amount (CPA), P&L and written verification of employment (WVOE)
products. Separately, 15 loans were originated to foreign nationals
or were unable to confirm residency.
Modified Sequential-Payment Structure (Mixed): The structure
distributes principal pro rata among the senior notes while
shutting out the subordinate bonds from principal until all senior
classes are reduced to zero. If a cumulative loss trigger event or
delinquency trigger event occurs in a given period, principal will
be distributed sequentially to class A-1, A-2 and A-3 notes until
they are reduced to zero.
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
100bp increase to the fixed coupon but are limited by the net
weighted average coupon (WAC) rate. Fitch expects the senior
classes to be capped by the net WAC in its analysis. Additionally,
after four years, the unrated class B-3 interest allocation will
redirect toward the senior cap carryover amount for as long as
there is an unpaid cap carryover amount outstanding. This increases
the P&I allocation for the senior classes as long as class B-3 is
not written down and helps to ensure payment of the 100-bps step
up.
As additional analysis to its rating stresses, Fitch factored 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% (the 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 ultimately will
not default due to modifications and reduced P&I. Furthermore, this
approach had the largest impact on the back-loaded benchmark
scenario.
No P&I Advancing (Mixed): The servicers will not be advancing
delinquent monthly payments of P&I. Because P&I advances made on
behalf of loans that become delinquent and eventually liquidate
reduce liquidation proceeds to the trust, the loan-level loss
severities (LS) are less for this transaction than for those where
the servicer is obligated to advance P&I. 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
(CE) to pay timely interest to senior notes during stressed
delinquency and cash flow periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The defined negative rating sensitivity analysis demonstrates how
the ratings would react to steeper market value declines (MVDs) at
the national level. The analysis assumes MVDs of 10.0%, 20.0% and
30.0% in addition to the model projected 39.3% at 'AAA'. The
analysis indicates that there is some potential for rating
migration with higher MVDs for all rated classes, compared with the
model projection. Specifically, a 10% additional decline in home
prices would lower all rated classes by one full category.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The defined positive rating sensitivity analysis demonstrates how
the ratings would react to positive home price growth of 10% with
no assumed overvaluation. Excluding the senior class, which is
already rated 'AAAsf', the analysis indicates there is potential
positive rating migration for all of the rated classes.
Specifically, a 10% gain in home prices would result in a full
category upgrade for the rated class, excluding those being
assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modeling process uses the modification of
these variables to reflect asset performance in up and down
environments. The results should only be considered as one
potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
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 multiple third-party review firms. The third-party due
diligence described in Form 15E focused on credit, compliance, and
property valuation review. Fitch considered this information in its
analysis and, as a result, Fitch made the following adjustments 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 46bps as a
result of the diligence review.
ESG CONSIDERATIONS
BRAVO 2023-NQM5 has an ESG Relevance Score of '4' for Transaction
Parties & Operational Risk due to the counterparties to the
transaction and related representation and warranty framework which
has a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
BX 2021-SDMF: DBRS Confirms B(low) Rating on Class G Certs
----------------------------------------------------------
DBRS Limited confirmed all classes of the Commercial Mortgage
Pass-Through Certificates, BX Trust Series 2021-SDMF as follows:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which remains in line with DBRS Morningstar's
expectations, as exhibited by the high collateral occupancy rate
and healthy revenue levels. The loan is secured by the borrower's
fee-simple interest in a portfolio of 32 Class B and Class C
multifamily properties throughout various submarkets of the greater
San Diego area. The properties are predominantly traditional,
garden-style apartment communities with the exception of one
age-restricted property, which consists of 130 units and at
issuance accounted for 2.2% of the allocated loan amount (ALA). The
loan sponsors are Blackstone Real Estate Partners IX L.P. and
TruAmerica Multifamily LLC. The transaction has a partial pro rata
structure allowing for pro rata paydowns for the first 30% of the
principal balance. Individual property releases are subject to a
release price of 105% of the ALA for the first $240 million
principal balance, with the release price increasing to 110%
thereafter. To date, no properties have been released.
The loan was added to the servicer's watchlist in April 2023 for
its upcoming loan maturity in September 2023 as well as a number of
minor deferred maintenance issues. The $800.0 million two-year,
floating-rate, interest-only loan has three one-year extensions for
a fully extended maturity date of September 2026. According to the
servicer, the borrower has indicated intent to exercise the first
extension at maturity, however has not yet provided any formal
notice. Furthermore, the borrower must purchase an interest rate
cap agreement with each extension and given the current interest
rate environment, the costs for those have increased significantly
in the past year.
Occupancy and rental rates remain stable across the properties,
averaging 94.3% and $1,716 per unit as of the December 2022 rent
rolls, respectively, compared with the YE2021 occupancy rate of
97.8% and average rental rate of $1,484. The loan reported a YE2022
debt service coverage ratio (DSCR) of 1.16 times (x), which was
below the YE2021 DSCR of 1.67x primarily because of a 31.6%
increase in debt service. The YE2022 net cash flow (NCF) was $38.7
million, which remains below the YE2021 and DBRS Morningstar NCFs
of $42.2 million and $39.5 million, respectively. The decline in
NCF year over year was primarily driven by an increase in payroll,
advertising and marketing, and general and administrative expenses,
while effective gross income reported a 7.2% increase for the same
time period. According to Reis, the San Diego market had an average
asking rent of $2,333 per unit and an average vacancy rate of 3.7%
in Q1 2023. Although debt service and operating expenses increased
in 2022, the portfolio remains well occupied, with average rents
above issuance.
Notes: All figures are in U.S. dollars unless otherwise noted.
BX COMMERCIAL 2021-VOLT: DBRS Confirms BB Rating on G Certs
-----------------------------------------------------------
DBRS Limited confirmed its ratings on the following classes of
Commercial Mortgage Pass-Through Certificates, issued by BX
Commercial Mortgage Trust 2021-VOLT:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (sf)
-- Class HRR at BB (low) (sf)
-- Class X-NCP at AAA (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which has remained in line with DBRS Morningstar's
expectations since issuance as illustrated by the strong net cash
flow (NCF) reported. The loan is secured by a portfolio of 10 data
center properties across six U.S. states. Unlike typical commercial
property leases where tenants lease space by the square foot (sf),
data center tenants lease power capacity from the operator, which
is typically measured in the form of kilowatts (kW) or megawatts
(MW). As noted at issuance, the portfolio collectively has 197.7 MW
of built capacity and an additional 22.3 MW of shell capacity for a
total physical capacity of 220.0 MW of power.
Loan proceeds of $3.2 billion along with $2.1 billion of sponsor
equity went toward acquiring the properties for a purchase price of
$5.3 billion. The interest-only (IO) loan is on the servicer's
watchlist because of its upcoming maturity in September 2023;
however, the loan includes three, one-year extension options. A
condition to exercise the option includes purchasing a replacement
interest rate cap agreement, which have become more costly in the
last year.
The transaction benefits from the experienced institutional
sponsorship of The Blackstone Group (Blackstone) and the company's
acquisition of QTS Realty Trust (QTS) in 2021, which represents a
strategic, long-term thematic investment in the data center space
for Blackstone, financed via its various permanent capital private
equity vehicles. QTS is an experienced data center operator with a
footprint of more than 7.0 million sf of owned mega scale data
center space throughout North America and Europe. A substantial
component of the portfolio's value depends on QTS' client roster
and extensive industry relationships and technical expertise.
The overall transaction also benefits from the portfolio's
favorable market position, affordable power rates, desirable
efficiency metrics, and strong tenancy profile, which is primarily
composed of hyperscale users (power usage greater than 250 kW;
representing 60.9% of contracted MW) and hybrid colocation users
(power usage 250 kW or below; representing 35.6% of contracted MW),
with a smaller proportion of federal and other tenants representing
the remaining tenancy. Data center operators have historically
benefited from high barriers to entry and strong clustering and
network effects, which are attributable to the complex IT
environments of their tenants. Furthermore, the high upfront
capital costs and necessary power infrastructure also make
speculative development more difficult than in other industries.
While the portfolio's historical occupancy has been generally
favorable, hovering in the high 90.0% range, the portfolio had a
weighted-average lease term of approximately 2.6 years at issuance.
According to the sponsor, merger and acquisition activity is one of
the primary drivers for reductions in footprint among its tenancy.
However, at issuance, DBRS Morningstar noted the approximately
88.0% contract renewal rate across QTS' platform and that larger
tenants strongly prefer to scale within existing environments
rather than add capacity at a facility with a different provider
for various reasons.
According to the March 2023 rent roll, the portfolio was occupying
179.4 MW, representing an occupancy rate of 81.6%, with tenants
within the cloud and IT industry consuming the most power of
approximately 54,400 kW across the portfolio. In comparison, the
portfolio occupied 170.7 MW at YE2021, representing an occupancy
rate of 77.6%. Although the March 2023 occupancy remains below the
issuance figure of 93.5%, it is trending in the positive direction.
In addition, occupancy is likely to increase to more than 85.0% as
new leases are executed in the near term According to the
financials for the trailing 12 months ended March 31, 2023, the
loan reported an NCF of $293.9 million, a decrease from the YE2022
NCF of $300.3 million but above the DBRS Morningstar NCF of $270.0
million derived at issuance. At issuance, DBRS Morningstar valued
the portfolio at $3.6 billion, reflecting a 24.2% haircut from the
as-is value at issuance of $4.8 billion and a moderate
loan-to-value ratio of 88.8% based on the mortgage loan.
Notes: All figures are in U.S. dollars unless otherwise noted.
CAPITAL ONE: Fitch Affirms 'BBsf' Rating on Series 2002-1D Notes
----------------------------------------------------------------
Fitch Ratings has affirmed the long-term ratings on Capital One
Multi-Asset Execution Trust. The Rating Outlook remains Stable.
The Stable Outlook reflects Fitch's expectation that performance
and loss multiples will remain supportive of the rating. The
affirmation of the outstanding notes reflects available credit
enhancement (CE) and performance to date.
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Capital One Multi-Asset
Execution Trust Card Series
2002-1D LT BBsf Affirmed BBsf
2005-3B 14041NCG4 LT Asf Affirmed Asf
2009-A C LT BBBsf Affirmed BBBsf
2009-C B LT Asf Affirmed Asf
2017-5A 14041NFP1 LT AAAsf Affirmed AAAsf
2019-3A 14041NFV8 LT AAAsf Affirmed AAAsf
2021-1A 14041NFW6 LT AAAsf Affirmed AAAsf
2021-2A 14041NFX4 LT AAAsf Affirmed AAAsf
2021-3A 14041NFY2 LT AAAsf Affirmed AAAsf
2022-1A 14041NFZ9 LT AAAsf Affirmed AAAsf
2022-2A 14041NGA3 LT AAAsf Affirmed AAAsf
2022-3A 14041NGB1 LT AAAsf Affirmed AAAsf
2023-1A 14041NGD7 LT AAAsf Affirmed AAAsf
KEY RATING DRIVERS
Receivables' Performance and Collateral Characteristics: The notes
issued by Capital One Multi-Asset Execution Trust are secured by a
pool of credit card receivables from VISA and MasterCard serviced
by Capital One N.A. The underlying collateral performance and
characteristics play a vital role in a credit card ABS transaction.
Fitch closely examines the trust's performance history and
collateral characteristics as such credit quality, seasoning,
geographic concentration, delinquencies and utilization rates on
the cards.
Chargeoff performance has slightly deteriorated over the past year.
This can be attributed to the strain from elevated interest rates
and inflation on customers. The current 12-month average gross
chargeoff rate as of the July 2023 distribution date is 2.17%
compared with 2.01% one year ago. Fitch recommended to maintain a
conservative charge-off steady state assumption at 6.00%.
Monthly payment rate (MPR), which includes principal and finance
charge collections and is a measure of how quickly consumers are
paying off their credit card debts, has decreased slightly over the
past year. Current 12-month average MPR as of the July 2023
distribution date is 48.66% compared with 49.30% one year ago.
However, Fitch revised the MPR steady state to 27.00% from 26.00%
as post-pandemic performance has exceeded initial expectations due
to a robust labor force and customers' excess savings.
The current 12-month average gross yield as of the July 2023
distribution date is 27.03%, which is comprised of finance charges,
fees and interchange. This compares with the 12-month average of
25.45% as of the July 2022 distribution date. Fitch increased its
steady state to 20.50% from 19.00% due to sustained performance
growth over the past few years.
CE continues to be sufficient with loss multiples and is in line
with the current ratings given each rating category. The Stable
Outlook on the notes reflects Fitch's expectation that performance
and loss multiples will remain supportive of these ratings, given
the steady states and stresses detailed below.
Originator and Servicer Quality: Fitch believes Capital One Bank
(USA) National Association to be an effective and capable
originator and servicer given its extensive track record. Capital
One Bank (USA), National Association currently has a Fitch Issuer
Default Rating (IDR) of 'A-'/'F1'.
Counterparty Risk: Fitch's ratings of the notes are dependent on
the financial strength of certain counterparties. Fitch believes
this risk is currently mitigated as evidenced by the ratings of the
applicable counterparties to the transactions.
Interest Rate Risk: Interest rate risk is currently mitigated by
the available CE. For the class A notes, total CE of 21.00% is
provided by 9.00% subordination of class B notes, 9.00%
subordination of class C notes and 3.00% subordination of class D
notes. The class B notes benefit from 12.00% CE achieved through
9.00% subordination of class C and 3.00% subordination of class D.
The class C notes benefit from 4.00% CE achieved through 3.00%
subordination of class D and a reserve account. The class D notes
benefit from a reserve account.
Fitch analyzed characteristics of the underlying collateral to
better assess overall asset performance. This supplements Fitch's
analysis of the originator's historical data when determining the
following steady state performance assumptions and stresses:
-- Annualized Chargeoffs - 6.00%;
-- Monthly Payment Rate (MPR) - revised to 27.00% from 26.00%;
-- Annualized Gross Yield - revised to 20.50% from 19.00%;
-- Purchase Rate - 100.00%.
Rating Level Stresses (for 'AAAsf', 'Asf', 'BBBsf' and 'BBsf'):
-- Chargeoffs (increase) - 4.50x/3.00x/2.25x/1.75x;
-- Payment Rate (% decrease) - 55.00/46.20/39.60/30.80;
-- Gross Yield (% decrease) - 35.00/25.00/20.00/15.00;
-- Purchase Rate (% decrease) - 50.00/40.00/35.00/30.00.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Rating sensitivity to increased chargeoff rate:
-- Current ratings for class A, class B, class C and class D,
(steady state: 6%): 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf';
-- Increase base case by 25%: 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf';
-- Increase base case by 50%: 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf';
-- Increase base case by 75%: 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf'.
-- Current ratings for class A, class B, class C and class D,
(100% base assumption): 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf';
-- Reduce purchase rate by 50%: 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf';
-- Reduce purchase rate by 75%: 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf';
-- Reduce purchase rate by 100%: 'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf'.
Rating sensitivity to increased chargeoff rate and reduced MPR:
-- Current ratings for class A, class B, class C and class D
(charge-off steady state: 6%; MPR steady state: 27%):
'AAAsf'; 'Asf'; 'BBBsf'; 'BBsf';
-- Increase charge-off rate by 25% and reduce MPR by 15%: 'AAAsf';
'Asf'; 'BBBsf'; 'BBsf';
-- Increase charge-off rate by 50% and reduce MPR by 25%: 'AAAsf';
'Asf'; 'BBBsf'; 'BBsf';
-- Increase charge-off rate by 75% and reduce MPR by 35%: 'AAAsf';
'Asf'; 'BBBsf'; 'BBsf'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The positive rating action/upgrade scenario is not considered in
this review since Fitch rates the class A notes 'AAAsf'.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
CARVANA AUTO 2023-P3: S&P Assigns BB+ (sf) Rating on CL. N Notes
----------------------------------------------------------------
S&P Global Ratings assigned its ratings to Carvana Auto Receivables
Trust 2023-P3's automobile asset-backed notes.
The note issuance is an ABS transaction backed by prime auto loan
receivables.
The ratings reflect S&P's view of:
-- The availability of 14.00%, 11.71%, 9.24%, 6.44%, and 7.16%
credit support (hard credit enhancement and haircut to excess
spread) for the class A (class A-1, A-2, A-3, and A-4), B, C, D,
and N notes, respectively, based on final post-pricing stressed
cash flow scenarios. These credit support levels provide over
5.00x, 4.50x, 3.33x, 2.33x, and 1.73x coverage of S&P's expected
cumulative net loss of 2.30% for the class A, B, C, D, and N notes,
respectively.
-- The expectation that under a moderate ('BBB') stress scenario
(2.00x S&P's expected loss level), all else being equal, its 'AAA
(sf)', 'AA+ (sf)', 'A+ (sf)', 'BBB+ (sf)', and 'BB+ (sf)' ratings
on the class A, B, C, D, and N notes, respectively, are within its
credit stability limits.
-- The timely interest and principal payments by the designated
legal final maturity dates under our stressed cash flow modeling
scenarios, which S&P believes are appropriate for the assigned
ratings.
-- The collateral characteristics of the series' prime automobile
loans, S&P's view of the credit risk of the collateral, and its
updated macroeconomic forecast and forward-looking view of the auto
finance sector.
-- The series' bank accounts at Wells Fargo Bank N.A., which do
not constrain the ratings.
-- S&P's operational risk assessment of Bridgecrest Credit Co. LLC
as servicer, as well as the backup servicing agreement with Vervent
Inc.
-- S&P's assessment of the transaction's potential exposure to
environmental, social, and governance credit factors, which are in
line with our sector benchmark.
-- The transaction's payment and legal structures.
Ratings Assigned
Carvana Auto Receivables Trust 2023-P3
Class A-1, $35.00 million: A-1+ (sf)
Class A-2, $96.20 million: AAA (sf)
Class A-3, $96.20 million: AAA (sf)
Class A-4, $61.20 million: AAA (sf)
Class B, $8.53 million: AA+ (sf)
Class C, $8.53 million: A+ (sf)
Class D, $4.65 million: BBB+ (sf)
Class N(i), $7.00 million: BB+ (sf)
(i)The class N notes will be paid to the extent funds are available
after the overcollateralization target is achieved, and they will
not provide any enhancement to the senior classes.
CHESTNUT NOTES: DBRS Gives Prov. B Rating on Class D Notes
----------------------------------------------------------
DBRS Morningstar assigned the following provisional ratings to the
Class A Notes, the Class B Notes, the Class C Notes, and the Class
D Notes (together, the Secured Notes) of Chestnut Notes Issuer LLC.
The Secured Notes are issued pursuant to the Indenture, dated July
28, 2023, entered into between Chestnut Notes Issuer LLC, as the
Issuer and U.S. Bank Trust Company, National Association, as
Trustee:
-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (low) (sf)
-- Class D Notes at B (sf)
The provisional rating on the Class A Notes addresses the timely
payment of interest (excluding any Defaulted Interest, as defined
in the Indenture) and the ultimate return of principal on or before
the Stated Maturity (as defined in the Indenture). The provisional
ratings on the Class B Notes, the Class C Notes, and the Class D
Notes address the ultimate payment of interest (excluding any
Defaulted Interest, as defined in the Indenture) and ultimate
return of principal on or before the Stated Maturity (as defined in
the Indenture).
RATING RATIONALE
The Secured Notes are collateralized primarily by a portfolio of
U.S. middle-market corporate loans. Chestnut Notes Issuer LLC is
managed by 26North Direct Lending II LP, an affiliate of 26North
Partners LP. DBRS Morningstar considers 26North Direct Lending II
LP to be an acceptable middle-market corporate loan manager.
The ratings reflect the following primary considerations:
(1) The Indenture, dated as of July 28, 2023.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and middle-market corporate loan management capabilities of 26North
Direct Lending II LP.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning ratings to a facility.
DBRS Morningstar's credit ratings on the Secured Notes address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations include the interest at the Interest Rate and
the principal amounts on the Secured Notes, as well as the Deferred
Interest on the Class B Notes, the Class C Notes, and the Class D
Notes (each capitalized term as defined in the Indenture).
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, the provisional ratings on the Notes do
not address any Defaulted Interest on the Secured Notes (each
capitalized term as defined in the Indenture).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
COMM 2013-CCRE8: DBRS Confirms B(high) Rating on Class F Certs
--------------------------------------------------------------
DBRS Limited upgraded its ratings on the following three classes of
Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE8
issued by COMM 2013-CCRE8 Mortgage Trust:
-- Class B to AAA (sf) from AA (sf)
-- Class C to AA (high) (sf) from AA (sf)
-- Class X-B to AAA (sf) from AA (high) (sf)
In addition, DBRS Morningstar confirmed its ratings on the
following classes:
-- Class D at A (sf)
-- Class E at BB (high) (sf)
-- Class X-C at BB (low) (sf)
-- Class F at B (high) (sf)
All trends are Stable.
The rating confirmations and the upgrades of Classes B, C, and X-B
reflect the increased credit support provided to the bonds as 43
loans have repaid from the trust since DBRS Morningstar's last
rating action, representing principal paydown of $601.9 million. As
the pool continues to wind down, DBRS Morningstar looked to a
recovery analysis for the remaining loans in the pool, as part of
the approach for this review. The results of that analysis
suggested the rated certificates in the pool are generally
protected against loss, with the three most senior classes
particularly well insulated, having a total balance of $83.4
million below them in the bond stack.
According to the July 2023 remittance, four of the original 59
loans remain in the trust with an aggregate principal balance of
$252.6 million, representing collateral reduction of 81.8% since
issuance. Three of these loans, totaling 20.2% of the current pool
balance, transferred to the special servicer between June 2023 and
July 2023 for maturity defaults. RFR Holding LLC (RFR), the sponsor
for the largest remaining loan, 375 Park Avenue (Prospectus ID#1;
78.9% of the pool), was seeking a $1.0 billion takeout loan prior
to the final maturity date in May 2023. Ultimately, RFR was unable
to successfully refinance the subject loan, resulting in the loan's
transfer to the special servicer. The servicer approved a loan
modification to allow for two one-year maturity extension options,
pushing the loan's current and fully extended maturity dates to May
2024 and May 2025, respectively. According to the servicer, the
terms of the loan extension included an initial $15.0 million
principal curtailment, followed by a secondary $40.0 million
principal curtailment, to be paid over a 24-month period. The loan
has been trapping excess cash since 2021 when the debt service
coverage ratio (DSCR) dropped below 1.20 times (x), and, according
to the July 2023 loan-level reserve report, there is approximately
$53.5 million held in various escrows that can be used to mitigate
any potential rollover risk and/or offset some of the borrower's
existing obligations tied to tenant improvement costs.
The 375 Park Avenue loan is secured by an 830,928-square-foot (sf)
38-story Class A trophy office tower, known as the Seagram
Building, in Midtown Manhattan. The $201.5 million trust loan
represents a portion of a pari passu whole loan, which reported a
total balance of approximately $768 million as of the July 2023
remittance. The property was more than 90.0% occupied with more
than 59 tenants at issuance; however, the departure of the largest
tenant, Wells Fargo (formerly 30.2% of the net rentable area), in
February 2021 brought occupancy down to 72.0%. Since that time,
there has been positive leasing momentum at the property, with RFR
signing approximately 375,000 sf of new leases in 2022. The largest
signing was Blue Owl Capital Inc. (Blue Owl), which leased 136,660
sf of space in September 2022. Blue Owl is now the largest tenant
at the property, with a lease expiration date in December 2038.
Various online news reports state that RFR's average asking rental
rate at the property is approximately $200.0 per square foot (psf),
a sizeable premium over the Manhattan average. The landlord
recently spent $25.0 million to create the "Seagram Playground," a
34,000-sf complex with a sports court, a wellness center, and an
executive boardroom, among other amenities.
As of March 2023, occupancy at the property had rebounded to 92.0%.
However, reported net cash flow (NCF) remains subdued, with the
annualized trailing three months ended March 2023 and YE2022 NCF
figures of $22.2 million (DSCR of 0.8x) and $25.5 million (DSCR of
0.9x), respectively, more than 60.0% below the issuance figure of
$70.9 million (DSCR of 2.5x). DBRS Morningstar expects cash flows
will trend upward in the near to moderate term, given that the
majority of tenants who signed leases at the property in 2022 are
likely still in free-rent and/or build-out periods.
In April 2023, the collateral was reappraised for $1.45 billion
($1,758 psf), below the issuance appraised value of $1.6 billion
($1,939 psf) but well above the current whole loan balance. The
April 2023 appraisal value is indicative of a healthy loan-to-value
(LTV) ratio of 53.0%. The implied LTV will fall further as the
required principal curtailments are paid over the fully extended
maturity period, assuming the second option is exercised. In
addition to the low in-place LTV, the loan benefits from an
experienced sponsor that remains committed to the asset as
demonstrated by the recent capital expenditure program and
principal curtailment payments associated with the loan extension.
In addition, the property's overall desirability is demonstrated by
the significant leasing traction achieved over the last few years,
a period that has been marked by lower demand and general market
disruptions for most office product in New York and elsewhere
across the country. Even with a sizable haircut to the appraiser's
most recent as-is value, the recovery analysis considered by DBRS
Morningstar as part of this review suggests the likelihood of a
loss remains minimal, supporting DBRS Morningstar's upgrades of the
higher-rated classes. However, given the general uncertainty
regarding the stabilization of the office market and the
concentrated nature of the subject pool, a conservative approach
was maintained for the three most subordinate rated classes,
supporting the rating confirmations in that part of the bond
stack.
Notes: All figures are in U.S. dollars unless otherwise noted.
DBJPM MORTGAGE 2016-C3: Fitch Cuts Rating on Cl. E Certs to 'B-sf'
------------------------------------------------------------------
Fitch Ratings has downgraded eight classes and affirmed the
remaining three classes of DBJPM Mortgage Trust commercial mortgage
pass-through certificates, series 2016-C3. Fitch has also assigned
Negative Rating Outlooks to classes A-M, B, C, D, E, and the
associated IO classes X-A, X-B, and X-C. The under criteria
observation (UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
---------- ----- -----
DBJPM 2016-C3
A-4 23312VAE6 LT AAAsf Affirmed AAAsf
A-5 23312VAF3 LT AAAsf Affirmed AAAsf
A-M 23312VAH9 LT AA+sf Downgrade AAAsf
A-SB 23312VAD8 LT AAAsf Affirmed AAAsf
B 23312VAJ5 LT A+sf Downgrade AA-sf
C 23312VAK2 LT BBBsf Downgrade A-sf
D 23312VAS5 LT BB-sf Downgrade BBB-sf
E 23312VAU0 LT B-sf Downgrade BBsf
X-A 23312VAG1 LT AA+sf Downgrade AAAsf
X-B 23312VAL0 LT A+sf Downgrade AA-sf
X-C 23312VAN6 LT BB-sf Downgrade BBB-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of the
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
Increased Loss Expectations; The downgrades and Negative Outlooks
on classes A-M, B, C, D, E, and the associated IO classes X-A, X-B
and X-C reflect the impact of the criteria, the pools increasing
concentration of regional malls (33.4% of the pool), and elevated
loss expectations on the Westfield San Francisco Centre (11.0%).
Fitch's current ratings incorporate a 'Bsf' ratings case loss of
7.08%.
The Negative Outlooks also reflect the potential for higher than
expected losses on the Westfield San Francisco Centre loan (11% of
the pool). The affirmations to the senior classes also consider
higher stressed losses on the Westfield San Francisco Centre of
50%.
The largest contributor to modeled losses and largest Fitch Loan of
Concern (FLOC) in the pool is the Westfield San Francisco Centre
(FLOC; 11.0% of the pool), a 1,445,449-sf super regional mall
located in San Francisco's Union Square neighborhood. In May 2023,
non-collateral anchor tenant Nordstrom announced it would close at
the mall. The loan transferred to the special servicing shortly
thereafter in June 2023 for imminent default. Various media reports
indicate that a deed in lieu (DIL) is the likely outcome.
Occupancy at the subject has declined to 46.1% as of March 2023,
down from 73.9% at YE 2021. This decline is primarily driven by
office tenants vacating at their respective lease expirations; the
most recent departure being San Francisco State University
(previously 15.8% of NRA and 52.0% of the office segment) following
their lease expiration in January 2022. The office segment is
currently 94.6% vacant, compared to 41.4% vacant in September 2021.
Upcoming rollover is as follows: 20 tenants (16.9% NRA); 2024: 33
tenants (12.1% NRA); 2025: nine tenants (2.8% NRA).
Sales were $850 psf for inline tenants less than 10,000-sf, $164
psf for inline tenant's larger than 10,000-sf, and total property
sales were $276 psf. All of the sales metrics are higher compared
to YE 2021, but remain below the $1,048 psf, $278 psf, and $423 psf
figures from YE 2019.
Collateral performance has continued its downward trend, posting a
YTD March 2023 NOI debt service coverage ratio (DSCR) of 1.00x
compared to 1.15x at YE 2022, 1.14x at YE 2021, 1.77x at YE 2020,
and 2.32x at YE 2019. The YE 2022 NOI reflects a 50.7% decline from
YE 2019, and a 61.1% decline from underwritten expectations.
Fitch's 'Bsf' ratings case loss (prior to concentration add-ons) of
36.8% reflects a 7.5% stress to YE 2022 NOI and a 10% cap rate.
The next largest contributor to modeled losses is the Staybridge
Suites Times Square (FLOC; 4.9%), which is secured by a 32-story
310-room extended stay hotel located in Times Square, on West 40th
street between eighth and ninth avenue. The franchise agreement
expired in April 2020 and the hotel was rebranded as the TBA Times
Square. Hotel performance continues to recover from the rebranding
and the pandemic with YE 2022 NOI 39.5% below YE 2019. The loan
posted an NOI DSCR of 1.14x for YE 2022, up from -0.40x at YE 2021,
-1.20x for YE 2020, but remains well below 2.59x at YE 2019.
Fitch's 'Bsf' ratings case loss (prior to concentration add-ons) of
14.6% reflects a 10% stress to YE 2019 NOI and a 11% cap rate.
The third largest contributor to modeled losses is the Opry Mills
(FLOC; 8.5%). The 1.2 million sf super-regional mall is located in
Nashville, TN, approximately seven-miles from downtown Nashville.
The property is located adjacent to the Gaylord Opryland Resort &
Convention Center, the largest non-gaming hotel and convention
facility. Upcoming rollover is as follows: 2023: 25 tenants (9.9%
NRA); 2024: 30 tenants (12.3% NRA); 2025: 15 tenants (28.8% NRA).
2025 rollover includes the anchor tenants Bass Pro Shops (11.9%
NRA) and Regal Cinema (9.1% NRA). The mall was 95.6% occupied in
March 2023, and covered at 2.87x for YE 2022.
Fitch's 'Bsf' ratings case loss (prior to concentration add-ons) of
5.8% reflects a 12.5% stress to YE 2022 NOI and 12% cap rate.
Increased CE: Since the prior review, one additional loan has
defeased, representing 1.1% of the pool. As of the July 2023
remittance reporting, the pool's aggregate balance has been paid
down 14.9% to $760.1 million from $893.7 million at issuance. There
are 10 loans (56.0%) that are full-term IO, 12 (28.0%) balloon
loans, six loans (16.0% of the pool) with a partial IO component.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades to A-SB through A-5 are not likely due to the continued
expected amortization, position in the capital structure and
sufficient CE relative to loss expectations, but may occur should
interest shortfalls affect these classes. Further downgrades to
classes A-M, B, D, and E, along with the associated IO classes X-A,
X-B, and X-C would occur should expected losses for the pool
increase substantially, with continued underperformance of the
FLOCs and/or the transfer of loans to special servicing. Downgrades
may also occur with additional performance declines from the larger
FLOCs, specifically the Westfield San Francisco Centre (11.0%).
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Factors that could lead to positive rating actions would include
stable to improved asset performance, coupled with additional
paydown and/or defeasance. Upgrades to the 'AA+sf' and 'A+sf' rated
classes would occur when CE improves, and significantly better than
expected resolution for the Westfield San Francisco Centre.
Upgrades to the 'BB-sf' rated classes are considered unlikely and
would be limited based on the potential for future concentrations
as the deal ages. Classes would not be upgraded above 'Asf' if
there is a likelihood of interest shortfalls. Upgrades to the
'B-sf' rated classes are not likely until the later years in the
transaction and only if the performance of the remaining pool is
stable and/or there is sufficient CE to the bonds.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
DRYDEN 102: S&P Assigns Prelim BB- (sf) Rating on Class F Notes
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Dryden 102
CLO Ltd.'s floating-rate debt.
The note issuance is a CLO securitization governed by investment
criteria and backed primarily by broadly syndicated
speculative-grade (rated 'BB+' or lower) senior secured term loans.
The transaction is managed by PGIM Inc.
The preliminary ratings are based on information as of Aug. 16,
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
Dryden 102 CLO Ltd./Dryden 102 CLO LLC
Class A-1, $246.00 million: AAA (sf)
Class A-2, $14.00 million: Not rated
Class B, $44.00 million: AA (sf)
Class C (deferrable), $24.00 million: A (sf)
Class D (deferrable), $24.00 million: BBB- (sf)
Class E (deferrable), $12.00 million: BB- (sf)
Subordinated notes, $36.00 million: Not rated
DRYDEN 45: Moody's Cuts Rating on $7.5MM Class F-R Notes to Caa1
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Dryden 45 Senior Loan Fund:
US$79,300,000 Class B-R Senior Secured Floating Rate Notes due 2030
(the "Class B-R Notes"), Upgraded to Aa1 (sf); previously on
October 24, 2018 Definitive Rating Assigned Aa2 (sf)
US$29,900,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class C-R Notes"), Upgraded to A1 (sf);
previously on October 24, 2018 Definitive Rating Assigned A2 (sf)
Moody's has also downgraded the rating on the following notes:
US$7,500,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2030 (the "Class F-R Notes"), Downgraded to Caa1 (sf);
previously on October 24, 2018 Definitive Rating Assigned B3 (sf)
Dryden 45 Senior Loan Fund, originally issued in September 2016 and
refinanced in October 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 October 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 October 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), higher weighted average spread (WAS) and diversity levels
compared to their respective covenant levels. Moody's modeled a
WARF of 2756, a WAS of 3.35% and a diversity score of 94 compared
to their current covenant levels of 2958, 3.27%, and 90,
respectively.
