Rating Action: Moody's affirms nine and downgrades three classes of JPMCC 2012-LC9
Global Credit Research - 08 Jul 2020
Approximately $571 million of structured securities affected
New York, July 08, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on nine classes and downgraded the ratings on three classes in J.P. Morgan Chase Commercial Mortgage Securities Trust 2012-LC9 ("JPMCC 2012-LC9") as follows:
Cl. A-5, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed Aaa (sf)
Cl. B, Affirmed Aa2 (sf); previously on Feb 19, 2020 Affirmed Aa2 (sf)
Cl. C, Affirmed A2 (sf); previously on Feb 19, 2020 Affirmed A2 (sf)
Cl. D, Affirmed Baa1 (sf); previously on Feb 19, 2020 Affirmed Baa1 (sf)
Cl. E, Downgraded to Ba2 (sf); previously on Apr 17, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to B2 (sf); previously on Apr 17, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Caa2 (sf); previously on Apr 17, 2020 B2 (sf) Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Feb 19, 2020 Affirmed Aaa (sf)
Cl. X-B*, Affirmed A1 (sf); previously on Feb 19, 2020 Affirmed A1 (sf)
Cl. EC**, Affirmed Aa3 (sf); previously on Feb 19, 2020 Affirmed Aa3 (sf)
*Reflects Interest-Only Classes
**Reflects Exchangeable Class
The ratings on six 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 ratings on three P&I classes, Cl. E, Cl. F and Cl. G, were downgraded due to the decline in pool performance and higher anticipated losses, primarily driven by the specially serviced loans (37% of the pool) and troubled loans.
The ratings on the interest only (IO) classes were affirmed based on the credit quality of the referenced classes.
The rating on the exchangeable class was affirmed due to the credit quality of its referenced exchangeable 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 9.4% of the current pooled balance, compared to 3.8% at Moody's last review. Moody's base expected loss plus realized losses is now 5.3% of the original pooled balance, compared to 2.2% 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 the exchangeable class and 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 principal methodology used in rating the exchangeable class was "Moody's Approach to Rating Repackaged Securities" published in June 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230078. 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 *) and exchangeable classes (indicated by the **). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
As of the June 15th 2020 distribution date, the transaction's aggregate certificate balance has decreased by 43% to $610 million from $1.07 billion at securitization. The certificates are collateralized by 31 mortgage loans ranging in size from less than 1% to 19% of the pool, with the top ten loans (excluding defeasance) constituting 77% of the pool. Four loans, constituting 7% 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 10, the same as at Moody's last review.
As of the June 2020 remittance report, loans representing 82% were current or within their grace period on their debt service payments, 13% were beyond their grace period but less than 30 days delinquent.
Six loans, constituting 8% 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.
No loans have been liquidated from the pool. Three loans, constituting 36.9% of the pool, are currently in special servicing. Two of the specially serviced loans, representing 32% of the pool, have transferred to special servicing since March 2020.
The largest specially serviced loan is the West County Center Loan ($118.2 million -- 19.4% of the pool), which represents a pari-passu portion of a $172.7 million mortgage loan. The loan is secured by the 744,000 square feet (SF) collateral portion of a 1.2 million SF super-regional mall in Des Peres, Missouri, a suburb of St. Louis. As of the March 2020 rent roll, the mall was 97% leased, unchanged from the September 2019 rent roll. Anchor tenants include Macy's (non-collateral), JC Penney (non-collateral), Dick's Sporting Goods, and Nordstrom. Other notable tenants are Barnes & Noble Booksellers, Forever 21, H&M, and Apple. The loan was recently transferred to special servicing on April 2020 for imminent monetary default at the borrower's request as a result of the Covid-19 pandemic. However, the loan remains current as of its June 2020 payment date. The mall is owned by a joint venture comprised of entities affiliated with CBL, TIAA-CREF, and the Dutch pension fund APG. CBL classified the mall as a tier 1 mall in its 2019 annual report and indicated 2019 mall store sales of $584 per square foot (PSF), compared to the 2018 reported sales of $536 PSF. Property performance has declined since securitization due to lower revenues and the 2019 NOI was approximately 17% below underwritten levels. The mall also faces competition from six regional and super regional malls within the St. Louis MSA. However the loan has amortized 9% since securitization and the 2019 reported NOI DSCR remained high at 1.87X. Due to the performing nature of the loan, this has been included in the conduit statistics. Moody's LTV and stressed DSCR are 128% and 0.91X, respectively.
