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Rating Action: Moody's affirms seven and downgrades four classes of MSBAM 2013-C12
Global Credit Research - 07 Dec 2020
Approximately $851.2 million of structured securities affected
New York, December 07, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes and downgraded the ratings on four classes in Morgan Stanley Bank of America Merrill Lynch Trust 2013-C12, Commercial Mortgage Pass-Through Certificates as follows:
Cl. A-SB, Affirmed Aaa (sf); previously on June 10, 2020 Affirmed Aaa (sf) Cl. A-3, Affirmed Aaa (sf); previously on June 10, 2020 Affirmed Aaa (sf) Cl. A-4, Affirmed Aaa (sf); previously on June 10, 2020 Affirmed Aaa (sf) Cl. A-S, Affirmed Aaa (sf); previously on June 10, 2020 Affirmed Aaa (sf)
Cl. B, Affirmed Aa3 (sf); previously on June 10, 2020 Affirmed Aa3 (sf)
Cl. C, Downgraded to Baa1 (sf); previously on June 10, 2020 Affirmed A3 (sf)
Cl. D, Downgraded to B2 (sf); previously on June 10, 2020 Downgraded to Ba2 (sf)
Cl. E, Downgraded to Caa1 (sf); previously on June 10, 2020 Downgraded to B1 (sf)
Cl. F, Downgraded to Ca (sf); previously on June 10, 2020 Downgraded to B3 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on June 10, 2020 Affirmed Aaa (sf) Cl. PST**, Affirmed A1 (sf); previously on June 10, 2020 Affirmed A1 (sf)
* Reflects interest-only classes
** Reflects exchangeable classes
The ratings on five P&I classes were affirmed because the significant credit support and 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 driven primarily from specially serviced and troubled loans. The five specially serviced loans now represent 17% of the pool and are secured by hotel and retail properties. The two largest specially serviced loans represent nearly 12% of the outstanding pooled balance and are secured by a regional mall and hotel property that were each already experiencing declining net operating income (NOI) prior to the coronavirus pandemic. The largest specially serviced loans include Marriott Chicago River North Hotel (6.0%) and the Westfield Countryside (5.8% of pool) both of which are more than 90 days delinquent as of the November remittance date.
The rating on the IO class was 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 9.8% of the current pooled balance, compared to 6.6% at Moody's last review. Moody's base expected loss plus realized losses is now 7.0% of the original pooled balance, compared to 4.8% 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/researchdocumentcontentpage.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/researchdocumentcontentpage.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/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 September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.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/researchdocumentcontentpage.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/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 November 18, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 29% to $908.7 million from $1.3 billion at securitization. The certificates are collateralized by 55 mortgage loans ranging in size from less than 1% to 13% of the pool, with the top ten loans (excluding defeasance) constituting 58% of the pool. Ten loans, constituting 11% 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 17, the same as at Moody's last review.
As of the November 2020 remittance report, loans representing 83% were current on their debt service payments and 16% were more than 90 days delinquent.
Four loans, constituting 10% 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. Five loans, constituting 17% of the pool, are currently in special servicing. Four of the specially serviced loans, representing 14% of the pool, have transferred to special servicing since March 2020.
The largest specially serviced loan is the Marriott Chicago River North Hotel ($54.2 million -- 6.0% of the pool) , which represents a pari-passu portion of a $100.1 million mortgage loan. The loan is secured by a full-service hotel property in downtown Chicago, IL. The hotel is dual flagged under Marriott's Residence Inn and Springhill Suites brands and operates subject to Franchise agreements that are scheduled to expire in 2033. The property's 2019 NOI declined nearly 20% year over year as a result of lower room revenue and increased operating expenses, particularly advertising & marketing. The loan transferred to special servicing in July 2020 due to payment default and is past due for debt service payments since May 2020. As of September 2020, the trailing 12-month occupancy, ADR and RevPAR were 44.1%, $160.17 and $70.57, respectively, compared to 83.7%, $195.18 and $163.31 a year prior. The loan has amortized 16.3% since securitization, however, the loan was experiencing declining performance through year-end 2019 and the coronavirus pandemic has caused significant stress on its operations. The borrower has proposed an initial modification and the special servicer indicated they are dual tracking ongoing negotiations with foreclosure proceedings. The master servicer has recognized a 25% appraisal reduction as an updated appraisal has not yet been received.
The second largest specially serviced loan is the Westfield Countryside Loan ($52.6 million -- 5.8% of the pool), which represents a pari-passu portion of a $148.4 million mortgage loan. The loan is secured by a 465,000 square foot (SF) component of an approximately 1.26 million square foot (SF) super-regional mall located in Clearwater, Florida approximately 20 miles west of Tampa. The mall is anchored by Dillard's, Macy's and JC Penney, all of which are non-collateral. Sears (non-collateral) initially downsized its location in 2014 and closed the remainder of its space in 2018. The former Sears space was partially backfilled by a Whole Food's and Nordstrom Rack. The largest collateral tenant includes a 12-screen Cobb Theaters (lease expiration in December 2026), which re-opened recently after being closed due to the coronavirus pandemic. Cobb Theaters' parent company CMX Cinemas field for chapter 11 bankruptcy in April 2020. The loan transferred to special servicing in June 2020 due to imminent default and the loan is past due for debt service payments since May 2020. As of the September 2020 rent roll, inline occupancy was 88%, the same as in March 2020. The property's 2019 NOI improved slightly year over year however, it was 12% below securitization levels due to lower rental reviews. The loan sponsor is Westfield and O'Connor Capital Partners. The loan as amortized 4.3% since securitization, however, the special servicer indicated, Westfield, does not plan to support the asset going forward, and is cooperating in a friendly foreclosure process. Furthermore, the special servicer commentary indicates the likely disposition strategy is to market for sale by year-end 2020. The master servicer has recognized a 25% appraisal reduction as an updated appraisal has not yet been received. Due to the declining performance and current market environment, Moody's anticipates a significant loss on this loan.