The downgrade rating action on the Class F-R notes reflects the
specific risks to the junior notes posed by par loss observed in
the underlying CLO portfolio. Based on the Moody's calculation, the
total collateral par balance, including recoveries from defaulted
securities, is $633.5 million, or $16.5 million less than the $650
million initial par amount targeted during the deal's ramp-up.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in "Moody's Global
Approach to Rating Collateralized Loan Obligations."
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score, weighted average
spread, and weighted average recovery rate, are based on its
published methodology and could differ from the trustee's reported
numbers. For modeling purposes, Moody's used the following
base-case assumptions:
Performing par and principal proceeds balance: $630,346,162
Defaulted par: $13,071,425
Diversity Score: 94
Weighted Average Rating Factor (WARF): 2756
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.35%
Weighted Average Recovery Rate (WARR): 47.49%
Weighted Average Life (WAL): 4.32 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, 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.
ELEMENT NOTES: DBRS Gives Prov. B Rating on Class D Notes
---------------------------------------------------------
DBRS Morningstar assigned the following provisional ratings to the
Class A Notes, the Class B Notes, the Class C Notes, and the Class
D Notes (together, the Secured Notes) of Element Notes Issuer LLC.
The Secured Notes are issued pursuant to the Indenture, dated July
28, 2023, entered into between Element Notes Issuer LLC, as the
Issuer and U.S. Bank Trust Company, National Association, as
Trustee:
-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (low) (sf)
-- Class D Notes at B (sf)
The provisional rating on the Class A Notes addresses the timely
payment of interest (excluding any Defaulted Interest, as defined
in the Indenture) and the ultimate return of principal on or before
the Stated Maturity (as defined in the Indenture). The provisional
ratings on the Class B Notes, the Class C Notes, and the Class D
Notes address the ultimate payment of interest (excluding any
Defaulted Interest, as defined in the Indenture) and ultimate
return of principal on or before the Stated Maturity (as defined in
the Indenture).
RATING RATIONALE
The Secured Notes are collateralized primarily by a portfolio of
U.S. middle-market corporate loans. Element Notes Issuer LLC is
managed by 26North Direct Lending II LP, an affiliate of 26North
Partners LP. DBRS Morningstar considers 26North Direct Lending II
LP to be an acceptable middle-market corporate loan manager.
The ratings reflect the following primary considerations:
(1) The Indenture, dated as of July 28, 2023.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and middle-market corporate loan management capabilities of 26North
Direct Lending II LP.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning ratings to a facility.
DBRS Morningstar's credit ratings on the Secured Notes address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations include the interest at the Interest Rate and
the principal amounts on the Secured Notes, as well as the Deferred
Interest on the Class B Notes, the Class C Notes, and the Class D
Notes (each capitalized term as defined in the Indenture).
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, the provisional ratings on the Notes do
not address any Defaulted Interest on the Secured Notes (each
capitalized term as defined in the Indenture).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
ELEVATION CLO 2017-6: Moody's Cuts Rating on $9MM F Notes to Caa3
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Elevation CLO 2017-6, Ltd:
US$40,500,000 Class B Senior Secured Floating Rate Notes due 2029
(the "Class B Notes"), Upgraded to Aaa (sf); previously on November
9, 2021 Upgraded to Aa1 (sf)
US$27,000,000 Class C Secured Deferrable Floating Rate Notes due
2029 (the "Class C Notes"), Upgraded to Aa1 (sf); previously on
November 9, 2021 Upgraded to A1 (sf)
US$24,750,000 Class D Secured Deferrable Floating Rate Notes due
2029 (the "Class D Notes"), Upgraded to Baa2 (sf); previously on
June 26, 2020 Confirmed at Baa3 (sf)
Moody's has also downgraded the rating on the following notes:
US$9,000,000 Class F Secured Deferrable Floating Rate Notes due
2029 (the "Class F Notes"), Downgraded to Caa3 (sf); previously on
June 26, 2020 Downgraded to Caa2 (sf)
Elevation CLO 2017-6, Ltd, originally issued in July 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 2021.
RATINGS RATIONALE
The upgrade rating actions are primarily a result of deleveraging
of the senior notes and an increase in the transaction's
over-collateralization (OC) ratios since July 2022. The Class A-1
notes have been paid down by approximately 35.6% or $89.2 million
since then. Based on the Moody's calculation, the OC ratios for the
Class A/B, Class C and Class D notes are reported at 143.11%,
127.18% and 115.40% respectively, versus July 2022[1] levels of
130.79%, 120.90% and 113.07%, respectively.
The downgrade rating action on the Class F notes reflects the
specific risks to the junior notes posed by par loss observed in
the underlying CLO portfolio. Based on Moody's calculation, the OC
ratio for the Class F notes is currently at 104.02% versus July
2022 level of 105.02%.
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: $307,869,325
Defaulted par: $2,397,805
Diversity Score: 60
Weighted Average Rating Factor (WARF): 2785
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.16%
Weighted Average Recovery Rate (WARR): 47.15%
Weighted Average Life (WAL): 2.8 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, 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.
ELEVATION CLO 2018-10: Moody's Cuts $23.5MM E Notes Rating to B1
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Elevation CLO 2018-10, Ltd.:
US$42,700,000 Class B Senior Secured Floating Rate Notes due 2031
(the "Class B Notes"), Upgraded to Aa1 (sf); previously on November
28, 2018 Assigned Aa2 (sf)
US$20,500,000 Class C Secured Deferrable Floating Rate Notes due
2031 (the "Class C Notes"), Upgraded to A1 (sf); previously on
November 28, 2018 Assigned A2 (sf)
Moody's has also downgraded the rating on the following note:
US$23,500,000 Class E Secured Deferrable Floating Rate Notes due
2031 (the "Class E Notes"), Downgraded to B1 (sf); previously on
September 10, 2020 Confirmed at Ba3 (sf)
Elevation CLO 2018-10, Ltd., originally issued in November 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 October 2023.
RATINGS RATIONALE
These upgrade rating actions reflect the benefit of the short
period of time remaining before the end of the deal's reinvestment
period in October 2023. In light of the reinvestment restrictions
during the amortization period which limit the ability of the
manager to effect significant changes to the current collateral
pool, Moody's analyzed the deal assuming a higher likelihood that
the collateral pool characteristics will be maintained and continue
to satisfy certain covenant requirements. In particular, Moody's
assumed that the deal will benefit from lower weighted average
rating factor (WARF) and higher weighted average spread (WAS)
compared to their respective covenant levels. Moody's modeled a
WARF of 2781 and a WAS of 3.6% compared to its current covenant
level of 2950 and 3.4%. The deal has also benefited from a
shortening of the portfolio's weighted average life since July
2022.
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 July 2023
report[1], the OC ratio for the Class E notes is reported at
106.51% versus July 2022 [2] level of 107.62%.
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: $391,404,053
Defaulted par: $1,914,787
Diversity Score: 79
Weighted Average Rating Factor (WARF): 2781
Weighted Average Spread (WAS) (before accounting for reference rate
floors): 3.60%
Weighted Average Recovery Rate (WARR): 46.99%
Weighted Average Life (WAL): 4.14 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, lower recoveries on defaulted assets.
Methodology Used for the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Factors that Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of the rated notes is subject to uncertainty. The
performance of the rated notes is sensitive to the performance of
the underlying portfolio, which in turn depends on economic and
credit conditions that may change. The Manager's investment
decisions and management of the transaction will also affect the
performance of the rated notes.
EXETER 2023-4: S&P Assigns Prelim BB- (sf) Rating on Class E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Exeter
Automobile Receivables Trust 2023-4's automobile receivables-backed
notes.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The preliminary ratings are based on information as of Aug. 16,
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 availability of approximately 61.3%, 53.4%, 44.4%, 33.5%,
and 26.8% credit support--hard credit enhancement and haircut to
excess spread--for the class A (collectively, classes A-1, A-2, and
A-3), B, C, D, and E notes, respectively, based on stressed cash
flow scenarios. These credit support levels provide at least 2.70x,
2.40x, 2.00x, 1.50x, and 1.20x coverage of S&P's expected
cumulative net loss of 22.00% for classes A, B, C, D, and E,
respectively.
-- The expectation that under a moderate ('BBB') stress scenario
(1.50x our expected loss level), all else being equal, S&P's
preliminary 'AAA (sf)', 'AA (sf)', 'A (sf)', 'BBB (sf)', and 'BB-
(sf)' ratings on the class A, B, C, D, and E notes, respectively,
will be within its credit stability limits.
-- The timely payment of interest and principal repayment by the
designated legal final maturity dates under S&P's stressed cash
flow modeling scenarios for the assigned preliminary ratings.
-- The collateral characteristics of the series' subprime
automobile loans, S&P's view of the collateral's credit risk, its
updated macroeconomic forecast, and forward-looking view of the
auto finance sector.
-- S&P's assessment of the series' bank accounts at Citibank N.A.
(Citibank), which does not constrain the preliminary ratings.
-- S&P's operational risk assessment of Exeter Finance LLC
(Exeter) as servicer, along with its view of the company's
underwriting and the backup servicing arrangement with Citibank.
-- S&P's assessment of the transaction's potential exposure to
environmental, social, and governance credit factors, which are in
line with its sector benchmark.
-- The transaction's payment and legal structures.
Preliminary Ratings Assigned
Exeter Automobile Receivables Trust 2023-4
Class A-1, $76.00 million: A-1+ (sf)
Class A-2, $131.99 million: AAA (sf)
Class A-3, $59.64 million: AAA (sf)
Class B, $92.59 million: AA (sf)
Class C, $90.90 million: A (sf)
Class D, $89.21 million: BBB (sf)
Class E, $82.45 million: BB- (sf)
FLAGSHIP CREDIT 2023-3: DBRS Gives Prov. BB(high) Rating on E Notes
-------------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following classes of
notes to be issued by Flagship Credit Auto Trust 2023-3 (FCAT
2023-3 or the Issuer):
-- $35,800,000 Class A-1 Notes at R-1 (high) (sf)
-- $145,000,000 Class A-2 Notes at AAA (sf)
-- $46,260,000 Class A-3 Notes at AAA (sf)
-- $31,130,000 Class B Notes at AA (high) (sf)
-- $41,330,000 Class C Notes at A (high) (sf)
-- $31,480,000 Class D Notes at BBB (high) (sf)
-- $19,000,000 Class E Notes at BB (high) (sf)
CREDIT RATING RATIONALE/DESCRIPTION
(1) Transaction capital structure, proposed ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization
(OC), subordination, amounts held in the reserve account, and
excess spread. Credit enhancement levels are sufficient to support
the DBRS Morningstar-projected cumulative net loss (CNL) assumption
under various stress scenarios.
(2) The DBRS Morningstar CNL assumption is 10.50%, based on the
expected Cut-Off Date pool composition.
The transaction assumptions consider DBRS Morningstar's baseline
macroeconomic scenarios for rated sovereign economies, available in
its commentary Baseline Macroeconomic Scenarios For Rated
Sovereigns - June 2023 Update, published on June 30, 2023. These
baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse COVID-19 pandemic scenarios, which were first
published in April 2020.
(4) The consistent operational history of Flagship Credit
Acceptance, LLC (Flagship or the Company) and the strength of the
overall Company and its management team.
-- The Flagship senior management team has considerable experience
and a successful track record within the auto finance industry.
(5) The capabilities of Flagship with regard to originations,
underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Flagship
and considers the entity an acceptable originator and servicer of
subprime automobile loan contracts with an acceptable backup
servicer.
(6) The Company indicated it may be subject to various consumer
claims and litigation seeking damages and statutory penalties. Some
litigation against Flagship could take the form of class-action
complaints by consumers; however, the Company indicated there is no
material pending or threatened litigation.
(7) The legal structure and presence of legal opinions that will
address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Flagship, that
the trust has a valid first-priority security interest in the
assets, and the consistency with the DBRS Morningstar "Legal
Criteria for U.S. Structured Finance."
Flagship is an independent, full-service automotive financing and
servicing company that provides (1) financing to borrowers who do
not typically have access to prime credit-lending terms to purchase
late-model vehicles and (2) refinancing of existing automotive
financing.
This transaction is being structured as a Rule 144A transaction of
the Securities Act of 1933. There will be seven classes of
NotesβClass A-1, Class A-2, Class A-3, Class B, Class C, Class D,
and Class Eβincluded in FCAT 2023-3. Initial credit enhancement
for the Class A-1, Class A-2, and Class A-3 Notes is expected to be
36.45% and will include a 1.00% reserve account (funded at
inception and nondeclining), initial overcollateralization (OC) of
0.50%, and subordination of 34.95% of the initial pool balance.
Initial Class B enhancement is expected to be 27.60% and will
include a 1.00% reserve account (funded at inception and
nondeclining), initial OC of 0.50%, and subordination of 26.10% of
the initial pool balance. Initial Class C enhancement is expected
to be 15.85% and will include a 1.00% reserve account (funded at
inception and nondeclining), initial OC of 0.50%, and subordination
of 14.35% of the initial pool balance. Initial Class D enhancement
is expected to be 6.90% and will include a 1.00% reserve account
(funded at inception and nondeclining), initial OC of 0.50%, and
subordination of 5.40% of the initial pool balance. Initial Class E
enhancement is expected to be 1.50% and will include a 1.00%
reserve account (funded at inception and nondeclining) and initial
OC of 0.50%.
DBRS Morningstar's credit rating on the securities listed below
addresses the credit risk associated with the identified financial
obligations in accordance with the relevant transaction documents.
DBRS Morningstar's credit rating does not address non-payment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations.
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued. The DBRS Morningstar short-term debt
rating scale provides an opinion on the risk that an issuer will
not meet its short-term financial obligations in a timely manner.
Notes: All figures are in U.S. dollars unless otherwise noted.
FREDDIE MAC 2023-1: DBRS Gives Prov. B(low) Rating on M Trusts
--------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the following
Mortgage-Backed Security, Series 2023-1 to be issued by Freddie Mac
Seasoned Credit Risk Transfer Trust, Series 2023-1 (the Trust):
-- $10.6 million Class M at B (low) (sf).
DBRS Morningstar did not rate the other classes in the Trust.
This transaction is a securitization of a portfolio of seasoned,
reperforming first-lien residential mortgages funded by the
issuance of the certificates, which are backed by 2,788 loans with
a total principal balance of $470,690,243 as of the Cut-Off Date.
Freddie Mac either purchased the mortgage loans from securitized
Freddie Mac Participation Certificates or Uniform Mortgage Backed
Securities, or retained them in whole-loan form since their
acquisition. The loans are currently held in Freddie Mac's retained
portfolio and will be deposited into the Trust on the Closing
Date.
The loans are approximately 149 months seasoned, and approximately
92.7% have been modified. Each modified mortgage loan was modified
under the Government-Sponsored Enterprise (GSE) Home Affordability
Modification Program (HAMP), GSE non-HAMP modification program,
and/or under or subject to a Freddie Mac payment deferral program
(PDP). The remaining loans (7.3%) were never modified. Within the
pool, 659 mortgages have forborne principal amounts as a result of
modification, which equates to 4.8% of the total unpaid principal
balance as of the Cut-Off Date. For 30.5% of the modified loans,
the modifications happened more than two years ago.
92.2% of the loans have payment status as current as of the Cut-Off
Date, of which 0.9% are in bankruptcy. Furthermore, 73.5% and 16.9%
of the mortgage loans have been zero times 30 days delinquent (0 x
30) for at least the past 12 and 24 months, respectively, under the
Mortgage Bankers Association delinquency methods. DBRS Morningstar
assumed all loans within the pool are exempt from the qualified
mortgage rules because of their eligibility to be purchased by
Freddie Mac.
Specialized Loan Servicing LLC (56.1%), and NewRez LLC, d/b/a
Shellpoint Mortgage Servicing (43.9%) will service the mortgage
loans as of the closing date. There will not be any advancing of
delinquent principal or interest on any mortgages by the Servicers;
however, the Servicers are obligated to advance to third parties
any amounts necessary for the preservation of mortgaged properties
or real estate owned properties acquired by the Trust through
foreclosure or a loss mitigation process.
Freddie Mac will serve as the Sponsor, Seller, and Trustee of the
transaction as well as the Guarantor of the senior certificates
(i.e., the Class A-IO, MAU, MA, MA-IO, MB, MBU, MB-IO, MT, MT-IO,
MTU, MV, MZ, TAU, TAW, TA, TA-IO, TBU, TBW, TB, TB-IO, TT, TT-IO,
TTU, TTW, M5AU, M5AW, M55A, M5AI, M5BU, M5BW, M55B, M5BI, M55T,
M5TI, M5TU, and M5TW Certificates). Wilmington Trust, National
Association (Wilmington Trust) will serve as the Trust Agent.
Computershare Trust Company, N.A. will serve as the Custodian for
the Trust. U.S. Bank Trust Company, National Association will serve
as the Securities Administrator for the Trust and will also
initially act as the Paying Agent, Certificate Registrar, Transfer
Agent, and Authenticating Agent.
Freddie Mac, as the Seller, will make certain representations and
warranties (R&W) with respect to the mortgage loans. It will be the
only party from which the Trust may seek indemnification (or, in
certain cases, a repurchase) as a result of a breach of R&Ws. If a
breach review trigger occurs during the warranty period, the Trust
Agent, Wilmington Trust, will be responsible for the enforcement of
R&Ws. The warranty period will be effective only through August 7,
2026 (approximately three years from the Closing Date), for
substantially all R&Ws other than the real estate mortgage
investment conduit R&W and the R&W-related mortgage loans whose
high-cost regulatory compliance was unable to be tested, which will
not expire.
The mortgage loans will be divided into three loan groups: Group M,
Group M55, and Group T. The Group M loans (81.1% of the pool) and
Group M55 loans (8.2% of the pool) were subject to either
fixed-rate modifications or step-rate modifications that have
reached their final step rates and, as of the Cut-Off Date, the
borrowers have made at least one payment after such mortgage loans
reached their respective final step rates. Each Group M loan has a
mortgage interest rate less than or equal to 5.5% and has no
forbearance, or may have forbearance and any mortgage interest
rate. Each Group M55 loan has a mortgage interest rate higher than
5.5% and has no forbearance. Group T loans (10.8% of the pool) were
never modified or were subject to a PDP.
Principal and interest (P&I) on the senior certificates (the
Guaranteed Certificates) will be guaranteed by Freddie Mac. The
Guaranteed Certificates related to a group of loans (M/M55/T) will
be primarily backed by collateral from each group. The remaining
certificates, including the subordinate, nonguaranteed
interest-only (IO) mortgage insurance and residual certificates,
will be cross-collateralized and supported by the three groups.
The transaction employs a pro rata pay cash flow structure among
the senior group certificates with a sequential pay feature among
the subordinate certificates as described further in the Priority
of Payments section of this report. Certain principal proceeds can
be used to cover interest shortfalls on the rated Class M
certificates. Senior classes, other than Class A-IO, benefit from
P&I payments that are guaranteed by the Guarantor, Freddie Mac;
however, such guaranteed amounts, if paid, will be reimbursed to
Freddie Mac from the P&I collections prior to any allocation to the
subordinate certificates. The senior principal distribution amounts
vary subject to the satisfaction of a step-down test. Realized
losses are allocated reverse sequentially.
The rating reflects transactional strengths that include the
following:
-- Current loans with relatively good payment histories;
-- LTVs;
-- Satisfactory third-party due-diligence review; and
-- Seasoning.
The transaction also includes the following challenges:
-- R&W standard and
-- No servicer advances of delinquent P&I.
DBRS Morningstar's credit rating on the Certificates addresses the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations for the rated Certificates are the Interest
Distribution Amount and the Class Principal Amount.
DBRS Morningstar's credit ratings do not address non-payment risk
associated with contractual payment obligations contemplated in the
applicable transaction documents that are not financial
obligations. For example, in this transaction, DBRS Morningstar's
ratings do not address the payment of any Cap Carryovers based on
its position in the cash flow waterfall.
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
FRONTIER ISSUER 2023-1: Fitch Assigns 'BB-sf' Rating to C Notes
---------------------------------------------------------------
Fitch Ratings has assigned final ratings and Rating Outlooks to
Frontier Issuer, LLC, Secured Fiber Network Revenue Term Notes,
Series 2023-1 as follows:
-- $1.1 billion Series 2023-1 class A-2 'Asf'; Outlook Stable;
-- $154.9 million Series 2023-1 class B 'BBBsf'; Outlook Stable;
-- $311.6 million Series 2023-1 class C '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 shared infrastructure service agreement for common assets.
Debt is secured by net revenue from operations and benefits from a
perfected security interest in the securitized assets.
The collateral network consists of the sponsor's retail fiber
network, including 621,000 fiber passings and 175,000 copper
passings across three issuer-defined submarkets located in the
greater Dallas market. The network supports broadband, phone, video
and non-switch (private network intranet) services for
approximately 286,000 residential and commercial fiber
subscribers.
Transaction proceeds will be utilized to repay indebtedness under
an existing credit facility, 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 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, Frontier Communications Parent, Inc.
(BB-/Negative).
Fitch has also withdrawn expected ratings on the Series 2023-2
class A-2, B and C notes as well as the Series 2023-1 A-1-V note,
as these classes of notes ultimately were not issued. Prior to the
rating withdrawal, the Series 2023-2 class A-2, B and C notes were
assigned expected ratings of 'Asf', 'BBBsf' and 'BB-sf',
respectively, with Stable Rating Outlooks. The Series 2023-1 class
A-1-V note was assigned an expected rating of 'Asf'/Stable.
KEY RATING DRIVERS
Net Cash Flow and Leverage: Fitch's net cash flow (NCF) on the pool
is $213.3 million implying a 14.3% haircut to issuer NCF. The debt
multiple relative to Fitch's NCF on the rated classes is 7.4x,
compared with debt/issuer NCF leverage of 6.4x.
Credit Risk Factors: The major factors affecting Fitch's
determination of cash flow and maximum potential leverage include
the high quality of the underlying collateral networks, scale of
the customer base, market position and penetration, market
concentration, 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 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. In addition, the transaction is capped in
the 'Asf' category, given the risk of technological obsolescence.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
FRTKL 2021-SFR1: DBRS Confirms B(high) Rating on Class G Certs
--------------------------------------------------------------
DBRS, Inc. confirmed the ratings on all classes from two U.S.
single-family rental transactions as follows:
AMSR 2022-SFR3 Trust
-- Single-Family Rental Pass-Through Certificate, Class A at AAA
(sf)
-- Single-Family Rental Pass-Through Certificate, Class B at AAA
(sf)
-- Single-Family Rental Pass-Through Certificate, Class C at AA
(sf)
-- Single-Family Rental Pass-Through Certificate, Class D at A
(sf)
-- Single-Family Rental Pass-Through Certificate, Class E-1 at BBB
(high) (sf)
-- Single-Family Rental Pass-Through Certificate, Class E-2 at BBB
(low) (sf)
-- Single-Family Rental Pass-Through Certificate, Class F at BB
(low) (sf)
FRTKL 2021-SFR1 Trust
-- Single-Family Rental Pass-Through Certificate, Class A at AAA
(sf)
-- Single-Family Rental Pass-Through Certificate, Class B at AAA
(sf)
-- Single-Family Rental Pass-Through Certificate, Class C at AA
(high) (sf)
-- Single-Family Rental Pass-Through Certificate, Class D at A
(high) (sf)
-- Single-Family Rental Pass-Through Certificate, Class E1 at BBB
(high) (sf)
-- Single-Family Rental Pass-Through Certificate, Class E2 at BBB
(low) (sf)
-- Single-Family Rental Pass-Through Certificate, Class F at BB
(sf)
-- Single-Family Rental Pass-Through Certificate, Class G at B
(high) (sf)
The rating confirmations reflect asset performance and
credit-support levels that are consistent with the current
ratings.
DBRS Morningstar's rating actions are based on the following
analytical consideration:
-- Key performance measures as reflected in month-over-month
changes in vacancy and delinquency, quarterly analysis of the
actual expenses, credit enhancement increases since deal inception,
and bond paydown factors.
GCAT TRUST 2023-INV1: Moody's Assigns (P)B2 Rating to Cl. B-5 Debt
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to 35
classes of residential mortgage-backed securities (RMBS) to be
issued by GCAT 2023-INV1 Trust, and sponsored by Blue River
Mortgage III LLC.
The securities are backed by a pool of GSE-eligible (100% by
balance) residential mortgages aggregated by Blue River Mortgage
III LLC, originated by multiple entities and serviced by NewRez LLC
d/b/a Shellpoint Mortgage Servicing (Shellpoint), PennyMac Loan
Services, LLC and PennyMac Corp (collectively, PennyMac).
The complete rating actions are as follows:
Issuer: GCAT 2023-INV1 Trust
Cl. A-1, Assigned (P)Aaa (sf)
Cl. A-2, Assigned (P)Aaa (sf)
Cl. A-3, Assigned (P)Aaa (sf)
Cl. A-4, Assigned (P)Aaa (sf)
Cl. A-5, Assigned (P)Aaa (sf)
Cl. A-6, Assigned (P)Aaa (sf)
Cl. A-7, Assigned (P)Aaa (sf)
Cl. A-8, Assigned (P)Aaa (sf)
Cl. A-9, Assigned (P)Aaa (sf)
Cl. A-10, Assigned (P)Aaa (sf)
Cl. A-11, Assigned (P)Aaa (sf)
Cl. A-12, Assigned (P)Aaa (sf)
Cl. A-13, Assigned (P)Aa1 (sf)
Cl. A-14, Assigned (P)Aa1 (sf)
Cl. A-15, Assigned (P)Aa1 (sf)
Cl. A-16, Assigned (P)Aa1 (sf)
Cl. A-X-1*, Assigned (P)Aa1 (sf)
Cl. A-X-2*, Assigned (P)Aaa (sf)
Cl. A-X-4*, Assigned (P)Aaa (sf)
Cl. A-X-6*, Assigned (P)Aaa (sf)
Cl. A-X-8*, Assigned (P)Aaa (sf)
Cl. A-X-10*, Assigned (P)Aaa (sf)
Cl. A-X-12*, Assigned (P)Aaa (sf)
Cl. A-X-14*, Assigned (P)Aa1 (sf)
Cl. A-X-16*, Assigned (P)Aa1 (sf)
Cl. B-1-A, Assigned (P)Aa3 (sf)
Cl. B-1, Assigned (P)Aa3 (sf)
Cl. B-X-1*, Assigned (P)Aa3 (sf)
Cl. B-2-A, Assigned (P)A2 (sf)
Cl. B-2, Assigned (P)A2 (sf)
Cl. B-X-2*, Assigned (P)A2 (sf)
Cl. B-3, Assigned (P)Baa2 (sf)
Cl. B-4, Assigned (P)Ba2 (sf)
Cl. B-5, Assigned (P)B2 (sf)
Cl. A-1A Loans, Assigned (P)Aaa (sf)
*Reflects Interest-Only Classes
RATINGS RATIONALE
The ratings are based on the credit quality of the mortgage loans,
the structural features of the transaction, the origination quality
and the servicing arrangement, the third-party review, and the
representations and warranties framework.
Moody's expected loss for this pool in a baseline scenario-mean is
1.45%, in a baseline scenario-median is 1.10% and reaches 8.67% at
a stress level consistent with Moody's Aaa ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in rating all classes except
interest-only classes was "Moody's Approach to Rating US RMBS Using
the MILAN Framework" published in August 2023.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to
protect investors against current expectations of loss could drive
the ratings up. Losses could decline from Moody's original
expectations as a result of a lower number of obligor defaults or
appreciation in the value of the mortgaged property securing an
obligor's promise of payment. Transaction performance also depends
greatly on the US macro economy and housing market.
Down
Levels of credit protection that are insufficient to protect
investors against current expectations of loss could drive the
ratings down. Losses could rise above Moody's original expectations
as a result of a higher number of obligor defaults or deterioration
in the value of the mortgaged property securing an obligor's
promise of payment. Transaction performance also depends greatly on
the US macro economy and housing market. Other reasons for
worse-than-expected performance include poor servicing, error on
the part of transaction parties, inadequate transaction governance
and fraud.
Finally, performance of RMBS continues to remain highly dependent
on servicer procedures. Any change resulting from servicing
transfers or other policy or regulatory change can impact the
performance of these transactions. In addition, improvements in
reporting formats and data availability across deals and trustees
may provide better insight into certain performance metrics such as
the level of collateral modifications.
GEMINI NOTES: DBRS Gives Prov. B Rating on Class D Notes
--------------------------------------------------------
DBRS Morningstar assigned the following provisional ratings to the
Class A Notes, the Class B Notes, the Class C Notes, and the Class
D Notes (together, the Secured Notes) of Gemini Notes Issuer LLC.
The Secured Notes are issued pursuant to the Indenture, dated July
28, 2023, entered into between Gemini Notes Issuer LLC, as the
Issuer and U.S. Bank Trust Company, National Association, as
Trustee:
-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (low) (sf)
-- Class D Notes at B (sf)
The provisional rating on the Class A Notes addresses the timely
payment of interest (excluding any Defaulted Interest, as defined
in the Indenture) and the ultimate return of principal on or before
the Stated Maturity (as defined in the Indenture). The provisional
ratings on the Class B Notes, the Class C Notes, and the Class D
Notes address the ultimate payment of interest (excluding any
Defaulted Interest, as defined in the Indenture) and ultimate
return of principal on or before the Stated Maturity (as defined in
the Indenture).
RATING RATIONALE
The Secured Notes are collateralized primarily by a portfolio of
U.S. middle-market corporate loans. Gemini Notes Issuer LLC is
managed by 26North Direct Lending II LP, an affiliate of 26North
Partners LP. DBRS Morningstar considers 26North Direct Lending II
LP to be an acceptable middle-market corporate loan manager.
The ratings reflect the following primary considerations:
(1) The Indenture, dated as of July 28, 2023.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and middle-market corporate loan management capabilities of 26North
Direct Lending II LP.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning ratings to a facility.
DBRS Morningstar's credit ratings on the Secured Notes address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations include the interest at the Interest Rate and
the principal amounts on the Secured Notes, as well as the Deferred
Interest on the Class B Notes, the Class C Notes, and the Class D
Notes (each capitalized term as defined in the Indenture).
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, the provisional ratings on the Notes do
not address any Defaulted Interest on the Secured Notes (each
capitalized term as defined in the Indenture).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
GLS AUTO 2023-3: S&P Assigns BB- (sf) Rating on Class E Notes
-------------------------------------------------------------
S&P Global Ratings assigned its ratings to GLS Auto Receivables
Issuer Trust 2023-3's (GCAR 2023-3) automobile receivables-backed
notes.
The note issuance is an ABS securitization backed by subprime auto
loan receivables.
The ratings reflect S&P's view of:
-- The availability of approximately 56.57%, 48.14%, 39.01%,
28.73%, and 22.377% of credit support (hard credit enhancement and
haircut to excess spread) for the class A (A-1 and A-2), B, C, D
and E notes, respectively, based on final post-pricing stressed
cash flow scenarios (including excess spread). These credit support
levels provide at least 3.20x, 2.70x, 2.10x, 1.60x, and 1.27x our
17.50% expected cumulative net loss for the class A, B, C, D, and E
notes, respectively.
-- The expectation that under a moderate ('BBB') stress scenario
(1.60x S&P's expected loss level), all else being equal, its 'AAA
(sf)', 'AA (sf)', 'A (sf)', 'BBB (sf)', and 'BB- (sf)' ratings on
the class A, B, C, D, and E notes, respectively, are within its
credit stability limits.
-- The timely payment of interest and principal by the designated
legal final maturity dates under S&P's stressed cash flow modeling
scenarios, which it believes are appropriate for the assigned
ratings.
-- The collateral characteristics of the series' subprime
automobile loans, including the representation in the transaction
documents that all contracts in the pool have made at least one
payment, S&P's view of the credit risk of the collateral, and its
updated macroeconomic forecast and forward-looking view of the auto
finance sector.
-- The series' bank accounts at UMB Bank N.A., which do not
constrain the ratings.
-- S&P's operational risk assessment of Global Lending Services
LLC, as servicer, and its view of the company's underwriting and
backup servicing arrangement with UMB Bank N.A.
-- S&P's assessment of the transaction's potential exposure to
environmental, social, and governance credit factors that are in
line with its sector benchmark.
-- The transaction's payment and legal structures.
S&P's expected cumulative net loss for GCAR 2023-3 is 17.50%, which
is unchanged from GCAR 2023-2. It reflects:
-- GCAR's more recent outstanding series, which are showing signs
of performance deterioration with higher losses and delinquencies
and lower recovery rates compared with the more seasoned
transactions;
-- S&P's view that GCAR 2023-3's collateral characteristics are
slightly stronger than those of GCAR 2023-2; and
-- S&P's forward-looking view of the auto finance sector,
including our outlook for a shallower and more attenuated economic
slowdown in 2023 and lower recovery rates.
Ratings Assigned
GLS Auto Receivables Issuer Trust 2023-3
Class A-1, $58.00 million: A-1+ (sf)
Class A-2, $161.33 million: AAA (sf)
Class B, $66.35 million: AA (sf)
Class C, $59.36 million: A (sf)
Class D, $65.63 million: BBB (sf)
Class E, $41.26 million: BB- (sf)
GOLDENTREE LOAN 15: Fitch Assigns 'B-(EXP)sf' Rating to F-R Notes
-----------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to
GoldenTree Loan Management US CLO 15, Ltd.
ENTITY/DEBT RATING
---------- -----
GoldenTree Loan Management US
CLO 15, Ltd.
A-J LT AAA(EXP)sf Expected Rating
A-R LT AAA(EXP)sf Expected Rating
B-R LT AA(EXP)sf Expected Rating
C-R LT A(EXP)sf Expected Rating
D-R LT BBB-(EXP)sf Expected Rating
E-R LT BB-(EXP)sf Expected Rating
F-R LT B-(EXP)sf Expected Rating
X-R LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
GoldenTree Loan Management US CLO 15, Ltd. (the issuer) is an
arbitrage cash flow collateralized loan obligation (CLO) that will
be managed by GLM II, LP, an affiliate of GoldenTree Asset
Management. GLM II, LP is dependent on support and services from
GoldenTree Asset Management LP, as outlined in a services agreement
between the two parties. The deal originally closed in August 2022.
Fitch expects the CLO's secured notes to be refinanced in whole on
Sept. 13, 2023 from proceeds of new secured and subordinated notes.