The second largest specially serviced loan is the Waterfront Loan ($77.8 million --12.7% of the pool), which is secured by the retail components of a larger master planned development in Homestead, Pennsylvania, a suburb of Pittsburgh roughly five miles from the CBD. The collateral includes a power center component, a big box component, as well as strip center and restaurant pad space. At securitization, the property was shadow anchored by Lowe's Home Improvement Center, Target, Giant Eagle, Macy's and Costco. However, Macy's closed their store at the location in 2018 and the space was converted into Class-A office space. Major collateral tenants include Loews Theater, Dave & Buster's, Old Navy and Michaels. One of the major collateral tenants, Best Buy (30,055 SF, 3.9% of the net rentable area (NRA)) closed their store at this location in November 2019. As of March 2020, the collateral was 94% leased, compared to 98% leased as of September 2019. Property performance has declined moderately since 2017 due to decline in revenues and increased expenses. The reported 2019 actual NOI DSCR was 1.60X. The loan is last paid through its May 2020 payment date and was recently transferred to special servicing at the borrower's request as a result of the Covid-19 pandemic. Due to the historical performance, this has been included in the conduit statistics. Moody's LTV and stressed DSCR are 120% and 0.86X, respectively.
The third largest specially serviced loan is the Salem Center Loan ($29.5 million -- 4.8% of the pool), which is secured by the 212,007 SF collateral portion of a 649,624 SF regional mall, located in Salem, Oregon. At securitization, the mall's non-collateral anchors included Kohl's, Nordstrom, JCPenney, and Macy's. However, Nordstrom closed its location in April 2018, and JCPenney recently announced it would close its location as part of its Chapter 11 Bankruptcy proceedings. Property performance declined from securitization as a result of declining occupancy and revenue. The loan transferred to special servicing in August 2017 due to imminent default and was foreclosed in August 2018. The mall was temporarily closed as a result of the coronavirus outbreak but re-opened in late May with limited stores. The special servicer indicating they are working to stabilize asset.
Moody's has also assumed a high default probability for a poorly performing portfolio loan, constituting 2.2% of the pool, securitized by two limited service hotels located in Texas. The loan remains current as of the June 2020 payment date, but the properties had already experienced a decline in performance in 2019 and the loan is on the watchlist due to the borrower's coronavirus relief request.
Moody's received full or partial year 2019 operating results for 87% of the pool, and partial year 2020 operating results for 16% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 110%, compared to 95% at Moody's last review. Moody's conduit component excludes loans with structured credit assessments, defeased and CTL loans, one specially serviced (Salem Center) 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 9.8%.
Moody's actual and stressed conduit DSCRs are 1.54X and 1.00X, respectively, compared to 1.70X and 1.11X 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 non-specially serviced conduit loans represent 23% of the pool balance. The largest loan is the Summit Woods Shopping Center Loan ($53.8 million -- 8.8% of the pool), which is secured by a 545,051 SF retail power center located in Lee's Summit, Missouri. The property is also encumbered with $9.0 million of mezzanine financing held outside the trust. As of March 2020, the property was 99% leased, unchanged from September 2019. The largest tenants include Lowe's Home Center (25% of NRA; lease expiration March 2022) and Kohl's (16% of the NRA; lease expiration January 2022). The loan has amortized 9% since securitization and remains current through its June 2020 payment date. Moody's LTV and stressed DSCR are 91% and 1.06X, respectively, compared to 92% and 1.06X at the last review.
The second largest loan is the BJ's Wholesale Club Portfolio Loan ($48.1 million -- 7.9% of the pool), which is secured by first mortgage liens on four stand-alone retail properties occupied by BJ's Wholesale Club. BJ's Wholesale Club operates at the improvements subject to a single triple-net, 20-year master lease that is scheduled to expire in September 2032. The lease does not provided for early termination rights outside of the standard condemnation and casualty clauses. The loan is current as of its June 2020 payment date and is interest only for its entire term. Moody's LTV and stressed DSCR are 89% and 1.16X, respectively, unchanged from Moody's last review.
The third largest loan is the One South Broad Street Loan ($40.8 million -- 6.7% of the pool), which is secured by a 25-story, Class B office building with a Walgreens in its street-level retail space located in the Philadelphia CBD, directly south of City Hall. The property was built in 1932 with the most recent significant renovation occurring in 2001 and property benefits from its CBD location just south of Philadelphia City Hall. As of March 2020, the property was 86% leased, however, the largest tenant, Well Fargo (25% of the NRA) is anticipated to vacate their space at lease expiration in December 2020. A cash trap is now active as a result the failure of Wells Fargo to renew their lease 18 months prior to expiration. Moody's analysis took into account the lease up risk of upcoming vacant spaces. Moody's LTV and stressed DSCR are 111% and 0.87X, respectively, compared to 86% and 1.13X 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 Matthew Halpern 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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