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Rating Action: Moody's affirms twelve and downgrades two classes of MSBAM 2012-C5
Global Credit Research - 08 Dec 2020
Approximately $899.2 million of structured securities affected
New York, December 08, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on twelve and downgraded the ratings on two classes in Morgan Stanley Bank of America Merrill Lynch Trust 2012-C5 ("MSBAM 2012-C5"), Commercial Mortgage Pass-Through Certificates, Series 2012-C5 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Aug 16, 2019 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Aug 16, 2019 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Aug 16, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aa1 (sf); previously on Aug 16, 2019 Upgraded to Aa1 (sf)
Cl. PST**, Affirmed Aa2 (sf); previously on Aug 16, 2019 Upgraded to Aa2 (sf)
Cl. C, Affirmed A1 (sf); previously on Aug 16, 2019 Upgraded to A1 (sf)
Cl. D, Affirmed A3 (sf); previously on Aug 16, 2019 Upgraded to A3 (sf)
Cl. E, Affirmed Baa3 (sf); previously on Aug 16, 2019 Affirmed Baa3 (sf)
Cl. F, Affirmed Ba2 (sf); previously on Aug 16, 2019 Affirmed Ba2 (sf)
Cl. G, Downgraded to B1 (sf); previously on Aug 16, 2019 Affirmed Ba3 (sf)
Cl. H, Downgraded to B3 (sf); previously on Aug 16, 2019 Affirmed B2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Aug 16, 2019 Affirmed Aaa (sf)
Cl. X-B*, Affirmed Aa1 (sf); previously on Aug 16, 2019 Upgraded to Aa1 (sf)
Cl. X-C*, Affirmed B2 (sf); previously on Aug 16, 2019 Affirmed B2 (sf)
*Reflects Interest-Only Classes
**Reflects Exchangeable Class
The ratings on eight principal and interest (P&I) classes were affirmed due to the credit support and 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 a decline in pool performance and higher expected losses driven primarily by specially serviced loans and the deal's exposure to hotel and retail properties. Special servicing loans currently represent 9.3% of the pool and primarily secured by hotel and retail properties that were experienced flat or declining net operating income (NOI) prior to 2020. In aggregate retail and hotel loans represent 37% and 14% of the pool, respectively. Furthermore, the pool faces upcoming refinance risk with nearly all loans maturing is less than two years.
The ratings on three IO classes, X-A, X-B and X-C, were affirmed based on the credit quality of the referenced classes.
The rating on class PST was affirmed due to the credit quality of the referenced exchangeable classes.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. 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.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
Moody's rating action reflects a base expected loss of 6.0% of the current pooled balance, compared to 1.6% at the last review. Moody's base expected loss plus realized losses is now 4.2% of the original pooled balance, compared to 1.2% 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 exchangeable classes and interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1244778 and "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1190579. The principal methodology used in rating exchangeable classes was "Moody's Approach to Rating Repackaged Securities" published in June 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1230078. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1244778, "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1190579, and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/viewresearchdoc.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 November 18, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 30% to $944.8 million from $1.35 billion at securitization. The certificates are collateralized by 63 mortgage loans ranging in size from less than 1% to 15.8% of the pool, with the top ten loans (excluding defeasance) constituting 52.5% of the pool. One loan, constituting 10.6% of the pool, has an investment-grade structured credit assessment. Eleven loans, constituting 17.7% 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 13, compared to 16 at Moody's last review.
As of the November 2020 remittance report, loans representing 94% were current, 1% were beyond their grace period but less than 30 days late, 1% were 30 days delinquent and 4% were in foreclosure.
Eleven loans, constituting 12.3% 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. Seven loans, constituting 9.3% of the pool, are currently in special servicing. All of the specially serviced loans transferred to special servicing in 2020, of which six of them, representing 8.3% of the pool, have transferred since April 2020 due to the coronavirus outbreak.
The largest specially serviced loan is the Distrikt Loan ($34.3 million -- 3.6% of the pooled balance), which is secured by the leasehold interest on a 32 story, full-service hotel located in the Times Square neighborhood of New York City, New York. The property operates under a Hilton flag as part of their "Tapestry Collection." The collateral is subject to a ground lease with an expiration in April 2111 with a current ground lease payment of $825,000, increasing to 907,500 in years 11 through 15 with subsequent increases thereafter. Property performance has generally declined since 2012, due to lower room revenue. The March 2020 trailing twelve month (TTM) occupancy, ADR and RevPAR were 93.9%, $192.85 and $181.03, respectively, compared to 95.6%, $190.38 and $181.98 for full year 2019, and 89.4%, $199.33 and $178.23, respectively, in 2018. The loan transferred to special servicing due to imminent monetary default in relation to the coronavirus outbreak. As of the November 2020 remittance statement the loan was last paid through its April 2020 payment date. According to the special servicer, the borrower is no longer willing to contribute additional capital to the property and the special servicer is currently pursuing legal remedies. The property was re-appraised in October 2020 at $37.6 million (43% lower than its securitization value) and as a result the master servicer has recognized a $1.3 million appraisal reduction. The loan has amortized 14.2% from securitization, however, the property's cash flow erosion since securitization makes this loan more vulnerable to the significant performance declines due to coronavirus outbreak induced property closures and travel restrictions.
The second largest specially serviced loan is the Nightingale Retail Portfolio - Banks Crossing Shopping Center Loan ($12.3 million -- 1.3% of the pooled balance), which is secured by a 256,671 SF neighborhood shopping center located in Fayetteville, Georgia about 32 miles south of Atlanta. The property is anchored by JC Penney, Kroger and Planet Fitness and was over 90% leased to nineteen tenants in June 2020. Higher operating expenses have led the property performance to decline slightly from securitization, however, the 2019 NOI DSCR was 1.42X. The loan transferred to special servicing in July 2020 due to imminent monetary default stemming from the impact of the coronavirus outbreak. The loan was current as of the November 2020 remittance statement and the special servicer is preparing to return loan to master servicer. The loan has amortized 13.5% since securitization and due the performing nature and historical performance the loan was included in the conduit statistics below.
