Rating Action: Moody's affirms seven and downgrades four classes of JPMBB 2013-C14
Global Credit Research - 08 Jul 2020
Approximately $679 million of structured securities affected
New York, July 08, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes and downgraded the ratings on four classes in JPMBB Commercial Mortgage Securities Trust 2013-C14 ("JPMBB 2013-C14"), Commercial Mortgage Pass-Through Certificates, Series 2013-C14 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on May 10, 2019 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on May 10, 2019 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on May 10, 2019 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on May 10, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aa3 (sf); previously on May 10, 2019 Affirmed Aa3 (sf)
Cl. C, Affirmed A3 (sf); previously on May 10, 2019 Affirmed A3 (sf)
Cl. D, Downgraded to Ba2 (sf); previously on Apr 17, 2020 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to B1 (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 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Caa3 (sf); previously on Apr 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on May 10, 2019 Affirmed Aaa (sf)
*Reflects Interest-Only Class
The ratings on six principal and interest (P&I) classes were affirmed due to the pool's share of defeasance and 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), being within acceptable ranges.
The ratings on four P&I classes were downgraded due to a decline in pool performance and higher anticipated losses from specially serviced and troubled loans. The pool has significant exposure to three regional malls, the Meadows Mall (12.5% of the pool), the Southridge Mall (9.4% of the pool), and the Country Club Mall (3.1% of the pool), all three of which have experienced recent declines in net operating income (NOI).
The rating on the interest-only (IO) class, Cl. X-A, was affirmed based on the credit quality of the 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 9.7% of the current pooled balance, compared to 5.1% at Moody's last review. Moody's base expected loss plus realized losses is now 6.1% of the original pooled balance, compared to 3.7% 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 17, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 37.2% to $720.7 million from $1.15 billion at securitization. The certificates are collateralized by 32 mortgage loans ranging in size from less than 1% to 12.7% of the pool, with the top ten loans (excluding defeasance) constituting 63.3% of the pool. Five loans, constituting 19.3% 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 11, compared to 14 at Moody's last review.
As of the June 2020 remittance report, loans representing 84% were current or within their grace period on their debt service payments, 2% were beyond their grace period but less than 30 days delinquent,12% were between 30 -- 59 days delinquent, and 2% were delinquent for 60 days or more.
Eleven loans, constituting 59.8% of the pool, are on the master servicer's watchlist, of which eight loans, representing 42% of the pool, indicate the borrower has requested relief in relation to coronavirus impact on the property. 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 2.5% of the pool, are currently in special servicing. One of the specially serviced loans, representing 0.6% of the pool, have transferred to special servicing since March 2020.
The largest specially serviced loan is the Four Points Sheraton -- San Diego Loan ($8.4 million -- 1.2% of the pool), which is secured by a 225-room full service hotel built in 1987 and located in Kearny Mesa, approximately 10 miles north of the San Diego central business district (CBD). The loan transferred to special servicing in February 2016 due to imminent default followed by a monetary default. The borrower filed for Chapter 11 bankruptcy in May 2016 and the debtor was required to reinstate the loan provided a property improvement plan (PIP) completion and improvement to guest scores by December 2017. The borrower is complying with cash management, changed property managers, and reports to be working on a PIP extension. The loan is current through its June 2020 payment and is being monitored until the borrower is in compliance with the franchise agreement.
The second largest specially serviced loan is the Parkway Place ($5.7 million -- 0.8% of the pool), which is secured by a fee and leasehold interest in a 78,469 SF mixed-use center located in Flowood, Mississippi. The collateral comprises of a 31,300 SF movie theatre, a 6,919 SF restaurant outparcel, and a 40,250 SF shopping center. The shopping center is the only portion encumbered by a ground lease which expires in July 2063. As May 2020, the property was 75% occupied (the theatre and restaurant are still in-place). The loan was transferred to special servicing in September 2019 for payment default. Foreclosure was initiated and a receivership was appointed in January 2020.
The third largest specially serviced loan is the Best Western -- Portage, IN Loan ($4.0 million -- 0.6% of the pool), which is secured by a 100-room limited service hotel located in Portage, Indiana, approximately 2 miles south of the Port of Indiana. The property's 2019 NOI has decreased by 21% from the 2018 but is 33% above securitization. The borrower requested borrower relief due to the coronavirus outbreak in April 2020 and the loan transferred to special servicing in May 2020 for payment default. The loan was last paid through February 2020 and the special servicer indicated a forbearance agreement is currently under review.
Moody's has also assumed a high default probability for three poorly performing loans, constituting 13.4% of the pool. The largest troubled loan is the Southridge Mall Loan ($67.9 million -- 9.4% of the pool) and is further discussed below.