Net proceeds from the issuance of the secured and subordinated
notes will provide financing on a portfolio of approximately $400
million of primarily first lien senior secured 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 24.12, versus a maximum covenant, in accordance with
the initial expected matrix point of 26.25. Issuers rated in the
'B' rating category denote a highly speculative credit quality;
however, the notes benefit from appropriate credit enhancement and
standard U.S. CLO structural features.
Asset Security (Positive): The indicative portfolio consists of
98.0% first-lien senior secured loans. The weighted average
recovery rate (WARR) of the indicative portfolio is 76.56% versus a
minimum covenant, in accordance with the initial expected matrix
point of 74.0%.
Portfolio Composition (Neutral): The largest three industries may
comprise up to 44.5% of the portfolio balance in aggregate while
the top five obligors can represent up to 12.5% of the portfolio
balance in aggregate. The level of diversity resulting from the
industry, obligor and geographic concentrations is in line with
other recent CLOs.
Portfolio Management (Positive): 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, the rated notes can
withstand default and recovery assumptions consistent with their
assigned ratings.
The WAL used for the transaction stress portfolio and matrices
analysis is 12 months less than the WAL covenant to account for
structural and reinvestment conditions after the reinvestment
period. In Fitch's opinion, these conditions would reduce the
effective risk horizon of the portfolio during stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
a metric. The results under these sensitivity scenarios are as
severe as between 'BBB+sf' and 'AA+sf' for class A-R, between
'BBB+sf' and 'AA+sf' for class A-J, between 'BB+sf' and 'A+sf' for
class B-R, between 'B+sf' and 'BBB+sf' for class C-R, between 'less
than B-sf' and 'BB+sf' for class D-R, between 'less than B-sf' and
'B+sf' for class E-R, and between 'less than B-sf' and 'less than
B-sf' for class F-R.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrade scenarios are not applicable to the class A notes, as these
notes are in the highest rating category of 'AAAsf'.
Variability in key model assumptions, such as increases in recovery
rates and decreases in default rates, could result in an upgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics; the minimum rating results under these sensitivity
scenarios are 'AAAsf' for class B-R, 'A+sf' for class C-R, 'A+sf'
for class D-R, 'BBB+sf' for class E-R, and between 'BBB-sf' and
'Bsf' for class F-R.
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, 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.
GSCG 2019-600C: DBRS Cuts 3 Certs Rating to CCC
-----------------------------------------------
DBRS Limited downgraded the ratings on seven classes of Commercial
Mortgage-Pass-Through Certificated, Series 2019-600C issued by GSCG
Trust 2019-600C as follows:
-- Class B (sf) to AA (sf) from AAA (sf)
-- Class C (sf) to A (sf) from AA (sf)
-- Class X (sf) to BBB (sf) from A (high) (sf)
-- Class D (sf) to BBB (low) from A (sf)
-- Class E (sf) to CCC (sf) from BBB (low)
-- Class F (sf) to CCC (sf) from BB (low)
-- Class G (sf) to CCC (sf) from B (low)
DBRS Morningstar also confirmed the rating on the following class:
-- Class A (sf) at AAA (sf)
All trends were changed to Negative from Stable.
As of this review, the transaction was removed from Under Review
with Negative Implications where it had been placed on May 2, 2023,
following the loan's transfer to the special servicer as a result
of payment default.
The rating downgrades and trend changes reflect the most recent
appraised value and DBRS Morningstar's recoverability outlook for
the specially-serviced underlying loan, which is secured by an
office property in San Francisco. The servicer obtained an April
2023 appraisal value that was made available with the July 2023
remittance and that figure represents a sharp decline from both the
issuance appraisal and the DBRS Morningstar value derived when
ratings were assigned in 2020 and suggests that, should the
servicer ultimately take title to the property and liquidate the
loan, losses could be realized up through the Class E certificate,
supporting the downgrades to CCC (sf) for the three most junior
classes in this transaction. When accounting for the as-is value
decline for the collateral property, the loan-to-value ratio (LTV)
sizing benchmarks suggested significant downgrade pressure across
the stack, supporting the rating actions taken with this review.
The fixed-rate five-year $240.0 million loan is secured by a Class
A, Leed Gold-certified office building totaling 359,154 square feet
(sf) in the North Financial District of San Francisco. WeWork was
the largest tenant in place at issuance, with more than 50% of the
net rentable area (NRA), on a lease through March 2035. The
sponsor, Ark Capital Advisors, LLC (Ark), is a joint venture among
Ivanhoe Cambridge, the Rhone Group, and The We Company. The We
Company (WeCo) is the owner of approximately 80% of Ark and is also
the parent company of WeWork. At issuance, an affiliate of WeCo, We
Work Companies, LLC, provided a guaranty in the amount of $44.1
million that was to remain in place through the duration of the
WeWork lease.
The loan transferred to the special servicer in March 2023 and, as
of the July 2023 remittance, it remains delinquent. The servicer
reported that WeWork stopped paying rent and requested a lease
modification from the borrower. WeWork is currently obligated to
pay $87.91 per square foot (psf) per the terms of the lease. The
rental rates for other tenants currently range between $61.00 psf
and $86.00 psf. The special servicer reports negotiations remain
ongoing regarding WeWork's request for a lease modification, which
DBRS Morningstar notes would likely also include an adjustment to
the WeCo guaranty for the subject loan. The terms of the proposed
modification reportedly include a space reduction for WeWork, a
factor considered in the appraiser's as-is value estimate as of
April 2023. Given WeCo's limited liquidity and its generally
precarious financial position over the past several years, DBRS
Morningstar did not give any credit to the guaranty provided as
part of the analysis when ratings were assigned in 2020.
The April 2023 appraised value of $183.0 million implies an LTV of
131.1% and reflects a 52.4% decline from the issuance appraisal
value of $370.0 million. This sharp decline in value is reflective
of both the increased vacancy rate at the subject and the general
distress of office properties in San Francisco, a market that has
shown significantly higher stress compared with other major markets
in terms of increased office attendance and overall leasing
activity. Given that the loan is in default and the appraiser's
as-is value represents a more market-based valuation, DBRS
Morningstar sized the trust loan based on the $183.0 million
figure, maintaining negative qualitative adjustments to the final
LTV sizing benchmarks to account for increased cash flow volatility
and a positive qualitative adjustment to give credit to the better
property quality. In total, these amounted to a qualitative
adjustment of 0.50%. The resulting LTV sizing benchmarks indicated
significant downgrade pressure throughout the capital stack.
Given the unknowns surrounding the lease modification for WeWork
and the San Francisco office market in general, DBRS Morningstar
also conducted a hypothetical liquidation scenario based on that
same value to project where liquidated losses could be realized. As
previously noted, the results of that analysis suggested losses
could be realized through Classes E, F, and G, with approximately
$23.3 million cushion remaining in Class E in that scenario. As of
the July 2023 remittance, interest shortfalls totaling $674,430
were reported up through the Class E certificate. The special
servicer is currently reporting a modification is in negotiation,
but DBRS Morningstar maintains that, even if the loan is
transferred back to the master servicer in the near to medium term,
the risk to the trust remains significantly increased from issuance
given the low as-is value and the appraiser's expectation that
stabilization would take at least three years to achieve.
According to the most recent financial reporting, the loan reported
a YE2022 NCF of $16.7 million with a debt service coverage ratio
(DSCR) of 1.72 times (x), which is unchanged from YE2021 but
slightly below the YE2020 NCF of $17.4 million and DSCR of 1.79x.
According to the July 2023 loan-level reserve report, $4.0 million
were held across reserves, including $2.4 million in a replacement
reserve and approximately $573,000 in other reserves. The servicer
has also confirmed that, as of June 2023, the total balance of
trapped cash is $1.2 million, which is currently in suspense while
the cash management account is being set up. The capitalization
rate has been maintained at 6.75%, which is at the lower end of the
range of DBRS Morningstar's capitalization rate ranges for office
properties. The implied DBRS Morningstar LTV for the new appraised
value is 131.1%.
The DBRS Morningstar ratings assigned to Classes B, C, and D are
higher than the results implied by the LTV sizing benchmarks by
three or more notches. The variances are warranted given the
uncertain loan level event risk, which is compounded by the loan's
relatively recent transfer to special servicing and uncertainty
surrounding the loan's ultimate resolution. In addition, DBRS
Morningstar notes that the hypothetical liquidation scenario
considered as part of this review suggests liquidated losses would
be contained to the Class E certificate (with a sizeable amount
remaining in that Class), indicating considerable cushion for Class
D and above should a liquidation be realized in the near to medium
term.
Notes: All figures are in U.S. dollars unless otherwise noted.
HERTZ VEHICLE III: Moody's Assigns (P)Ba2 Rating to 2 Tranches
--------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to the
series 2023-3 and series 2023-4 rental car asset-backed notes to be
issued by Hertz Vehicle Financing III LLC (HVFIII, or the issuer),
which is Hertz's rental car ABS facility.
The series 2023-3 notes and the series 2023-4 notes will have a
expected final payment date in three and five years, respectively.
HVFIII is a Delaware limited liability company, and a
bankruptcy-remote special purpose entity and a direct subsidiary of
The Hertz Corporation (Hertz, B2 stable). The collateral backing
the notes consists of a fleet of vehicles and a single operating
lease of the fleet to Hertz for use in its rental car business, as
well as certain manufacturer and incentive rebate receivables owed
to the issuer by the original equipment manufacturers (OEMs).
The complete rating actions are as follows:
Issuer: Hertz Vehicle Financing III LLC
Series 2023-3 Rental Car Asset Backed Notes, Class A, Assigned
(P)Aaa (sf)
Series 2023-3 Rental Car Asset Backed Notes, Class B, Assigned
(P)A2 (sf)
Series 2023-3 Rental Car Asset Backed Notes, Class C, Assigned
(P)Baa3 (sf)
Series 2023-3 Rental Car Asset Backed Notes, Class D, Assigned
(P)Ba2 (sf)
Series 2023-4 Rental Car Asset Backed Notes, Class A, Assigned
(P)Aaa (sf)
Series 2023-4 Rental Car Asset Backed Notes, Class B, Assigned
(P)A2 (sf)
Series 2023-4 Rental Car Asset Backed Notes, Class C, Assigned
(P)Baa3 (sf)
Series 2023-4 Rental Car Asset Backed Notes, Class D, Assigned
(P)Ba2 (sf)
RATINGS RATIONALE
The provisional ratings of the notes are based on (1) the credit
quality of the collateral in the form of rental fleet vehicles,
which Hertz uses in its rental car business, (2) the credit quality
of Hertz, as the primary lessee and as guarantor under the
operating lease, (3) the experience and expertise of Hertz as
sponsor and administrator, (4) the credit enhancement supporting
the notes, which consists of subordination and
over-collateralization, (5) minimum liquidity in the form of cash
and/or a letter of credit, (6) the transaction's legal structure,
including standard bankruptcy remoteness and security interest
provisions, and (7) favorable, albeit slightly weaker than last
year, rental car market conditions due to robust travel demand and
still tight vehicle supply.
The series 2023-3 and series 2023-4 class A, class B, and class C
notes will benefit from subordination of 32.5%, 18.75%, and 6.25%
of the outstanding balance of each series, respectively. The
proposed liquid enhancement amount will be around 4.25% of the
outstanding note balance for the series 2023-3 and series 2023-4,
sized to cover six months of interest plus 50 basis points.
Consistent with prior transactions, the series will be subject to a
credit enhancement floor of 11.05% in the form of
over-collateralization, regardless of fleet composition.
As in prior issuances, the transaction documents stipulate that the
required credit enhancement for the series 2023-3 and series 2023-4
notes, sized as a percentage of the total assets, will be a blended
rate, which is a function of Moody's ratings on the vehicle
manufacturers and defined asset categories:
-- 5.00% for eligible program vehicle and receivable amount from
investment grade manufacturers (any manufacturer that has Moody's
long-term rating or senior unsecured rating or long-term corporate
family rating (together, relevant Moody's ratings) of at least
"Baa3" and any manufacturer that does not have a relevant Moody's
rating and has a senior unsecured debt rating from Moody's of at
least Ba1)
-- 8.00% for eligible program vehicle amount from non-investment
grade manufacturers
-- 15.00% for eligible non-program vehicle amount from investment
grade manufacturers
-- 15.00% for eligible non-program vehicle amount from
non-investment grade manufacturers
-- 8.00% for eligible program receivable amount from
non-investment grade (high) manufacturers (any manufacturer that
(i) is not an investment grade manufacturer and (ii) has a relevant
Moody's rating of at least Ba3)
-- 100.00% for eligible program receivable amount from
non-investment grade (low) manufacturers (any manufacturer that has
a relevant Moody's rating of less than Ba3)
-- 35.0% for medium-duty truck amount
-- 0.00% for cash amount
-- 100% for remainder AAA amount
Consequently, the actual required amount of credit enhancement will
fluctuate based on the mix of vehicles and receivables in the
securitized fleet. Furthermore, the transaction documents dictate
that the total enhancement should include a minimum portion which
is liquid (in cash and/or letter of credit), sized as a percentage
of the aggregate class A / B / C / D principal amount, net of
cash.
The assumptions Moody's applied in the analysis of this
transaction:
Risk of sponsor default: Moody's assumed a 60% decrease in the
probability of default (from Moody's idealized default probability
tables) implied by the B2 rating of the sponsor. This reflects
Moody's view that, in the event of a bankruptcy, Hertz would be
more likely to reorganize under a Chapter 11 bankruptcy filing, as
it would likely realize more value as an ongoing business concern
than it would if it were to liquidate its assets under a Chapter 7
filing. Furthermore, given the sponsor's competitive position
within the industry and the size of its securitized fleet relative
to its overall fleet, the sponsor is likely to affirm its lease
payment obligations in order to retain the use of the fleet and
stay in business. Moody's arrive at the 60% decrease assuming a 80%
probability Hertz would reorganize under a Chapter 11 bankruptcy
and a 75% probability Hertz would affirm its lease payment
obligations in the event of Chapter 11.
Disposal value of the fleet: Moody's assumed the following haircuts
to the net book value (NBV) of the vehicle fleet:
Non-Program Haircut upon Sponsor Default (Car): Mean: 19%
Non-Program Haircut upon Sponsor Default (Car): Standard Deviation:
6%
Non-Program Haircut upon Sponsor Default (Truck): Mean: 35%
Non-Program Haircut upon Sponsor Default (Truck): Standard
Deviation: 8%
Non-Program Haircut upon Sponsor Default (Tesla): Mean: 21%
Non-Program Haircut upon Sponsor Default (Tesla): Standard
Deviation: 10%
Fixed Program Haircut upon Sponsor Default: 10%
Additional Fixed Non-Program Haircut upon Manufacturer Default
(Car): 10%
Additional Fixed Non-Program Haircut upon Manufacturer Default
(Truck): 20%
Additional Fixed Non-Program Haircut upon Manufacturer Default
(Tesla): 50%
Fleet composition -- Moody's assumed the following fleet
composition (based on NBV of vehicle fleet):
Non-Program Vehicles (Car, Tesla & EVs): 92.6%
Non-Program Vehicles (Trucks): 5%
Program Vehicles (Car, Tesla & EVs): 2.4% (decreased from 4.75% due
to the steady low concentration of program vehicles over the past
few years)
Non-program Manufacturer Concentration (percentage, number of
manufacturers, assumed rating):
Aa/A Profile: 10.0%, 2, A3
Baa Profile: 70.0%, 3, Baa3 (increased from 45.0% due to Tesla's
rating being upgraded to Baa3)
Ba/B Profile: 20.0%, 1, Ba3
Program Manufacturer Concentration (percentage, number of
manufacturers, assumed rating):
Aa/A Profile: 0.0%, 0, A3
Baa Profile: 50.0%, 1, Baa3
Ba/B Profile: 50.0%, 1, Ba3
Manufacturer Receivables: 10%; receivables distributed in the same
proportion as the program fleet (Program Manufacturer Concentration
and Manufacturer Receivables together should add up to 100%)
Correlation: Moody's applied the following correlation
assumptions:
Correlation among the sponsor and the vehicle manufacturers: 10%
Correlation among all vehicle manufacturers: 25%
Default risk horizon -- Moody's assumed the following default risk
horizon:
Sponsor: 5 years
Manufacturers: 1 year
A fixed set of time horizon assumptions, regardless of the
remaining term of the transaction, is used when considering sponsor
and manufacturer default probabilities and the expected loss of the
related liabilities, which simplifies Moody's modeling approach
using a standard set of benchmark horizons.
Detailed application of the assumptions is provided in the
methodology.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Rental Vehicle
Securitizations Methodology" published in October 2021.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the ratings of the series 2023-3 and 2023-4
subordinated notes if (1) the credit quality of the lessee
improves, (2) assumptions of the credit quality of the pool of
vehicles collateralizing the transaction were to improve, as
reflected by a stronger mix of program and non-program vehicles and
stronger credit quality of vehicle manufacturers, (3) the residual
values of the non-program vehicles collateralizing the transaction
were to increase materially relative to Moody's expectations.
Down
Moody's could downgrade the ratings of the series 2023-3 and 2023-4
notes if (1) the credit quality of the lessee deteriorates or a
corporate liquidation of the lessee were to occur and introduce
operational complexity in the liquidation of the fleet, (2)
assumptions of the credit quality of the pool of vehicles
collateralizing the transaction were to weaken, as reflected by a
weaker mix of program and non-program vehicles and weaker credit
quality of vehicle manufacturers, or (3) reduced demand for used
vehicles results in lower sales volumes and sharp declines in used
vehicle prices above Moody's assumed depreciation.
HONO 2021-LULU: DBRS Confirms B(low) Rating on Class F Certs
------------------------------------------------------------
DBRS, Inc. confirmed the following ratings of the Commercial
Mortgage Pass-Through Certificates, Series 2021-LULU issued by HONO
2021-LULU Mortgage Trust:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-EXT at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the stable performance of the
transaction, which has remained in line with DBRS Morningstar's
expectations since issuance. The subject transaction has
experienced limited seasoning since it closed in October 2021.
Given the recent vintage, there are minimal updates to the
financial reporting, but based on the updated STR metrics, the
collateral has illustrated consistent growth in revenue per
available room (RevPAR) year over year.
The transaction is collateralized by the borrower's leasehold
interest in Hyatt Regency Waikiki Beach Resort and Spa (Hyatt
Regency Waikiki), a 1,230-key, full-service luxury resort with
94,961 square feet (sf) of retail space in Honolulu's Waikiki
neighborhood. Built in 1976, the property underwent a complete
renovation in 2014 and 2015 for a reported $100.0 million ($81,300
per key) and was subsequently acquired by the sponsor in 2016 for
$780.0 million (approximately $634,000 per key). The property is
managed by the Hyatt Corporation (Hyatt) under a management
agreement that runs through December 2062. The sponsor is an
affiliate of Mirae Asset Global Investments Co., Ltd., a global
real estate investment firm that owns a portfolio of various
property types, including office, industrial, multifamily, and
hospitality.
The whole-loan proceeds of $450.0 million and sponsor equity of
$118.6 million were used to refinance existing debt, fund upfront
reserves, and cover closing costs. The whole-loan consists of
$302.2 million of senior debt, which is held in the trust, while
the $147.8 million of junior debt is held outside of the trust. The
float-rate loan is interest-only (IO) and has a two-year initial
term, with three one-year extension options, with a fully extended
maturity date in October 2026. According to the servicer, the
borrower has expressed its intention to exercise the first
extension option in October 2023. A new interest rate cap agreement
must be purchased with each extension and considering the current
interest rate environment, the costs of new interest rate cap
agreements have increased significantly in the last year.
The collateral consists of a high-quality full-service hotel and
resort in Waikiki, a high-barrier-to-entry urban neighborhood in
Honolulu. The property features 1,230 guest rooms, nearly 95,000 sf
of open-air retail space, 20,510 sf of meeting and event space, and
various other amenities, including a 10,000-sf full-service spa. In
addition to room revenue, the subject generates revenue from
alternative sources, including food and beverage, retail, resort
fees, space rentals, and commissions, among other items.
The resort's retail space in the Pualeilani Atrium Shops includes
approximately 84,000 sf on three levels encircling an open-air
atrium, with approximately 10,000 sf remaining on the ground floor
of the nearby convention center/parking garage. As of the May 2023
rent roll, the retail component featured about 35 local and
national shops and restaurants. Some of the largest and
better-known retailers at the property include Urban Outfitters,
Billabong, UGG Australia, Dylan's Candy Bar, Sunglass Hut, and ABC
Discount Stores.
The primary hotel and retail structure is subject to two separate
ground leases, while the convention space and parking garage are
each subject to a separate ground lease. All four ground leases are
scheduled to expire on December 21, 2087, and contain rent
provisions that escalate at five- and 10-year intervals.
According to the STR report for the trailing 12 months (T-12) ended
March 31, 2023, the hotel's occupancy, average daily rate (ADR),
and RevPAR were 84.7%, $255.00, and $215.87, respectively, an
improvement over the T-12 period ended March 31, 2022, and T-12
period ended July 31, 2021, RevPAR figures of $127.73 and $46.56,
respectively. The most recent metrics are nearing the pre-pandemic
YE2019 RevPAR of $250.03, although occupancy is lagging slightly in
comparison.
Based on the most recent financials, the YE2022 net cash flow (NCF)
of $14.2 million (equivalent to a debt service coverage ratio of
0.65 times), is below the DBRS Morningstar NCF of $31.5 million.
The drop in NCF was mainly driven by a decrease in the retail and
other revenue line items, and the servicer advised that the retail
revenue may not be reflected in the reporting. Considering the deal
is newer in vintage with limited seasoning, financial updates are
minimal. The loan benefits from healthy reserves of approximately
$24.5 million, of which $17.7 million is held in debt service
reserve, a factor to mitigate fluctuations in interest rates. Other
strengths of the transaction include the collateral's prime
location in Waikiki's main shopping and dining district, long-term
management agreement with Hyatt, and strong, experienced
sponsorship. The significant strides in RevPAR point to recovery
and stabilization in the near future. At issuance, DBRS Morningstar
sized this loan based on a value of $312.6 million, which
represents a haircut of -59.5% from the appraiser's value of $771
million.
Notes: All figures are in U.S. dollars unless otherwise noted.
HOUSTON GALLERIA 2015-HGLR: DBRS Confirms BB Rating on E Certs
--------------------------------------------------------------
DBRS, Inc. confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2015-HGLR issued by Houston
Galleria Mall Trust 2015-HGLR (the Issuer) as follows:
-- Class A-1A1 at AAA (sf)
-- Class A-1A2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-NCP at BB (high) (sf)
-- Class E at BB (sf)
All trends are Stable. The rating confirmations reflect the stable
performance of the underlying collateral, as demonstrated by
positive cash flow growth over the prior year as of the most recent
reporting, as well as strong sales figures and healthy occupancy
rates for the collateral mall.
The Certificates are backed by a $1.05 billion component of a $1.2
billion, 10-year, fixed-rate, interest-only (IO) mortgage loan. The
remaining $150.0 million pari passu companion loan was securitized
in the JPMBB 2015-C28 transaction, which is also rated by DBRS
Morningstar. The sponsors for the loan are Simon Property Group
(SPG) and Institutional Mall Investors. SPG, considered the largest
real estate investment trust in the United States, is also the
loan's guarantor and an affiliate of SPG manages the collateral
property.
The loan is secured by the fee interest in a 1.2
million-square-foot (sf) portion of the Houston Galleria, a 2.1
million-sf enclosed, super-regional mall in Houston, about 10 miles
west of the central business district. The mall is the largest
shopping center in Texas and the fourth-largest in the nation.
Anchors include noncollateral tenants Macy's, Nordstrom, Neiman
Marcus, and Saks Fifth Avenue (Saks). Macy's and Nordstrom own
their sites and spaces, while Neiman Marcus and Saks own their
respective improvements but are subject to ground leases. All
anchor spaces at the property are occupied and operating as of July
2023. The overall tenant mix is strong and comprises approximately
400 retailers and restaurants, including many upscale tenants such
as Tiffany & Co., Celine, Gucci, Saint Laurent, Balenciaga, and
Tesla.
According to the April 2023 rent roll, the mall reported an
occupancy rate of 89.8%, relatively unchanged from 89.7% in April
2022. The largest in-line tenants are Life Time Fitness (6.5% of
the collateral net rentable area (NRA), lease expires in January
2038), Forever 21 (2.3% of the NRA, lease expires in January 2026),
and H&M (1.9% of the NRA, lease expires in January 2025). Upcoming
rollover is minimal, with leases representing 8.2% of the NRA
scheduled to expire in 2023, and an additional 9.7% in 2024. Given
the stable historical occupancy, DBRS Morningstar expects the
majority of these leases to be renewed or backfilled.
According to the December 2022 tenant sales report, Saks reported
sales of $794 per square foot (psf), in-line tenants occupying less
than 10,000 sf (excluding Apple) reported sales of $1,186 psf, and
in-line tenants occupying at least 10,000 sf reported sales of
$1,028 psf, compared with sales at issuance of $557 psf, $883 psf,
and $936 psf, respectively.
The servicer reported a YE2022 net cash flow (NCF) of $118.3
million, compared with the YE2021 NCF of $117.9 million, the YE2020
NCF of $113.2 million, and the YE2019 NCF of $117.3 million. The
property experienced a relatively mild disruption during the
initial stages of the Coronavirus Disease (COVID-19) pandemic, and
the loan continues to report NCF figures above the Issuer's NCF of
$100.1 million at issuance. Given the significant cash flow growth
since issuance, DBRS Morningstar updated the loan-to-value (LTV)
sizing in the analysis for this review to reflect both the impact
of that growth and the ability of the ratings to withstand any
fluctuations in property value over the remainder of the term. To
that end, DBRS Morningstar concluded a DBRS Morningstar NCF of
$116.0 million, based on a 2.0% haircut to the YE2022 NCF figure.
In the baseline scenario, DBRS Morningstar applied a capitalization
(cap) rate of 6.5%, on the low end of DBRS Morningstar's cap rate
range for this property type, resulting in a DBRS Morningstar
baseline value of $1.78 billion. In the stressed scenario, DBRS
Morningstar applied a cap rate of 8.0% (in the middle of DBRS
Morningstar's cap rate range), resulting in a stressed DBRS
Morningstar value of $1.48 billion. To evaluate the stability of
the upgrade pressure the baseline LTV sizing results produced, DBRS
Morningstar sized the stressed DBRS Morningstar value in the
analysis for this review. DBRS Morningstar maintained positive
qualitative adjustments totaling 4.5% to account for property
quality, historically strong sales, and the subject's dominant
market positioning.
The ratings on Classes C, D, and E are lower than the results
implied by the LTV sizing benchmarks by three or more notches.
These variances are warranted because of the transaction's
near-term maturity, with interest rates significantly higher than
those in place when the underlying loan was made. Although the
strong performance suggests a refinance should be likely, DBRS
Morningstar maintained a conservative approach in the analysis for
this review given the general disruption to lending in the current
environment.
Notes: All figures are in U.S. dollars unless otherwise noted.
IMSCI 2015-6: DBRS Hikes G Certs Rating to BB(low)
--------------------------------------------------
DBRS Limited upgraded its ratings on three classes of the
Commercial Mortgage Pass-Through Certificates, Series 2015-6 issued
by Institutional Mortgage Securities Canada Inc. (IMSCI) Series
2015-6 as follows:
-- Class E to AA (sf) from AA (low) (sf)
-- Class F to A (sf) from BBB (low) (sf)
-- Class G to BB (low) (sf) from B (sf)
In addition, DBRS Morningstar confirmed the following ratings:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class X at AAA (sf)
-- Class D at AA (high) (sf)
All trends are Stable.
The rating upgrades reflect the continued strong performance of the
pool which, with the exception of the Comfort Inn & Suites Airdrie
loan (the Airdrie loan, Prospectus ID#9, 8.7% of the pool), are
performing above issuance expectations. DBRS Morningstar reviewed
this transaction in January 2022 and again in November 2022 and
noted the CMBS Insight Model results for both reviews suggested
higher ratings for some classes (Class G in January 2022 and
Classes E, F, and G in November 2022), primarily the result of the
significant paydown since issuance. However, at the time of those
reviews, DBRS Morningstar maintained a conservative approach given
the uncertain loan level event risk for the pool, primarily related
to the Airdrie loan. As further discussed below, in the time since
the November 2022 review, the transaction has further seasoned,
with updated property level cash flows for most loans in the pool
and reporting a weighted-average (WA) debt service coverage ratio
(DSCR) of above 1.60 times (x) for the pool, additional
amortization, and, most notably, a lack of further deterioration in
the outlook for the Airdrie loan. These developments support the
upgrades with this review and, as noted in the disclosures toward
the end of this press release, the CMBS Insight Model results
continue to suggest higher ratings than assigned with this review,
providing cushion against future cash flow volatility and/or
increased concentration risk as the transaction continues to
season.
As of the July 2023 remittance, 26 of the original 47 loans remain
in the trust, with an aggregate balance of $120.9 million,
representing a collateral reduction of 62.8% since issuance, as a
result of loan repayments and scheduled amortization. Three loans,
representing 28.9% of the pool, are fully defeased. There are no
loans in special servicing and six loans, representing 32.1% of the
pool, on the servicer's watchlist. Five of the six loans are being
monitored for outdated financials; however, none of these loans
have exhibited financial stress in the past.
The Airdrie loan, which is secured by a limited-service hotel in
Airdrie, Alberta, located approximately 30 kilometers north of
Calgary, is the only loan currently being monitored on the
watchlist for performance issues. While the loan has full recourse
to the sponsor, Avonos Airdrie Ltd., the guarantor has 35 years of
experience in oil and gas exploration, which has been heavily
affected in recent years. The loan was added to the servicer's
watchlist in February 2017 due to low DSCR as the property has been
severely affected by the downturn of the oil and gas sectors and
more recently by the Coronavirus Disease (COVID-19) pandemic. The
sponsor has continuously paid out of pocket to cover operating
shortfalls and has managed to keep the loan current. The servicer
initially approved a loan modification in May 2018 that allowed for
a 24-month interest-only (IO) period that expired in December 2020;
however, this was subsequently extended into 2023. According to
servicer commentary, principal and interest payments have resumed
as of May 2023 and the loan's maturity date has been extended to
May 2024.
According to the June 2022 STR report, the property reported
trailing-12-months occupancy, average daily rate (ADR), and revenue
per available room (RevPAR) of 38.8%, $109, and $42, respectively.
Occupancy, ADR, and RevPAR have increased 55.5%, 21.3%, and 88.7%,
respectively, over the June 2021 figures, however, the property
continues to underperform relative to its competitive set as
evidenced by its RevPAR penetration rate of 80.3%. The loan most
recently reported year-end 2021 financials with a DSCR of 0.14x.
Despite the significant increases in all three metrics, cash flow
is expected to remain depressed through 2023. DBRS Morningstar
analyzed this loan with an elevated probability of default to
reflect its current risk profile, resulting in an expected loss
that was more than 12 times the pool average expected loss.
At issuance, DBRS Morningstar shadow rated South Hill Shopping
Centre (Prospectus ID#2, 13.4% of the pool), Markham Town Square
(Prospectus ID#8, 2.1% of the pool), and U-Haul SAC 3 Portfolio
(10.7% of the pool) as investment grade. With this review, DBRS
Morningstar confirmed that the performance of these loans remains
consistent with the investment-grade loan characteristics.
Notes: All figures are in Canadian dollars unless otherwise noted.
INVESCO U.S. 2023-3: S&P Assigns Prelim BB- (sf) Rating on E Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to Invesco U.S.
CLO 2023-3 Ltd./Invesco U.S. CLO 2023-3 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 Invesco CLO Equity Fund 3 L.P.
The preliminary ratings are based on information as of Aug. 11,
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
Invesco U.S. CLO 2023-3 Ltd./Invesco U.S. CLO 2023-3 LLC
Class A, $320.00 million: Not rated
Class B, $60.00 million: AA (sf)
Class C (deferrable), $30.00 million: A (sf)
Class D (deferrable), $30.00 million: BBB- (sf)
Class E (deferrable), $15.00 million: BB- (sf)
Subordinated notes, $38.75 million: Not rated
JORDAN NOTES: DBRS Gives Prov. B Rating on Class D Notes
--------------------------------------------------------
DBRS Morningstar assigned the following provisional ratings to the
Class A Notes, the Class B Notes, the Class C Notes, and the Class
D Notes (together, the Secured Notes) of Jordan Notes Issuer LLC.
The Secured Notes are issued pursuant to the Indenture, dated July
28, 2023, entered into between Jordan Notes Issuer LLC, as the
Issuer and U.S. Bank Trust Company, National Association, as
Trustee:
-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (low) (sf)
-- Class D Notes at B (sf)
The provisional rating on the Class A Notes addresses the timely
payment of interest (excluding any Defaulted Interest, as defined
in the Indenture) and the ultimate return of principal on or before
the Stated Maturity (as defined in the Indenture). The provisional
ratings on the Class B Notes, the Class C Notes, and the Class D
Notes address the ultimate payment of interest (excluding any
Defaulted Interest, as defined in the Indenture) and ultimate
return of principal on or before the Stated Maturity (as defined in
the Indenture).
RATING RATIONALE
The Secured Notes are collateralized primarily by a portfolio of
U.S. middle-market corporate loans. Jordan Notes Issuer LLC is
managed by 26North Direct Lending II LP, an affiliate of 26 North
Partners LP. DBRS Morningstar considers 26North Direct Lending II
LP to be an acceptable middle-market corporate loan manager.
The ratings reflect the following primary considerations:
(1) The Indenture, dated as of July 28, 2023.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and middle-market corporate loan management capabilities of 26North
Direct Lending II LP.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning ratings to a facility.
DBRS Morningstar's credit ratings on the Secured Notes address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations include the interest at the Interest Rate and
the principal amounts on the Secured Notes, as well as the Deferred
Interest on the Class B Notes, the Class C Notes, and the Class D
Notes (each capitalized term as defined in the Indenture).
