Rating Action: Moody's affirms three classes, confirms one class, and downgrades three classes of GSMS 2010-C1
Global Credit Research - 01 Sep 2020
Approximately $207.3 million of structured securities affected
New York, September 01, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on three classes, confirmed the rating on one class, and downgraded the ratings on three classes in GS Mortgage Securities Corporation II Commercial Mortgages Pass-Through Certificates Series 2010-C1 ("GSMS 2010-C1") as follows:
Cl. A-2, Affirmed Aaa (sf); previously on Mar 2, 2020 Affirmed Aaa (sf)
Cl. B, Downgraded to Aa1 (sf); previously on May 29, 2020 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to Ba1 (sf); previously on May 29, 2020 Downgraded to Baa3 (sf) and Remained On Review for Possible Downgrade
Cl. D, Confirmed at Caa1 (sf); previously on May 29, 2020 Downgraded to Caa1 (sf) and Remained On Review for Possible Downgrade
Cl. E, Affirmed C (sf); previously on May 29, 2020 Downgraded to C (sf)
Cl. F, Affirmed C (sf); previously on May 29, 2020 Downgraded to C (sf)
Cl. X*, Downgraded to Caa1 (sf); previously on May 29, 2020 B3 (sf) Remained On Review for Possible Downgrade
* Reflects interest-only classes
The rating on one P&I class was 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 P&I classes were downgraded due to the exposure to three regional mall loans and one retail property in special servicing. The largest loan in the pool, 660 Madison Avenue, failed to pay off at loan maturity and has transferred to special servicing.
The rating on one P&I class was confirmed because the rating is consistent with Moody's expected loss.
The ratings on two P&I classes were affirmed because the ratings are consistent with Moody's expected loss.
The rating on one IO class was downgraded 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.
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 "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 "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. Moody's analysis incorporated a loss and recovery approach in rating the P&I classes in this deal since 100% of the pool is in special servicing. In this approach, Moody's determines a probability of default for each specially serviced and troubled loan that it expects will generate a loss and estimates a loss given default based on a review of broker's opinions of value (if available), other information from the special servicer, available market data and Moody's internal data. The loss given default for each loan also takes into consideration repayment of servicer advances to date, estimated future advances and closing costs. Translating the probability of default and loss given default into an expected loss estimate, Moody's then applies the aggregate loss from specially serviced to the most junior class(es) and the recovery as a pay down of principal to the most senior class(es).
As of the August 12, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 71% to $225 million from $788 million at securitization. The certificates are collateralized by four mortgage loans ranging in size from 17% to 34% of the pool, which are secured by retail properties. All four loans are currently in special servicing. The largest specially serviced loan is the 660 Madison Avenue Retail Loan ($76.3 million -- 34% of the pool), which is secured by a 264,000 square foot (SF) retail property that formerly served as the Barneys New York flagship store. Barneys filed for Chapter 11 bankruptcy in August 2019 and was sold to Authentic Brands Group. Authentic Brands Group closed this location in February 2020. The property benefits from its superior location on Madison Avenue between East 60th Street and East 61st Street in Manhattan. The borrower is seeking an 18 month extension of the loan and a pre-negotiation letter was executed in June 2020. The loan failed to pay off at maturity and is now 30+ days delinquent. The loan has amortized 24% from securitization. The second largest specially serviced loan is the Burnsville Center Loan ($63.2 million -- 28.1% of the pool), which is secured by a portion of a regional mall located in Burnsville, Minnesota, a suburb located south of Minneapolis and St. Paul. The non-collateral anchors include Macy's and JC Penney, and collateral anchor stores include Dick's Sporting Goods and Gordman's. The property has one currently vacant non-collateral anchor, a former Sears that closed in 2017. Furthermore, Stage Stores (Gordman's parent company) filed for bankruptcy in May 2020 and may eventually liquidate all stores if they cannot find a buyer. The mall's performance peaked in 2015 and has since declined annually in both occupancy and tenant sales per square foot (PSF), with a significant drop during 2018 and 2019. According to CBL's 10k filings, the property's occupancy for tenants under 20,000 SF was 82% leased in December 2019, down from 94% in December 2017 and 96% in December 2016 and mall store sales for tenants under 20,000 SF were $276 PSF in 2019, down from $292 PSF in 2018, $320 PSF in 2017 and $339 PSF in 2016. While Burnsville Center is the only regional mall within the market south of the Minnesota River, it also competes with Twin Cities Premium Outlets. As a result of declining revenue, the 2019 reported net operating income (NOI) was 37% lower than in 2010. The departure of any additional anchor stores could trigger co-tenancy provisions and further accelerate the decline of the property's cash flow. The loan transferred to special servicing on January 8, 2020 due to imminent maturity default ahead of its July 2020 remittance date. The borrower requested a bifurcation, rate relief, and a loan maturity extension, which were all rejected. The loan was reclassified as working through the foreclosure process. The third largest specially serviced loan is the Mall at Johnson City Loan ($47.4 million -- 21.1% of the pool), which is secured a 571,319 square foot (SF) portion of a regional mall located in Johnson City, Tennessee. The mall is anchored by JC Penney, Belk, Dick's Sporting Goods, Forever 21 and formerly a Sears. The Sears store closed in January 2020. As of December 2018, in-line (<10,000 SF) occupancy was 99% and in-line sales were $357 PSF. This loan transferred to special servicing in November 2019 due to imminent maturity default. In December 2019, the loan was modified with a three-year loan maturity extension through May 2023 which required the borrower to fund reserve accounts and pay $5 million of principal prior to the May 2020 payment date. The mall was temporarily closed due to the coronavirus outbreak, and the borrower was not able to make those required reserve and principal payments. The mall opened on May 4, 2020 after the temporary closure due to the coronavirus outbreak. Due to the negative impacts of the coronavirus outbreak, the borrower and special servicer entered into a Standstill Agreement on June 11, 2020 whereby three full payments (P&I and escrows) May, June and July (with the option of August) will be deferred and repaid over 12 months. The Borrower was also permitted to use existing reserves to cover operating shortfalls. The loan was extended to December 4, 2020. A further extension option to May 6, 2023 was also provided under specific conditions including a $5.0MM principal payment and $10.0MM paid into TI/LC and CapEx Reserves. The fourth largest specially serviced loan is the Grand Central Mall Loan ($38.2 million -- 17.0% of the pool), which is located in Vienna, West Virginia and is anchored by JC Penney, Belk, Regal, H&M and Dunham's Sports. The former Sears space has been demolished and the sponsor, Washington Prime, has begun construction on new inline space which will add four major tenants to the center to include Ross Dress For Less, HomeGoods, TJ Maxx and PetSmart. The new expansion is expected to be open in April 2021. The mall opened on May 22, 2020 after being temporarily closed due to the coronavirus outbreak. The mall's performance peaked in 2015, however, starting in 2016 the property's NOI has declined annually. Due to the negative impacts of the coronavirus outbreak, the borrower and special servicer entered into a Standstill Agreement on July 15, 2020 whereby three full payments (P&I and escrows) June, July and August (with the option of September) will be deferred and repaid over 12 months. The borrower was also permitted to use existing reserves to cover operating shortfalls. The maturity date was extended to July 2021.
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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