Rating Action: Moody's affirms six classes of CFCRE 2016-C6
Global Credit Research - 25 Aug 2020
Approximately $585 million of structured securities affected
New York, August 25, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on six classes in CFCRE 2016-C6 Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2016-C6:
Cl. A-1, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)
Cl. A-2, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)
Cl. A-M, Affirmed Aa2 (sf); previously on Nov 16, 2018 Affirmed Aa2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)
* Reflects interest-only classes
The ratings on five principal and interest (P&I) classes were affirmed because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges.
The rating on the interest only (IO) class was affirmed based on the credit quality of the referenced classes.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of commercial real estate from the collapse in US economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties. Moody's rating action reflects a base expected loss of 7.9% of the current pooled balance, compared to 4.1% at Moody's last review. Moody's base expected loss plus realized losses is now 8.1% of the original pooled balance, compared to 4.1% at the last review. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral's credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool's share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except interest-only classes was "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in May 2020 and available at https://www.moodys.com/research/Approach-to-Rating-US-and-Canadian-ConduitFusion-CMBS--PBS_1226187. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in May 2020 and available at https://www.moodys.com/research/Approach-to-Rating-US-and-Canadian-ConduitFusion-CMBS--PBS_1226187 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/research/Moodys-Approach-to-Rating-Structured-Finance-Interest-Only-IO-Securities--PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
As of the August 12, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 4% to $759 million from $788 million at securitization. The certificates are collateralized by 44 mortgage loans ranging in size from less than 1% to 9% of the pool, with the top ten loans (excluding defeasance) constituting 58% of the pool. Two loans, constituting 19% of the pool, have investment-grade structured credit assessments. One loan, constituting 2% of the pool, has defeased and is secured by US government securities. Moody's uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 20, compared to 21 at Moody's last review. As of the August 2020 remittance report, loans representing 88.6% were current or within their grace period on their debt service payments, 1.8% were beyond their grace period but less than 30 days delinquent, 2.9% were 60-89 days delinquent and 6.7% were more than 90 days delinquent. Ten loans, constituting 20% of the pool, are on the master servicer's watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody's ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance. One loan has been liquidated from the pool, resulting in a realized loss of $3.7 million (for an average loss severity of 53%). Four loans, constituting 10% of the pool, are currently in special servicing. Two of the specially serviced loans, representing 6% of the pool, have transferred to special servicing since March 2020. The largest specially serviced loan is the Waterstone 7 Portfolio loan ($22.9 million -- 3.0% of the pool), which is secured by seven retail properties located in Massachusetts and New Hampshire. The loan was transferred to special servicing in March 2018 and a consent and modification of the loan was finalized effective in November 2018. However, the special servicer was documenting a coronavirus related forbearance request from the borrower. The special servicer and the borrower are in process of negotiating possible modification to the loan. The second largest specially serviced loan is the Inn at the Colonnade loan ($21.8 million -- 2.9% of the pool), which is secured by a 125-room full-service hotel located on floors 1-3 of an 11-story residential/mixed-use tower in Baltimore, Maryland. The property is located adjacent to a major demand driver, Johns Hopkins University, which has been closed for in-person instruction in relation to the coronavirus outbreak. In March 2020, the borrower contacted the sub-servicer to seek relief in relation to the coronavirus impact at the property and the loan was transferred to special servicing on March 25, 2020. The special servicer is currently requesting approval for a six-month forbearance agreement that has been negotiated with the borrower. The third largest specially serviced loan is the Holiday Inn Express Nashville -- Downtown loan ($21.4 million -- 2.8% of the pool), which is secured by a fee interest in a 287-unit limited-service hotel and a leasehold interest in an adjoining parking lot located in downtown Nashville, Tennessee. The current sponsor acquired the property in January 2019 at a price of $117,500,000 ($409,400 per key). The loan transferred to special servicing in June 2020 for imminent monetary default at the borrower's request as a result of the coronavirus outbreak. The special servicer indicated that a forbearance agreement is currently under negotiation between the parties. The remaining specially serviced loan is secured by a retail center located in New York, NY. Moody's has also assumed a high default probability for four poorly performing loans, constituting 6.3% of the pool. Three of them are secured by hotel properties and one is secured by a retail property. The loans remain current or within their grace period on their debt service payments as of the August 2020 payment date, but the properties had already experienced a decline in performance in 2019 and the loans are on the watchlist. Moody's has estimated an aggregate loss of $28.7 million (24% expected loss on average) from the specially serviced and troubled loans. Moody's received full or partial year 2019 operating results for 100% of the pool, and partial year 2020 operating results for 28% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 117%, compared to 115% at Moody's last review. Moody's conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody's net cash flow (NCF) reflects a weighted average haircut of 20% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.6%.
Moody's actual and stressed conduit DSCRs are 1.60X and 0.90X, respectively, compared to 1.61X and 0.93X at the last review. Moody's actual DSCR is based on Moody's NCF and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stress rate the agency applied to the loan balance.