The second largest troubled loan is the Country Club Mall Loan ($22.0 million -- 3.1% of the pool), which is secured by an approximately 394,000 SF component of a 597,000 SF regional mall located in LaValle, Maryland. The non-collateral portion is occupied by a Walmart Supercenter. Two collateral anchor tenants, Bon-Ton (23% of NRA) and Sears (19% of NRA), vacated the property in 2018 and 2020, respectively. The property's remaining anchor, J.C. Penney (18% of NRA) has recently been listed as one of the expected store closures as a result of the company's Chapter 11 Bankruptcy proceedings. Excluding these anchors, the next largest tenants are T.J. Maxx (6% of NRA) and Country Club Cinema (6% of NRA) with lease expirations in March 2023 and July 2031, respectively. As of March 2020, the total property was 77% occupied including Sears and J.C. Penney. The mall has reopened on June 20, 2020 after a temporary closure due to the coronavirus outbreak. The loan had been on the watchlist since September 2019 due to Bon-Ton's bankruptcy and is last paid through its April 2020 payment date.
The third largest troubled loan is the Hyatt Place North Charleston Loan ($7.0 million -- 1.0% of the pool), which is secured by a 113-room limited service hotel located in North Charleston, South Carolina. The loan has been on the watchlist since January 2020 due to a decrease in DSCR. The 2019 NOI has decreased by 32% as compared to 2018 and borrower relief was requested in April 2020 due to the coronavirus outbreak. The loan was last paid through its March 2020 payment.
Moody's received full year 2019 operating results for 96% 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 109%, compared to 99% 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 18.6% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 10.2%.
Moody's actual and stressed conduit DSCRs are 1.32X and 1.05X, respectively, compared to 1.59X and 1.10X 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 34.6% of the pool balance. The largest loan is the Spirit Portfolio Loan ($91.7 million -- 12.7% of the pool), which is secured by a portfolio of 26 properties including retail, industrial, office, and mixed-use. The properties are located in 13 different states and the top five states by allocated loan balance are Illinois (19%), New Hampshire (13%), Texas (12%), North Carolina (11%), and Indiana (11%). Twenty-five of the 26 properties are leased to single tenants with several tenants have leases at more than one property: LA Fitness (leases 2 properties); CVS (2 properties); Walgreens (2 properties); Ferguson Enterprises (3 properties) and Tractor Supply (2 properties). The loan has been on the watchlist since November 2019 due to the servicer advancing funds for forced placed insurance and the advanced balance has been over the threshold for more than 30 days. The loan has amortized 10% since securitization and is current through its June 2020 debt service payment date. Moody's LTV and stressed DSCR are 79% and 1.33X, respectively, compared to 79% and 1.34X at last review.
The second largest loan is the Meadows Mall Loan ($90.0 million -- 12.5% of the pool), which represents a pari-passu portion of a $134.6 million mortgage loan. The loan is secured by an approximately 308,000 SF portion of a 945,000 SF regional mall located five miles west of the Strip in Las Vegas, Nevada. The mall is anchored by Curacao, Dillard's Clearance Center, JC Penney, and Macy's. All anchor tenants own their respective stores which are not included as collateral for the loan. A prior non-collateral anchor, Sears, vacated in February 2020. The first floor of Sears was partially backfilled by Round1 Bowling and Amusement which opened in November 2019. As of March 2020, the collateral was 91% occupied (84% when excluding specialty leasing) compared to 96% and 90%, respectively, in September 2018. For the trailing twelve-month (TTM) period ending March 2020, in-line sales for tenants less than 10,000 SF was $389 per square foot (PSF) compared to $383 PSF for the TTM period ending June 2018. Property performance has declined since securitization as a result of decreased revenue. The 2019 NOI declined approximately 18% from 2018 and was 20% lower than in 2013. The mall has reopened since May 29, 2020 after a temporary closure due to the coronavirus outbreak and the loan has been on the watchlist since June 2020 for borrower relief request. The loan has amortized 18% since securitization and is current on through its June 2020 payment date. Moody's LTV and stressed DSCR are 136% and 0.85X, respectively, compared to 119% and 0.89X at the last review.
The third largest loan is the Southridge Mall Loan ($67.9 million -- 9.4% of the pool), which represents a pari-passu portion of a $113.2 million mortgage loan. The loan is secured by a 554,000 SF portion of a 1.2 million SF regional mall in Greendale, Wisconsin, a suburb of Milwaukee. At securitization, the mall was anchored by non-collateral anchors Boston Store, Sears, J.C. Penney, and collateral anchors, Macy's and Kohl's. Sears and Boston Store vacated the property in 2017 and 2018, respectively. Subsequently Kohl's moved their store to a new retail development in late 2018. The former Sears space was partially backfilled by a Dick's Sporting Goods/Golf Galaxy, Round1 Bowling and Amusement, and T.J. Maxx, all of which opened for business between 2018 and 2019. As of March 2020, the collateral was 71% occupied and in-line occupancy was 76%. The mall has reopened since May 20, 2020 after a temporary closure due to the coronavirus outbreak and the loan has been on the watchlist since May 2020 due to the borrower s relief request. The loan is last paid through its April 2020 payment and due to the decline in performance anchor store closures Moody's has identified this as a troubled loan. The loan has amortized 10% since securitization.
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.
Amy Wang Associate Lead 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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