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, the provisional ratings on the Notes do
not address any Defaulted Interest on the Secured Notes (each
capitalized term as defined in the Indenture).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2016-JP2: Fitch Lowers Rating on 2 Tranches to 'BBsf'
---------------------------------------------------------------
Fitch Ratings has downgraded two classes and affirmed nine classes
of J.P. Morgan Chase Commercial Mortgage Securities Trust 2016-JP2
commercial mortgage pass-through certificates. A Negative Outlook
was assigned to classes D and X-C following the downgrade. In
addition, the Rating Outlook for class C was revised to Negative
from Stable and the Outlook for class E remains Negative. The
criteria observation (UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
JPMCC 2016-JP2
A-3 46590MAQ3 LT AAAsf Affirmed AAAsf
A-4 46590MAR1 LT AAAsf Affirmed AAAsf
A-S 46590MAV2 LT AAAsf Affirmed AAAsf
A-SB 46590MAS9 LT AAAsf Affirmed AAAsf
B 46590MAW0 LT AA-sf Affirmed AA-sf
C 46590MAX8 LT A-sf Affirmed A-sf
D 46590MAC4 LT BBsf Downgrade BBB-sf
E 46590MAE0 LT B-sf Affirmed B-sf
X-A 46590MAT7 LT AAAsf Affirmed AAAsf
X-B 46590MAU4 LT AA-sf Affirmed AA-sf
X-C 46590MAA8 LT BBsf Downgrade BBB-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of the
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
Fitch's current ratings incorporate a 'Bsf' rating case loss of
6.4%. Eight loans are considered Fitch Loans of Concern (FLOCs;
30.6% of pool).
The downgrades and Negative Outlooks reflect the impact of the
updated criteria and the pool's elevated level of FLOCs, including
exposure to underperforming office and retail properties facing
declining occupancy, rollover and/or high submarket vacancy rates,
as well as the Marriott Atlanta Buckhead.
The largest contributor to overall loss expectations is the
Hagerstown Premium Outlets (3.6%), which is secured by 484,994-sf
outlet center located in Hagerstown, MD. Occupancy has fallen to
54% in March 2023 from 69% at YE 2019 90% at issuance. This is due
to increased competition and a number of tenants vacating at lease
expiration over the past three years. The YE 2022 DSCR was reported
to be 1.00x versus 1.06x at YE 2021 and 1.39x at YE 2020. Fitch's
'Bsf' rating case loss of 38% prior to the concentration add-ons
reflects a 18% stressed cap rate applied to the YE 2022 NOI.
The second largest contributor to overall loss expectations is the
Marriott Atlanta Buckhead (6.3%), which is secured by a 10-story,
349-key full-service hotel located approximately 8.5 miles north of
Downtown Atlanta in the Buckhead district. The loan was transferred
to the special servicer due to delinquent loan payments in January
2021 and returned to master servicer in October 2022.
YE 2022 NOI DSCR was 0.24x, compared with -0.08x at YE 2021, 2.72x
at YE 2019 and 2.35x at YE 2018. Portfolio occupancy has decreased
to 54% in March 2023 from 69% at YE 2019 and 82% at issuance.
Fitch's 'Bsf' ratings case loss of 17% reflects a discount to a
recent appraisal value provided when the loan was in special
servicing.
Increasing Credit Enhancement: As of the July 2023 remittance, the
pool's aggregate principal balance has been reduced by 16.4% to
$785 million from $939.2 million at issuance. Nine loans (21%) are
fully defeased including the second largest loan, Center 21 (10.2%
of the pool). At issuance, based on the scheduled balance at
maturity, the pool will pay down 11.1% of the initial pool balance.
Interest shortfalls are currently affecting the non-rated class
NR.
Significant Office Concentration: Office properties represent the
highest concentration of the pool at 40.4%, followed by retail at
29.3% and hotel at 17.5%.
High Concentration of Pari Passu Loans: Seven loans (45.7% of pool)
are pari passu, all of which are in the top 15.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- Sensitivity factors that could lead to downgrades include an
increase in pool-level losses from underperforming and specially
serviced loans/assets.
-- Downgrades to the 'AAAsf' and 'AA-sf' rated classes are not
likely due to the continued expected amortization and sufficient CE
relative to loss expectations, but may occur should interest
shortfalls affect these classes.
-- Downgrades to the 'A-sf' and 'BBsf' rated classes would occur
should expected losses for the pool increase substantially, with
continued underperformance of the FLOCs and/or the transfer of
loans to special servicing.
-- Downgrades to the 'B-sf' rated class would occur should loss
expectations increase as FLOC performance declines or fails to
stabilize and/or with greater certainty of losses.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
-- Sensitivity factors that could lead to upgrades include stable
to improved asset performance, coupled with additional paydown
and/or defeasance.
-- Upgrades to the 'AA-sf' and 'A-sf' classes may occur with
significant improvement in CE and/or defeasance, and with the
stabilization of performance on the FLOCs; however, adverse
selection and increased concentrations could cause this trend to
reverse.
-- Upgrades to classes rated 'BBsf' may occur as the number of
FLOCs are reduced, and there is sufficient CE to the classes.
Classes would not be upgraded above 'Asf' if there were any
likelihood of interest shortfalls.
-- Upgrades to 'B-sf' rated classes are not likely until the later
years in a transaction and only if the performance of the remaining
pool is stable and there is sufficient CE to the classes.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
JP MORGAN 2023-6: DBRS Finalizes B(low) Rating on Class B-5 Certs
-----------------------------------------------------------------
DBRS, Inc. finalized the following provisional ratings on the
Mortgage Pass-Through Certificates, Series 2023-6 issued by J.P.
Morgan Mortgage Trust 2023-6 (JPMMT 2023-6):
-- $349.6 million Class A-1 at AAA (sf)
-- $262.2 million Class A-2 at AAA (sf)
-- $262.2 million Class A-2-A at AAA (sf)
-- $262.2 million Class A-2-X at AAA (sf)
-- $87.4 million Class A-3 at AAA (sf)
-- $196.7 million Class A-4 at AAA (sf)
-- $65.6 million Class A-4-A at AAA (sf)
-- $196.7 million Class A-4-B at AAA (sf)
-- $262.2 million Class A-4-C at AAA (sf)
-- $196.7 million Class A-4-X at AAA (sf)
-- $65.6 million Class A-5 at AAA (sf)
-- $21.9 million Class A-5-A at AAA (sf)
-- $65.6 million Class A-5-B at AAA (sf)
-- $87.4 million Class A-5-C at AAA (sf)
-- $65.6 million Class A-5-X at AAA (sf)
-- $25.3 million Class A-6 at AA (high) (sf)
-- $8.4 million Class A-6-A at AA (high) (sf)
-- $383.3 million Class A-X-1 at AA (high) (sf)
-- $9.5 million Class B-1 at AA (low) (sf)
-- $7.2 million Class B-2 at A (low) (sf)
-- $4.9 million Class B-3 at BBB (low) (sf)
-- $2.7 million Class B-4 at BB (high) (sf)
-- $2.1 million Class B-5 at B (low) (sf)
Classes A-2-X, A-4-X, A-5-X, and A-X-1 are interest-only (IO)
certificates. The class balances represent notional amounts.
Classes A-1, A-2, A-2-A, A-2-X, A-3, A-4, A-4-C, A-5, and A-5-C are
exchangeable certificates. These classes can be exchanged for
combinations of depositable certificates as specified in the
offering documents.
Classes A-1, A-2, A-2-A, A-3, A-4, A-4-A, A-4-B, A-4-C, A-5, A-5-A,
A-5-B, and A-5-C are super senior certificates. These classes
benefit from additional protection from the senior support
certificates (Class A-6 and A-6-A certificates) with respect to
loss allocation.
The AAA (sf) ratings on the Certificates reflect 15.00% of credit
enhancement provided by subordinated certificates. The AA (high)
(sf), AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (high) (sf),
and B (low) (sf) ratings reflect 6.80%, 4.50%, 2.75%, 1.55%, 0.90%,
and 0.40% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
This transaction is a securitization of a portfolio of first-lien,
fixed-rate prime residential mortgages funded by the issuance of
the Certificates. The Certificates are backed by 338 loans with a
total principal balance of $411,315,203 as of the Cut-Off Date
(July 1, 2023).
The pool consists of fully amortizing fixed-rate mortgages with
original terms to maturity of primarily 30 years and a
weighted-average loan age of five months. Approximately 96.0% of
the loans are traditional, nonagency, prime jumbo mortgage loans.
The remaining 4.10% of the pool are conforming mortgage loans that
were underwritten using an automated underwriting system designated
by Fannie Mae or Freddie Mac and were eligible for purchase by such
agencies. Details on the underwriting of conforming loans can be
found in the Key Probability of Default Drivers section of the
related Presale Report. In addition, all of the loans in the pool
were originated in accordance with the new general qualified
mortgage rule.
United Wholesale Mortgage, LLC originated 49.0% of the pool.
Various other originators, each comprising less than 15%,
originated the remainder of the loans. The mortgage loans will be
serviced or subserviced, as applicable, by Cenlar FSB (49.0%), JP
Morgan Chase Bank (JPMCB; 46.0%), and loanDepot.com, LLC (5.0%).
For the JPMCB-serviced loans, Shellpoint Mortgage Servicing
(Shellpoint or SMS) will act as interim servicer until the loans
transfer to JPMCB on the servicing transfer date (September 1,
2023).
For this transaction, generally, the servicing fee payable for
mortgage loans is composed of three separate components: the base
servicing fee, the delinquent servicing fee, and the additional
servicing fee. These fees vary based on the delinquency status of
the related loan and will be paid from interest collections before
distribution to the securities.
Nationstar Mortgage LLC will act as the Master Servicer. Citibank,
N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) will
act as Securities Administrator and Delaware Trustee. Computershare
Trust Company, N.A. will act as Custodian. Pentalpha Surveillance
LLC will serve as the Representations and Warranties Reviewer.
The transaction employs a senior-subordinate, shifting-interest
cash flow structure that is enhanced from a precrisis structure.
DBRS Morningstar's credit ratings on the Certificates address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations for each of the rated Certificates are the
related Interest Distribution Amounts, the related Interest
Shortfalls, and the related Class Principal Amounts (for non-IO
Certificates).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
JP MORGAN 2023-DSC2: S&P Assigns Prelim 'B-' Rating on B-2 Certs
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary ratings to J.P. Morgan
Mortgage Trust 2023-DSC2's mortgage-backed certificates series
2023-DSC2.
The note issuance is an RMBS transaction backed by first-lien,
fixed- and adjustable-rate, fully amortizing, and interest-only
residential mortgage loans. The loans are secured by single-family
residences, planned-unit developments, two- to 10-unit multifamily
homes and condominiums to both prime and nonprime borrowers. The
pool consists of 950 loans backed by 1,546 properties that are
exempt from ability-to-repay rules. Of the 950 loans, 113 are cross
collateralized loans backed by 709 properties.
The preliminary ratings are based on information as of Aug. 11,
2023. Subsequent information may result in the assignment of final
ratings that differ from the preliminary ratings.
The preliminary ratings reflect:
-- The pool's collateral composition;
-- The transaction's credit enhancement, associated structural
mechanics, geographic concentration, mortgage aggregators and
mortgage originators, and representation and warranty framework;
and
-- The potential impact that current and near-term macroeconomic
conditions may have on the performance of the mortgage borrowers in
the pool. Per our latest macroeconomic update, we continue to
expect that the U.S. will fall into a shallow recession in 2023.
Although safeguards from the Federal Reserve and other regulators
have stabilized conditions, banking concerns increase risks of a
worse outcome and chances for a worsening recession have increased,
with inflation moderating faster than expected in S&P's baseline
forecast. As a result, S&P continues to maintain the revised
outlook per the April 2020 update to the guidance to its RMBS
criteria, which increased the archetypal 'B' projected foreclosure
frequency to 3.25% from 2.50%.
Preliminary Ratings(i) Assigned
J.P. Morgan Mortgage Trust 2023-DSC2
Class A-1, $201,220,000: AAA (sf)
Class A-1-A, $201,220,000: AAA (sf)
Class A-1-A-X, $201,220,000(ii): AAA (sf)
Class A-1-B, $201,220,000: AAA (sf)
Class A-1-B-X, $201,220,000(ii): AAA (sf)
Class A-1-C, $201,220,000: AAA (sf)
Class A-1-C-X, $201,220,000(ii): AAA (sf)
Class A-2, $32,048,000: AA- (sf)
Class A-2-A, $32,048,000: AA- (sf)
Class A-2-A-X, $32,048,000(ii): AA- (sf)
Class A-2-B, $32,048,000: AA- (sf)
Class A-2-B-X, $32,048,000(ii): AA- (sf)
Class A-2-C, $32,048,000: AA- (sf)
Class A-2-C-X, $32,048,000(ii): AA- (sf)
Class A-3, $34,512,000: A- (sf)
Class A-3-A, $34,512,000: A- (sf)
Class A-3-A-X, $34,512,000(ii): A- (sf)
Class A-3-B, $34,512,000: A- (sf)
Class A-3-B-X, $34,512,000(ii): A- (sf)
Class A-3-C, $34,512,000: A- (sf)
Class A-3-C-X, $34,512,000(ii): A- (sf)
Class M-1, $14,791,000: BBB- (sf)
Class B-1, $10,786,000: BB- (sf)
Class B-2, $7,857,000: B- (sf)
Class B-3, $6,934,235: Not rated
Class A-IO-S, notional(iii): Not rated
Class XS, notional(iii): Not rated
Class A-R, not applicable: Not rated
(i)The collateral and structural information in this report reflect
the private placement memorandum dated Aug. 8, 2023. The
preliminary ratings address the ultimate payment of interest and
principal and do not address payment of the cap carryover amounts.
(ii)Notional balance.
(iii)The notional amount equals the loans' aggregate unpaid
principal balance.
JPMCC COMMERCIAL 2017-JP7: Fitch Affirms Bsf Rating on G-RR Certs
-----------------------------------------------------------------
Fitch Ratings has affirmed the ratings of 13 classes of JPMCC
Commercial Mortgage Securities Trust (JPMCC) 2017-JP7 commercial
mortgage pass-through certificates. The Rating Outlook remains
Negative on class G-RR. The under criteria observation (UCO) has
been resolved.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
JPMCC 2017-JP7
A-3 465968AC9 LT AAAsf Affirmed AAAsf
A-4 465968AD7 LT AAAsf Affirmed AAAsf
A-5 465968AE5 LT AAAsf Affirmed AAAsf
A-S 465968AJ4 LT AAAsf Affirmed AAAsf
A-SB 465968AF2 LT AAAsf Affirmed AAAsf
B 465968AK1 LT AA-sf Affirmed AA-sf
C 465968AL9 LT A-sf Affirmed A-sf
D 465968AM7 LT BBBsf Affirmed BBBsf
E-RR 465968AP0 LT BBB-sf Affirmed BBB-sf
F-RR 465968AR6 LT BBsf Affirmed BBsf
G-RR 465968AT2 LT Bsf Affirmed Bsf
X-A 465968AG0 LT AAAsf Affirmed AAAsf
X-B 465968AH8 LT A-sf Affirmed A-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of Fitch's
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
Stable Loss Expectations: Loss expectations for the pool remain
stable since Fitch's prior rating action. Eight loans (32.2% of
pool) were flagged as Fitch Loans of Concern (FLOCs), including
four office properties in the top 15 with upcoming rollover
concerns and/or declining performance. Two loans/assets are
currently in specially servicing; Springhill Suites Newark Airport
(2.3%) and Carolina Hotel Portfolio (2.0%). Fitch's current ratings
reflect a 'Bsf' rating case loss of 3.30%.
The Negative Outlook on the class G-RR is due to concerns with the
performance of four office properties in the top 15; 245 Park
Avenue, First Stamford Place, Crystal Corporate Center and Apex
Fort Washington. In addition, the Negative Outlook reflects
uncertainties regarding the recovery prospects of the specially
serviced Springhill Suites Newark Airport asset.
Specially Serviced Loans: Springhill Suites Newark Airport (2.3% of
the pool) is a limited service hotel located near Newark Liberty
International Airport. The property was built on a former landfill
site, as such, is subject to several maintenance and monitoring
requirements. The loan became REO in March 2023 following a
foreclosure by the special servicer. The special servicer
previously tried to work with the borrower to close a modification
but was unsuccessful. The special servicer is monitoring property
and market performance, as well as transactions and capital
markets, to determine the most appropriate time to liquidate.
The property was previously closed in April 2020 due to decreasing
room night demand caused by the COVID-19 pandemic. The property
subsequently underwent a renovation in 2022 which also impacted
occupancy and reopened in January 2022. As of the TTM ended June
2023 STR report, the property had a reported occupancy of 77.8%,
ADR of $139.60, and RevPAR of $108.60. The property's RevPAR index
was 104.3% as of the TTM ended June 2023.
Fitch's 'Bsf' case loss of 44.7% prior to a concentration
adjustment is based on the most recent April 2023 appraisal and
reflects a stressed value per key of $81,550.
Carolina Hotel Portfolio (2.0%) loan is secured by portfolio of
five hotels located in North Carolina and South Carolina totaling
511 keys. The loan transferred to special servicing in April 2020
due to imminent default at the borrower's request due to the
COVID-19 pandemic. The loan remains current and the borrower has
continued to timely provide required financial reporting. As of YE
2022, the portfolio reported an occupancy of 66.9%, ADR of $104.6
and RevPAR of $70.0.
The borrower and special servicer executed a forbearance agreement
which provides for a deferral of tax escrows from April 2020-July
2021 to be repaid over an 11-month period ending in November 2022.
The borrower performed under the terms of the agreement. The
special servicer is currently in the process of reviewing a joinder
agreement which confirms the addition of new equity partners at the
closing of the forbearance agreement. Additionally, the special
servicer is awaiting updates on an ongoing franchise default at the
Fairfield Inn Charlotte Northlake property. The loan is expected to
return to the master servicer once the joinder agreement is
executed and there are improved guest satisfaction scores at
Charlotte Northlake property. Fitch's 'Bsf' case loss of 2.0% prior
to a concentration adjustment is based on the most recent March
2023 appraisal.
Fitch Loans of Concern: First Stamford Place (8.1%) loan is secured
by an 810,471-sf office building located in Stamford, CT. The
property's occupancy has trended down since issuance due to several
tenants vacating upon lease expiry. As of March 2023, the property
was 72.9% occupied, 71.4% at YE 2022, compared to 75.3% at YE 2021,
82% at YE 2020, 84% at YE 2019, and 88% at YE 2017. NOI debt
service coverage ratio (DSCR) also declined to 1.56x as of March
2023, from 1.91x at YE 2022, 2.47x at YE 2021, 2.93x at YE 2020 and
2.82x at YE 2019.
The rent roll is granular with more than 40 different tenants.
Near-term lease rollover includes 4.5% of the NRA in 2023 and 3.9%
in 2024.
Fitch's 'Bsf' case loss of 6.5% prior to a concentration adjustment
is based on a 10% cap rate with a 5% stress to YE 2022 NOI to
account for the decline in performance of the property.
The Crystal Corporate Center (2.8%) loan is secured by a by a
128,411-sf office building located in Boca Raton, FL. The loan is
considered a FLOC due to upcoming lease rollover. However, in-place
rents at the property are significantly below market rents. Rents
at the property average $23.66 as of the March 2023 rent roll while
the CoStar reported submarket averages of $48.0 psf as of 2Q23 for
the Boca Raton West Office Submarket.
The property was 94.9% occupied as of the April 2023 rent roll,
compared to 95.5% at September 2022, 90.1% at YE 2021, and 89.9% at
YE 2020. NOI DSCR as of September 2022 was 1.66x, compared to 1.33x
at YE 2021, unchanged from YE 2020 and 1.47x at YE 2019.
Near term lease rollover includes 6.2% of NRA in 2023, 22.1% in
2024 and 15.8% in 2025.
Fitch's 'Bsf' case loss of 3.7% reflects a 20% stress to the
annualized TTM ended September 2022 NOI to reflect the potential
significant upcoming lease rollover.
The Apex Fort Washington (2.1%) loan is secured by a 388,318-sf
suburban office building located in Fort Washington, PA. The loan
is considered a FLOC due to declining occupancy. Occupancy as of
the March 2023 rent roll was 65%, compared to 68.5% at YE 2022 and
97.5% at YE 2021.
The decline in occupancy is due to the property's previous largest
tenant Nutrisystem (previously 30.8%) vacating in December 2022.
According to the servicer there are currently no new leases to
backfill the former Nutrisystem space. However, two new leases have
been signed; The Prudential Insurance Company of America (36,210-sf
/ 9.32% of NRA) and Amtech LLC (10,724-sf / 2.76% of NRA). The new
leases are expected to increase occupancy to 77.1%. The loan is
under a cash flow sweep after Nutrisystem failed to renew its lease
12 months before expiration date.
Fitch's 'Bsf' case loss of 4.3% prior to a concentration adjustment
reflects a 10.50% cap rate.
Increase in Credit Enhancement: Since Fitch's last rating action,
one loan (previously 3.7% of pool at issuance) paid off in full
upon maturity in August 2022. As of the July 2023 remittance, the
pool's aggregate principal balance has been paid down by 9.2% to
$736 million from $811 million at issuance. Five loans (5.7% of
pool) are defeased. Eight loans (55.3%) are full-term IO, including
seven loans (54.3%) in the top 15. Eighteen loans (28.1%) have
partial IO payments during the loan term, all of which have begun
to amortize. To date, the trust has not incurred any realized
losses.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Sensitivity factors that lead to downgrades include an increase in
pool level losses from underperforming or specially serviced loans.
Downgrades to the 'Asf', 'AAsf' and 'AAAsf' categories are not
likely due to the position in the capital structure, but may occur
at the 'AAsf' and 'AAAsf' categories should interest shortfalls
occur. Downgrades to the 'BBBsf' category would occur if a high
proportion of the pool defaults and expected losses increase
significantly. Downgrades to the 'Bsf' and 'BBsf' categories would
occur should loss expectations increase due to continued
performance declines for loans designated as FLOCs and/or loans
transfer to special servicing.
Fitch has identified both a baseline and a worse-than-expected,
adverse stagflation scenario based on fallout from the
Russia-Ukraine war whereby growth is sharply lower amid higher
inflation and interest rates; even if the adverse scenario should
play out, Fitch expects virtually no impact on ratings performance,
indicating very few rating or Outlook changes. However, for some
transactions with concentrations in underperforming retail
exposure, the ratings impact may be mild to modest, indicating some
changes on sub-investment-grade notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Sensitivity factors that lead to upgrades would include stable to
improved asset performance coupled with pay down and/or defeasance.
Upgrades to the 'Asf' and 'AAsf' categories would likely occur with
significant improvement in CE and/or defeasance; however, adverse
selection, increased concentrations and/or further underperformance
of the FLOCs could cause this trend to reverse. Upgrades to the
'BBBsf' category would also consider these factors, but would be
limited based on sensitivity to concentrations or the potential for
future concentration. Classes would not be upgraded above 'Asf' if
there were likelihood for interest shortfalls. Upgrades to the
'Bsf' and 'BBsf' categories are not likely until the later years in
a transaction and only if the performance of the remaining pool is
stable and there is sufficient CE to the classes.
The Outlook on class G may be revised back to Stable if the
performance of the First Stamford Place, Crystal Corporate Center
and Apex Fort Washington loans improve and/or better than expected
recoveries on the liquidation of the serviced Springhill Suites
Newark loan.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
JPMCC COMMERCIAL 2019-COR4: Fitch Affirms B- Rating on G-RR Certs
-----------------------------------------------------------------
Fitch Ratings has affirmed 17 classes of JPMCC Commercial Mortgage
Securities Trust 2019-COR4 commercial mortgage pass-through
certificates, series 2019-COR4 (JPMCC 2019-COR4). The Rating
Outlook on class G-RR is Negative. The under criteria observation
(UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
JPMCC 2019-COR4
A-1 48128YAS0 LT AAAsf Affirmed AAAsf
A-2 48128YAT8 LT AAAsf Affirmed AAAsf
A-3 48128YAU5 LT AAAsf Affirmed AAAsf
A-4 48128YAV3 LT AAAsf Affirmed AAAsf
A-5 48128YAW1 LT AAAsf Affirmed AAAsf
A-S 48128YBA8 LT AAAsf Affirmed AAAsf
A-SB 48128YAX9 LT AAAsf Affirmed AAAsf
B 48128YBB6 LT AA-sf Affirmed AA-sf
C 48128YBC4 LT A-sf Affirmed A-sf
D 48128YAC5 LT BBBsf Affirmed BBBsf
E 48128YAE1 LT BBB-sf Affirmed BBB-sf
F-RR 48128YAG6 LT BBB-sf Affirmed BBB-sf
G-RR 48128YAJ0 LT B-sf Affirmed B-sf
H-RR 48128YAL5 LT CCCsf Affirmed CCCsf
X-A 48128YAY7 LT AAAsf Affirmed AAAsf
X-B 48128YAZ4 LT A-sf Affirmed A-sf
X-D 48128YAA9 LT BBB-sf Affirmed BBB-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of Fitch's
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
Improved Loss Expectations: The affirmations reflect the impact of
the updated criteria and improved loss expectations for the pool
since Fitch's prior rating action, primarily due to the continued
performance stabilization of the larger hotel and retail Fitch
Loans of Concern (FLOCs). Five loans (16.3% of pool) were flagged
as FLOCs, including the specially serviced Sorrento Flats loan
(2.4%). Fitch's current ratings reflect a 'Bsf' rating case loss of
5.2%.
The Negative Outlook on class G-RR reflects a possible downgrade
should performance of the Renaissance Seattle, Grand Hyatt Seattle
and Pier 54 Seattle loans, deteriorate or fail to continue to
stabilize, and/or with an outsized loss on the specially serviced
Sorrento Flats loan.
The largest FLOC and contributor to overall loss expectations is
the Saint Louis Galleria loan (6.1%), which is secured by a
466,000-sf portion of a 1.18 million-sf regional mall located in
Saint Louis, MO. The non-collateral anchors are Dillard's, Macy's
and Nordstrom. The largest collateral tenants are Galleria-6
Cinemas (4.2% NRA) and H&M (2.8%).
Per servicer reporting, YE 2022 occupancy was 91%, down from 96% at
YE 2021. The most recent servicer-reported NOI DSCR as of YE 2022
declined to 1.57x from 1.68x at YE 2021, 1.79x at YE 2020 and 2.25x
at YE 2019. The loan began to amortize in 2023; based on fully
amortizing payments and the YE 2022 NOI, DSCR equates to 1.21x.
Inline sales, excluding Apple, as of the TTM ended March 2023 were
reported to be $411 psf compared with $401 psf at YE 2021 and $294
psf at YE 2020. For the same period, inline sales including Apple
were $525 psf compared with $523 psf at YE 2021 and $364 psf at YE
2020. TTM March 2023 sales per screen for Galleria 6 Cinemas
improved to $201,125 from $172,803 at TTM August 2022, $101,838 at
TTM September 2021 and $81,767 at YE 2020.
Fitch's 'Bsf' case loss of 11.8% prior to a concentration
adjustment is based a 5% stress to the YE 2021 NOI and a 11.50% cap
rate.
The second largest FLOC is the Grand Hyatt Seattle loan (4.3%),
which is secured by a 457-room full-service hotel in downtown
Seattle, WA and located across the street from the Seattle
Convention Center (formerly known as the Washington State
Convention Center), which reopened in January 2023 after undergoing
an extensive renovation. This loan has the same sponsor as the
largest loan in the pool, Renaissance Seattle (10.1%).
Property performance has continued to stabilize from pandemic lows.
Occupancy, ADR and RevPAR for TTM ending June 2023 was 63%, $243.70
and $153.68, respectively. This compares with 40%, $219.62 and
$87.14, respectively, at June 2022; 22%, $202.81 and $44.62,
respectively, at September 2021; and 85.8%, $239.09 and $205.24,
respectively, at issuance. Fitch's 'Bsf' case loss of 9% prior to a
concentration adjustment reflects an 11% cap rate and a 20% stress
to the YE 2019 NOI, equating to a stressed value of approximately
$188,000 per key.
Specially Serviced Loan: The Sorrento Flats loan is secured by a
154 "micro-unit" multifamily property located in Seattle, WA,
approximately one mile east of the Seattle CBD. All units at the
property are micro studio units with an average unit size of 208
sf. The loan transferred to the special servicer in May 2023 due to
a guarantor's (not borrowing entity) bankruptcy filing. There was
also the occurrence of various non-monetary defaults.
Occupancy has been generally stable since issuance; according to
the March 2023 rent roll, occupancy was reported at 94% compared to
97% at issuance. The servicer continues workout discussions with
the borrower, who is also exploring a potential sale of the asset.
Fitch's 'Bsf' case loss of 14% prior to a concentration adjustment
is based a 7.5% stress to the annualized September 2022 NOI and a
9.75% cap rate.
Minimal Change to Credit Enhancement (CE): As of the July 2023
distribution date, the pool's aggregate balance has been reduced by
1.53% to $762.2 million, from $774.1 million at issuance. Fifteen
full-term, IO loans account for 50% of the pool, and seven loans
representing 17.7% of the pool are partial IO that have not started
to amortize. The remainder of the loans in the pool are amortizing.
Interest shortfalls are currently affecting class NR-RR.
Geographic Concentration: There are four loans in the top 15 that
are secured by properties located in Seattle, WA, including two
hotels (Renaissance Seattle and Grand Hyatt Seattle), one mixed-use
property (Pier 54 Seattle) and one multifamily property (Sorrento
Flats). Performance for all of these loans have been affected by
the pandemic and have been slow to recover to pre-pandemic levels.
The Pier 54 Seattle loan (3%) is secured by a 65,749-sf mixed-use
(retail/office) property located in downtown Seattle's 1.6-acre
historic waterfront district. The property's anchor tenant is
restaurant group Ivar's, Inc., which leases, via four separate
leases, 54.8% of the NRA. The property has been about 65% occupied
since issuance and the vacancy consists of a 21,941-sf second-floor
office suite. The loan's NOI DSCR has been below 1.0x since the
start of the pandemic, but the borrower has kept the loan current.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades would occur with an increase in pool-level losses from
underperforming or specially serviced loans. Downgrades to classes
A-1, A-2, A-3, A-4, A-5, A-SB, A-S, X-A and B are not likely due to
sufficient CE relative to loss expectations and expected continued
amortization, but may occur should interest shortfalls affect these
classes. Downgrades to classes C and X-B may occur should expected
pool losses increase significantly and/or all of the FLOCs suffer
losses.
Downgrades to classes D, E, F-RR and X-D are possible should loss
expectations increase from continued performance decline of the
FLOCs and/or additional loans default or transfer to special
servicing. A downgrade to class G-RR would occur if performance of
the FLOCs, primarily Renaissance Seattle, Grand Hyatt Seattle and
Pier 54 Seattle, deteriorate or fail to continue to stabilize
and/or with an outsized loss on the Sorrento Flats loan. A
downgrade to class H-RR would occur as losses are realized and/or
become more certain.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades would occur with stable to improved asset performance,
particularly of the FLOCs, coupled with additional paydown and/or
defeasance. Upgrades to classes B, C and X-B would only occur with
significant improvement in CE, defeasance, and performance
stabilization of the FLOCs. Classes would not be upgraded above
'Asf' if there were likelihood of interest shortfalls.
Upgrades to classes D, E, F-RR, G-RR and X-D may occur as the
number of FLOCs are reduced and there is sufficient CE to the
classes. Upgrades to class H-RR are unlikely absent significant
performance improvement of the FLOCs, improved recovery expectation
on the specially serviced loan and there is sufficient CE to the
class.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
JPMDB COMMERCIAL 2016-C2: Fitch Affirms B-sf Rating on 2 Tranches
-----------------------------------------------------------------
Fitch Ratings has affirmed 13 classes of JPMDB Commercial Mortgage
Securities Trust 2016-C2, commercial mortgage pass-through
certificates. In addition, the Rating Outlooks remain Negative for
classes A-S, B, X-B, C, X-C and D and the Rating Outlook for class
X-A has been revised to Negative from Stable. The criteria
observation (UCO) has been resolved.
This rating action commentary corrects an error in respect to the
Rating Outlook for class X-A published on Feb. 27, 2023 and May 25,
2023. The rating action commentary published on Feb. 27, 2023
incorrectly assigned a Stable Rating Outlook to class X-A that was
inconsistent with the Negative Rating Outlook assigned on the
lowest rated reference class A-S, whose payable interest has an
impact on the payment to the interest-only (IO) class. The rating
action commentary published on May 25, 2023 placed class X-A on UCO
with the incorrect Stable Rating Outlook.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
JPMDB 2016-C2
A-3A 46590LAS1 LT AAAsf Affirmed AAAsf
A-3B 46590LAA0 LT AAAsf Affirmed AAAsf
A-4 46590LAT9 LT AAAsf Affirmed AAAsf
A-S 46590LAX0 LT AAAsf Affirmed AAAsf
A-SB 46590LAU6 LT AAAsf Affirmed AAAsf
B 46590LAY8 LT A-sf Affirmed A-sf
C 46590LAZ5 LT BBB-sf Affirmed BBB-sf
D 46590LAE2 LT B-sf Affirmed B-sf
E 46590LAG7 LT CCCsf Affirmed CCCsf
F 46590LAJ1 LT CCsf Affirmed CCsf
X-A 46590LAV4 LT AAAsf Affirmed AAAsf
X-B 46590LAW2 LT A-sf Affirmed A-sf
X-C 46590LAC6 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of the
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
Stable Loss Expectations: The affirmations reflect the impact of
the updated criteria and generally stable loss expectations for the
pool since Fitch's prior rating action. Nine loans (44.2% of the
pool) are flagged as Fitch Loans of Concern (FLOCs), including
three loans (13%) in special servicing. Fitch's current ratings
incorporate a 'Bsf' rating case loss of 9.8%.
The Negative Outlooks reflect the potential for downgrade should
performance of the FLOCs, including Quaker Bridge Mall and
Palisades Center, fail to stabilize or deteriorate further and/or
with an outsized loss or prolonged workout on the specially
serviced DoubleTree Houston Intercontinental Airport loan.
The largest contributor to overall loss expectations is the Quaker
Bridge Mall loan (12.2% of the pool), which is secured by a
357,221-sf portion of a 1.1 million-sf regional mall located in
Lawrenceville, NJ. Two of the original four anchors have closed
since issuance, including Lord & Taylor in February 2021 and Sears
in 2018, with JCPenney and Macy's remaining.