The third largest specially serviced loan is the Deer Springs Town Center ($26.8 million -- 2.9% of the pool), which is secured by a 185,000 square foot (SF) anchored retail center located in North Las Vegas, Nevada. The loan became delinquent and transferred to special servicing in October 2018 following the closure of the former largest tenant, Toys R Us (65,705 SF, 34% of the NRA). A Receiver was appointed in July 2019 and is working with the property manager to renew upcoming lease expirations and lease up vacant spaces. The special servicer indicated that renewals for PetSmart, Staples and Ross Dress For Less have been executed and an LOI was received from 24 Hour Fitness expressing interest in approximately 32,000 SF of the former Toys R Us space. As of June 2020 rent roll, the property was 66% leased, compared to 64% in January 2020, 63% in December 2018 and 91% at securitization. As of the November remittance data the loan was last paid through its December 2019 payment date. The special servicer commentary indicates the property will be marketed for sale through receivership once lease amendments have been executed and an undeveloped pad site is sold.
The remaining two specially serviced loans are secured by an anchored retail center, located in Winter Haven, FL and a full-service hotel located in Katy, TX.
Moody's has also assumed a high default probability for two poorly performing loans, constituting 2.3% of the pool, that have all experienced declines in performance based on their 2019 financial reporting. The loans are secured by multifamily properties located in Grand Forks, ND.
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 full or partial year 2020 operating results for 94% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 96%, compared to 102% 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 23% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.4%.
Moody's actual and stressed conduit DSCRs are 1.47X and 1.11X, respectively, compared to 1.41X and 1.05X 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 29% of the pool balance. The largest loan is the Merrimack Premium Outlets Loan ($116.6 million -- 12.8% of the pool), which is secured by a 409,000 SF outlet center located in Merrimack, NH, approximately ten miles north of the Massachusetts/ New Hampshire border. The property was developed in 2012 by Simon Property Group. As of June 2020, the property was 95% leased, compared to 96% in December 2019 and 100% at securitization. The property benefits from limited competition and is considered to be the dominant shopping center in its trade area. Through year-end 2019 the property's NOI was nearly 28% above securitization levels and the 2019 NOI DSCR was 2.24X. The loan remains current and has amortized 10% since securitization. Moody's LTV and stressed DSCR are 98% and 1.05X, respectively, compared to 96% and 1.04X at the last review.
The second largest loan is the 15 MetroTech Center Loan ($75.7 million -- 8.3% of the pool), which is secured by a 19-story, Class A office building containing approximately 650,000 square feet (SF) of net rentable area located in Brooklyn, New York. The loan represents a pari-passu portion of a $143.0 million mortgage loan. It is one of seven Class A buildings situated within the MetroTech Center, all of which are owned by the sponsor. The property was built in 2003 and contains a two-level below-grade parking garage offering 113 spaces. As of the September 2020 rent roll, the property was 65% leased, compared to 98% in December 2019. The decrease in leased space is due to one of the tenants, WellPoint Inc. vacating the property at lease expiration in June 2020. Three new leases have been signed by the NYS Department of Taxation and Finance, Magellan Health and Slate. The loan also benefits from amortization and has paid down 16% since securitization. Moody's analysis takes into account the recent leasing activity and Moody's LTV and stressed DSCR are 89% and 1.09X, respectively, compared to 90% and 1.08X at the last review.
The third largest loan is the City Creek Center Loan ($73.7 million -- 8.1% of the pool), which is secured by a 348,537 SF portion of a 628,934 SF regional mall located in Salt Lake City, Utah. City Creek Center opened in March 2012 and is part of a $1.5 billion mixed-used redevelopment of downtown Salt Lake City. In addition to the subject property, the development contains 2.1 million SF of office space, 800 multi-family units and a 4,000-space subterranean garage (not part of the collateral). The property's non-collateral anchors include Macy's and Nordstrom. The borrower owns a leasehold interest in the majority of the collateral and a fee interest in three restaurants. The ground-lease is with the Church of Latter-day Saints with an initial term of 30 years through March 21, 2042 and four additional 10-year options. As of June 2020, the in-line occupancy was 98%, compared to 99% as of February 2020. As part of its bankruptcy filing in September 2019, Forever 21 (38,225 SF, 11% of the NRA), included this location as one of its underperforming stores will close. The Forever 21 location remains open but has a lease expiration in January 2022.The property's 2019 NOI was 19% lower than securitization levels primarily due to higher expenses. The property represents the dominant regional mall within the trade area and is centrally located in the Salt Lake City CBD. The loan sponsor is Taubman Realty Group LP and Simon Property Group has recently executed a merger agreement to acquire an 80% stake in Taubman Centers. The loan has amortized 13% since securitization and Moody's LTV and stressed DSCR are 97% and 1.00X, respectively, compared to 96% and 0.99X 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.
Suzanna Sava Vice President - Senior 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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