The third largest specially serviced loan is the Ocean East Mall Loan ($9.5 million -- 1.0% of the pooled balance), which is secured by a 112,260 SF grocery store anchored strip retail property located in Stuart, Florida, approximately 12 miles southeast of Port St. Lucie. The property was only 44% leased as of February 2020, down from 80% leased in September 2019 and 91% at securitization. The loan has been cash managed since November 2018 after the largest tenant, representing 37% of the NRA, vacated at lease expiration. The loan transferred to special servicing in February 2020 due to imminent default. The borrower has made payments through September 2020 and has expressed their commitment to remain current on their debt service payment.
The remaining four specially serviced loans are secured by two hotel properties, one retail property and retail/office mixed use property. Two of the remaining specially serviced loans are current, one is 30 -- 59 days delinquent and one is REO. Of the remaining specially serviced loans 929-933 Broadway (0.9% of the pool) and 338 North Cannon Drive (0.6%) were included in the conduit statistics due to their historical performance.
Moody's has also assumed a high default probability for one poorly performing loans, constituting approximately 2% of the pool. The loan is secured by a retail property in Los Angeles, California which has exhibited declining performance through year-end 2019. Moody's estimates an aggregate $33.4 million loss for four specially serviced and one troubled loan (a 43.5% expected loss on average).
The credit risk of loans is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by each loan's DSCR, and 2) Moody's assessment of the severity of loss upon a default, which is largely driven by each loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan's amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
Moody's received full year 2019 operating results for 99% of the pool, and partial year 2020 operating results for 76% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 93%, compared to 88% 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 1.43X and 1.17X, respectively, compared to 1.52X and 1.22X 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 Silver Sands Factory Stores Loan ($100 million -- 10.6% of the pool), which is secured by a 442,000 square foot retail outlet center located in Miramar, Florida. The center is currently known as "Silver Sands Premium Outlets". As of June 2020, the property was 90% leased, compared to 89% as of December 2018. Major national tenants at the property include Saks Off Fifth, Polo Ralph Lauren, Nike Factory, Old Navy and Columbia Sportswear. Property performance has improved since securitization due to increased rental revenue. The year-end 2019 NOI was 35% higher than in 2012 and the 2019 NOI DSCR was 4.62X. The loan is interest-only for the full loan term and Moody's structured credit assessment and stressed DSCR are a1 (sca.pd) and 1.48X, respectively.
The top three conduit loans represent 27.1% of the pool balance. The largest loan is the Legg Mason Tower Loan ($148.8 million -- 15.8% of the pool), which is secured by a 24-story, 612,613 SF, Class A multi-tenant office building located in the Harbor East waterfront area of Baltimore, Maryland. The property is part of a three unit condominium structure that includes the office space, 18,988 SF of ground and second floor retail space, and a 1,145 space subterranean parking garage shared with the adjacent Four Seasons Hotel Baltimore. The property was 100% leased as of September 2020 up from 85% at securitization. The largest tenant at securitization, Legg Mason, has downsized its space from 374,598 SF at to 323,804 SF (currently 53% of RNA), of which they currently occupy 173,353 SF and sublease 150,451 SF, under a lease set to expire in August 2024. Legg Mason began subletting their space in 2009 to various tenants such as Johns Hopkins University and One Main Financial. The loan benefits from amortization and has amortized nearly 16% since securitization. The loan matures in September 2022 and may face increased refinance risk as a result of the significant tenant rollover within two years of the maturity date. Moody's LTV and stressed DSCR are 91% and 1.10X, respectively
The second largest loan is the Hamilton Town Center Loan ($76.4 million -- 8.1% of the pool), which is secured by a 494,000 square foot collateral portion of a retail lifestyle center located in Noblesville, Indiana, a suburb of Indianapolis. Tenants at the property include Dick's Sporting Goods, Stein Mart, and Bed Bath and Beyond, all of which have recently signed five year extension options. However, Stein Mart filed for bankruptcy in August 2020 and announced plans to close a significant portion of its brick and mortar stores. Non-collateral anchors include JC Penney and an IMAX movie theater. The total mall was 86% leased as of June 2020, compared to 92% in March 2019 and 95% in 2017. In-line occupancy was 84.9% as of June 2020. The loan benefits from amortization and has amortized over 9% and property performance has generally improved since securitization due to higher revenues. Moody's LTV and stressed DSCR are 101% and 1.18X, respectively, compared to 79% and 1.33X at the last review.
The third largest loan is the Galleria Park Hotel Loan ($30.7 million -- 3.2% of the pool), which is secured by a 177-room, nine-story, un-flagged boutique full-service hotel located in San Francisco, California. The property is located two blocks east of Union Square and sits at the western edge of the Financial District. Property performance had improved significantly through year-end 2019 and the 2019 NOI was 87% higher than in 2012. The 2019 NOI DSCR was 3.70X, which declined to 2.24X for the trailing twelve month (TTM) period ending June 2020. The April 2020 TTM occupancy, ADR and RevPAR were 79.5%, $275.56 and $219.15, respectively, compared to 85.8%, $275.96 and $236.86 for full year 2019. The loan benefits from amortization and has amortized about 15% since securitization. Moody's LTV and stressed DSCR are 87% and 1.25X, respectively.
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.
Tulay Sangiray 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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