YE 2022 collateral occupancy was 78%, which has remained stable
from YE 2020 and YE 2021, but down from 84% around the time of
issuance. Fitch was not provided a leasing update on three large
collateral tenants with expired leases, including Forever 21 (7.5%
of NRA; January 2023), Old Navy (4.9%; March 2022) and Victoria's
Secret (3.4%; January 2023). The servicer had indicated the
borrower was in discussions with these tenants on lease renewals;
these tenants are in occupancy per the mall's website. The third
largest collateral tenant H&M (4.9%) extended its lease through
January 2028. The servicer-reported NOI debt service coverage ratio
for the full-term interest only loan as of YE 2022 was 2.00x, down
from 2.22x as of YE2021 and 2.33x as of YE 2020.
Fitch's 'Bsf' rating case loss of 29% reflects a 13% cap rate to
the YE 2021 NOI, factoring a heightened probability of default due
to performance concerns and refinance risk at loan maturity.
The second largest contributor to overall loss expectations is the
specially serviced DoubleTree Houston Intercontinental Airport loan
(5.8% of the pool), which is secured by a seven-story, 313-room,
full service hotel located in Houston, TX. The loan transferred to
special servicing in June 2020 due to imminent default. In July
2020, the borrower consented to appointment of a receiver.
The servicer indicated hotel performance has improved since the
receiver has taken over management of the hotel and is addressing
operational and capital needs prior to marketing the property for
sale. The April 2023 STR report indicated YTD occupancy, ADR and
RevPAR of 74.7%, $119 and $89, respectively, with penetration rates
of 99.9%, 101.3% and 101.2%.
Fitch's 'Bsf' rating case loss of 52% reflects a discount to a
recent appraisal value, equating to a stressed value of
approximately $88,000 per key.
The third largest contributor to Fitch's overall loss expectations,
Palisades Center (4.4% of the pool), is secured by 1.9 million sf
of a 2.2 million-sf super-regional mall located in West Nyack, NY.
The loan transferred to special servicing in September 2022 for
imminent maturity default and subsequently defaulted at its October
2022 maturity. A foreclosure complaint was filed in February of
2023.
Performance metrics have declined significantly since issuance as
larger tenants have vacated at or ahead of their scheduled lease
expiration dates. YE 2022 collateral occupancy was 78%, compared
with 76% at YE 2021, 75% at YE 2020, 82% at YE 2019 and 94% around
the time of issuance. While cash flow has improved from pandemic
lows, YE 2022 NOI remains 28% below pre-pandemic NOI at YE 2019.
Non-collateral anchor Lord & Taylor closed in January 2020 after
being at the property since 1998. Bed Bath & Beyond (2.5% of NRA)
vacated in June 2020 prior to its January 2022 lease expiration.
Collateral anchor Target (6.9%) has an upcoming lease expiration in
January 2024. BJ's (6.2%) renewed its lease for an additional 10
years through February 2033.
Fitch's 'Bsf' rating case loss of 35% reflects a 15% cap rate to
the YE 2021 NOI.
Increased CE: As of the June 2023 distribution date, the pool's
aggregate balance has been paid down by 23.6% to $682 million from
$893 million at issuance. Since Fitch's prior rating action, one
loan ($7.96 million) was repaid in full. Four loans (32.7% of the
pool) are full-term IO. Three loans (7.4%) are fully defeased.
Cumulative interest shortfalls of $2 million are currently
affecting the non-rated class NR.
Pool Concentration: Based on property type, the largest
concentrations are office at 38.1% of the pool and retail at
23.9%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades would occur with an increase in pool-level losses from
underperforming or specially serviced loans. Downgrades to classes
A-3A, A-3B, A-4, A-SB, A-S and X-A are not likely due to increasing
CE and expected continued paydowns, but may occur should interest
shortfalls affect these classes.
Downgrades to classes B, C and X-B are possible should expected
losses for the pool increase significantly and/or all FLOCs suffer
losses. Downgrades to classes D and X-C are possible with further
performance deterioration or lack of stabilization on the FLOCs
and/or additional loans transfer to special servicing or default.
Downgrades to classes E and F would occur as losses are realized
and/or with greater certainty of losses.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades to classes B, C and X-B could occur with significant
improvement in CE due to loan payoffs, amortization and/or
defeasance; however, adverse selection, increased concentrations
and/or further underperformance of the remaining collateral could
offset the improvement in CE. Classes would not be upgraded above
'Asf' if interest shortfalls are likely.
Upgrades to classes D, E, F and X-C are unlikely absent significant
performance improvement on the FLOCs, substantially higher
recoveries than expected on the specially serviced loans and there
is sufficient CE to the classes.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
JPMDB COMMERCIAL 2017-C7: DBRS Confirms B(low) Rating on F-RR Certs
-------------------------------------------------------------------
DBRS Limited confirmed its ratings on all classes of the Commercial
Mortgage Pass-Through Certificates, Series 2017-C7 issued by JPMDB
Commercial Mortgage Securities Trust 2017-C7 (the Issuer) as
follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E-RR at BB (low) (sf)
-- Class F-RR at B (low) (sf)
The trends on all ratings are Stable. The rating confirmations
reflect the minimal changes to the overall stable performance of
the underlying collateral, which remains in line with DBRS
Morningstar's expectations since the last review.
As of the July 2023 reporting, 36 of the original 41 loans remain
in the pool with an aggregate principal balance of $1.01 billion,
representing a collateral reduction of 8.3% since issuance as a
result of loan amortization and loan repayments. Two loans,
representing 1.3% of the pool balance, are fully defeased. There
are 14 loans, representing 55.4% of the pool, on the servicer's
watchlist and no loans are in special servicing. Since the last
review, a previously specially serviced loan, Lightstone Portfolio
(2.4% of the pool), was returned to the master servicer following a
significant rebound in performance with renovations ongoing.
The pool is concentrated by property type with loans secured by
office, hotel, and industrial properties representing 34.9%, 19.6%,
and 18.6% of the pool balance, respectively. In general, the office
sector has been challenged, given the low investor appetite for the
property type and high vacancy rates in many submarkets as a result
of the shift in workplace dynamics. While the majority of office
loans in the transaction continue to perform as expected, there
were several loans that were showing declines from issuance or
otherwise exhibiting increased risks from issuance. For this
review, these loans were analyzed with stressed scenarios to
increase expected losses (ELs) as applicable, which resulted in a
weighted-average (WA) EL that was approximately 35% greater than
the pool's WA EL for office properties.
The largest watchlisted loan is Station Place III (Prospectus ID#3,
6.3% of the pool), which is secured by a Class A office building in
the central business district of Washington D.C. The loan was added
to the servicer's watchlist in December 2022 because the largest
tenant, SEC, which occupies 40.5% of net rentable area (NRA), gave
notice that it will not extend its lease upon its September 2023
lease expiration. According to the servicer, the borrower has
engaged a broker and is actively marketing the space for lease. The
loan is structured with a cash flow sweep that was initiated 12
months prior to SEC's lease expiration following the tenant's
notice of non-renewal. As of the July 2023 loan level reserve
report, approximately $12.2 million has been collected, with
another $6.2 million held across other reserves.
It is worth noting that the second-largest tenant, Kaiser
Foundation (40.0% of NRA), recently extended its lease from June
2024 to June 2029 at a rental rate of $56.59 per square foot (psf),
an increase from their former rate of $53.86 psf. According to a Q1
2023 Reis report, office properties in the submarket of Capitol
Hill Washington, D.C. reported an average vacancy rate of 14.1%, an
asking rental rate of $56.71 psf and an effective rental rate of
$47.78 psf.
If the borrower is unable to secure a replacement tenant for SEC's
space, it would result in an implied debt service coverage ratio
(DSCR) of about 1.60 times (x), compared to the YE2022 DSCR of
3.38x and DBRS Morningstar derived at issuance of 2.41x. Although
the implied DSCR is below DBRS Morningstar expectations, it is
still well above break even. In addition, other mitigating factors
include the cash flow sweep and recent leasing momentum as the
borrower was able to extend the lease for Kaiser Foundation. DBRS
Morningstar took a conservative approach in its analysis by
applying a stressed loan-to-value ratio (LTV) and an elevated
probability of default (POD) to increase the EL of the loan, which
resulted in a figure that was almost double the pool EL.
Another watchlisted loan that is secured by an office property is
First Stamford Place (Prospectus ID36, 5.4% of the pool), which is
secured by a Class A office complex in Stamford, Connecticut. The
loan was added to the servicer's watchlist in June 2023 for low
occupancy, which, as per the March 2023 rent roll, was reported at
72.9%, a significant drop from the issuance occupancy rate of
90.8%. At issuance, the largest tenant was Legg Mason & Co., LLC,
which initially occupied 17.0% of NRA on a lease expiring in
September 2024. The company was acquired by Franklin Templeton
Companies in 2020 and had reduced its footprint at the subject to
approximately 9.0% of NRA on a lease extending to September 2035.
Other large tenants at the subject include Odyssey Reinsurance
Company (11.0% of NRA, lease expires in September 2033) and Partner
Reinsurance Company of the US (7.0% of NRA, lease expires in
January 2029). In the next 12 months, there is nominal tenant
rollover. According to a Q1 2023 Reis report, office properties in
the Stamford submarket reported a vacancy rate of 28.5%, compared
to the Q1 2022 vacancy rate of 25.9%. According to the YE2022
financials, the loan reported a DSCR of 1.57x, down from the YE2021
DSCR of 2.13x and the DBRS Morningstar DSCR of 2.38x derived at
issuance. Given the decline in performance, paired with the soft
market conditions, DBRS Morningstar analyzed this loan with a
stressed LTV and POD, resulting in an EL almost triple the pool
average.
The Preston Plaza loan (Prospectus ID#17, 2.6% of the pool), is
secured by a 259,000 sf office property located in Dallas and was
added to the watchlist in July 2021 due to low DSCR and occupancy.
Per the March 2023 rent roll, the property was 64% occupied and the
YE2022 DSCR was reported at 0.70x. The second-largest tenant,
Slater Matsil LLP (10.3% of NRA), is re-evaluating its space and
had expressed an interest in downsizing. According to Reis, office
properties located in the Plano/Allen submarket reported a Q1 2023
vacancy rate of 26.0%, compared to the Q1 2022 vacancy rate of
25.4%. Although the sponsor contributed $12.9 million in equity to
purchase the subject at issuance, given the value of the property
has likely declined, it is uncertain if the sponsor will remain
committed to the subject. For this review, DBRS Morningstar applied
a stressed LTV and POD to its analysis, resulting in an EL that was
more than triple the pool average.
At issuance, DBRS Morningstar shadow rated Moffett Place Building 4
(Prospectus ID#1, 6.8% of the pool), Gateway Net Lease Portfolio
(Prospectus ID#8, 4.9% of the pool), and General Motors Building
(Prospectus ID#10, 4.5% of the pool) as investment-grade. DBRS
Morningstar confirmed that the performance of these loans remains
consistent with investment-grade loan characteristics.
Notes: All figures are in U.S. dollars unless otherwise noted.
LCM 38 LTD: Fitch Affirms 'BB-sf' Rating on Class E Notes
---------------------------------------------------------
Fitch Ratings has affirmed the ratings for the class A-2, B-1, B-2,
C, D and E notes of LCM 38 Ltd. (LCM 38). The Rating Outlooks on
all of the rated tranches remain Stable.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
LCM 38 LTD.
A-2 50204HAE1 LT AAAsf Affirmed AAAsf
B-1 50204HAG6 LT AAsf Affirmed AAsf
B-2 50204HAJ0 LT AAsf Affirmed AAsf
C 50204HAL5 LT Asf Affirmed Asf
D 50204HAN1 LT BBB-sf Affirmed BBB-sf
E 501965AA5 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
LCM 38 is a broadly syndicated collateralized loan obligation (CLO)
managed by LCM EURO LLC. The transaction closed in August 2022 and
will exit its reinvestment period in July 2025. The CLO is secured
primarily by first lien, senior secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are driven by the portfolio's stable performance
since closing. The credit quality of the portfolio as of July 2023
reporting has remained at the 'B'/'B-' rating level. The Fitch
weighted average rating factor of the portfolio is 25.2, compared
with 24.6 at closing.
The portfolio remains fairly diversified with 283 obligors, and the
largest 10 obligors represent 7.4% of the portfolio. Fitch
classified one issuer comprising 0.2% of the total portfolio
notional as defaulted. Exposure to issuers with a Negative Outlook
and Fitch's watchlist is 15.1% and 3.7%, respectively.
First lien loans, cash and eligible investments comprise 99.7% of
the portfolio. Fitch's weighted average recovery rate of the
portfolio is 75.6%, compared with 76.9% at closing.
All coverage tests, collateral quality tests (CQTs), and
concentration limitations are in compliance.
Cash Flow Analysis
Fitch updated its Fitch Stressed Portfolio (FSP) analysis since the
transaction is still in its reinvestment period. The FSP stressed
the current portfolio from the latest trustee report to account for
permissible concentration limits and CQT limits. The FSP analysis
assumed weighted average life of 6.0 years. Other FSP assumptions
include maximized limits for non-senior secured assets, industries,
fixed-rate assets and 'CCC' assets.
The rating actions for all the rated notes are in line with their
model-implied ratings (MIR), as defined in Fitch's CLOs and
Corporate CDOs Rating Criteria.
The Stable Outlooks reflect Fitch's expectation that the notes have
sufficient levels of credit protection to withstand potential
deterioration in the credit quality of the portfolio in stress
scenarios commensurate with the class's ratings.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement (CE) do not compensate for the higher
loss expectation than initially anticipated.
-- A 25% increase of the mean default rate across all ratings,
along with a 25% decrease of the recovery rate at all rating levels
for the current portfolio, would lead to downgrades of up to two
notches, based on the MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
-- Except for the tranches already at the highest 'AAAsf' rating,
upgrades may occur in the event of better-than-expected portfolio
credit quality and transaction performance.
-- A 25% reduction of the mean default rate across all ratings,
along with a 25% increase of the recovery rate at all rating levels
for the current portfolio, would lead to upgrades of up to six
notches, based on the MIRs.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions, 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.
LOANCORE 2021-CRE5: DBRS Confirms B Rating on Class G Notes
-----------------------------------------------------------
DBRS Limited confirmed its ratings on the following classes of
notes issued by LoanCore 2021-CRE5 Issuer Ltd. (the Issuer):
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which has remained in line with DBRS Morningstar's
expectations since issuance. In conjunction with this press
release, DBRS Morningstar has published a Surveillance Performance
Update report with in-depth analysis and credit metrics for the
transaction and with business plan updates on select loans.
The transaction closed in June 2021 with an initial collateral pool
of 20 floating-rate mortgage loans secured by 45 mostly
transitional properties with a cut-off balance of $909.6 million,
excluding approximately $140.9 million of future funding
participations and $353.8 million of pari passu debt. At issuance,
most loans were in a period of transition with plans to stabilize
and improve asset value. The transaction included a 180-day ramp-up
period during which the Issuer could use $125.0 million of funds
deposited into the unused proceeds account to acquire additional
collateral, subject to eligibility criteria as defined at issuance.
The ramp-up period effectively concluded in September 2021 when the
cumulative loan balance totaled $1.03 billion. As the Reinvestment
Period ended in with the July 2023 payment date, loan payoffs were
used to pay down the transaction sequentially.
As of the July 2023 remittance, the pool comprised 30 loans secured
by 32 properties with a cumulative trust balance of $1.03 billion.
Since issuance, 13 loans have repaid from the pool, including the
former second- and third-largest loans in the pool, Renaissance
Park Portfolio and 999 East Street Northwest, which were
repurchased/substituted and paid off in May 2023 and November 2022,
respectively. Since the deal closed, 21 loans with a cumulative
trust balance of $638.6 million have been contributed to the trust,
including 12 loans (34.2% of the current pool balance) that have
been added since the previous DBRS Morningstar rating action in
November 2022. In general, borrowers are progressing toward
completing the stated business plans. Through May 2023, the
collateral manager had advanced approximately $59.9 million in loan
future funding allocated to 17 individual borrowers to aid in
property stabilization efforts. An additional $46.7 million of
unadvanced loan future funding allocated to 14 individual borrowers
remains outstanding with the largest portion ($10.1 million)
allocated to the borrower of the One Whitehall loan (Prospectus
ID#9; 4.4% of the pool). The loan is secured by a CBD office
property in New York, with loan future funding available for
capital improvements, debt service advances, with the goal of
seeking to increase office rents to market levels.
The transaction is concentrated by property type as 17 loans
(totaling 63.5% of the current trust balance) are secured by
multifamily properties, followed by three loans (totaling 10.9% of
the current trust balance) secured by mixed-use properties. The
transaction benefits from minimal exposure to office assets with
only three loans (totaling 4.8% of the current trust balance)
secured by office properties. In comparison with the pool's
composition at the time of closing in June 2021, loans secured by
office properties decreased by 25.3% and multifamily properties
increased by 39.8%. The collateral has a concentration of
properties in suburban markets, as defined by DBRS Morningstar with
a DBRS Morningstar Market Rank of 3, 4, or 5 with 18 loans,
representing 63.3% of the current pool balance, compared with the
suburban concentration at issuance of 11 loans, representing 45.9%
of the pool balance. As of July 2023, there are 12 loans, totaling
36.7% of the pool balance located in urban markets with a DBRS
Morningstar Market Rank of 6, 7 or 8, up from eight loans,
representing 31.6% of the pool at closing.
Three loans backed by office/mixed-use properties, representing
6.0% of the current trust balance) were identified by DBRS
Morningstar as being susceptible to performance challenges stemming
from the Coronavirus Disease (COVID-19) pandemic. As a result of
the initial mitigation efforts, which caused a shift in office use
and ongoing challenges with leasing of available space, the
borrowers for these three loans have generally been unable to
stabilize occupancy and rental rates, resulting in underperformance
and cash flow declines. As such, DBRS Morningstar's analysis
includes an elevated loan-to-value ratio (LTV) and/or probability
of default for these loans to increase the expected loss.
Loans contributed during the initial ramp-up and subsequent ongoing
reinvestment periods have been characterized with similar leverage
as loans in the pool at closing as the current weighted-average
appraised as-is LTV and stabilized LTV ratios are 76.4% and 65.8%,
respectively. In comparison with issuance, these figures were 70.6%
and 65.5%, respectively.
As of July 2023 reporting, Β¬eight loans, representing Β¬19.5% of
the current trust balance, have scheduled maturity dates in 2023.
Of these loans, two loans are expected to be paid off in the near
term, while four are structured with additional extension options
of 12 months, provided the loan meets the required
performance-based minimum DSCR, and/or minimum debt yield, among
other terms. The remaining two loans are either exploring a
potential loan modification or assessing other alternatives. There
are no loans in special servicing, while seven loans are on the
servicer's watchlist, representing 12.5% of the pool balance, all
of which are being monitored for upcoming loan maturity in 2023. As
of July 2023, 11 loans in the pool (40.0% of the current pool
balance) have been modified since the CMBS transaction closed in
June 2021. For a majority of these loans, modification was executed
in order for the borrower to qualify for a maturity extension or to
grant the borrowers access to funds held in reserves to fund
shortfalls or rent relief for certain tenants.
Notes: All figures are in U.S. dollars unless otherwise noted.
M&T EQUIPMENT 2023-LEAF1: Moody's Gives Ba1 Rating to Cl. E Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned definitive ratings to the
notes issued by M&T Equipment (2023-LEAF1), LLC. The transaction is
a securitization of small- and mid-ticket equipment loans and
leases originated by LEAF Capital Funding, LLC, including light
industrial and construction equipment, computers, software, and
other office equipment. LEAF Commercial Capital, Inc. (LEAF) is the
servicer of the assets backing the transaction.
The complete rating actions are as follows:
Issuer: M&T Equipment (2023-LEAF1), LLC
Class A-1 Notes, Definitive Rating Assigned P-1 (sf)
Class A-2 Notes, Definitive Rating Assigned Aaa (sf)
Class A-3 Notes, Definitive Rating Assigned Aaa (sf)
Class A-4 Notes, Definitive Rating Assigned Aaa (sf)
Class B Notes, Definitive Rating Assigned Aa2 (sf)
Class C Notes, Definitive Rating Assigned A1 (sf)
Class D Notes, Definitive Rating Assigned Baa1 (sf)
Class E Notes, Definitive Rating Assigned Ba1 (sf)
RATINGS RATIONALE
The ratings are based on the quality of the underlying equipment
contracts, the strong and consistent historical performance of
similar contracts originated by LEAF Capital Funding, LLC, the
transaction's sequential pay structure, the experience and
expertise of LEAF, as the transaction servicer, as well as the
servicing performance guarantee provided by Manufacturers and
Traders Trust Company (Baa1 LT Issuer Rating, A2(cr) LT
Counterparty Risk Assessment).
Additionally, Moody's base Moody's P-1 (sf) rating of the Class A-1
notes on the cash flows that Moody's expect the underlying
receivables to generate during the collection periods prior to the
Class A-1 note's legal final maturity date.
Moody's cumulative net loss expectation for the M&T Equipment
(2023-LEAF1), LLC collateral pool is 2.25%, and the loss at a Aaa
stress is 19.0% (inclusive of 18.75% credit loss and 0.25% residual
value loss).
Moody's based its cumulative net loss expectation and the loss at a
Aaa stress for the M&T Equipment (2023-LEAF1) transaction on an
analysis of the credit quality of the securitized pool, the
historical performance of similar collateral, including managed
portfolio credit performance and residual values realization of
similar equipment, the ability of LEAF to perform the servicing
functions, and current expectations for the state of the
macroeconomic environment during the life of the transaction.
The Class A, Class B, Class C, Class D, and Class E notes benefit
from 18.90%, 14.90%, 11.30%, 7.70%, and 5.70% of initial hard
credit enhancement, respectively (as a percentage of the initial
pool balance). Hard credit enhancement for the notes consists of a
combination of overcollateralization of 4.20% with a target of
7.00% of the current discounted balance and a 1.50% fully funded,
non-declining, reserve account. Excess spread may be available as
additional credit protection for the notes. The transaction's
payment structure and the overcollateralization target will result
in a rapid build-up of credit enhancement in the transaction.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Equipment
Lease and Loan Securitizations Methodology" published in September
2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the notes if levels of credit protection are
greater than necessary to protect investors against current
expectations of loss. Moody's then current expectations of loss may
be better than its original expectations because of lower frequency
of default by the underlying obligors or slower depreciation than
expected in the value of the equipment securing obligors' promise
of payment. As the primary drivers of performance, positive changes
in the US macro economy and the performance of various sectors in
which the obligors operate could also affect the ratings. This
transaction has a sequential pay structure and therefore credit
enhancement will grow as a percentage of the collateral balance as
collections pay down senior notes. Prepayments and interest
collections directed toward note principal payments will accelerate
this build-up of enhancement.
Down
Moody's could downgrade the notes if levels of credit enhancement
are insufficient to protect investors against current expectations
of portfolio losses. Losses could rise above Moody's original
expectations as a result of a higher number of obligor defaults or
higher than expected deterioration in the value of the equipment
that secure the obligor's promise of payment. As the primary
drivers of performance, negative changes in the US macro economy
and the performance of various sectors in which the obligors
operate could also affect the ratings. Other reasons for
worse-than-expected performance could include poor servicing, error
on the part of transaction parties, inadequate transaction
governance or fraud.
Additionally, Moody's could downgrade the short term rating of the
Class A-1 notes following a significant slowdown in principal
collections in the first year of the transaction, which could
result from, among other reasons, high delinquencies or a servicer
disruption that impacts obligor's payments.
MF1 2021-FL7: DBRS Confirms B(low) Rating on Class H Notes
----------------------------------------------------------
DBRS, Inc. confirmed its ratings on the following classes of notes
issued by MF1 2021-FL7, Ltd. (the Issuer):
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class G at BB (low) (sf)
-- Class H at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which has remained in line with DBRS Morningstar's
expectations since issuance. In conjunction with this press
release, DBRS Morningstar has published a Surveillance Performance
Update report with in-depth analysis and credit metrics for the
transaction and with business plan updates on select loans.
The initial collateral consisted of 49 floating-rate mortgages
secured by 67 transitional multifamily properties and six senior
housing properties totaling $1.9 billion (70.6% of the fully funded
balance), excluding $159.5 million of remaining future funding
commitments and $626.4 million of pari passu debt. Most loans were
in a period of transition with plans to stabilize and improve asset
value. The transaction is structured with a Reinvestment Period
through the September 2023 Payment Date, whereby the Issuer may
acquire Funded Companion Participations into the trust.
As of the July 2023 remittance, the pool comprises 54 loans secured
by 110 properties with a cumulative trust balance of $2.16 billion.
Since issuance, eight loans with a former cumulative trust balance
of $275.0 million have been successfully repaid from the pool. Of
the original 49 loans, 37 loans, representing 75.5% of the current
trust balance, remain in the transaction as of July 2023 reporting.
Since the previous DBRS Morningstar rating action in November 2022,
six loans with a current trust balance of 9.3% have been added to
the trust.
The transaction is concentrated by property type as 55 loans are
secured by multifamily properties, totaling 95.4% of the current
trust balance, and two loans are secured by senior housing
properties, totaling 4.6% of the current trust balance.
The loans are primarily secured by properties in suburban markets.
Forty-three loans, representing 74.4% of the pool, are secured by
properties in suburban markets, as defined by DBRS Morningstar,
with a DBRS Morningstar Market Rank of 3, 4, or 5. An additional
nine loans, representing 24.5% of the pool, are secured by
properties with a DBRS Morningstar Market Rank of 6 or 7, denoting
an urban market, while one loan, representing 1.1% of the pool, is
secured by property with a DBRS Morningstar Market Rank of 2,
denoting a tertiary market. In comparison, in June 2022, properties
in suburban markets represented 79.3% of the collateral and
properties in urban markets represented 18.1% of the collateral.
Leverage across the pool has also remained consistent from the pool
as of July 2023 reporting as the current weighted-average (WA)
as-is appraised loan-to-value (LTV) ratio is 53.2%, with a current
WA stabilized LTV ratio of 65.1%. In comparison, these figures were
64.3% and 55.2%, respectively, as of June 2022. DBRS Morningstar
recognizes that select property values may be inflated as the
majority of the individual property appraisals were completed in
2021 and 2022 and may not reflect the current rising interest rate
or widening capitalization rate environments.
Through July 2023, the lender had advanced cumulative loan future
funding of $178.1 million to 41 of the 43 remaining individual
borrowers to aid in property stabilization efforts. The largest
advance, $14.4 million, has been made to the borrower of the SF
Multifamily Portfolio III loan, which is secured by a portfolio of
10 multifamily properties totaling 308 units in the San Francisco
Bay area. Funds were advanced to the borrower to acquire additional
collateral and to complete unit interior and property exterior
upgrades across the portfolio.
An additional $137.5 million of loan future funding allocated to 26
individual borrowers remains available. The largest portion of
available funds, $27.1 million, is allocated to the borrower of the
LA Multifamily Portfolio 1 loan, which is secured by a portfolio of
13 properties totaling 185 units in the West LA area of Los
Angeles. The loan future funding is available to the borrower to
fund interior and exterior upgrades as well as to potentially fund
a performance-based earnout. To date the borrower has completed
renovations across 55 units while an additional 27 are under
renovation. As of the March 2023 rent roll, the portfolio was 87.6%
occupied.
As of the July 2023 remittance, there are no loans in special
servicing; however, there are 27 loans on the servicer's watchlist,
representing 61.7% of the current trust balance. The loans have
been flagged for a variety of reasons including upcoming maturity
dates and low occupancy rates or cash flow, which may or may not
have resulted in cash flow sweeps being initiated. The largest loan
on the servicer's watchlist, Riverpoint (10.6% of the current trust
balance), is secured by a Class A, 480-unit, high-rise apartment
property in Washington, D.C. The loan is being monitored on the
servicer's watchlist for occupancy and cash flow concerns. In
addition the loan was reported 30 days delinquent as of July 2023
servicer reporting, however, according to the collateral manager, a
forbearance agreement was executed in April 2023 allowing the
borrower to defer up to 50% of contractual debt service payments
for the months between April 2023 and June 2023. All deferred
amounts must be repaid in equal monthly installments over a term
commencing with the payment date in August 2023 and ending in
September 2024. The forbearance agreement was subsequently amended
in June 2023 requiring the borrower to deposit $500,000 to cover
the outstanding portions of the deferred amounts. The amendment
also removes the cap on the monthly forbearance amounts. As of the
April 2023 rent roll, the residential component was 77.3% occupied
while the retail component was 87.0% leased to four tenants. Based
on the YE2022 financials, property NCF was $4.7 million, equating
to a 0.27x DSCR and 2.1% debt yield. The loan has an initial
maturity date of September 2023 and includes three 12-month
extension options. DBRS Morningstar increased the probability of
default of the loan in its current analysis to reflect the
increased credit risk. The resulting loan expected loss remains
below the pool's WA expected loss.
Seven loans, representing 20.7% of the current trust balance, have
been modified. Terms of individual loan modifications vary and have
included the waiver of performance-based tests to exercise maturity
extensions, the waiver of borrower requirements to purchase new
interest rate cap agreements if property operations cover debt
service, and the relocation of existing reserves or future funding
dollars among other minor terms. In most instances, individual
borrowers were required to contribute fresh equity or cash flow
sweeps were initiated to execute the loan modifications.
The transaction also includes six loans, representing 8.1% of the
pool balance, that are sponsored by Tides Equities. In a June 2023
The Real Deal article, the principals of the firm noted it would
likely need to conduct a capital call from its investors in order
to fund debt service shortfalls across its portfolio given the rise
in floating interest rate debt. Some of the individual properties
owned by the sponsor currently generate sufficient cash flow to
cover debt service payments while others do not. As all loans
backed by the sponsor remain current, DBRS Morningstar did not make
any further analytical adjustments to any of the six loans.
Notes: All figures are in U.S. dollars unless otherwise noted.
MORGAN STANLEY 2016-BNK2: Fitch Cuts Rating on 2 Tranches to BBsf
-----------------------------------------------------------------
Fitch Ratings has downgraded four classes of Morgan Stanley Capital
I Trust, commercial mortgage pass-through certificates, series
2016-BNK2 (MSC 2016-BNK2) and affirmed 11 classes. Fitch has also
revised the Rating Outlooks on three classes to Negative from
Stable and assigned a Negative Outlook on four classes following
their downgrade. The criteria observation (UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
MSC 2016-BNK2
A-3 61690YBT8 LT AAAsf Affirmed AAAsf
A-4 61690YBU5 LT AAAsf Affirmed AAAsf
A-S 61690YBX9 LT AAAsf Affirmed AAAsf
A-SB 61690YBS0 LT AAAsf Affirmed AAAsf
B 61690YBY7 LT AA-sf Affirmed AA-sf
C 61690YBZ4 LT BBBsf Downgrade A-sf
D 61690YAC6 LT BBsf Downgrade BBB-sf
E 61690YAL6 LT B-sf Affirmed B-sf
E-1 61690YAE2 LT B+sf Downgrade BB+sf
E-2 61690YAG7 LT B-sf Affirmed B-sf
EF 61690YAU6 LT CCCsf Affirmed CCCsf
F 61690YAS1 LT CCCsf Affirmed CCCsf
X-A 61690YBV3 LT AAAsf Affirmed AAAsf
X-B 61690YBW1 LT AA-sf Affirmed AA-sf
X-D 61690YAA0 LT BBsf Downgrade BBB-sf
KEY RATING DRIVERS
Criteria Update: The rating actions primarily reflect the impact of
Fitch's updated U.S. and Canadian Multiborrower CMBS Rating
Criteria, published on May 22, 2023, and incorporate any changes in
loan performance and/or credit enhancement (CE) since Fitch's prior
rating action.
Loss Expectations: The downgrades reflect Fitch's higher overall
pool loss expectations. Loss expectations have increased slightly
since the prior rating action. Fitch's current ratings incorporate
a 'Bsf' rating case loss of 6.7%. The Outlook revisions to Negative
from Stable on classes A-S, B, X-B, and the Negative assignment on
classes C, D, X-D and E-1 reflect the impact of the criteria, as
well as performance and refinancing concerns for two of the largest
Fitch Loans of Concern (FLOCs).
Five loans (27.4%), including one (6.4%) in special servicing, were
designated as FLOCs.
Fitch Loans of Concern: The largest contributor to loss
expectations is Harlem USA (10.9%). The property has experienced
sustained performance declines with occupancy falling to 68% at
March 2023 from 74% at YE 2022 and YE 2021. Tenant vacancies
include Modell's (previously 7.7% NRA) and Chuck E. Cheese
(previously 7.9% NRA) in 2020, plus Buffalo Wild Wings (previously
4.3% NRA) in 2021.
Cash flow was also impacted in 2020 by a loan modification
permitting the largest tenant, AMC (27.7% NRA) to defer/reduce rent
payments in 2020/2021 with repayment commencing in 2021. The
servicer-reported NOI DSCR for this interest-only (IO) loan has
rebounded slightly to 1.77x as of YE 2022 from 1.65x at YE 2021 and
1.43x at YE 2020, but remains approximately 40% below issuance.
The loan is secured by the leasehold interest in 245,849-sf,
L-shaped anchored shopping center located along 125th Street in the
Harlem neighborhood of Upper Manhattan. The property was built in
1998 and subsequently renovated in 2004. It is occupied by nine
tenants including a nine-screen AMC Magic Johnson theater (27.7% of
NRA; through June 2030), Old Navy (14.1%; renewed through January
2028), K&G Fashion Superstore (9.5%; September 2024) and TSI NY
Holdings (8.9%; December 2030). Per the master servicer, K&G
Fashion Superstore recently renewed for 13 months (lease exp. June
2023) and the borrower is marketing the former Dollar Tree space
(4.6%; vacated after lease exp. January 2023) as medical space.
Fitch's 'Bsf' rating case loss (prior to concentration adjustments)
of 20.8% is based on a 9% cap rate and reflects a higher
probability of default on this loan to account for refinancing
concerns at its October 2026 maturity.
The second largest contributor to loss expectations, Briarwood Mall
(4.8%), is secured by a 369,916-sf portion of a 978,034-sf super
regional mall in Ann Arbor, MI. The loan, which is sponsored in a
50/50 joint venture between Simon Property Group and General Motors
Pension Trust, was designated a FLOC due to continued occupancy
declines and increasing refinance risk.
