Rating Action: Moody's affirms eight, confirms one and downgrades two classes of COMM 2013-LC6
Global Credit Research - 10 Jul 2020
Approximately $785.7 million of structured securities affected
New York, July 10, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on eight classes, confirmed the ratings on one class and downgraded the ratings on two classes in COMM 2013-LC6 Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2013-LC6 as follows:
Cl. A-4, Affirmed Aaa (sf); previously on Dec 9, 2019 Affirmed Aaa (sf)
Cl. A-M, Affirmed Aaa (sf); previously on Dec 9, 2019 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Dec 9, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aa2 (sf); previously on Dec 9, 2019 Upgraded to Aa2 (sf)
Cl. C, Affirmed A2 (sf); previously on Dec 9, 2019 Upgraded to A2 (sf)
Cl. D, Affirmed Baa3 (sf); previously on Dec 9, 2019 Affirmed Baa3 (sf)
Cl. E, Confirmed at Ba2 (sf); previously on Apr 17, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to B3 (sf); previously on Apr 17, 2020 B2 (sf) Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Dec 9, 2019 Affirmed Aaa (sf)
Cl. X-B*, Affirmed A1 (sf); previously on Dec 9, 2019 Upgraded to A1 (sf)
Cl. X-C*, Downgraded to Caa2 (sf); previously on Apr 17, 2020 Caa1 (sf) Placed Under Review for Possible Downgrade
* Reflects interest-only classes
The ratings on six P&I classes were affirmed and the ratings on one P&I class E was confirmed 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 ratings on one P&I class, Cl. F, was downgraded due to anticipated losses from specially serviced and troubled loans.
The ratings on two interest only (IO) classes were affirmed based on the credit quality of the referenced classes.
The ratings on one IO class, Cl. X-C, was downgraded due to a decline in the credit quality of its referenced classes.
The actions conclude the review for downgrade initiated on April 17, 2020.
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 5.7% of the current pooled balance, compared to 3.5% at Moody's last review. Moody's base expected loss plus realized losses is now 3.2% of the original pooled balance, compared to 2.4% 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 methodologies used in rating all classes except interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1226187 and "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227875. 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/researchdocumentcontentpage.aspx?docid=PBS_1226187, "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227875, and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=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 June 12, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 44.2% to $832.1 million from $1.49 billion at securitization. The certificates are collateralized by 56 mortgage loans ranging in size from less than 1% to 13.2% of the pool, with the top ten loans (excluding defeasance) constituting 49.8% of the pool. Ten loans, constituting 16.5% of the pool, have defeased and are 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 18, compared to 15 at Moody's last review.
As of the June 2020 remittance report, loans representing 96.1% were current or within their grace period on their debt service payments, 1.5% were delinquent at 30 days and 2.4% were delinquent at 60 days or more.
Fifteen loans, constituting 40.6% 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 minimal realized loss. There are currently four loans in special servicing, constituting 3.3% of the pool. The largest specially serviced loan is the Campus Pointe & Campus Manor Apartments Loan ($15.9 million -- 1.9% of the pool), which is secured by two jointly owned and managed student housing properties located in Macomb, Illinois. The properties serve the student population of Western Illinois University and have a combined 356-units containing 631 beds. The loan transferred to special servicing in June 2017 for imminent maturity default due to a significant decline in rental revenue. The property's occupancy had declined from a high of 94% in 2014 to 67% at year-end 2017. The reported occupancy as of February 2020 was 64%. The property became REO in June 2019 .
The other three specially serviced loans are secured by limited serviced hotels, located in Spring Lake, NC, Kingwood, TX and Beavercreek, OH. Two of the loans transferred to special servicing requesting relief as a result of the coronavirus outbreak and are 30+ days delinquent, and one is REO.
Moody's has also assumed a high default probability for two poorly performing loans, constituting 4.8% of the pool, secured by multifamily and retail properties located in Athens, OH and Watertown, WI. Both loans are on the servicer's watchlist due to declining performance since securitization. Moody's has estimated an aggregate loss of $26.5 million (a 44% expected loss on average) from the specially serviced and troubled loans.
Moody's received full year 2019 operating results for 100% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 93%, compared to 89% 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 22% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.9%.
Moody's actual and stressed conduit DSCRs are 1.67X and 1.22X, respectively, compared to 1.72X and 1.23X 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.
The top three conduit loans represent 25.3% of the pool balance. The largest loan is the Coastland Center Loan ($110.0 million -- 13.2% of the pool), which is secured by a 459,000 square feet (SF) portion of a 926,000 SF regional mall located in Naples, Florida. The mall currently has two non-collateral anchors, Dillard's and Macys and one collateral anchor, J.C. Penney. A former non-collateral anchor, Sears, closed its store in November 2018. The former Sears location is being demolished and there are plans for a stand-alone luxury movie theater. As of December 2019, the mall had a total occupancy was 98% (however, excluding Sears total occupancy would be 82%) and inline occupancy was 90%. The loan is current but was placed on the servicer's watchlist in June 2020 due to relief requested in relation to the coronavirus outbreak. Overall, property performance improved from securitization through year-end 2016, however, the reported NOI in 2017, 2018 and 2019 declined below the levels at securitization. The loan has amortized nearly 15% since securitization and Moody's LTV and stressed DSCR are 115% and 0.94X, respectively, compared to 108% and 0.97X at the last review.
The second largest loan is the Innisfree Pensacola Beach Hotel Portfolio Loan ($60.3 million -- 7.2% of the pool), which is secured by two adjacent full-service hotel properties located directly on the beach in Pensacola, Florida. The larger hotel, The Hilton, is a 275-key, 17-story resort and conference center, built in 2003 with an addition in 2007. The smaller hotel, The Holiday Inn, is a 206-key, 11-story resort built in 2011. The portfolio's NOI has increased since securitization primarily due to higher RevPAR. The 2019 NOI was 5% above 2018 NOI and 39% above the securitization levels. The loan benefits from amortization and has amortized by 13% since securitization. The loan is current but was placed on the servicer's watchlist in May 2020 due to relief requested in relation to the coronavirus outbreak. Moody's LTV and stressed DSCR are 98% and 1.18X, respectively, compared to 70% and 1.62X at the last review.
The third largest loan is the Rudgate Manor & Rudgate Clinton MHC Portfolio Loan ($39.8 million -- 4.8% of the pool), which is secured by two Class B manufactured housing communities located approximately 11 miles from each other in Macomb County, MI. As of December 2019, occupancy was 98%, compared to 99% as of December 2018. Performance has been stable over the last few years. The loan has amortized by 13% since securitization. Moody's LTV and stressed DSCR are 57% and 1.84X, respectively, compared to 58% and 1.82X 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.
Dariusz Surmacz Vice President - Senior 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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