Rating Action: Moody's affirms nine classes of DBUBS 2011-LC1
Global Credit Research - 29 Jul 2020
Approximately $538 million of structured securities affected
New York, July 29, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on nine classes in DBUBS 2011-LC1 Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2011-LC1 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Mar 12, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aaa (sf); previously on Mar 12, 2019 Affirmed Aaa (sf)
Cl. C, Affirmed Aaa (sf); previously on Mar 12, 2019 Upgraded to Aaa (sf)
Cl. D, Affirmed Aa2 (sf); previously on Mar 12, 2019 Upgraded to Aa2 (sf)
Cl. E, Affirmed Baa2 (sf); previously on Mar 12, 2019 Affirmed Baa2 (sf)
Cl. F, Affirmed Ba1 (sf); previously on Mar 12, 2019 Affirmed Ba1 (sf)
Cl. G, Affirmed B2 (sf); previously on Mar 12, 2019 Affirmed B2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Mar 12, 2019 Affirmed Aaa (sf)
Cl. X-B*, Affirmed Ba3 (sf); previously on Mar 12, 2019 Affirmed Ba3 (sf)
* Reflects interest-only classes
The ratings on seven 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 ratings on two IO classes were 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 3.3% of the current pooled balance, compared to 1.1% at Moody's last review. Moody's base expected loss plus realized losses is now 0.9% of the original pooled balance, compared to 0.5% 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/research/Approach-to-Rating-US-and-Canadian-ConduitFusion-CMBS--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/research/Approach-to-Rating-US-and-Canadian-ConduitFusion-CMBS--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/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 July 10, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 72% to $606 million from $2.18 million at securitization. The certificates are collateralized by 18 mortgage loans ranging in size from less than 1% to 32% of the pool. One loan, constituting 32% of the pool, has an investment-grade structured credit assessment. Five loans, constituting 10% 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 five, compared to a Herf of seven at Moody's last review.
As of the July 2020 remittance report, loans representing 85% were current or within their grace period on their debt service payments and 15% were 90+ days delinquent and in special servicing.
Three loans, constituting 27% 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. The largest specially serviced loan is the Marriott Crystal Gateway Loan ($90.4 million -- 14.9% of the pool), which is secured by a 697-room, full service hotel located in the Crystal City area of Arlington County, Virginia. Hotel amenities include 11 meeting rooms containing approximately 33,355 square feet (SF), indoor/outdoor heated pools, fitness center, business center, and concierge lounge. The loan transferred to special servicing in June 2020 due to payment default as a result of the coronavirus outbreak. The borrower has requested a forbearance, and the loan is past due for the April 2020 payment. Moody's received full year 2019 operating results for 100% of the pool and partial year 2020 operating results for 95% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 108%, compared to 95% 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 27% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.8%.
Moody's actual and stressed conduit DSCRs are 1.11X and 1.04X, respectively, compared to 1.27X and 1.14X 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 loan with a structured credit assessment is the Kenwood Towne Centre Loan ($196.2 million -- 32.4% of the pool), which is secured by a super-regional mall located in Cincinnati, Ohio. The mall contains approximately 1.16 million SF, of which 756,412 SF serves as collateral for the loan. Anchor tenants include Macy's (non-collateral), Dillard's and Nordstrom (non-collateral). As of March 2020, the mall was 97% leased, with inline space 91% leased, compared to 98% for the mall and 95% for the in-line space in September 2017. The March 2020 running twelve month comparable in-line sales (tenants with less than 10,000 SF) were $869 PSF, compared to $816 in September 2018. Excluding Apple, the same comparable in-line sales were $627 PSF in March 2020 compared to $592 PSF in September 2018. Moody's structured credit assessment and stressed DSCR are a1 (sca.pd) and 1.59X, respectively. The top three conduit loans represent 29% of the pool balance. The largest loan is the 1200 K Street Loan ($118.1 million -- 19.5% of the pool), which is secured by a 389,561 SF, Class A office building located within the East End submarket of Washington, DC. The property offers twelve stories of rentable space retrofitted for single tenant use. Pension Benefit Guaranty Corporation leases over 97% of the NRA and has occupied the building since its development. The tenant recently renewed its lease for one year until May 31, 2021. Starting in September 2015, excess cash was swept into the Cash Flow Sweep Reserve Account until the reserve reached its aggregate amount of $13.1 million. Due to the single tenant concentration and heightened risk of the near term lease expiration, Moody's valuation reflects a lit/dark analysis. Moody's LTV and stressed DSCR are 135% and 0.72X, respectively, compared to 121% and 0.81X at the last review. The second largest loan is the Westgate I Corporate Center Loan ($37.2 million -- 6.1% of the pool), which is secured by a 230,518 SF office building located in Basking Ridge, New Jersey. The property is fully leased to Everest Reinsurance as their US headquarters. The loan is cash managed and cash trapped as Everest did not exercise its lease renewal / extension by 2018 and was planning on relocating to a different property at the end of 2020, but the tenant is anticipating the need to extend their current lease due to the pandemic. The borrower is fully marketing the property. Moody's LTV and stressed DSCR are 109% and 0.97X, respectively, compared to 91% and 1.15X at the last review. The third largest loan is the Bell Towne Center Loan ($21.6 million -- 3.6% of the pool), which is secured by an anchored retail property anchored by a non-collateral Target. The property was 97% leased as of December 2019. The property re-opened in May after closing for COVID-19 related reasons. Moody's LTV and stressed DSCR are 96% and 1.09X, respectively, compared to 86% and 1.18X 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.
Christopher Bergman 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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