Net operating income (NOI) has continued to decline, with YE 2022
and YE 2021 NOI falling approximately 20% below YE 2020 and 33%
below YE 2019. Servicer-reported NOI debt service coverage ratio
(DSCR) for this interest-only (IO) loan was 2.04x at YE 2022, flat
from 2.06x at YE 2021 but down from 2.54x at YE 2020, 3.03x at YE
2019 and 3.51x at issuance.
The NOI declines are primarily due to tenant departures, with
collateral occupancy declining to 71% per the March 2023 rent roll
from 76% at YE 2020, 87% at YE 2019 and 95% at issuance. The
non-collateral anchors are Macy's, JCPenney, and Von Maur; Sears
closed in the fourth quarter of 2018. In-line sales had declined to
$482 psf ($387 psf excluding Apple) for the TTM ended March 2022
compared with $543 psf ($358) for TTM ended July 2020. Near-term
rollover is granular and includes approximately 30% NRA by YE
2024.
Fitch's 'Bsf' ratings case loss (prior to concentration add-on) of
41.6% is based on a 15% cap rate and a 7.5% haircut to the YE 2022
NOI and reflects a higher probability of default to account for the
likelihood of transfer to special servicing and/or maturity
default.
High Office Concentration: Loans secured by office properties
comprise 31.4% of the pool, all of which are in the top 15
including one (4.8%) FLOC. International Square (4.8%, Washington,
D.C.), a 1,158,732-sf, three building office property located in
the Golden Triangle district of the Washington, DC CBD, is
considered a Fitch loan of concern due to occupancy and DSCR
declines. Occupancy has gradually declined since issuance,
reporting at 70% as of March 2023, compared with 81% at YE 2019 and
94.2% at issuance. NOI DSCR declined to 0.99x at YE 2022 from 1.75x
at YE 2021 compared to 2.60x at issuance.
The largest tenants are the U.S. Federal Reserve Board (Fitch rated
'AA+'; 32.6% of NRA; expiring 1/2026 through 5/2033); Blank Rome
LLP (13.8%; 7/2029); Daniel J. Edelman, Inc. (5.2%; 7/2030);
Milbank, LLP (4.4%; 8/2025); The Paralyzed Veterans of America
(2.1%; 6/2036). Per the March 2023 rent roll, new leasing activity
includes the Federal Reserve extending the leases on two entire
spaces (47,521 SF) expiring in 2028 through 2033. Per CoStar, as of
2Q23 the Washington, D.C. CBD Office Submarket had a vacancy rate
of 18.8% and market rent PSF of $54.91. The property had in-place
rents of $63.57 PSF.
Pool Concentration: The top 10 loans comprise 63% of the pool. Loan
maturities are concentrated in 2026 (99.1%). The largest property
type concentrations are retail at 36.7%, office at 31.4% and hotel
at 15%.
Increasing Credit Enhancement (CE): As of the July 2023
distribution date, the pool's aggregate balance has been reduced by
14.3% to $621.6 million from $725.6 million at issuance. Seven
loans (35.4%) are full-term, IO, and nine loans (25.1%) had a
partial-term, IO component. All nine are in their amortization
periods. Three loans (1.9%) are fully defeased. Cumulative interest
shortfalls of $399,972 are currently affecting the non-rated
classes H-2 and RRI.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades of classes in the 'AAAsf' and 'AAsf' rating categories
are not likely due to sufficient CE and expected continued
amortization, but could occur if interest shortfalls affect these
classes. Classes in the 'BBBsf' to 'BBsf' rating categories would
be downgraded should overall pool losses increase significantly
and/or one or more of the larger FLOCs have an outsized loss, which
would erode CE. Classes E-1, E-2, E, F and EF would be downgraded
with a greater certainty of loss, or if loss expectations increase
from further performance deterioration on the FLOCs or additional
loans become FLOCs and/or transfer to special servicing.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades of classes B, X-B, C, D and X-D may occur with significant
improvement in CE and/or defeasance but would be limited based on
sensitivity to concentrations or the potential for future
concentration. Classes would not be upgraded above 'Asf' if there
is a likelihood for interest shortfalls. Upgrades of classes E-1,
E-2, E, F and EF are not likely until the later years of the
transaction but could occur if performance of the FLOCs improves
significantly and there is sufficient CE.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
NINE WESTLAKE 2022-2: S&P Affirms 'B (sf)' Rating on Cl. F Notes
----------------------------------------------------------------
S&P Global Ratings raised its ratings on 32 classes of notes from
nine Westlake Automobile Receivables Trust transactions that are
backed by subprime retail auto loan receivables originated and
serviced by Westlake Services LLC. At the same time, S&P affirmed
its ratings on 12 classes of notes from these transactions.
S&P's rating actions reflect:
-- Each transaction's collateral performance to date and S&P's
expectations regarding future collateral performance;
-- S&P's remaining cumulative net loss (CNL) expectations for each
transaction, and the transactions' structures and credit
enhancement levels; and
-- Other credit factors, including credit stability, payment
priorities under various scenarios, and sector- and issuer-specific
analyses, including S&P's most recent macroeconomic outlook that
incorporates a baseline forecast for U.S. GDP and unemployment.
S&P said, "Considering all these factors, we believe each notes'
creditworthiness is consistent with the raised and affirmed
ratings. The Westlake 2019-3, 2020-1, 2020-2, 2020-3, 2021-1,
2021-2, and 2021-3, transactions are performing better than our
prior CNL expectations. As such, we revised and lowered our
expected CNL for these transactions. The Westlake 2022-1 and
2022-2 transactions are performing in line with our initial
expectations, and our expected CNLs for these transactions are
unchanged. "
Table 1
Collateral performance (%)(i)
Pool Current 60-plus day
Series Month factor CNL delinq. Extensions
2019-3 45 10.81 7.32 1.29 6.26
2020-1 40 15.39 6.34 1.16 6.26
2020-2 37 16.42 5.31 1.24 6.55
2020-3 33 23.57 5.28 1.16 6.89
2021-1 28 31.34 5.68 1.40 7.30
2021-2 25 38.51 6.64 1.55 7.89
2021-3 20 46.71 6.99 1.36 6.98
2022-1 16 54.77 7.04 1.50 6.99
2022-2 13 65.90 5.47 1.39 6.84
(i)As of the July 2023 distribution date.
Delinq.--Delinquencies.
CNL--Cumulative net loss.
Table 2
CNL expectations (%)
Original Prior Current
lifetime lifetime lifetime
Series CNL exp. CNL exp.(i) CNL exp.(ii)
2019-3 13.25 (13.00-13.50) 7.50 (7.25-7.75) Up to 7.50
2020-1 13.25 (13.00-13.50) 7.25 (7.00-7.50) Up to 6.75
2020-2 15.00 (14.75-15.25) 6.75 (6.50-7.00) Up to 5.75
2020-3 15.00 (14.75-15.25) 8.75 (8.25-9.25) 6.25
2021-1 13.75 (13.50-14.00) 9.00 (8.75-9.25) 7.50
2021-2 13.75 (13.50-14.00) 10.00 (9.75-10.25) 9.50
2021-3 12.75 (12.50-13.00) N/A 11.50
2022-1 12.75 (12.50-13.00) N/A 12.75
2022-2 12.75 (12.50-13.00) N/A 12.75
(i)Revised in September 2022 for all series except 2020-3, which
was revised in February 2022.
(ii)Revised August 2023.
CNL exp.--Cumulative net loss expectations.
N/A--Not applicable.
Each transaction has a sequential principal payment structure in
which the notes are paid principal by seniority, which will
increase the credit enhancement for the senior notes as the pool
amortizes. Each transaction also has credit enhancement in the form
of a nonamortizing reserve account, overcollateralization,
subordination for the more senior classes, and excess spread. As
of the July 2023 distribution date, each transaction is at its
specified target overcollateralization level and specified reserve
levels. The raised and affirmed ratings reflect S&P's view that
the total credit support, as a percentage of the amortizing pool
balance and compared with its expected remaining losses, is
commensurate with the respective ratings.
Table 3
Hard credit support(i)(ii)
Total hard Current total hard
credit support credit support
Series Class at issuance (%) (% of current)
2019-3 D 12.30 109.17
2019-3 E 7.85 68.00
2019-3 F 2.50 18.50
2020-1 D 10.05 67.90
2020-1 E 5.90 40.94
2020-1 F 1.60 12.99
2020-2 D 15.75 57.69
2020-2 E 9.50 19.64
2020-3 C 21.35 79.62
2020-3 D 13.00 44.19
2020-3 E 9.00 27.22
2020-3 F 5.00 10.24
2021-1 B 31.15 100.99
2021-1 C 19.55 63.98
2021-1 D 10.85 36.22
2021-1 E 7.20 24.57
2021-1 F 1.50 6.38
2021-2 B 31.15 82.19
2021-2 C 19.55 52.06
2021-2 D 10.85 29.47
2021-2 E 7.20 20.00
2021-2 F 1.50 5.19
2021-3 A-3 38.20 82.96
2021-3 B 30.15 65.73
2021-3 C 19.00 41.86
2021-3 D 10.00 22.59
2021-3 E 6.65 15.42
2021-3 F 1.50 4.39
2022-1 A-2-A 39.90 75.25
2022-1 A-2-B 39.90 75.25
2022-1 A-3 39.90 75.25
2022-1 B 31.80 60.46
2022-1 C 21.20 41.10
2022-1 D 12.55 25.31
2022-1 E 9.65 20.01
2022-1 F 2.10 6.23
2022-2 A-2-A 41.00 63.79
2022-2 A-2-B 41.00 63.79
2022-2 A-3 41.00 63.79
2022-2 B 34.25 53.55
2022-2 C 23.55 37.31
2022-2 D 14.30 23.28
2022-2 E 11.30 18.72
2022-2 F 3.75 7.27
(i)Calculated as a percentage of the total gross receivable pool
balance, consisting of a reserve account, overcollateralization,
and, if applicable, subordination.
(ii)As of July 2023 distribution date.
S&P said, "We incorporated an analysis of the current hard credit
enhancement compared to the remaining expected CNLs for those
classes where hard credit enhancement alone, without giving credit
to the excess spread, was sufficient in our view, to support the
rating actions. For the other classes, we incorporated cash flow
analyses to assess the loss coverage level, giving credit to excess
spread. Our cash flow scenarios included forward-looking
assumptions on recoveries, the timing of losses, and voluntary
absolute prepayment speeds that we believe are appropriate given
the transaction's performance to date.
"In addition to our break-even cash flow analyses, we also
conducted sensitivity analyses to determine the impact that a
moderate ('BBB') stress scenario would have on our ratings if
losses began trending higher than our revised loss expectations. In
our view, the results demonstrated that all of the classes have
adequate credit enhancement at their respective raised and affirmed
rating levels, which is based on our analysis as of the collection
period ended June 30, 2023 (the July 2023 distribution date). We
will continue to monitor the performance of the outstanding
transactions to ensure that the credit enhancement remains
sufficient, in our view, to cover our CNL expectations under our
stress scenarios for each of the rated classes."
RATINGS RAISED
Westlake Automobile Receivables Trust
Rating
Series Class To From
2019-3 E AAA (sf) AA+ (sf)
2019-3 F AAA (sf) AA- (sf)
2020-1 E AAA (sf) AA+ (sf)
2020-1 F AAA (sf) BBB+ (sf)
2020-2 D AAA (sf) AA+ (sf)
2020-2 E AAA (sf) A (sf)
2020-3 C AAA (sf) AA+ (sf)
2020-3 D AAA (sf) A+ (sf)
2020-3 E AAA (sf) A- (sf)
2020-3 F AA (sf) BBB- (sf)
2021-1 C AAA (sf) AA+ (sf)
2021-1 D AAA (sf) A+ (sf)
2021-1 E AA+ (sf) A- (sf)
2021-1 F A- (sf) B+ (sf)
2021-2 C AAA (sf) AA+ (sf)
2021-2 D AA+ (sf) A+ (sf)
2021-2 E AA (sf) A- (sf)
2021-2 F BBB (sf) B+ (sf)
2021-3 B AAA (sf) AA (sf)
2021-3 C AA+ (sf) A (sf)
2021-3 D AA (sf) BBB (sf)
2021-3 E A (sf) BB (sf)
2021-3 F BB- (sf) B (sf)
2022-1 B AAA (sf) AA (sf)
2022-1 C AA+ (sf) A (sf)
2022-1 D AA- (sf) BBB (sf)
2022-1 E A (sf) BB (sf)
2022-1 F B+ (sf) B (sf)
2022-2 B AA+ (sf) AA (sf)
2022-2 C AA (sf) A (sf)
2022-2 D A+ (sf) BBB (sf)
2022-2 E BBB+ (sf) BB (sf)
RATINGS AFFIRMED
Westlake Automobile Receivables Trust
Series Class Rating
2019-3 D AAA (sf)
2020-1 D AAA (sf)
2021-1 B AAA (sf)
2021-2 B AAA (sf)
2021-3 A-3 AAA (sf)
2022-1 A-2-A AAA (sf)
2022-1 A-2-B AAA (sf)
2022-1 A-3 AAA (sf)
2022-2 A-2-A AAA (sf)
2022-2 A-2-B AAA (sf)
2022-2 A-3 AAA (sf)
2022-2 F B (sf)
RIPPLE NOTES: DBRS Gives Prov. B Rating on Class D Notes
--------------------------------------------------------
DBRS Morningstar assigned the following provisional ratings to the
Class A Notes, the Class B Notes, the Class C Notes, and the Class
D Notes (together, the Secured Notes) of Ripple Notes Issuer LLC.
The Secured Notes are issued pursuant to the Indenture, dated July
28, 2023, entered into between Ripple Notes Issuer LLC, as the
Issuer and U.S. Bank Trust Company, National Association, as
Trustee:
-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (low) (sf)
-- Class D Notes at B (sf)
The provisional rating on the Class A Notes addresses the timely
payment of interest (excluding any Defaulted Interest, as defined
in the Indenture) and the ultimate return of principal on or before
the Stated Maturity (as defined in the Indenture). The provisional
ratings on the Class B Notes, the Class C Notes, and the Class D
Notes address the ultimate payment of interest (excluding any
Defaulted Interest, as defined in the Indenture) and ultimate
return of principal on or before the Stated Maturity (as defined in
the Indenture).
RATING RATIONALE
The Secured Notes are collateralized primarily by a portfolio of
U.S. middle-market corporate loans. Ripple Notes Issuer LLC is
managed by 26North Direct Lending II LP, an affiliate of 26North
Partners LP. DBRS Morningstar considers 26North Direct Lending II
LP to be an acceptable middle-market corporate loan manager.
The ratings reflect the following primary considerations:
(1) The Indenture, dated as of July 28, 2023.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and middle-market corporate loan management capabilities of 26North
Direct Lending II LP.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning ratings to a facility.
DBRS Morningstar's credit ratings on the Secured Notes address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations include the interest at the Interest Rate and
the principal amounts on the Secured Notes, as well as the Deferred
Interest on the Class B Notes, the Class C Notes, and the Class D
Notes (each capitalized term as defined in the Indenture).
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, the provisional ratings on the Notes do
not address any Defaulted Interest on the Secured Notes (each
capitalized term as defined in the Indenture).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
SANTANDER CONSUMER 2021-A: Fitch Ups Rating on F Notes to 'BBsf'
----------------------------------------------------------------
Fitch Ratings has upgraded six classes and affirmed six classes of
outstanding notes of Santander Consumer Auto Receivables Trust
(SCART) 2020-B and 2021-A. The Rating Outlook is Stable for the
'AAAsf' rated classes and Positive for all other classes.
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Santander Consumer Auto
Receivables Trust 2020-B
B 802830AN9 LT AAAsf Affirmed AAAsf
C 802830AR0 LT AAAsf Affirmed AAAsf
D 802830AU3 LT AAAsf Upgrade AAsf
E 802830AX7 LT AAsf Upgrade Asf
F 802830BA6 LT Asf Upgrade BBBsf
Santander Consumer Auto
Receivables Trust 2021-A
A-3 80282YAC0 LT AAAsf Affirmed AAAsf
A-4 80282YAD8 LT AAAsf Affirmed AAAsf
B 80282YAE6 LT AAAsf Affirmed AAAsf
C 80282YAF3 LT AAAsf Affirmed AAAsf
D 80282YAG1 LT AAsf Upgrade Asf
E 80282YAH9 LT Asf Upgrade BBBsf
F 80282YAJ5 LT BBsf Upgrade Bsf
KEY RATING DRIVERS
The affirmations of the 'AAAsf' rated notes reflect available
credit enhancement (CE) commensurate with the rating level and the
strong loss performance to date. Overall, cumulative net losses
(CNL) are tracking inside the initial base case credit proxies, and
hard CE levels have grown for all classes since close. The Stable
Outlook on the 'AAAsf' rated classes reflect Fitch's expectation
that the classes have sufficient levels of credit protection to
withstand potential deterioration in credit quality of the
portfolios in stress scenarios, and that loss coverage will
continue to increase as the transactions amortize. The Positive
Outlooks for the class E and F notes of 2020-B and the class D, E,
and F notes of 2021-A reflect the possibility for an upgrade in the
next one to two years, if the increasing trend of CE continues.
The base case loss proxies utilized were 1.50% and 1.20% for 2020-B
and 2021-A respectively. For both transactions, the base case proxy
was derived from projections based on current performance.
2020-B
As of the July 20, 2023 payment date, 61+ day delinquencies total
1.02%, and CNLs are 0.82%, tracking well within Fitch's initial CNL
proxy at close of 4.25%. Hard CE (of the current pool balance) has
increased to 91.08%, 65.18%, 44.76%, 39.72%, and 21.51% for the
class B, C, D, E and F notes, respectively. Based on transaction
specific performance to date and future projections, Fitch lowered
the lifetime CNL proxy to 1.50% of the initial pool at transaction
closing from 2.00% at the prior review and 4.25% at close.
Under the revised lifetime CNL proxy of 1.50%, cash flow modelling
was able to support multiples in excess of 5x for a 'AAAsf' rating
for the class B, C, D, E, and F notes. For the class E and F notes,
cash flow modelling supported multiples of at least one rating
category higher than the current rating, but Fitch elected to
upgrade the notes only one category as an indication of their
subordinate position in the waterfall.
2021-A
As of the July 20, 2023 payment date, 61+ day delinquencies total
0.62%, and CNLs are 0.53%, tracking well within Fitch's initial CNL
proxy at close of 3.25%. Hard CE (of the current pool balance) has
increased to 48.33%, 38.06% 28.64%, 19.22%, 12.49%, and 5.08% for
the class A, B, C, D, E and F notes, respectively. Based on
transaction specific performance to date and future projections,
Fitch lowered the lifetime CNL loss proxy to 1.20% of the initial
pool from 1.30% in the last review and 3.25% at close.
Under the revised lifetime CNL loss proxy of 1.20%, cash flow
modelling continues to support multiples in excess of 5x for a
'AAAsf' rating for the class A, B, C, and D notes. For the class D
and E notes, cash flow modelling supported multiples of at least
one rating category higher than the current rating, in support of a
one category upgrade for the classes. For the class F notes, cash
flow modelling supported multiples at the current rating category,
which supports the affirmation.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Unanticipated increases in the frequency of defaults could produce
default levels higher than the current projected base case default
proxy, and impact available loss coverage and multiples levels for
the transaction. Weakening asset performance is strongly correlated
to increasing levels of delinquencies and defaults that could
negatively impact CE levels. Lower loss coverage could impact
ratings and Outlooks, depending on the extent of the decline in
coverage.
In Fitch's initial review, the notes were found to have some
sensitivity to a 1.5x and 2.0x increase of Fitch's base case loss
expectation. However, considering the growth in loss coverage,
downgrades are unlikely.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and consideration
for potential upgrades. If CNL is 20% less than projected CNL
proxy, the ratings could be upgraded by one or more rating
categories.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
SOUND POINT 36: Fitch Assigns 'BB-sf' Rating to Class E Notes
-------------------------------------------------------------
Fitch Ratings has assigned ratings and Rating Outlooks to Sound
Point CLO 36, Ltd.
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Sound Point CLO 36, Ltd.
A LT NRsf New Rating NR(EXP)sf
B LT AAsf New Rating AA(EXP)sf
C LT Asf New Rating A(EXP)sf
D LT BBB-sf New Rating BBB-(EXP)sf
E LT BB-sf New Rating BB-(EXP)sf
Subordinated Notes LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Sound Point CLO 36, Ltd. (the issuer) is an arbitrage cash flow
collateralized loan obligation (CLO) that will be managed by Sound
Point CLO C-MOA, LLC. Net proceeds from the issuance of the secured
and subordinated notes will provide financing on a portfolio of
approximately $400.0 million of primarily first lien senior secured
leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality (Negative): The average credit quality of the
indicative portfolio is 'B', which is in line with that of recent
CLOs. The weighted average rating factor of the indicative
portfolio is 24.3, versus a maximum covenant, in accordance with
the initial expected matrix point of 25.5. 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
98.5% first lien senior secured loans. The weighted average
recovery rate of the indicative portfolio is 76.0%, versus a
minimum covenant, in accordance with the initial expected matrix
point of 73.0%.
Portfolio Composition (Positive): The largest three industries may
constitute up to 39.0% of the portfolio balance in aggregate, while
the top five obligors can represent up to 9.0% of the portfolio
balance in aggregate. The level of diversity resulting from the
industry, obligor and geographic concentrations is in line with
that of other recent CLOs.
Portfolio Management (Neutral): The transaction has a five-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 performance
of the rated notes at the other permitted matrix points is in line
with other recent CLOs.
The weighted average life (WAL) used for the transaction stress
portfolio and analysis of matrices is 12 months less than the WAL
covenant to account for structural and reinvestment conditions
after the reinvestment period. In Fitch's opinion, these conditions
would reduce the effective risk horizon of the portfolio during
stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Variability in key model assumptions, such as decreases in recovery
rates and increases in default rates, could result in a downgrade.
Fitch evaluated the notes' sensitivity to potential changes in such
metrics; the results under these sensitivity scenarios are as
severe as between 'BB+sf' and 'A+sf' for class B notes, between
'Bsf' and 'BBB+sf' for class C notes, between less than 'B-sf' and
'BB+sf' for class D notes; and between less than 'B-sf' and 'B+sf'
for class E notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
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 notes, 'A+sf' for class C notes,
'Asf' for class D notes; and 'BBB+sf' for class E notes.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information.
Overall, Fitch's assessment of the asset pool information relied
upon for the agency's rating analysis according to its applicable
rating methodologies indicates that it is adequately reliable.
TGIF FUNDING 2017-1: S&P Affirms 'B(sf)' Rating on Class A-2 Notes
------------------------------------------------------------------
S&P Global Ratings affirmed its 'B (sf)' rating on TGIF Funding
LLC's (TGIF Funding) series 2017-1 class A-2 notes.
S&P said, "Since the transaction closed in 2017, we have taken
multiple rating actions on the class A-1 and A-2 notes due to
continued deterioration of system performance, which was
exacerbated during the COVID-19 pandemic. The class A-1 notes paid
down in first-quarter 2023, and we currently rate class A-2 notes
at 'B (sf)'."
TGIF Funding is a corporate securitization of TGI Friday's Inc (TGI
Friday) business. TGI Friday, the manager, is an operator and
franchisor of casual dining restaurants; there are 684 locations
(78% of which are franchised), with 43% located domestically and
57% located internationally as of second-quarter 2023. Due to the
147 domestic store closures and numerous franchisee terminations,
this allocation has shifted significantly since 2017, when 92% of
the stores were franchised with 52% located domestically and 48%
located international.
Deteriorating performance triggered a rapid amortization event in
second-quarter 2020 when annual systemwide sales fell below the
threshold of $1.5 billion. The transaction remains in rapid
amortization, even though systemwide sales have exceeded $1.5
billion since first-quarter 2022, as this event cannot be cured.
The rapid amortization supersedes other cash sweeping events that
have also reached their trigger thresholds.
More recently, the sales performance has remained relatively stable
since first-quarter 2022, with last 12 months' (LTM) second-quarter
2023 systemwide sales at $1,542 million compared to $1,568 million.
Unit count is also only down slightly, to 684 in second-quarter
2023 from 689 in first-quarter 2022.
S&P said, "Our cash flow assumptions were based on a typical zero
growth scenario using the LTM performance ending second-quarter
2023, and then incorporating a 5% decline to retained collections
based on the lack of results from management's turnaround strategy
and macroeconomic factors that could impact the casual dining
sector.
"To benchmark this note against other corporate securitizations, we
developed cash flow runs using the standard theoretical 15-year
amortization schedule as described in our criteria, despite the
uncurable rapid amortization event. These runs resulted in a
base-case debt service coverage ratio (DSCR) of 1.31x and a
downside DSCR of 0.93x, which increased from the November 2020
results of below 1.00x for both the base case and downside. This
improvement was driven by the retirement and paydown of the class
A-1 notes and a 40% increase in securitized net cash flow (SNCF)
since the trough of the pandemic. Our cash flow analysis projected
the notes to receive timely interest payments and ultimately full
principal by the legal final maturity date in the base case and the
downside.
"We also performed additional cash flow runs incorporating the
current rapid amortization for the base-case and downside
assumptions, and the results showed timely interest and full
principal repayment by legal final maturity. Based on our cash flow
results, we don't believe a rating in the 'CCC' category is
appropriate because the transaction should have sufficient
liquidity in the near term to cover interest on the notes. A
non-payment of principal will not constitute an event of default
until the legal final maturity of April 2047.
"Additionally, we examined the transaction through a breakeven
analysis and observed that the notes can withstand a 23% reduction
in retained collections. In our opinion, a 23% or larger reduction
in retained collections is unlikely in the near term given the
diversity in geography, the topline nature of royalties, the
strength of the brand, as well as the stability demonstrated
post-pandemic."
The DSCR improvements since November 2020 from the deleveraging of
the transaction and the increase in SNCF did not result in an
upgrade because this system has had no significant improvements
over the last two years, and there are potential macroeconomic
headwinds to casual dining that could result in performance
regression.
The anticipated repayment date (ARD) for the class A-2 notes is
April 30, 2024, upon which a post-ARD interest payment of 5% will
begin to accrue (in addition to the stated A-2 note interest). This
additional interest payment is subordinate to interest and
principal and does not impact our rating. Additionally, our rating
addresses timely interest payments and principal repayment at legal
final maturity, and therefore, reaching an ARD should not, on its
own, have rating implications. S&P also acknowledges that if the
system refinances at a higher rate, it could result in a rating
downgrade.
S&P will continue to monitor the transaction's liquidity, along
with the overall trend in the transaction's DSCR as it assesses the
rating on the notes.
TIDAL NOTES: DBRS Gives Prov. B Rating on Class D Notes
-------------------------------------------------------
DBRS Morningstar assigned the following provisional ratings to the
Class A Notes, the Class B Notes, the Class C Notes, and the Class
D Notes (together, the Secured Notes) of Tidal Notes Issuer LLC.
The Secured Notes are issued pursuant to the Indenture, dated July
28, 2023, entered into between Tidal Notes Issuer LLC, as the
Issuer and U.S. Bank Trust Company, National Association, as
Trustee:
-- Class A Notes at A (sf)
-- Class B Notes at BBB (sf)
-- Class C Notes at BB (low) (sf)
-- Class D Notes at B (sf)
The provisional rating on the Class A Notes addresses the timely
payment of interest (excluding any Defaulted Interest, as defined
in the Indenture) and the ultimate return of principal on or before
the Stated Maturity (as defined in the Indenture). The provisional
ratings on the Class B Notes, the Class C Notes, and the Class D
Notes address the ultimate payment of interest (excluding any
Defaulted Interest, as defined in the Indenture) and ultimate
return of principal on or before the Stated Maturity (as defined in
the Indenture).
RATING RATIONALE
The Secured Notes are collateralized primarily by a portfolio of
U.S. middle-market corporate loans. Tidal Notes Issuer LLC is
managed by 26North Direct Lending II LP, an affiliate of 26North
Partners LP. DBRS Morningstar considers 26North Direct Lending II
LP to be an acceptable middle-market corporate loan manager.
The ratings reflect the following primary considerations:
(1) The Indenture, dated as of July 28, 2023.
(2) The integrity of the transaction structure.
(3) DBRS Morningstar's assessment of the portfolio quality.
(4) Adequate credit enhancement to withstand projected collateral
loss rates under various cash flow stress scenarios.
(5) DBRS Morningstar's assessment of the origination, servicing,
and middle-market corporate loan management capabilities of 26North
Direct Lending II LP.
To assess portfolio credit quality, DBRS Morningstar provides a
credit estimate or internal assessment for each nonfinancial
corporate obligor in the portfolio not rated by DBRS Morningstar.
Credit estimates are not ratings; rather, they represent a
model-driven default probability for each obligor that is used in
assigning ratings to a facility.
DBRS Morningstar's credit ratings on the Secured Notes address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations include the interest at the Interest Rate and
the principal amounts on the Secured Notes, as well as the Deferred
Interest on the Class B Notes, the Class C Notes, and the Class D
Notes (each capitalized term as defined in the Indenture).
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, the provisional ratings on the Notes do
not address any Defaulted Interest on the Secured Notes (each
capitalized term as defined in the Indenture).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
UBS COMMERCIAL 2017-C3: Fitch Hikes Rating on G-RR Certs to CCC
---------------------------------------------------------------
Fitch Ratings has affirmed 11 classes, and upgraded one distressed
class, of UBS Commercial Mortgage Trust 2017-C3 commercial mortgage
pass-through certificates. The Rating Outlooks for classes E-RR and
F-RR remain Negative and Class A-S has been placed on Rating Watch
Negative (RWN). The criteria observation (UCO) has been resolved.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
UBS 2017-C3
A-2 90276GAP7 LT AAAsf Affirmed AAAsf
A-3 90276GAR3 LT AAAsf Affirmed AAAsf
A-4 90276GAS1 LT AAAsf Affirmed AAAsf
A-S 90276GAW2 LT AAAsf Rating Watch On AAAsf
A-SB 90276GAQ5 LT AAAsf Affirmed AAAsf
B 90276GAX0 LT AA-sf Affirmed AA-sf
C 90276GAY8 LT A-sf Affirmed A-sf
D-RR 90276GAA0 LT BBBsf Affirmed BBBsf
E-RR 90276GAC6 LT BBB-sf Affirmed BBB-sf
F-RR 90276GAE2 LT B-sf Affirmed B-sf
G-RR 90276GAG7 LT CCCsf Upgrade CCsf
X-A 90276GAU6 LT AAAsf Affirmed AAAsf
X-B 90276GAV4 LT AA-sf Affirmed AA-sf
KEY RATING DRIVERS
Criteria Update: The rating actions reflect the impact of the
updated U.S. and Canadian Multiborrower CMBS Rating Criteria,
published on May 22, 2023, and incorporate any changes in loan
performance and/or credit enhancement (CE) since Fitch's prior
rating action.
The affirmations reflect the impact of the criteria and generally
stable performance of the pool while the upgrade to the distressed
class accounts for the expectation of loss to the class, as losses
are considered possible. Fitch's current ratings incorporate a
'Bsf' rating case loss of 4.60%. Eleven loans are Fitch Loans of
Concern (FLOCs; 32.2% of the pool), which include four loans
(18.2%) currently in special servicing.
The RWN on class A-S reflects defeasance concentration of 29.6%
that has a remaining term of four years in combination with limited
rating headroom at the 'AAAsf' category. Based on criteria, when
loans are defeased with non-'AAA' rated collateral, Fitch will
consider the magnitude of the exposure to the pool in relationship
to the available CE as well as the remaining tenor of the exposure
relative to the remaining tenor of the bonds to determine if
ratings would be affected.
The class is considered susceptible to downgrade given both the
high exposure to defeasance with a longer remaining term as well as
the limited rating cushion at the 'AAAsf' level at the current CE.
The RWN will be resolved within six months as Fitch evaluates the
treatment of defeasance for ratings rated higher than the US
sovereign IDR.
The Negative Outlooks reflect the potential for downgrade should
loss expectations for FLOCs and loans in special servicing
increase.
Fitch Loans of Concern: The largest contributor to overall loss
expectations is the OKC Outlets loan (5.5%), which is secured by a
394,240-sf outlet center located in Oklahoma City, OK. The loan
transferred to special servicing in May 2022 for maturity default
and was modified in April 2023. Terms of the modification include a
$3 million equity infusion to paydown the loan and an additional $1
million escrowed to reserves.
The term increased by 24 months to May 2024 with an additional
extension to 2026 available with another equity contribution of $3
million. As of YE 2022, collateral occupancy was 95% with NOI DSCR
of 2.19x an improvement from 88% and 2.14x at YE 2021. Total sales
were $140.7 million ($380 psf) psf as of YE 2022 which compares
with $147.2 million ($400 psf) as of YE 2021.
Fitch's 'Bsf' rating case loss of 22% prior to concentration
adjustments is based on a discount to a recent appraisal value.
The second-largest contributor to loss expectations is the Crowne
Plaza Memphis Downtown loan (2.3%), which is secured by a 230-key
full-service hotel located in Memphis, TN. Performance has
deteriorated and the loan has transferred to special servicing in
June 2023. From a revenue standpoint the hotel has posted figures
in line with issuance levels; however, aggregate expenses are 62%
higher than the originator's underwritten expense, resulting in an
NOI DSCR of 0.03x as of YE 2022. Departmental expenses were 54%
higher than expenses underwritten at issuance. STR reported running
12-month occupancy, ADR and RevPAR of 52.3%, $152, and $79 as of
December 2022 which compares with 80.6%, $104 and $84 at issuance
in 2017.
Fitch's 'Bsf' rating case loss of 44% prior to concentration
adjustments is based on a 11.25% cap rate and no additional stress
to YE 2022 NOI, and factors a higher probability of default to
account for sustained underperformance.
The Center 78 (4.6%) loan which is secured by a 372,672-sf suburban
office building in Warren NJ. Occupancy has declined to 81% as of
June 2023 with a further decline expected to 68% when the 2nd
largest tenant (13.6%) vacates at lease expiration in October 2023.
The space is currently available for sublease. The largest tenant
GlaxoSmithKline which represents 39% of the building NRA has a
lease expiration in February 2027.