There are two loans, constituting 19% of the pool, with structured credit assessments. The first loan with a structured credit assessment is the Vertex Pharmaceuticals HQ Loan ($70.0 million -- 9.2% of the pool), which represents a pari-passu portion of a $425 million senior mortgage. The loan is also encumbered by $195 million of mezzanine debt. The loan is secured by the borrower's fee simple interest in a two-building, Class-A office complex located in the Seaport District of Boston, Massachusetts. The 15-story buildings were built-to-suit between 2011 and 2013 to serve as corporate headquarters for Vertex Pharmaceutical Incorporated. Both buildings have achieved LEED Gold certification. Vertex leases 100% of the office (429,147 square feet(SF)), lab (476,670 SF) and mechanical (164,736 SF) space. In addition, the property consists of 49,906 SF of ground floor retail and associated storage space leased to multiple tenants. Due to the significant tenant concentration, Moody's value incorporated a lit/dark analysis. Moody's structured credit assessment and stressed DSCR are aa2 (sca.pd) and 1.52X, respectively. The second loan with a structured credit assessment is the Potomac Mills Loan ($70.0 million -- 9.2% of the pool), which represents a pari-passu portion of a $291 million senior mortgage. The loan is also encumbered by $125 million B-note. The loan is secured by the borrower's fee simple interest in a Class A, super-regional outlet mall located in Woodbridge, Virginia, approximately 25 miles south of Washington, DC. The property contains approximately 1,840,009 SF of retail space, of which 1,460,009 SF. serves as collateral for the loan. Potomac Mills is anchored by retailers such as IKEA (non-collateral anchor), Burlington Coat Factory (non-collateral anchor), Costco Warehouse, J.C. Penney, Marshalls and an 18-screen AMC Theatres. As of March 2020, the property was 90% leased compared to 94% leased as of September 2019. The inline occupancy for the same period was 87% compared to 91%. The mall had closed since March 19, 2020 due to the coronavirus outbreak and reopened for business in May. The loan is interest only throughout the entire 10-year loan term. Moody's structured credit assessment and stressed DSCR are baa3 (sca.pd) and 1.31X, respectively. The top three conduit loans represent 23% of the pool balance. The largest loan is the Hill7 Office Loan ($71.0 million -- 9.4% of the pool), which represents a pari-passu portion of a $101 million mortgage loan. The loan is secured by the borrower's fee simple interest in an 11-story, Class A office building located in the CBD of Seattle, Washington. The property was built in 2016 and offers 285,680 SF of rentable area comprised of 280,425 SF of office space on 10 floors, 5,265 of ground-floor retail space, as well as 385 parking spaces in a below-ground lot. The property is LEED Gold certified. The property's tenant roster is concentrated, with three tenants representing a combined 98% of NRA (40% leased to Redfin, 39% to HBO, and 19% to WeWork). The loan is interest only throughout the entire 10-year loan term. Moody's LTV and stressed DSCR are 109% and 0.89X, respectively, the same as at the last review. The second largest loan is the 7th & Pine Seattle Retail & Parking Loan ($60.0 million -- 7.9% of the pool), which is secured by the borrower's fee simple interest in a Class A, 361,650 SF mixed-used building located in downtown Seattle, Washington. Collateral improvements primarily consist of a seven-story building featuring a 950-stall parking garage (337,510 SF) with 24,140 SF of ground floor retail. As of March 2020, the subject was 99% leased by the parking garage tenant and retail tenants. The loan transferred to special servicing in May 2020 due to a payment relief request and operational issues related to the coronavirus outbreak. As operations improved in late June, the borrower was able to bring the loan current and no longer needed payment relief. The loan transferred back to the master servicer in July 2020. The loan is interest only throughout the entire 10-year loan term. Moody's LTV and stressed DSCR are 137% and 0.67X, respectively, compared to 113% and 0.81X at the last review. The third largest loan is the Fresno Fashion Fair Loan ($40.0 million -- 5.3% of the pool), which represents a pari-passu portion of a $325 million mortgage loan. The loan is secured by a 593,093 SF component of a 957,944 SF combination enclosed and open-air, super-regional mall located in Fresno, California. Fresno Fashion Fair Mall contains four anchors comprised of Macy's, JC Penney, Forever 21 and Macy's Men's & Children. The anchor collateral for the loan includes only the JC Penney. As of March 2020, the collateral was approximately 95% leased, compared to 91% as of June 2018 and 88 % at securitization. The reported sales for comparable in-line tenants less than 10,000 SF (including Apple store) were $860 PSF for the 12-month period ending March 2020, compared to $841 PSF for the 12-month period ending March 2019. The loan is interest only throughout the entire 10-year loan term. Moody's LTV and stressed DSCR are 129% and 0.71X, respectively, compared to 110% and 0.83X at the last review.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004. The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Kevin Li Asst Vice President - Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Romina Padhi VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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