Fitch's 'Bsf' rating case loss of 8% prior to concentration
adjustments reflects a 10% cap rate and 20% stress to the YE 2022
NOI. Fitch also ran an additional scenario that applies a 'Bsf'
sensitivity case loss of 27% on this loan which factors a higher
probability of default given anticipated occupancy declines and
elevated vacancy in the submarket.
Changes to Credit Enhancement: As of the July 2023 distribution
date, the pool's aggregate balance has been paid down by 13.5% to
$613 million from $708.6 million at issuance. Nine loans (29.6%)
are defeased. Six loans representing 30.1% of the pool are
full-term interest-only loans. Eight loans (34.5%) have a partial,
interest-only component.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades to 'AAAsf' and 'AAsf' category rated classes are not
expected, but could occur if deal-level expected losses increase
significantly and/or interest shortfalls occur. The 'AAAsf' rated
bond on Rating Watch may be subject to downgrade as additional
stresses are applied to reflect non-'AAAsf' rated defeased
collateral.
Downgrades to 'Asf' category rated classes could occur if
deal-level losses increase significantly on non-defeased loans in
the transactions and with outsized losses on larger FLOCs.
Downgrades to 'BBsf' and 'Bsf' category rated classes are possible
with higher expected losses from continued performance of the FLOCs
and with greater certainty of near-term losses on specially
serviced assets and other FLOCs.
Downgrades to distressed ratings would occur as losses become more
certain and/or as losses are incurred.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades to 'AAsf' and 'Asf' category rated classes are not
expected, but possible with significantly increased CE from
paydowns, coupled with stable-to-improved pool-level loss
expectations and performance stabilization of FLOCs. Upgrades of
these classes to 'AAAsf' will also consider the concentration of
defeased loans in the transaction.
Upgrades to the 'BBsf' and 'Bsf' category rated classes would be
limited based on sensitivity to concentrations or the potential for
future concentration. Classes would not be upgraded above 'Asf' if
there is likelihood for interest shortfalls.
Upgrades to distressed ratings are possible with significantly
higher values on FLOCs.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
UCAT 2005-1: Moody's Withdraws 'C' Rating on Cl. B-1-B Notes
------------------------------------------------------------
Moody's Investors Service has withdrawn the ratings on the
following notes issued by UCAT 2005-1:
Issuer: UCAT 2005-1
Cl. B-1-A, Withdrawn (sf); previously on Dec 22, 2016 Downgraded to
Ca (sf)
Cl. B-1-B, Withdrawn (sf); previously on Dec 22, 2016 Downgraded to
C (sf)
RATINGS RATIONALE
Moody's has decided to withdraw the ratings because it believes it
has insufficient or otherwise inadequate information to support the
maintenance of the ratings.
UNITED STATES CELLULAR 2004-6: S&P Places 'BB' Rating on Watch Dev
------------------------------------------------------------------
S&P Global Ratings placed its 'BB' long-term rating on classes A-1
and A-2 of the $12.5 million fixed-rate callable certificates
issued by STRATS for United States Cellular Corp. Securities Series
2004-6 on CreditWatch with developing implications.
S&P's ratings on the two series are dependent solely on the rating
on the underlying security, United States Cellular Corp.'s 6.70%
senior notes due Dec. 15, 2033 ('BB/Watch Dev').
The rating actions reflect the Aug. 8, 2023, placement of its
long-term issuer credit rating on the underlying security on
CreditWatch with developing implications.
S&P may take subsequent rating actions on this transaction if its
rating on the underlying security changes.
VELOCITY COMMERCIAL 2023-3: DBRS Gives Prov. B Rating on 3 Classes
------------------------------------------------------------------
DBRS, Inc. assigned the following provisional ratings to the
Mortgage-Backed Certificates, Series 2023-3 (the Certificates) to
be issued by Velocity Commercial Capital Loan Trust 2023-3 (VCC
2023-3 or the Issuer) as follows:
-- $155.0 million Class A at AAA (sf)
-- $14.6 million Class M-1 at AA (low) (sf)
-- $12.6 million Class M-2 at A (low) (sf)
-- $17.8 million Class M-3 at BBB (sf)
-- $34.6 million Class M-4 at BB (sf)
-- $19.5 million Class M-5 at B (sf)
-- $155.0 million Class A-S at AAA (sf)
-- $155.0 million Class A-IO at AAA (sf)
-- $14.6 million Class M1-A at AA (low) (sf)
-- $14.6 million Class M1-IO at AA (low) (sf)
-- $12.6 million Class M2-A at A (low) (sf)
-- $12.6 million Class M2-IO at A (low) (sf)
-- $17.8 million Class M3-A at BBB (sf)
-- $17.8 million Class M3-IO at BBB (sf)
-- $34.6 million Class M4-A at BB (sf)
-- $34.6 million Class M4-IO at BB (sf)
-- $19.5 million Class M5-A at B (sf)
-- $19.5 million Class M5-IO at B (sf)
Classes A-IO, M1-IO, M2-IO, M3-IO, M4-IO, and M5-IO are
interest-only (IO) certificates. The class balances represent
notional amounts.
Classes A, M-1, M-2, M-3, M-4, and M-5 are exchangeable
certificates. These classes can be exchanged for combinations of
initial exchangeable certificates as specified in the offering
documents.
The AAA (sf) ratings on the Certificates reflect 41.15% of credit
enhancement (CE) provided by subordinated certificates. The AA
(low) (sf), A (low) (sf), BBB (sf), BB (sf), and B (sf) ratings
reflect 35.60%, 30.80%, 24.05%, 10.90% and 3.50% of CE,
respectively.
Other than the specified classes above, DBRS Morningstar does not
rate any other classes in this transaction.
VCC 2023-3 is a securitization of a portfolio of newly originated
and seasoned fixed and adjustable rate, first-lien residential
mortgages collateralized by investor properties with one to four
units (residential investor loans) and small-balance commercial
(SBC) mortgages collateralized by various types of commercial,
multifamily rental, and mixed-use properties. The securitization is
funded by the issuance of the Certificates. The Certificates are
backed by 774 mortgage loans with a total principal balance of
$263,458,813 as of the Cut-Off Date (July 1, 2023).
Approximately 65.9% of the pool comprises residential investor
loans and about 34.1% of SBC loans. All loans in this
securitization were originated by Velocity Commercial Capital, LLC
(Velocity or VCC). The loans were underwritten to program
guidelines for business-purpose loans where the lender generally
expects the property (or its value) to be the primary source of
repayment (No Ratio). The lender reviews mortgagor's credit
profile, though it does not rely on the borrower's income to make
its credit decision. However, the lender considers the
property-level cash flows or minimum debt service coverage ratio in
underwriting SBC loans with balances more than $750,000 for
purchase transactions and more than $500,000 for refinance
transactions. Because the loans were made to investors for business
purposes, they are exempt from the Consumer Financial Protection
Bureau's Ability-to-Repay rules and TILA-RESPA Integrated
Disclosure rule.
PHH Mortgage Corporation will service all loans within the pool for
a servicing fee of 0.30% per annum. In addition, Velocity will act
as a Special Servicer servicing the loans that defaulted or became
60 or more days delinquent under Mortgage Bankers Association (MBA)
method and other loans, as defined in the transaction documents
(Specially Serviced Loans). The Special Servicer will be entitled
to receive compensation based on an annual fee of 0.75% and the
balance of Specially Serviced Loans. Also, the Special Servicer is
entitled to a liquidation fee equal to 2.00% of the net proceeds
from the liquidation of a Specially Serviced Loan, as described in
the transaction documents.
The Servicer will fund advances of delinquent principal and
interest (P&I) until the advances deemed unrecoverable. Also, the
Servicer is obligated to make advances with respect to taxes,
insurance premiums, and reasonable costs incurred in the course of
servicing and disposing properties.
U.S. Bank National Association (rated AA (high) with a Negative
trend by DBRS Morningstar) will act as the Custodian. U.S. Bank
Trust Company, National Association (rated AA (high) with a
Negative trend by DBRS Morningstar) will act as the Trustee.
The Seller, directly or indirectly through a majority-owned
affiliate, is expected to retain an eligible horizontal residual
interest consisting of the Class P and Class XS Certificates,
collectively representing at least 5% of the fair value of all
Certificates, to satisfy the credit risk-retention requirements
under Section 15G of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder. Such retention aligns Sponsor
and investor interest in the capital structure.
On or after the later of (1) the three-year anniversary of the
Closing Date or (2) the date when the aggregate stated principal
balance of the mortgage loans is reduced to 30% of the Closing Date
balance, the Depositor may purchase all outstanding Certificates
(Optional Purchase) at a price equal to the sum of the remaining
aggregate balance of the Certificates plus accrued and unpaid
interest, and any fees, expenses, and indemnity payments due and
unpaid to the transaction parties, including any unreimbursed P&I
and servicing advances, and other amounts due as applicable. The
Optional Purchase will be conducted concurrently with a qualified
liquidation of the Issuer.
Additionally, if on any date on which the unpaid mortgage loan
balance and the value of real estate owned (REO) properties has
declined to less than 10% of the initial mortgage loan balance as
of the Cut-off Date, the Directing Holder, the Special Servicer, or
the Servicer, in that order of priority, may purchase all of the
mortgages, REO properties, and any other properties from the Issuer
(Optional Termination) at a price specified in the transaction
documents. The Optional Termination will be conducted as a
qualified liquidation of the Issuer. The Directing Holder
(initially, the Seller) is the representative selected by the
holders of more than 50% of the Class XS Certificates (the
Controlling Class).
The transaction uses a structure sometimes referred to as a
modified pro rata structure. Prior to the Class A CE falling below
10.0% of the loan balance as of the Cut-off Date (Class A Minimum
CE Event), the principal distributions allow for amortization of
all senior and subordinate bonds based on CE targets set at
different levels for performing (same CE as at issuance) and
nonperforming (higher CE than at issuance) loans. Each Class's
target principal balance is determined based on the CE targets and
the performing and nonperforming (those that are 90 or more days
MBA delinquent, in foreclosure and REO, and subject to a servicing
modification within the prior 12 months) loan amounts. As such, the
principal payments are paid on a pro rata basis, up to each Class's
target principal balance, so long as no loans in the pool are
nonperforming. If the share of nonperforming loans grows, the
corresponding CE target increases. Thus, the principal payment
amount increases for the senior and senior subordinate classes and
falls for the more subordinate bonds. The goal is to distribute the
appropriate amount of principal to the senior and subordinate bonds
each month, to always maintain the desired level of CE, based on
the performing and nonperforming pool percentages. After the Class
A Minimum CE Event, the principal distributions are made
sequentially.
Relative to the sequential-pay structure, the modified pro rata
structure is more sensitive to the timing of the projected defaults
and losses as the losses may be applied at a time when the amount
of credit support is reduced as the bonds' principal balances
amortize over a life of the transaction. That said, the excess
spread can be used to cover realized losses after being allocated
to the unpaid net weighted-average coupon shortfalls (Net WAC Rate
Carryover Amounts).
COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) METHODOLOGY
The collateral for the SBC portion of the pool consists of 223
individual loans secured by 223 commercial and multifamily
properties with an average cut-off date loan balance of $402,514.
None of the mortgage loans are cross-collateralized or
cross-defaulted with each other. Given the complexity of the
structure and granularity of the pool, DBRS Morningstar applied its
"North American CMBS Multi-Borrower Rating Methodology" (the CMBS
Methodology).
The CMBS loans have a weighted-average (WA) fixed interest rate of
12.0%. This is approximately 60 basis points (bps) higher than the
VCC 2023-2 transaction; 150 bps higher than the VCC 2023-1
transaction; 270 bps higher than the VCC 2022-5 transaction; and
more than 370 bps higher than the interest rates of VCC 2022-5, VCC
2022-4, and VCC 2022-3 transactions, highlighting the recent
increase in interest rates. Most of the loans have original loan
term lengths of 30 years and fully amortize over 30-year schedules.
However, nine loans, which represent 14.9% of the SBC pool, have an
initial IO period ranging from 60 months to 120 months.
Most SBC loans were originated between December 2022 and June 2023
(81.9% of cut-off pool balance), with 54 loans originated between
September 2014 and February 2016, resulting in a WA seasoning of
17.5 months. The SBC pool has a WA original term length of 342
months, or nearly 28.5 years. Based on the current loan amount,
which reflects approximately 30 bps of amortization, and the
current appraised values, the SBC pool has a WA loan-to-value (LTV)
ratio of 64.1%. However, DBRS Morningstar made LTV adjustments to
23 loans that had an implied capitalization rate more than 200 bps
lower than a set of minimal capitalization rates established by the
DBRS Morningstar Market Rank. The DBRS Morningstar minimum
capitalization rates range from 5.0% for properties in Market Rank
8 to 8.0% for properties in Market Rank 1. This resulted in a
higher DBRS Morningstar LTV of 89.5%. Lastly, all loans fully
amortize over their respective remaining terms, resulting in 100%
expected amortization; this amount of amortization is greater than
what is typical for commercial mortgage-backed securities (CMBS)
conduit pools. DBRS Morningstar's research indicates that, for CMBS
conduit transactions securitized between 2000 and 2021, average
amortization by year has ranged between 6.5% and 22.0%, with a
median rate of 16.5%.
As contemplated and explained in DBRS Morningstar's "Rating North
American CMBS Interest-Only Certificates" methodology, the most
significant risk to an IO cash flow stream is term default risk. As
DBRS Morningstar noted in the methodology, for a pool of
approximately 63,000 CMBS loans that had fully cycled through to
their maturity defaults, the average total default rate across all
property types was approximately 17%, the refinance default rate
was 6% (approximately one-third of the total default rate), and the
term default rate was approximately 11%. DBRS Morningstar
recognizes the muted impact of refinance risk on IO certificates by
notching the IO rating up by one notch from the Reference
Obligation rating. When using the 10-year Idealized Default Table
to derive a probability of default (POD) for a CMBS bond from its
rating, DBRS Morningstar estimates that, in general, a one-third
reduction in the CMBS Reference Obligation POD maps to a tranche
rating that is approximately one notch higher than the Reference
Obligation or the Applicable Reference Obligation, whichever is
appropriate. Therefore, similar logic regarding term default risk
supported the rationale for DBRS Morningstar to reduce the POD in
the CMBS Insight Model by one notch because refinance risk is
largely absent for this SBC pool of loans.
The DBRS Morningstar CMBS Insight Model does not contemplate the
ability to prepay loans, which is generally seen as credit positive
because a prepaid loan cannot default. The CMBS predictive model
was calibrated using loans that have prepayment lockout features.
Those loans' historical prepayment performance is close to a 0%
conditional prepayment rate. If the CMBS predictive model had an
expectation of prepayments, DBRS Morningstar would expect the
default levels to be reduced. Any loan that prepays is removed from
the pool and can no longer default. This collateral pool does not
have any prepayment lockout features, and DBRS Morningstar expects
this pool will have prepayments over the remainder of the
transaction. DBRS Morningstar applied a 5.0% reduction to the
cumulative default assumptions to provide credit for expected
payments. The assumption reflects the DBRS Morningstar opinion that
in a rising interest rate environment fewer borrowers may elect to
pre-pay their loan.
As a result of higher interest rates and lending spreads, the SBC
pool has a significant increase in interest rates compared with
prior VCC transactions. Consequently, loans comprising more than
80.0% of the deal have less than a 1.0 times Issuer net operating
income debt service coverage ratio, which is a larger composition
than previous VCC transactions in 2022. Additionally, although the
DBRS Morningstar CMBS Insight Model does not contemplate FICO
scores, it is important to point out the WA FICO score for the SBC
loans of 717 is higher than prior transactions. With regard to the
aforementioned concerns, DBRS Morningstar applied a 5.0% penalty to
the fully adjusted cumulative default assumptions to account for
risks given these factors.
The SBC pool is quite diverse based on loan count and size, with an
average cut-off date loan balance of $402,514, a concentration
profile equivalent to that of a transaction with 128 equal-size
loans, and a top-10 loan concentration of 16.9%. Increased pool
diversity helps to insulate the higher-rated classes from event
risk.
The loans are mostly secured by traditional property types (i.e.,
multifamily, retail, office, and industrial), with no exposure to
higher-volatility property types, such as hotels or other lodging
facilities.
All loans in the SBC pool fully amortize over their respective
remaining loan terms, reducing refinance risk.
As classified by DBRS Morningstar for modeling purposes, the SBC
pool contains a significant exposure to retail (32.6% of the SBC
pool) and office (14.5% of the SBC pool), which are two of the
higher-volatility asset types. Loans counted as retail include
those identified as automotive and potentially commercial
condominium. Combined, retail and office properties represent 47.1%
of the SBC pool balance. Retail, which has struggled because of the
Coronavirus Disease (COVID-19) pandemic, is the third-largest asset
type in the transaction. DBRS Morningstar applied a 20.0% reduction
to the net cash flow (NCF) for retail properties and a 30.0%
reduction to the NCF for office assets in the SBC pool, which is
above the average NCF reduction applied for comparable property
types in CMBS analyzed deals.
DBRS Morningstar did not perform site inspections on loans within
its sample for this transaction. Instead, DBRS Morningstar relied
upon analysis of third-party reports and online searches to
determine property quality assessments. Of the 80 loans in the DBRS
Morningstar sample, 15 were Average quality (23.8%), 48 were
Average - (56.3%), and 15 were Below Average (18.1%). DBRS
Morningstar assumed unsampled loans were Average - quality, which
has a slightly increased POD level. This is consistent with the
assessments from sampled loans and other SBC transactions rated by
DBRS Morningstar.
Limited property-level information was available for DBRS
Morningstar to review. Asset summary reports, property condition
reports, Phase I/II environmental site assessment (ESA) reports,
and historical cash flows were generally not available for review
in conjunction with this securitization. DBRS Morningstar received
and reviewed appraisals for the top 20 loans, which represent 27.7%
of the SBC pool balance. These appraisals were issued between
August 2015 and June 2023 when the respective loans were
originated. DBRS Morningstar was able to perform a loan-level cash
flow analysis on the top 20 loans. The NCF haircuts for the top 20
loans ranged from -8.1% to -100%, with an average of -13.2%. ESA
reports were neither provided nor required by the Issuer; however,
all of the loans have an environmental insurance policy that
provides coverage to the Issuer and the securitization trust in the
event of a claim. No probable maximum loss information or
earthquake insurance requirements are provided. Therefore, a loss
given default penalty was applied to all properties in California
to mitigate this potential risk.
DBRS Morningstar received limited borrower information, net worth
or liquidity information, and credit history. Additionally, the WA
interest rate of the deal is 12.0%, which is indicative of the
broader increased interest rate environment and represents a large
increase over previous VCC deals. DBRS Morningstar generally
initially assumed loans had Weak sponsorship scores, which
increases the stress on the default rate. The initial assumption of
Weak reflects the generally less sophisticated nature of small
balance borrowers and assessments from past small balance
transactions rated by DBRS Morningstar. Furthermore, DBRS
Morningstar received a 12-month pay history on each loan as of May
31, 2023. If any loan has more than two late pays within this
period or was currently 30 days past due, DBRS Morningstar applied
an additional stress to the default rate. This occurred for 27
loans, representing 8.1% of the SBC pool.
RESIDENTIAL MORTGAGE-BACKED SECURITIES (RMBS) METHODOLOGY
The collateral pool consists of 551 mortgage loans with a total
balance of approximately $173.7 million collateralized by one- to
four-unit investment properties. Velocity underwrote the mortgage
loans to No Ratio program guidelines for business-purpose loans.
The transaction assumptions consider DBRS Morningstar's baseline
macroeconomic scenarios for rated sovereign economics, available in
its commentary "Baseline Macroeconomic Scenarios for Rated
Sovereigns: June 2023 Update," published June 30, 2023. These
baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse coronavirus pandemic scenarios, which were
first published in April 2020.
The ratings reflect transactional strengths that, for residential
investor loans, include the following:
-- Improved underwriting standards,
-- Robust loan attributes and pool composition, and
-- Satisfactory third-party due-diligence review.
The transaction also includes the following challenges:
-- Residential investor loans underwritten to No Ratio lending
programs, and
-- Representations and warranties framework.
The full description of the strengths, challenges, and mitigating
factors is detailed in the related Presale Report.
DBRS Morningstar incorporates a dynamic cash flow analysis in its
rating process. A baseline of four prepayment scenarios, two
default timing curves, and two interest rate stresses were applied
to test the resilience of the rated classes. DBRS Morningstar ran a
total of 16 cash flow scenarios at each rating level for this
transaction. Additionally, WA coupon deterioration stresses were
incorporated in the runs.
DBRS Morningstar's credit ratings on the Certificates address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents.
DBRS Morningstar's credit ratings do not address non-payment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations. For example, in this transaction, DBRS Morningstar's
ratings do not address the payment of any Net WAC Rate Carryover
Amounts or Prepayment Interest Shortfalls based on its position in
the cash flow waterfall.
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
VMC FINANCE 2021-FL4: DBRS Confirms B(low) Rating on G Notes
------------------------------------------------------------
DBRS, Inc. confirmed its ratings on all classes of notes issued by
VMC Finance 2021-FL4 LLC as follows:
-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the increased credit support to
the bonds as a result of successful loan repayment, resulting in a
collateral reduction of 29.9% since issuance. The increased credit
support to the bonds serves as a mitigant to potential adverse
selection in the transaction as nine loans are secured by office
properties, representing 63.4% of the current trust loan balance.
As a result of complications initially arising from impacts of the
Coronavirus Disease (COVID-19) pandemic and the ongoing challenges
with leasing available space, the borrowers of these loans have
generally been unable to increase occupancy and rental rates to
initially projected levels, resulting in lower-than-expected cash
flows.
While all loans remain current, given the decline in desirability
for office product across tenants, investors, and lenders alike,
there is greater uncertainty regarding the borrowers' exit
strategies upon loan maturity. In the analysis for this review,
DBRS Morningstar evaluated these risks by stressing the current
property values or increasing the probability of default for three
loans, representing 14.5% of the current trust balance,
collateralized by office properties. That analysis suggested the
rated bonds remain sufficiently insulated (relative to the
respective rating categories) against potential increased credit
risk. In conjunction with this press release, DBRS Morningstar has
published a Surveillance Performance Update report with in-depth
analysis and credit metrics for the transaction and with business
plan updates on select loans.
At issuance, the collateral consisted of 23 loans secured by 29
transitional properties totaling $927.9 million, excluding $92.3
million of future funding commitments. As of the July 2023
remittance, 15 loans secured by 17 properties remain in the trust
with an aggregate principal balance of $650.8 million. Since the
previous DBRS Morningstar rating action in November 2022, one loan
with a former trust balance of $16.5 million, has been repaid in
full. The transaction is static and is structured with a 36-month
Permitted Funded Companion Participation Acquisition Period ended
with the May 2024 Payment Date. As of July 2023 reporting, the Cash
Reinvestment Account had a zero balance.
Beyond the office concentration noted above, the transaction also
comprises five loans, representing 31.0% of the current trust
balance secured by multifamily properties and one loan,
representing 5.6% of the pool secured by a hotel property. In
comparison with April 2022 reporting, office properties represented
57.0% of the collateral, multifamily properties represented 38.3%
of the collateral, and hotel properties represented 4.7% of the
collateral.
The loans are primarily secured by properties in suburban markets
as 12 loans, representing 85.5% of the pool, are secured by
properties in suburban markets, as defined by DBRS Morningstar,
with a DBRS Morningstar Market Rank of 3, 4, or 5. An additional
three loans, representing 14.5% of the pool, are secured by
properties with a DBRS Morningstar Market Rank of 6 or 7, denoting
an urban market. In comparison, in April 2022, properties in
suburban markets represented 83.0% of the collateral and properties
in urban markets represented 17.0% of the collateral.
Leverage across the pool has also remained consistent from the pool
as of April 2022 reporting as the current weighted-average (WA)
as-is appraised value loan-to-value (LTV) ratio is 73.2%, with a
current WA stabilized LTV ratio of 67.7%. In comparison, these
figures were 73.2% and 68.2%, respectively, as of April 2022. DBRS
Morningstar recognizes that select property values may be inflated
as the majority of the individual property appraisals were
completed in 2021 and may not reflect the current rising interest
rate or widening capitalization rate environments.
Through June 2023, the lender had advanced cumulative loan future
funding of $47.6 million to 14 of the 15 remaining individual
borrowers to aid in property stabilization efforts. The largest
advance, $10.3 million, has been made to the borrower of the
Columbus Center loan, which is secured by an office property in
Coral Gables, Florida. Funds were advanced to the borrower to
complete its capital improvement and funds accretive leasing costs.
An additional $34.3 million of loan future funding allocated to the
same 14 individual borrowers remains available. The largest portion
of available funds, $7.5 million, is allocated to the borrower of
the City Parkway loan, which is secured by an office property in
Orange, California. The loan future funding is available to the
borrower to fund accretive leasing costs. The collateral originally
included two buildings; however, one building was sold and released
from the collateral, resulting in a loan curtailment of $20.9
million in May 2022. The remaining property was 42.0% occupied as
of March 2023; however, the leverage is low with an indicative loan
to value ratio of 33.0% based on the original property appraised
value. In conjunction with the curtailment, the loan was modified
to allow all available future funding dollars to be advanced
without a pro rata contribution from the borrower.
As of the July 2023 remittance, there are no delinquent loans or
loans in special servicing, and there are five loans on the
servicer's watchlist, representing 29.1% of the current trust
balance. The loans have been flagged for a variety of reasons
including upcoming maturity dates and low occupancy rates or cash
flow, which may or may not have resulted in cash flow sweeps being
initiated. The largest loan on the servicer's watchlist, One
Financial Plaza (9.1% of the current trust balance), is secured by
an office property in Fort Lauderdale, Florida. The loan matures in
October 2023, and according to the servicer, the borrower began
marketing the property for sale in May 2023 and is expected to
review offers in July 2023. If an offer is accepted, closing is
expected to occur up to 90 days after an agreement is finalized;
however, the collateral manager also noted the borrower is dual
tracking a takeout financing strategy if a property sale is not
realized.
Eight loans, representing 45.6% of the current trust balance, have
been modified. Terms of individual loan modifications vary and have
included the waiver of performance-based tests to exercise maturity
extensions, the waiver of borrower requirements to purchase new
interest rate cap agreements if property operations cover debt
service, and the reallocation of existing reserves or future
funding dollars among other minor terms. In most instances,
individual borrowers were required to contribute fresh equity or
cash flow sweeps were initiated to execute the loan modifications.
Notes: All figures are in U.S. dollars unless otherwise noted.
VOYA CLO 2022-2: Fitch Affirms 'BB-sf' Rating on Class E Notes
--------------------------------------------------------------
Fitch Ratings has affirmed the ratings for the class B, C, D and E
notes of Voya CLO 2022-2, Ltd. (Voya 2022-2). The Rating Outlooks
on all of the rated tranches remain Stable.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
Voya CLO 2022-2, Ltd.
B 92919MAB4 LT AAsf Affirmed AAsf
C 92919MAC2 LT Asf Affirmed Asf
D 92919MAD0 LT BBB-sf Affirmed BBB-sf
E 92919PAA9 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
Voya 2022-2 is a broadly syndicated collateralized loan obligation
(CLO) managed by Voya Alternative Management LLC. The transaction
closed in August 2022 and will exit its reinvestment period in
August 2025. The CLO is secured primarily by first-lien, senior
secured leveraged loans.
KEY RATING DRIVERS
Asset Credit Quality, Asset Security, Portfolio Management and
Portfolio Composition
The affirmations are driven by the portfolios' stable performance
since closing. The credit quality of the portfolio as of July 2023
reporting has remained at the 'B' rating level. The Fitch weighted
average rating factor (WARF) of the portfolio is 24.1, compared to
23.4 at closing.
The portfolio remains fairly diversified with 372 obligors, and the
largest 10 obligors represent 6.2% of the portfolio. There are no
reported defaulted assets. Exposure to issuers with a Negative
Outlook and Fitch's watchlist is 18.3% and 4.4%, respectively.
First lien loans, cash and eligible investments comprise 99.8% of
the portfolio. Fitch's weighted average recovery rate (WARR) of the
portfolio is 77.1%, compared with 76.4% at closing.
All coverage tests, collateral quality tests (CQTs), and
concentration limitations are in compliance.
Cash Flow Analysis
Fitch conducted updated cash flow analyses based on newly run Fitch
Stressed Portfolio (FSP) since the transaction is still in its
reinvestment period. The FSP analysis stressed the current
portfolio from the latest trustee report to account for permissible
concentration and CQT limits. The FSP analysis assumed weighted
average life of 6.1 years. Weighted average spread, WARF and WARR
were stressed to the covenant Fitch test matrix points reflected in
transaction documents. In addition, assumptions of both 0% and 5%
fixed rate assets were tested as part of the FSP's cash flow
modelling.
The ratings for all the rated notes are in line with their
respective model-implied ratings (MIRs), as defined in the CLOs and
Corporate CDOs Rating Criteria.
The Stable Outlooks reflect Fitch's expectation that the notes have
a sufficient level of credit protection to withstand potential
deterioration in the credit quality of the portfolios in stress
scenarios commensurate with each class' rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- Downgrades may occur if realized and projected losses of the
portfolio are higher than what was assumed at closing and the
notes' credit enhancement do not compensate for the higher loss
expectation than initially assumed;
-- A 25% increase of the mean default rate across all ratings,
along with a 25% decrease of the recovery rate at all rating levels
for the current portfolio, would lead to downgrades of up to three
notches, based on the MIRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
-- Upgrades may occur in the event of better-than-expected
portfolio credit quality and transaction performance;
-- A 25% reduction of the mean default rate across all ratings,
along with a 25% increase of the recovery rate at all rating levels
for the current portfolio, would lead to upgrades of up to six
notches, based on the MIRs.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions, 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.
WELLS FARGO 2015-C30: DBRS Confirms B Rating on Class X-F Certs
---------------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2015-C30 issued by Wells Fargo
Commercial Mortgage Trust 2015-C30 as follows:
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)
All trends are Stable.
The rating confirmations and Stable trends reflect DBRS
Morningstar's current outlook and loss expectations for the
transaction, which remain relatively unchanged from the November
2022 review. At that time, DBRS Morningstar changed the trends on
six classes to Stable from Negative, given the decline in the
concentration of loans in special servicing and the improved
outlook of select loans, primarily those secured by retail, lodging
and office properties, which had previously faced disruptions as a
result of the Coronavirus Disease (COVID-19) pandemic.
Although the pool's performance is generally stable, it is
noteworthy that there is a high concentration of loans
collateralized by retail and office properties, which represent
38.9% and 20.4% of the current pool balance, respectively. Those
loans include Gurnee Mills (Prospectus ID#2; 10.5% of the pool) and
Peachtree Mall (Prospectus ID#7; 3.0% of the pool), two top-10
loans secured by regional malls that have seen deteriorations in
operating performance as evidenced by the historical occupancy rate
and/or cash flow trends demonstrated over the last few reporting
periods. In recognition of these increased risks, DBRS Morningstar
downgraded the ratings on six classes during the January 2022
rating action. Despite a lack of material changes in the loans'
performance since the downgrades, DBRS Morningstar maintains an
adverse outlook, given the fluidity of the retail landscape,
shifting consumer preferences, and challenging macro-economic
conditions, which are likely to weigh more heavily on assets that
are located in tertiary markets or smaller metropolitan areas.
In addition to these loans, select others are showing increased
risks from issuance, including a number of loans collateralized by
office properties. Uncertainty surrounding end-user demand may
continue to place upward pressure on vacancy rates in the broader
office market, challenging landlords' efforts to backfill vacant
space, and, in certain instances, contributing to value declines,
particularly for assets in noncore markets and/or with
disadvantages in location, building quality, or amenities offered.
Where applicable, DBRS Morningstar increased the probability of
default (POD) penalties and, in certain cases, applied stressed
loan-to-value ratios (LTVs) for loans that are secured by office
properties. However, in addition to loan-level factors mitigating
risks in some cases, DBRS Morningstar also notes that the
transaction, as a whole, benefits from increased credit support to
the bonds as a result of scheduled amortization and loan
repayments, as well as significant defeasance.
At issuance, the transaction consisted of 53 fixed-rate loans
secured by 199 commercial and multifamily properties with an
aggregate trust balance of $767.6 million. As of the July 2023
remittance, 50 loans remain within the transaction with a trust
balance of $668.9 million, reflecting collateral reduction of 12.9%
since issuance. There are currently 12 fully defeased loans,
representing 17.1% of the pool. Only one loan, representing 1.2% of
the pool, is in special servicing; however, six loans, representing
9.7% of the pool, are on the servicer's watchlist.
DBRS Morningstar is projecting the largest loss amount for the
pool's second largest loan, Gurnee Mills, which is secured by a
1.68 million square foot (sf) portion of a larger 1.9 million-sf
regional mall in the far northwestern Chicago suburb of Gurnee,
Illinois. Simon Property Group (Simon) owns and manages the
property. The loan transferred to special servicing in June 2020 at
the borrower's request because of imminent monetary default. A
forbearance agreement was executed, which allowed Simon to defer
debt service payments for a total of 10 months between May 2020 and
February 2021, with repayment scheduled over a two-year period
beginning in March 2021. The loan subsequently returned to the
master servicer in May 2021.
Operating performance has improved from the lows reported during
the pandemic, with the property reporting YE2022 occupancy rate,
net cash flow (NCF), and debt service coverage ratio (DSCR) metrics
of 80.3%, $19.7 million and 1.9 times (x), respectively, which
compare favorably with the prior year's figures of 77.5%, $17.8
million, and 1.7x. However, reported NCF remains subdued with the
YE2022 figure more than 20.0% below the issuance figure of $25.1
million. Occupancy at the property has generally trended downward
since the loss of Sears Grand (formerly 12.0% of net rentable area
(NRA)) in 2018 and Rink Side (formerly 3.3% of NRA) in 2021. The
Sears Grand vacancy has been outstanding for more than four years,
and the environment for re-leasing that space continues to be
challenging. The property also has exposure to Bed Bath & Beyond,
which is liquidating all stores following the bankruptcy filing
earlier this year. Strong sponsorship and equity contribution at
issuance are noteworthy mitigating factors, but the sponsor's
commitment to the asset may come under pressure, especially if
stabilization is not realized in the near to moderate term.
No updated appraisal has been provided since issuance, when the
property was valued at $417.0 million; however, given that
occupancy and NCF at the property have remained stressed for an
extended period of time, DBRS Morningstar notes that the
collateral's as-is value has likely declined significantly,
elevating the credit risk to the trust. As such, DBRS Morningstar
increased the probability of default for this loan and derived a
stressed value based on the property's in-place cash flow, using
the high end of DBRS Morningstar's cap rate range for retail
properties, with the resulting LTV ratio well above 100.0% and the
adjusted expected loss approximately 67.0% higher than the pool
average.
The only loan in special servicing, 350-360 Fairfield Avenue
(Prospectus ID#32; 1.2% of the pool) is secured by a two-building
130,431-sf office complex in Bridgeport, Connecticut, approximately
55 miles from Manhattan. The loan was monitored on the servicer's
watchlist between 2018 and YE2021 for a low DSCR and subsequently
transferred to the special servicer in January 2022 for imminent
monetary default after the borrower informed the lender that they
are no longer willing to contribute additional capital to the
property. As of the July 2023 remittance, the loan is delinquent,
having last paid in November 2021. The collateral is currently in
receivership and the special servicer has confirmed it is in the
process of taking title.
Cash flow and occupancy at the property has been depressed since
issuance, primarily because of declining average rentals rates and
increasing operating expenses. According to the financials for the
trailing six months ended June 30, 2022, the property generated NCF
of $223,645 ($447,290 when annualized), resulting in a DSCR of
0.8x, relatively in line with the prior year but significantly
lower than both the YE2020 and issuance figures of $601,327 and
1.1x, and $749,891 and 1.4x, respectively. According to the March
2023 rent roll, the collateral was 72.5% occupied with an average
base rental rate of $20.75 per square foot (psf). Tenant leases
representing approximately 15,500 sf (11.9% of NRA) are set to roll
within the next 12 months or are currently on month-to-month
leases. According to Reis, the East submarket of Fairfield County
reported a Q1 2023 vacancy rate of 18.8% and asking rental rates of
$36.23 psf. Given the submarket's soft fundamentals and the
sustained elevated vacancy rate at the property, DBRS Morningstar
derived a stressed value based on the property's in-place cash
flow, using the high end of DBRS Morningstar's capitalization rate
range for office properties, resulting in a modelled whole-loan LTV
ratio of more than 150.0% and an expected loss approximately 86.0%
higher than the pool average.
At issuance, DBRS Morningstar shadow-rated the 9 West 57th Street
loan (Prospectus ID#3; 7.5% of the pool) as investment grade. This
assessment was supported by the loans' strong credit metrics,
strong sponsorship strength, and desirable location in the Plaza
District submarket of Manhattan. With this review, DBRS Morningstar
confirms that the characteristics of these loans remain consistent
with the investment-grade shadow rating.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2015-LC20: DBRS Cuts Class F Certs Rating to CCC
------------------------------------------------------------
DBRS Limited downgraded its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2015-LC20 issued by Wells Fargo
Commercial Mortgage Trust 2015-LC20 as follows:
-- Class E to B (high) (sf) from BB (low) (sf)
-- Class F to CCC (sf) from B (low) (sf)
-- Class X-E to BB (low) from BB (sf)
In addition, DBRS Morningstar confirmed the remaining classes as
follows:
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
All trends are Stable, with the exception to Class F, which is
assigned a rating does not typically carry a trend in commercial
mortgaged-backed securities (CMBS) ratings. DBRS Morningstar also
discontinued and withdrew the rating on Class X-F as the lowest
referenced obligation, Class F, was downgraded to CCC (sf).
At the last rating action in November 2022, the trends on Classes E
and X-E were changed to Stable from Negative because of the
improved performance of some specially serviced loans that returned
to the master servicer. The trends on Class F and X-F remained
negative primarily because of sustained concerns regarding the
largest specially serviced loan, One Monument Place (Prospectus
ID#3, 4.5% of the pool balance), secured by an office property in
Fairfax, Virginia. A forbearance agreement was previously executed
to extend the loan maturity to April; however, the borrower has
since requested an additional extension. In addition, the value of
the property significantly declined with the January 2023 appraisal
reporting at $23.6 million, compared with the issuance value of
$60.0 million. Given the substantial value decline, this loan,
along with three other specially serviced loans that reported
stressed values, were analyzed with liquidation scenarios. Based on
these results, the balance of the first-loss piece, Class G, would
be eroded by approximately 80.0%, decreasing the credit support and
the rating downgrades.
In terms of the pool composition, the trust primarily consists of
loans secured by defeasance collateral, retail, and hotel
properties, representing 32.3%, 23.0%, and 18.8% of the pool
balance, respectively. The office concentration is quite small,
representing about 10.0% of the pool balance. Considering the
challenges that are impacting the office sector with low investor
appetite and generally increased submarket vacancies, office loans
and loans exhibiting increased risk from issuance were analyzed
with stressed scenarios, resulting in a the weighted-average
expected loss that was approximately 70% higher than the pool
average.
As of the July 2023 remittance, 61 of the original 68 loans remain
in the pool with a trust balance of $683.9 million, representing a
collateral reduction of 17.6% since issuance. Twelve loans,
representing 17.1% of the current pool balance, are on the
servicer's watchlist and are being monitored for low performance,
tenant rollover risk, or deferred maintenance. Five loans,
representing 13.5% of the current pool balance, are in special
servicing, three of which have a history of delinquency.
The largest loan in special servicing, One Monument Place, is
secured by a Class A office located in Fairfax. The loan has been
in special servicing since April 2020 after the borrower failed to
repay the loan at maturity, citing challenges arising from the
Coronavirus Disease (COVID-19) pandemic. A forbearance agreement
was executed in September 2021, the terms of which included a $5.0
million principal paydown, a loan extension to April 2023, and a
conversion to interest-only (IO) payments. However, the loan was
unable to be repaid, and an additional extension was requested. The
January 2023 appraisal valued the property at $23.6 million, a
decline from the April 2022 value of $26.1 million and well below
the issuance value of $60.0 million.
Occupancy has been declining precipitously since issuance with the
April 2023 rent roll reporting an occupancy rate of 32.1%, compared
with the issuance figure of 91.6%. As a result, the loan has been
reporting a debt service coverage ratio (DSCR) well below
breakeven, with the YE2022 figure at 0.04 times (x).
Given the sustained low performance, drastic decline in value, and
the general challenges affecting the office sector, DBRS
Morningstar analyzed the loan with a liquidation scenario,
resulting in an implied loss approaching $15.3 million, or a loss
severity in excess of 45.0%.
The second largest loan in special servicing, University of
Delaware Hotel Portfolio (Prospectus ID #4, 4.4% of the pool
balance), is secured by two adjacent hotels totaling 245 keys and
located in close proximity to the main campus of the University of
Delaware in Newark, Delaware. The loan was initially transferred to
special servicing in April 2020 at the borrower's request because
of the challenges arising from the coronavirus pandemic. Relief
cash management was set up as a result. The loan was returned to
the master servicer but was being monitored on the watchlist for a
low DSCR and an upcoming anticipated repayment date (ARD) of March
2022 (final maturity date is March 2025). Ultimately, the loan
failed to repay at ARD and was transferred back to special
servicing in January 2023 because of imminent monetary default. The
borrower has requested for a second modification as well as
permission to sell the Homewood Suites by Hilton Newark-Wilmington
South hotel. The request, along with all potential workout options,
are being evaluated by the special servicer. According to the May
2023 STR reporting, the occupancy rate, average daily rate, and
revenue per available room (RevPAR) for the trailing 12-month
period ended May 31, 2023, were reported at 68.3%, $153.53, and
$104.59, respectively. This is an improvement over the YE2021
RevPAR of $57.28 but still below pre-pandemic levels with the
YE2019 RevPAR at $115.64. As of the most recent financials, the
YE2022 DSCR was reported to be 0.89x, up from YE2020 DSCR of -0.14x
but still below the pre-pandemic levels with the YE2019 DSCR at
1.68x. Based on the March 2023 appraisal, the subject was valued at
$41.5 million, a slight improvement from the March 2022 value of
$40.7 million but below the issuance value of $49.0 million.
Despite the value decline, the value is still sufficient to cover
the outstanding loan balance of $30.3 million, resulting in a
loan-to-value ratio of approximately 73.0%. For this review, DBRS
Morningstar analyzed the loan with an elevated probability of
default, resulting in an expected loss that was more than double
the pool average.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2016-C32: DBRS Confirms B Rating on Class X-F Certs
---------------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2016-C32 issued by Wells Fargo
Commercial Mortgage Trust 2016-C32 as follows:
-- Class A-3 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)
All trends are Stable.
The rating confirmations reflect the overall stable performance of
the transaction, which remains in line with DBRS Morningstar's
expectations. Per the July 2023 remittance, 100 of the original 112
loans remain in the pool, with an aggregate principal balance of
$810.6 million, representing a collateral reduction of 15.6% since
issuance. Twenty-one loans, representing 11.6% of the pool, are
fully defeased. In addition, loans representing 19.4% of the
current pool balance are on the servicer's watchlist and four
loans, representing 5.5% of the current pool balance, are in
special servicing. Based on the most recent year-end financials,
the pool reported a healthy debt service coverage ratio (DSCR) of
1.87 times (x) compared with the prior year's DSCR of 1.67x.
The largest loan in special servicing, 10 South LaSalle Street
(Prospectus ID#6; 3.7% of the current pool balance), was analyzed
with a liquidation scenario for this review, given the soft
submarket fundamentals, low occupancy rate, and declining cash
flows. This resulted in implied losses of more than $10.0 million.
The remaining three loans in special servicing, which collectively
represented 1.8% of the current pool balance, were also analyzed
with liquidation scenarios, given the assets were real-estate
owned. The projected loss for all four loans was in excess of $12.0
million, eroding the first-loss Class G certificate by
approximately 35.0%.
The pool is concentrated by property type, with retail and office
properties comprising 28.6% and 14.8% of the pool, respectively. In
general, the office sector has been challenged, given the low
investor appetite for the property type and high vacancy rates in
many submarkets as a result of the shift in workplace dynamics. In
the analysis for this review, loans backed by office and other
properties that were showing declines from issuance or otherwise
exhibiting increased risks from issuance were analyzed with
stressed scenarios to increase the expected loss (EL) as
applicable. As a result, office properties exhibited a
weighted-average (WA) EL that was 49.0% greater than the pool
average.
The 10 South LaSalle Street loan is secured by a 781,000-square
foot (sf), Class B office building in the Central Loop submarket of
Chicago. This loan is pari passu with a loan secured in the Wells
Fargo Commercial Mortgage Trust 2016-NXS5 transaction, which is
also rated by DBRS Morningstar. Despite the property having
undergone $17.8 million worth of renovations over the past five
years aimed at making it more competitive, the occupancy rate has
remained depressed since 2020 and was at 75.5% as of the March 2023
reporting.
The loan transferred to special servicing in August 2022 for
imminent default, however, as of the most recent remittance, the
loan remains current. The special servicer remains in contact with
the borrower to evaluate next steps, with a resolution that was
targeted for June 2023.
The YE2022 net cash flow (NCF) was reported at $3.7 million, a
significant decline from the YE2020 and issuance NCF figures of
$8.1 million and $10.7 million, respectively. Likewise, the DSCR
remains stressed, with the YE2022 figure below breakeven at 0.79x.
Per the December 2022 rent roll, the property was 75.5% occupied
compared with the YE2020 and issuance occupancy rates of 72.0% and
89.0%, respectively. Rollover risk is moderate for the next 12
months, with tenant leases representing 7.8% of net rentable area
(NRA) scheduled to roll. The largest three tenants at the property
are Chicago Title Co. (13.6% of NRA; lease expiry in March 2025),
Amwins Brokerage of Illinois (7.4% of NRA; lease expiry in August
2027), and Clausen Miller PC (5.4% of NRA; lease expiry in December
2025). As of December 2022, the average rental rate at the property
was $28 per square foot (psf), which is below the $32 psf figure
for the Central Loop submarket, according to Reis.
The building is within the City of Chicago's planned LaSalle Street
redevelopment project, which is seeking to create a more mixed-use
neighborhood along the LaSalle corridor in the Central Loop. As
part of the initiative, developers plan to convert existing office
space to residential units, however, the collateral is not included
in the preliminary pool of participating properties. The subject
property was most recently appraised in December 2015 at a value of
$166.5 million; however, given the declines in occupancy rate and
cash flow, coupled with the diminished investor appetite for this
property type, the asset's value has likely declined significantly,
elevating the loan's leverage and credit risk.
It is worth noting that a January 2023 appraisal obtained for 135
South LaSalle Street, a Class A office building 0.1 miles from the
subject property, indicated a decline in value in excess of 70.0%
from issuance following a precipitous decline in occupancy rate to
below 20.0%. For this review, DBRS Morningstar analyzed the loan
with a liquidation scenario based on a haircut to the issuance
value, with consideration given to the outdated appraisal and soft
market conditions, which resulted in a loss severity in excess of
30.0%.
The largest loan on the servicer's watchlist, Technology Station
(Prospectus ID#3; 5.9% of the pool), is secured by a 95,000-sf
suburban office property in Redwood City, California. The loan was
added to the watchlist in November 2022 because of a drop in
occupancy following the departure of the property's third-largest
tenant, GoFundMe (previously 21.0% of NRA), as its lease expired in
August 2022.
The annualized NCF for the trailing three months ended March 30,
2023, was reported at $4.3 million (representing a DSCR of 1.48x)
while the YE2022 NCF was reported at $7.5 million (DSCR of 2.60x)
compared with the YE2021 NCF of $7.6 million (a DSCR of 2.62x) and
the issuance NCF of $5.7 million (a DSCR of 1.96x). According to
the March 2023 rent roll, the property was 71.0% occupied, a
decrease from the YE2022 occupancy rate of 79.3% and a further
decline from the YE2021 occupancy rate of 100.0%. The departures of
GoFundMe and Physiatry Medical Group (previously 8.4% of NRA, lease
expired December 2022) were the main drivers for the decrease in
occupancy rate and cash flow. Biomea Fusion Inc. was expected to
backfill GoFundMe's space but its lease was not executed and the
space remains vacant. For this review, DBRS Morningstar applied a
stressed loan-to-value ratio and increased the probability of
default in the analysis, resulting in an EL that was 40.0% higher
than the pool average.
Notes: All figures are in U.S. dollars unless otherwise noted.
WELLS FARGO 2018-C47: DBRS Confirms BB Rating on Class G-RR Certs
-----------------------------------------------------------------
DBRS Limited confirmed its ratings on the Commercial Mortgage
Pass-Through Certificates, Series 2018-C47 issued by Wells Fargo
Commercial Mortgage Trust 2018-C47 as follows:
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-D at A (sf)
-- Class D at A (low) (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BBB (low) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (high) (sf)
All trends are Stable. The rating confirmations reflect the overall
stable performance of this transaction, which has remained in line
with DBRS Morningstar's expectations since the last rating action.
As of the July 2023 remittance, 73 of the original 74 loans remain
in the trust, with an aggregate balance of $920.9 million,
representing a collateral reduction of 3.2% since issuance. The
pool benefits from 10 loans that are fully defeased, representing
9.3% of the pool. Eleven loans, representing 9.8% of the pool, are
on the servicer's watchlist being monitored primarily for declines
in occupancy rate and/or debt service coverage ratio (DSCR), or
deferred maintenance items. Three loans, representing 5.8% of the
pool, are in special servicing.
The largest loan in special servicing, Holiday Inn FiDi (Prospectus
ID#6; 3.8% of the current pool balance), is secured by a
limited-service hotel located in the financial district of downtown
Manhattan, New York. The loan, which is pari passu with notes
securitized in CGCMT 2018-C6 and CSAIL 2018-C14, was transferred to
the special servicer in May 2020 because of pandemic-related
hardships. After failed negotiations and the lifting of New York's
moratorium on foreclosures in January 2022, the servicer initiated
the receivership process, but proceedings were again halted when
the borrower filed for bankruptcy in November 2022. While in
bankruptcy, the borrower entered into an agreement with New York
City Health + Hospitals in January 2023 to operate the hotel as a
migrant family shelter through April 2024. According to a June 2023
Bloomberg publication, the city would pay a premium average daily
rate (ADR) of $190 to house the migrants and also guarantees the
hotel full occupancy. This nightly rate would be higher than the
property's reported ADR of $170.40 for YE2022.
As per the most recently provided STR, the occupancy rate, ADR, and
revenue per available room (RevPAR) were reported to be 83.2%,
$170.40, and $141.80, respectively, for the trailing 12-month
period ended December 31, 2022. The asset is underperforming its
competitive set with a RevPAR penetration index of 89.9%. The most
recent appraisal, dated August 2021, valued the property at $146.9
million, a slight uptick from the August 2020 appraised value of
$138.6 million but ultimately a 37.0% decline from the issuance
appraised value of $233.0 million. The most recent appraisal is
still above the whole loan balance of $137.0 million (inclusive of
the $50 million B note, which is held in a private placement real
estate investment trust). DBRS Morningstar does not view the
borrower's strategy for shifting operations at the property as
sufficiently mitigating the asset's underperformance and delayed
workout proceedings. As such, DBRS Morningstar's analysis includes
an elevated probability of default adjustment for the loan,
resulting in an expected loss that is approximately 75.0% higher
than the pool level expected loss.
The majority of the remaining pool continues to perform in line
with expectations. The transaction is concentrated by property type
with 37.5% of the loans in the pool backed by retail properties,
followed by hotels and office properties with 21.7% and 14.2% of
the pool, respectively. In its review, DBRS Morningstar identified
increased credit risk for five of the nine loans backed by office
properties, and used additional stresses to increase the expected
loss amounts given concerns with these assets and the generally
decreased investor appetite for this property type. As a result of
these stressed scenarios, the office loans in the pool had a
weighted-average (WA) expected loss that was approximately 160%
greater than the WA pool expected loss.
At issuance, DBRS Morningstar assigned investment-grade shadow
ratings to three loans: Aventura Mall (Prospectus ID#2; 5.4% of
pool), Christiana Mall (Prospectus ID#3; 5.4% of pool), and 2747
Park Boulevard (Prospectus ID#8; 2.8% of pool). With this review,
DBRS Morningstar confirms that the performance of these loans
remains in line with the investment-grade shadow ratings.
Notes: All figures are in U.S. dollars unless otherwise noted.
WESTLAKE AUTOMOBILE 2023-3: DBRS Gives Prov. BB Rating on E Notes
-----------------------------------------------------------------
DBRS, Inc. assigned provisional ratings to the classes of notes to
be issued by Westlake Automobile Receivables Trust 2023-3 (Westlake
2023-3 or the Issuer) as follows:
-- $224,400,000 Class A-1 Notes at R-1 (high) (sf)
-- Class A-2-A Notes at AAA (sf)*
-- Class A-2-B Notes at AAA (sf)*
-- $128,440,000 Class A-3 Notes at AAA (sf)
-- $75,510,000 Class B Notes at AA (sf)
-- $123,340,000 Class C Notes at A (sf)
-- $101,440,000 Class D Notes at BBB (sf)
-- $57,640,000 Class E Notes at BB (sf)
*The combination of the Class A-2-A and Class A-2-B Notes is
expected to equal $346,870,000. The allocation of the principal
amount between the Class A-2-A and Class A-2-B Notes will be
determined at or before the time of pricing (subject to a maximum
allocation of 50% to the Class A-2-B Notes) and may result in the
principal amount of the Class A-2-B Notes being zero.
CREDIT RATING RATIONALE
The provisional ratings are based on DBRS Morningstar's review of
the following analytical considerations:
(1) Transaction capital structure, ratings, and form and
sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization
(OC), subordination, amounts held in the reserve fund, and excess
spread. Credit enhancement levels are sufficient to support the
DBRS Morningstar-projected cumulative net loss (CNL) assumption
under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow
assumptions and repay investors according to the terms under which
they have invested. For this transaction, the ratings address the
timely payment of interest on a monthly basis and principal by the
legal final maturity date for each class.
(2) The DBRS Morningstar CNL assumption is 11.25% based on the
expected pool composition.
-- The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary, "Baseline Macroeconomic Scenarios for
Rated Sovereigns: June 2023 Update," published on June 30, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse Coronavirus Disease (COVID-19) pandemic
scenarios, which were first published in April 2020.
(3) The Westlake 2023-3 Notes are exposed to interest risk because
of the fixed-rate collateral and the floating interest rate borne
by the Class A-2-B Notes.
-- DBRS Morningstar ran interest rate stress scenarios to assess
the effect on the transaction's performance, and its ability to pay
noteholders per the transaction's legal documents.
-- DBRS Morningstar assumed two stressed interest rate
environments for each rating category, which consist of increasing
and declining forward interest rate paths for a 30-day average
Secured Overnight Financing Rate based on the DBRS Morningstar
Unified Interest Rate Tool.
(4) The consistent operational history of Westlake Services, LLC
(Westlake or the Company) and the strength of the overall Company
and its management team.
-- The Westlake senior management team has considerable experience
and a successful track record within the auto finance industry.
(5) The capabilities of Westlake with regard to originations,
underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Westlake
and considers the entity to be an acceptable originator and
servicer of subprime automobile loan contracts with an acceptable
backup servicer.
(6) DBRS Morningstar used the static pool approach exclusively
because Westlake has enough data to generate a sufficient amount of
static pool projected losses.
-- DBRS Morningstar was conservative in the loss forecast analysis
performed on the static pool data.
(7) The Company indicated that it is subject to various consumer
claims and litigation seeking damages and statutory penalties. Some
litigation against Westlake could take the form of class action
complaints by consumers; however, the Company believes that it has
taken prudent steps to address and mitigate the litigation risks
associated with its business activities.
(8) Computershare Trust Company, N.A. (rated BBB and R-2 (middle)
with Stable trends by DBRS Morningstar) has served as a backup
servicer for Westlake.
(9) The legal structure and expected presence of legal opinions
that will address the true sale of the assets to the Issuer, the
nonconsolidation of the special-purpose vehicle with Westlake, that
the trust has a valid first-priority security interest in the
assets, and the consistency with DBRS Morningstar's "Legal Criteria
for U.S. Structured Finance."
The collateral securing the notes consists entirely of a pool of
retail automobile contracts secured by predominantly used vehicles
that typically have high mileage. The loans are primarily made to
obligors who are categorized as subprime, largely because of their
credit history and credit scores.
Westlake is an independent full-service automotive financing and
servicing company that provides (1) financing to borrowers who do
not typically have access to prime credit-lending terms for the
purchase of late-model vehicles and (2) refinancing of existing
automotive financing.
The ratings on the Class A-1, A-2-A, A-2-B, and A-3 Notes reflect
40.30% of initial hard credit enhancement provided by subordinated
notes in the pool (31.05%), the reserve account (1.00%), and OC
(8.25%). The ratings on the Class B, Class C, Class D, and Class E
Notes reflect 33.75%, 23.05%, 14.25%, and 9.25% of initial hard
credit enhancement, respectively. Additional credit support may be
provided from excess spread available in the structure.
DBRS Morningstar's credit rating on the securities listed below
addresses the credit risk associated with the identified financial
obligations in accordance with the relevant transaction documents.
DBRS Morningstar's credit rating does not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations.
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued. The DBRS Morningstar short-term debt
rating scale provides an opinion on the risk that an issuer will
not meet its short-term financial obligations in a timely manner.
Notes: All figures are in U.S. dollars unless otherwise noted.
WESTLAKE AUTOMOBILE 2023-3: S&P Assigns BB (sf) Rating on F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned its ratings to Westlake Automobile
Receivables Trust 2023-3's automobile receivables-backed notes
series 2023-3.
The note issuance is an ABS transaction backed by subprime auto
loan receivables.
The ratings reflect:
-- The availability of approximately 44.68%, 38.73%, 30.24%,
23.42%, and 20.17% credit support (hard credit enhancement and
haircut to excess spread) for the class A (classes A-1, A-2-A,
A-2-B, and A-3, collectively), B, C, D, and E notes, respectively,
based on post-pricing stressed cash flow scenarios. These credit
support levels provide at least 3.50x, 3.00x, 2.30x, 1.75x, and
1.50x coverage of our expected cumulative net loss of 12.50% for
the class A, B, C, D, and E notes, respectively.
-- The expectation that under a moderate ('BBB') stress scenario
(1.75x S&P's expected loss level), all else being equal, its 'AAA
(sf)', 'AA (sf)', 'A (sf)', 'BBB (sf)', and 'BB (sf)' ratings on
the class A, B, C, D, and E notes, respectively, are within its
credit stability limits.
-- The timely payment of interest and principal by the designated
legal final maturity dates under S&P's stressed cash flow modeling
scenarios, which it believes are appropriate for the assigned
ratings.
-- The collateral characteristics of the securitized pool of
subprime automobile loans, our view of the credit risk of the
collateral, and our updated macroeconomic forecast and
forward-looking view of the auto finance sector.
-- The series' bank accounts at Wells Fargo Bank N.A., which do
not constrain the ratings.
-- S&P's operational risk assessment of Westlake Services LLC as
servicer and its view of the company's underwriting and the backup
servicing arrangement with Computershare Trust Co. N.A.
-- S&P's assessment of the transaction's potential exposure to
environmental, social, and governance credit factors, which are in
line with its sector benchmark.
-- The transaction's payment and legal structures.
Ratings Assigned
Westlake Automobile Receivables Trust 2023-3
Class A-1, $350.00 million: A-1+ (sf)
Class A-2-A, $374.37 million: AAA (sf)
Class A-2-B, $170.00 million: AAA (sf)
Class A-3, $198.23 million: AAA (sf)
Class B, $117.90 million: AA (sf)
Class C, $192.60 million: A (sf)
Class D, $158.40 million: BBB (sf)
Class E, $90.00 million: BB (sf)
WSTN 2023-MAUI: DBRS Finalizes BB Rating on Class HRR Certs
-----------------------------------------------------------
DBRS, Inc. finalized provisional ratings on the following classes
of Commercial Mortgage Pass-Through Certificates, Series 2023-MAUI
(the Certificates) issued by WSTN Trust 2023-MAUI (WSTN
2023-MAUI).
-- Class A at AAA (sf)
-- Class X-CP at BB (high) (sf)
-- Class X-NCP at BB (high) (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class HRR at BB (sf)
The WSTN 2023-MAUI transaction is secured by the borrower's
leasehold interest in a 771 key full-service resort and spa located
on the island of Maui. Built in 1971, the Westin Maui Resort and
Spa, Kaanapali offers 700 feet of direct ocean frontage on the
Kaanapali Beach with an outer island location. DBRS Morningstar has
a positive view on the collateral and contends the NCF on the
Westin Maui Resort and Spa, Kaanapali is sustainable and will
continue to grow over the term of the loan considering the hotel's
prime beachfront location, the significant capital invested into
the property with continued near-term investment, and the
collateral's strong financial performance.
The resort offers two guest room buildings, the Hokupa'a Tower and
the Ocean Tower, both of which offer a unique guest room experience
with different price points depending on the size and distinctive
interior finishes. The resort features six outdoor resort-style
pools overlooking Kaanapali Beach, a 270-foot water slide, six F&B
outlets, 68,000 sf of indoor and outdoor event space catered for
various events, an award-winning, full-service spa with nine
treatment rooms, a fitness center, 20,000 sf of retail space, and
preferred access at the Kaanapali Golf Courses and Lanai Club
Lounge for guests staying in the Hokupa'a Tower. DBRS Morningstar
believes the resort will continue to attract targeted guest groups
by fulfilling their various needs and providing them with unique
experiences within the multitude of activities it offers. In
addition to room and F&B revenue, the resort has also consistently
generated approximately 12% of its total revenue in ancillary
income from resort fees, its spa and fitness offerings, parking,
and private events over the past few years including 2020 amid the
Coronavirus Disease (COVID-19) pandemic. DBRS Morningstar views the
diversification of operations as a credit positive because the
resort's cash flow will be less susceptible to revenue swings than
more limited service hotels, making it more resilient during
economic downturns. The sponsor has invested heavily in the
property since acquiring the collateral in 2017, and the
improvements have bolstered the property's position within the
hospitality segment on Maui. In 2021, the sponsor completed a $121
million capital improvement plan, which included the full
renovation of the Hokupa'a Tower, repositioned public areas and
amenities throughout the property, re-concepted the lobby,
re-concepted F&B offerings, enhanced the pool areas/aquatic
amenities, improved meeting and event space, upgraded the spa and
fitness facilities, fully renovated and expanded the retail
corridor and built an entirely new 430-space parking structure. To
further sustain the upkeep of the property and align guest room
finishes, the sponsor is in the process of investing approximately
$29 million to renovate the Ocean Tower with an expected completion
by the end of 2023. Renovations will include a refresh of all hard
and soft goods in the guest rooms at the Ocean Tower and the
redevelopment of the Westin Family Kids Club, vacant retail, and
office space in Ocean Tower. Upon completion of the renovation, the
redeveloped space will include a 12,000-sf social space environment
that will feature a variety of entertainment for guests such as
duckpin bowling lanes, an assortment of arcade games, and virtual
golf suites. DBRS Morningstar views the value-add renovation as a
key element for the collateral to enhance the hotel's performance
and maintain is status as a competitive asset within the Maui
market.
Like most beachfront developments in Hawaii, the collateral is
encumbered by a ground lease. The ground lease is scheduled to
expire on December 31, 2086, and contains rent provisions that
escalate at five-year intervals. Terms for the lease require the
greater of (i) annual minimum rent of $4.5 million between January
1, 2019, and December 31, 2026 or (ii) percentage rent equal to the
sum of the percentages of gross revenues: 6.0% of rooms revenue,
4.0% of F&B revenue, 10.0% of other revenue, and 25.0% of
concessions. On January 1, 2027, and every five-year period
afterwards, minimum rent resets to 80.0% of the average of the
combined annual minimum rent and percentage rent paid during the
three calendar years immediately preceding the reset. Additionally,
on January 1, 2027, percentage rent resets to percentages that will
be mutually agreed upon by Campbell Hawaii Investor LLC (lessor)
and WM Lessee LLC (lessee).
DBRS Morningstar's credit ratings on the Certificates address the
credit risk associated with the identified financial obligations in
accordance with the relevant transaction documents. The associated
financial obligations are listed at the end of this press release.
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction document(s) that are not financial
obligations (for example, default prepayment premium).
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in U.S. dollars unless otherwise noted.
[*] DBRS Confirms 8 Ratings From 2 Republic Finance Transactions
----------------------------------------------------------------
DBRS, Inc. confirmed eight ratings from two Republic Finance
Issuance Trust transactions.
Rating Action
------ ------
Republic Finance Issuance Trust 2020-A
Class A Notes AA (sf) Confirmed
Class B Notes A (low) (sf) Confirmed
Class C Notes BBB (low) (sf) Confirmed
Class D Notes BB (low) (sf) Confirmed
Republic Finance Issuance Trust 2021-A
Class A Notes AA (sf) Confirmed
Class B Notes A (low) (sf) Confirmed
Class C Notes BBB (low) (sf) Confirmed
Class D Notes BB (low) (sf) Confirmed
The rating actions are based on the following analytical
considerations:
-- The transaction assumptions consider DBRS Morningstar's
baseline macroeconomic scenarios for rated sovereign economies,
available in its commentary Baseline Macroeconomic Scenarios For
Rated Sovereigns - June 2023 Update, published on June 30, 2023.
These baseline macroeconomic scenarios replace DBRS Morningstar's
moderate and adverse COVID-19 pandemic scenarios, which were first
published in April 2020.
-- The collateral performance to date and DBRS Morningstar's
assessment of future performance.
-- The transaction parties' capabilities with regard to
origination, underwriting, and servicing.
[*] DBRS Reviews 54 Classes From 3 US RMBS Transactions
-------------------------------------------------------
DBRS, Inc. reviewed 54 classes from three U.S. residential
mortgage-backed securities (RMBS) transactions. These transactions
consist of fixed- and adjustable-rate, first-lien residential
mortgages collateralized by investor properties with one to four
units (residential investor loans) and small-balance commercial
mortgages (SBC) collateralized by various types of commercial,
multifamily rental, and mixed-use properties. Of the 54 classes
reviewed, DBRS Morningstar upgraded 12 ratings and confirmed 42
ratings.
The Affected Ratings Are Available at https://bit.ly/3QBFeaV
Here is the list of Issuers:
Velocity Commercial Capital Loan Trust 2021-3
Velocity Commercial Capital Loan Trust 2021-2
Velocity Commercial Capital Loan Trust 2022-4
The rating upgrades reflect positive performance trends and
increases in credit support sufficient to withstand stresses at
their new rating levels. The rating confirmations reflect asset
performance and credit-support levels that are consistent with the
current ratings.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than $3 per
share in public markets. At first glance, this list may look like
the definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
On Thursdays, the TCR delivers a list of recently filed
Chapter 11 cases involving less than $1,000,000 in assets and
liabilities delivered to nation's bankruptcy courts. The list
includes links to freely downloadable images of these small-dollar
petitions in Acrobat PDF format.
Each Friday's edition of the TCR includes a review about a book of
interest to troubled company professionals. All titles are
available at your local bookstore or through Amazon.com. Go to
http://www.bankrupt.com/books/to order any title today.
Monthly Operating Reports are summarized in every Saturday edition
of the TCR.
The Sunday TCR delivers securitization rating news from the week
then-ending.
TCR subscribers have free access to our on-line news archive.
Point your Web browser to http://TCRresources.bankrupt.com/and use
the e-mail address to which your TCR is delivered to login.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter is a daily newsletter co-published
by Bankruptcy Creditors Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Philadelphia, Pa., USA.
Randy Antoni, Jhonas Dampog, Marites Claro, Joy Agravante,
Rousel Elaine Tumanda, Joel Anthony G. Lopez, Psyche A. Castillon,
Ivy B. Magdadaro, Carlo Fernandez, Christopher G. Patalinghug, and
Peter A. Chapman, Editors.
Copyright 2023. All rights reserved. ISSN: 1520-9474.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers. Information contained
herein is obtained from sources believed to be reliable, but is
not guaranteed.
The TCR subscription rate is $975 for 6 months delivered via
e-mail. Additional e-mail subscriptions for members of the same
firm for the term of the initial subscription or balance thereof
are $25 each. For subscription information, contact Peter A.
Chapman at 215-945-7000.
*** End of Transmission ***